Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
AMERIQUEST MORTGAGE SECURITIES INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation
or Organization)
33-0885129
(I.R.S. Employer Identification No.)
1100 Town & Country Road
Orange, California 92868
(714) 541-9960
(Address, Including Zip Code, and
Telephone Number, Including Area
Code, of Registrant's Principal
Executive Offices)
Aseem Mital
Ameriquest Mortgage Securities Inc.
1100 Town & Country Road
Orange, California 92868
(714) 541-9960
(Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent For Service)
----------------
Copies to:
Kathryn Cruze, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
<PAGE>
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
====================================================================================================================
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registered registered(1) unit (1) price (1) fee (2)
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Mortgage Pass-Through Certificates
and Mortgage-Backed Notes, issued
in Series............................... $1,000,000.00 100% $1,000,000.00 $264.00 (3)
====================================================================================================================
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee on
the basis of the proposed maximum aggregate offering price.
(2) Calculated in reliance upon 457(o).
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
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CROSS REFERENCE SHEET FURNISHED PURSUANT TO RULE 404(a)
Items and Captions in Form S-3 Location in Prospectuses
------------------------------ ------------------------
<S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................................. Forepart of Registration
Statement and Outside Front
Cover Page of
Prospectuses**
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................................... Inside Front Cover Page of
Prospectuses and Outside
Back Cover Page of
Prospectuses**
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges...................................... Summaries of Prospectus;
Special Considerations
4. Use of Proceeds................................................ Use of Proceeds**
5. Determination of Offering Price................................ *
6. Dilution....................................................... *
7. Selling Security Holders....................................... *
8. Plan of Distribution........................................... Method of Distribution**
9. Description of Securities to Be Registered..................... Outside Front Cover Page;
Summaries of Prospectus;
Description of the Trust
Funds; Description of the
Certificates**
10. Interests of Named Experts and Counsel......................... *
11. Material Changes............................................... Financial Information
12. Incorporation of Certain Information by Reference.............. Incorporation of Certain
Information by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities................. See page II-2
</TABLE>
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* Answer negative or item inapplicable.
** To be completed or provided from time to time by Prospectus Supplement.
<PAGE>
EXPLANATORY NOTE
This Registration Statement consists of (i) a basic
prospectus, (ii) an illustrative form of prospectus supplement for use in an
offering of Mortgage Pass-Through Certificates consisting of senior/subordinate
certificates ("Version 1"), (iii) an illustrative form of prospectus supplement
for use in an offering a series of Mortgage Pass-Through Certificates with
various combinations of credit support ("Version 2"), and (iv) an illustrative
form of prospectus supplement for use in an offering of Mortgage-Backed Notes
("Version 3").
<TABLE>
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Contents of Registration Statement
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Page
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<S> <C> <C>
Forms of Prospectus Supplement:
Version 1: Form of Prospectus Supplement relating to
a typical Senior/Subordinate Series............................................. S-1
Version 2: Form of Prospectus Supplement relating to
Certificates with various combinations
of Credit Support............................................................... S-1
Version 3: Form of Prospectus Supplement relating to
an offering of Mortgage-Backed Notes............................................ S-1
Basic Prospectus....................................................................................... 1
</TABLE>
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, Dated January 11, 2000
[Version 1]
Prospectus Supplement (to Prospectus dated , ____)
$_______________ (APPROXIMATE)
AQ FLOATING RATE MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-
AMERIQUEST MORTGAGE SECURITIES INC.
DEPOSITOR
[NAME OF MASTER SERVICER]
MASTER SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
This prospectus supplement, together with the accompanying prospectus will
constitute the complete prospectus.
- --------------------------------------------------------------------------------
OFFERED CERTIFICATES The trust created for the series _____-__
certificates will hold a pool of one- to four-family,
adjustable rate, residential first mortgage loans.
The trust will issue ______ classes of offered
certificates. You can find a list of these classes,
together with their principal balances, pass-through
rates and other characteristics, on Page S-__ of this
prospectus supplement. Credit enhancement for the
offered certificates will be provided by the Class
A-2 Certificates and ______ classes of subordinated
Class M Certificates. Each class of Class M
Certificates is subordinated to the senior
certificates and any Class M Certificates with a
higher payment priority.
UNDERWRITING _______________________, as underwriter, will offer
to the public the Class A-1 Certificates, the Class
A-2 Certificates, the Class M-1 Certificates, the
Class M-2 Certificates and the Class M-3 Certificates
at varying prices to be determined at the time of
sale. The proceeds to the depositor from the sale of
the underwritten certificates will be approximately
_____% of the principal balance of the underwritten
certificates plus accrued interest, before deducting
expenses. See "Method of Distribution".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY 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.
------------------------------
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
Ameriquest Mortgage Securities Inc.'s principal offices are located at 1100 Town
& Country Road, Orange, California 92868 and its phone number is (___) ________.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
<S> <C>
Summary of Prospectus Supplement........................................................................................S-3
Risk Factors............................................................................................................S-9
Use of Proceeds........................................................................................................S-15
The Mortgage Pool......................................................................................................S-15
Yield on The Certificates..............................................................................................S-25
Description of the Certificates........................................................................................S-34
The Mortgage Loan Seller...............................................................................................S-52
Pooling and Servicing Agreement........................................................................................S-52
Federal Income Tax Consequences........................................................................................S-59
Method of Distribution.................................................................................................S-61
Secondary Market.......................................................................................................S-62
Legal Opinions.........................................................................................................S-62
Legal Investment.......................................................................................................S-63
ERISA Considerations...................................................................................................S-64
</TABLE>
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES
OFFERED BY THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO
UNDERSTAND ALL OF THE TERMS OF THE OFFERED CERTIFICATES, READ CAREFULLY THIS
ENTIRE PROSPECTUS SUPPLEMENT AND THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series................AQ Floating Rate Mortgage Pass-Through
Certificates, Series ____-_.
Cut-off Date...................__________ __, ____.
Closing Date...................On or about __________ __, ____.
Depositor......................Ameriquest Mortgage Securities Inc. The depositor
will deposit the mortgage loans into the trust.
The depositor's principal offices are located at
1100 Town & Country Road, Orange, California
92868 and its telephone number is (___) ______.
SEE "THE DEPOSITOR" IN THE PROSPECTUS.
Mortgage Loan Seller...........__________________. SEE "THE MORTGAGE LOAN
SELLER" IN THIS PROSPECTUS SUPPLEMENT.
Master Servicer and
Originator.............. __________________. SEE "THE MORTGAGE
POOL--UNDERWRITING STANDARDS OF _________ ANd
REPRESENTATIONS CONCERNING THE MORTGAGE LOANS"
AND "POOLING AND SERVICING AGREEMENT--THE MASTER
SERVICER" IN THIS PROSPECTUS SUPPLEMENT.
Trustee........................__________________. SEE "POOLING AND SERVICING
AGREEMENT--THE TRUSTEE" IN THIS PROSPECTUS
SUPPLEMENT.
Distribution Dates.............Distributions on the offered certificates will be
made on the __ day of each month, or, if that day
is not a business day, on the next succeeding
business day, beginning in ------ ----.
Offered Certificates...........Only the certificates listed in the immediately
following table are being offered by this
prospectus supplement. Each class of offered
certificates and their pass-through rates and
certificate principal balances are set forth in
the immediately following table.
S-3
<PAGE>
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PASS-THROUGH INITIAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE RATE CLASS PRINCIPAL BALANCE RATE
- --------------- ----------------------- ------------------ ------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C>
A-1............ $_________ Variable M-2 . . . . . $---------- Variable
A-2............ $_________ Variable M-3. . . . . $---------- ____%
M-1............ $_________ Variable
</TABLE>
The initial certificate principal balance of each class of certificates listed
in the immediately preceding table is approximate. The pass-through rate on each
class of certificates (other than the Class M-3 Certificates) is generally based
on one-month LIBOR plus an applicable spread, subject to a rate cap equal to the
weighted average of the net mortgage rates of the mortgage loans as described in
this prospectus supplement.
THE TRUST
The depositor will establish a trust with respect to the certificates, under the
pooling and servicing agreement dated as of __________ __, ____ among the
depositor, the master servicer and the trustee. There are _____ classes of
certificates representing the trust. SEE "DESCRIPTION OF THE CERTIFICATES" IN
THIS PROSPECTUS SUPPLEMENT.
The certificates represent in the aggregate the entire beneficial ownership
interest in the trust. Distributions of interest and principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described in the next section.
THE MORTGAGE LOANS
The trust will contain approximately _____ [conventional] [sub-prime]
[nonconforming], one- to four-family, adjustable-rate mortgage loans secured by
first liens on residential real properties. The mortgage loans have an aggregate
principal balance of approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____.
Approximate range of _____% to _____%.
mortgage rates:
Approximate weighted ______%.
average mortgage rate:
Approximate range of _____% to _____%.
gross margins:
Approximate weighted _____%.
average gross margin:
Approximate range of _____% to _____%.
minimum mortgage
rates:
Approximate weighted _____%.
average minimum
mortgage rate:
Approximate range of _____% to _____%.
maximum mortgage
rates:
Approximate weighted _____%.
average maximum
mortgage rate:
Approximate weighted ___ years and ___
average remaining term months.
to stated maturity:
Approximate range of $__________ to
principal balances: $____________.
Average principal $_____________.
balance:
Approximate range of _____% to _____%.
loan-to-value ratios:
S-4
<PAGE>
Approximate weighted ______%.
average loan-to-value
ratio:
Approximate _____% to _____%.
weighted average
next adjustment date
The interest rate on each mortgage loan will adjust semi-annually on each
adjustment date to equal the sum of six-month LIBOR and the related gross
margin, subject to periodic and lifetime limitations, as described herein.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
PRE-FUNDING ACCOUNT AND SUBSEQUENT MORTGAGE LOANS
On or before ________, the depositor will sell subsequent mortgage loans to be
included in the trust fund. On the closing date, the Depositor will pay to the
trustee approximately $__________ which will be held by the trustee in the
pre-funding account.
The amount on deposit in the pre-funding account will be reduced by the amount
used to purchase subsequent mortgage loans during the period from the closing
date up to and including ____________. Any amounts remaining in the pre-funding
account after ______________ will be distributed on the next distribution date
to the holders of the Class A-1 Certificates. SEE "THE MORTGAGE POOL--CONVEYANCE
OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNT" IN THIS PROSPECTUS
SUPPLEMENT.
INTEREST COVERAGE ACCOUNT
On the closing date, the depositor will pay to the trustee for deposit in the
interest coverage account, an amount as specified in the pooling and servicing
agreement. Funds on deposit in the interest coverage account will be applied by
the trustee to cover shortfalls in the amount of interest generated by the
assets of the trust fund attributable to the pre-funding feature during the
funding period. SEE "DESCRIPTION OF THE CERTIFICATES--INTEREST COVERAGE ACCOUNT"
IN THIS PROSPECTUS SUPPLEMENT.
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table appearing on page S-__ in this prospectus supplement. The
pass-through rate on the offered certificates (other than the Class M-3
Certificates) is variable and will be calculated for each distribution date as
described under the definition of pass-through rate contained in "Description of
the Certificates--Glossary of Terms" in this prospectus supplement.
The offered certificates will be sold by the depositor to the underwriter on the
closing date.
The offered certificates will initially be represented by one or more global
certificates registered in the name of CEDE & Co., as nominee of DTC in minimum
denominations of $[10,000] and integral multiples of $[1.00] in excess of the
minimum denominations. SEE "DESCRIPTION OF THE CERTIFICATES --REGISTRATION OF
THE BOOK-ENTRY CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
CLASS CE CERTIFICATES. The Class CE Certificates are one of the ____ classes of
certificates representing the trust, but are not offered by this prospectus
supplement. The Class CE Certificates will have an initial certificate principal
balance of approximately
S-5
<PAGE>
$_______, which is equal to the initial overcollateralization required by the
pooling and servicing agreement. The Class CE Certificates initially evidence an
interest of approximately ___% in the trust. The Class CE Certificates will be
delivered to a wholly-owned bankruptcy remote subsidiary of the depositor as
partial consideration for the mortgage loans.
CLASS P CERTIFICATES. The Class P certificates are one of the ___ classes of
each certificates representing the trust, but are not offered by this prospectus
supplement. The Class P Certificates will have an initial certificate principal
balance of $[100] and will not be entitled to distributions in respect of
interest. The Class P Certificates will be entitled to all prepayment charges
received in respect of the mortgage loans. The Class P Certificates will be
delivered to a wholly-owned bankruptcy remote subsidiary of the depositor as
partial consideration for the mortgage loans.
RESIDUAL CERTIFICATES. The Class R-I Certificates, the Class R-II Certificates
and the Class R-III Certificates are the classes of certificates representing
the residual interests in the trust, but are not offered by this prospectus
supplement. The Class R-I Certificates, the Class R-II Certificates and the
Class R-III Certificates will be delivered to a wholly-owned bankruptcy remote
subsidiary of the depositor as partial consideration for the mortgage loans.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of subordination and overcollateralization.
SUBORDINATION. The rights of the holders of the Class A-2 Certificates, the
Class M Certificates and the Class CE Certificates to receive distributions will
be subordinated, to the extent described in this prospectus supplement, to the
rights of the holders of the Class A-1 Certificates.
The rights of the holders of the Class M Certificates and Class CE Certificates
will be subordinated to the rights of the holders of the Class A-2 Certificates.
In addition, the rights of the holders of the Class M Certificates with higher
numerical class designations will be subordinated to the rights of holders of
the certificates with lower numerical class designations, and the rights to the
holders of the Class CE Certificates will be subordinated to the rights to the
holders of the Class M Certificates to the extent described in this prospectus
supplement.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior certificates in respect of interest and principal and to afford
the certificates protection against realized losses on the mortgage loans as
described in the next section. SEE "DESCRIPTION OF THE CERTIFICATES--ALLOCATION
OF LOSSES" IN THIS PROSPECTUS SUPPLEMENT.
OVERCOLLATERALIZATION. The sum of the aggregate principal balance of the initial
mortgage loans as of the cut-off date and the original pre-funded amount will
exceed the aggregate certificate principal balance of the offered certificates
and the Class P Certificates on the closing date by approximately $__________,
which is equal to the initial certificate principal balance of the Class CE
Certificates. Such amount represents approximately ____% of the sum of the
aggregate principal balance of the initial mortgage loans as of the cut-off date
and the
S-6
<PAGE>
original pre-funded amount, and is the initial amount of overcollateralization
required to be provided by the mortgage pool under the pooling and servicing
agreement. SEE "DESCRIPTION OF THE CERTIFICATES--OVERCOLLATERALIZATION
PROVISIONS" IN THIS PROSPECTUS SUPPLEMENT.
ALLOCATION OF LOSSES. If, on any distribution date, there is not sufficient
excess interest or overcollateralization to absorb realized losses on the
mortgage loans then realized losses on the mortgage loans will be allocated to
the Class A-2 Certificates and the Class M Certificates as described below.
If realized losses on the mortgage loans are allocated to the Class A-2
Certificates and the Class M Certificates, such losses will be allocated first,
to the Class M-3 Certificates, second, to the Class M-2 Certificates, third, to
the Class M-1 Certificates and fourth, to the Class A-2 Certificates. The
pooling and servicing agreement does not permit the allocation of realized
losses on the mortgage loans to the Class A-1 Certificates or the Class P
Certificates; however, investors in the Class A-1 Certificates should realize
that under certain loss scenarios there will not be enough principal and
interest on the mortgage loans to pay the Class A-1 Certificates all interest
and principal amounts to which such certificates are then entitled. Once
realized losses are allocated to the Class A-2 Certificates and the Class M
Certificates, their certificate principal balances will be permanently reduced
by the amount so allocated. SEE "DESCRIPTION OF THE
CERTIFICATES--OVERCOLLATERALIZATION PROVISIONS" AND --ALLOCATION OF LOSSES;
SUBORDINATION" IN THIS PROSPECTUS SUPPLEMENT.
P&I ADVANCES
The master servicer is required to advance delinquent payments of principal and
interest on the mortgage loans, as described in this prospectus supplement. The
master servicer is entitled to be reimbursed for these advances, and therefore
these advances are not a form of credit enhancement. SEE "DESCRIPTION OF THE
CERTIFICATES--P&I ADVANCES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF
THE SECURITIES--ADVANCES BY MASTER SERVICER IN RESPECT OF DELINQUENCIES ON THE
TRUST FUND ASSETS" IN THE PROSPECTUS.
OPTIONAL TERMINATION
At its option, the majority holder of the Class CE Certificates (or if such
holder does not exercise such option, the master servicer) may purchase all of
the mortgage loans, together with any properties in respect of the mortgage
loans acquired on behalf of the trust, and thereby effect termination and early
retirement of the certificates, after the aggregate principal balance of the
mortgage loans, and properties acquired in respect of the mortgage loans,
remaining in the trust has been reduced to less than [10%] of the sum of the
aggregate principal balance of the mortgage loans as of __________ __, ____ and
the original pre- funded amount. SEE "POOLING AND SERVICING AGREEMENT--
TERMINATION" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--
TERMINATION OF THE TRUST FUND AND DISPOSITION OF TRUST FUND ASSETS" IN THE
PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the trust
(exclusive of the pre-funding account and the interest coverage account) as real
estate mortgage investment conduits for federal income tax purposes. SEE
"FEDERAL INCOME TAX CONSEQUENCES--REMIC'S--CHARACTERIZATION OF INVESTMENTS IN
REMIC CERTIFICATES" IN THE PROSPECTUS.
S-7
<PAGE>
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive the following ratings from [______________] and
[______________]:
OFFERED
CERTIFICATES [RA] [RA]
- ------------ ---- ----
Class A-1 AAA AAA
Class A-2 AAA AAA
Class M-1 AA AA
Class M-2 A A
Class M-3 BBB BBB
A security rating does not address the frequency of prepayments on the mortgage
loans or the corresponding effect on yield to investors. SEE "YIELD ON THE
CERTIFICATES" AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD AND
MATURITY CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The Class A-1 Certificates, the Class A-2 Certificates and the Class M-1
Certificates will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 until such time as the
balance of the pre- funding account is reduced to zero. At such time, the Class
A-1 Certificates, the Class A-2 Certificates and the Class M-1 Certificates will
constitute "mortgage related securities" for purposes of SMMEA for so long as
they are rated not lower than the second highest rating category by one or more
nationally recognized statistical rating organizations and, as such, will be
legal investments for certain entities to the extent provided in SMMEA and
applicable state laws.
The Class M-2 Certificates and the Class M-3 Certificates will not constitute
"mortgage related securities" for purposes of SMMEA. SEE "LEGAL INVESTMENT" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption to the
underwriter. This exemption will only apply to the Class A-1 Certificates,
provided that the conditions set forth under "Considerations for Benefit Plan
Investors" in the prospectus are satisfied. ACCORDINGLY, THE OTHER CLASSES OF
CERTIFICATES MAY NOT BE ACQUIRED BY OR ON BEHALF OF A PLAN EXCEPT AS DESCRIBED
IN THIS PROSPECTUS SUPPLEMENT. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "CONSIDERATIONS FOR BENEFIT PLAN INVESTORS" IN THE PROSPECTUS.
S-8
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors. In
particular, you should not purchase the offered certificates unless you
understand and are able to bear the prepayment, credit, liquidity and market
risks associated with these securities.
You should carefully consider the following factors in connection with the
purchase of the offered certificates:
[APPROPRIATE RISK FACTORS AS NECESSARY]
[THE MORTGAGE LOANS WERE UNDERWRITTEN TO STANDARDS WHICH DO NOT CONFORM TO THE
STANDARDS OF FANNIE MAE OR FREDDIE MAC WHICH MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS ALLOCATED TO YOUR CERTIFICATES.
The originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of the property
as collateral for the mortgage loan. The originator provides loans primarily to
borrowers who do not qualify for loans conforming to Fannie Mae and Freddie Mac
guidelines but who do have equity in their property. While the originator's
primary consideration in underwriting a mortgage loan is the value of the
mortgaged property, the originator also considers, among other things, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the mortgaged property. The originator's
underwriting standards do not prohibit a mortgagor from obtaining secondary
financing at the time of origination of the originator's first lien, which
secondary financing would reduce the equity the mortgagor would otherwise have
in the related mortgaged property as indicated in the originator's loan-to-value
ratio determination.
As a result of the underwriting standards described in the immediately
preceding paragraph, the mortgage loans in the mortgage pool are likely to
experience rates of delinquency, foreclosure and bankruptcy that are higher, and
that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITINg STANDARDS OF __________ AND REPRESENTATIONS
CONCERNING THE MORTGAGE LOANS" IN THIS PROSPECTUS SUPPLEMENT].
S-9
<PAGE>
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL HAVE HIGH
LOAN-TO-VALUE RATIOS, SO THAT THE RELATED BORROWER HAS LITTLE OR NO EQUITY IN
THE RELATED MORTGAGED PROPERTY, WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE
MORTGAGE LOANS ALLOCATED TO YOUR CERTIFICATES.
Approximately _____% of the initial mortgage loans, by aggregate principal
balance as of _______ __, ____, had a loan-to-value ratio at origination in
excess of 80%. No initial mortgage loan in the mortgage pool with a
loan-to-value ratio at origination in excess of 80% will be covered by a primary
mortgage insurance policy. No initial mortgage loan will have a loan-to-value
ratio exceeding __% at origination. Mortgage loans with higher loan-to-value
ratios may present a greater risk of loss in that an overall decline in the
residential real estate market, a rise in interest rates over a period of time
and the condition of a mortgaged property, as well as other factors, may have
the effect of reducing the value of the mortgaged property from the appraised
value at the time the mortgage loan was originated. If there is a reduction in
value of the mortgaged property, the loan-to-value ratio may increase over what
it was at the time the mortgage loan was originated. This increase may reduce
the likelihood of liquidation or other proceeds being insufficient to satisfy
the mortgage loan and any losses, to the extent not covered by the credit
enhancement, may affect the yield to maturity or your certificates. Furthermore,
investors should note that the value of the mortgaged property may be
insufficient to cover the outstanding balance of the certificates. There can be
no assurance that the loan-to-value ratio of any mortgage loan determined at any
time after origination is less than or equal to its original loan-to-value
ratio.
[APPROXIMATELY ____% OF THE INITIAL MORTGAGE LOANS IN THE MORTGAGE POOL ARE
DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS.
Approximately ____% of the initial mortgage loans, by aggregate principal
balance as of _______ __, ____, were thirty days or more but less than sixty
days delinquent in their monthly payments as of ______ __, ____. Approximately
____% of the initial mortgage loans, by aggregate principal balance as of
_______ __, ____, were sixty days or more but less than ninety days delinquent
in their monthly payments as of the _______ __, ____. However, investors in the
mortgage loans should realize that approximately _____% of the initial mortgage
loans, by aggregate principal balance as of _______ __, ____, have a first
payment date occurring on or after _______ __, ____ and, therefore, these
mortgage loans could not have been delinquent as of _______ __, ____].
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL ARE CONCENTRATED
IN THE STATE OF [NAME OF STATE], WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS.
Approximately ___% of the initial mortgage loans are in the state of
[Name of State.] Investors should note that some geographic regions of the
United States from time to time will experience weaker regional economic
conditions and housing markets causing a decline in property values in those
areas, and consequently, will experience higher rates of loss and delinquency
than will be experienced on mortgage loans located in other geographic regions.
A region's economic condition and housing market may be directly, or indirectly,
adversely affected by a number of factors including natural disasters or civil
disturbances such as earthquakes, hurricanes, floods, eruptions or riots. The
economic impact of any of these types of events may also be felt in areas beyond
the region immediately affected by the disaster or disturbance. A concentration
of mortgage
S-10
<PAGE>
loans in the trust fund in a region experiencing a deterioration in economic
conditions or a decline in real estate values may expose your certificates to
losses in addition to those present for similar mortgage-backed securities
without this concentration. The depositor cannot assure you that the values of
the mortgaged properties have remained or will remain at the appraised values on
the dates of origination of the mortgage loans. Any deterioration of economic
conditions in [name of state] which adversely affects the ability of borrowers
to make payments on the mortgage loans may increase the likelihood of
delinquency and foreclosure of the mortgage loans that may result in losses
that, to the extent not covered by the [credit enhancement] will be allocated to
your certificates.
[THE SUBSEQUENT MORTGAGE LOANS MAY HAVE DIFFERENT CHARACTERISTICS THAN THE
INITIAL MORTGAGE LOANS
The subsequent mortgage loans may have characteristics different from those
of the initial mortgage loans. However, each subsequent mortgage loan must
satisfy the eligibility criteria referred to in this prospectus supplement under
"The Mortgage Pool--Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Account" at the time of its conveyance to the trust fund and be underwritten in
accordance with the criteria set forth under "The Mortgage Pool--Underwriting
Standards of ____________ and Representations concerning the Mortgage Loans" in
this prospectus supplement.]
[THE CLASS A-1 CERTIFICATES MAY RECEIVE A PREPAYMENT OF PRINCIPAL AS A RESULT OF
EXCESS FUNDS IN THE PRE-FUNDING ACCOUNT
To the extent that amounts on deposit in the pre-funding account have not
been fully applied to the purchase of subsequent mortgage loans by the end of
the funding period, the holders of the Class A-1 Certificates will receive on
the distribution date immediately following the end of the funding period, any
amounts in the pre-funding account after giving effect to any purchase of
subsequent mortgage loans, as further described in this prospectus supplement.
Although no assurance can be given, the depositor intends that the principal
amount of subsequent mortgage loans sold to the trust fund will require the
application of substantially all amounts on deposit in the pre- funding account
and that there will be no material principal payment to the holders of the Class
A-1 Certificates on such distribution date.]
[YOUR CERTIFICATES WILL BE LIMITED OBLIGATIONS SOLELY OF THE TRUST FUND AND NOT
OF ANY OTHER PARTY.
The certificates will not represent an interest in or obligation of the
depositor, the master servicer, the mortgage loan seller, the trustee or any of
their respective affiliates. Neither the certificates nor the underlying
mortgage loans will be guaranteed or insured by any governmental agency or
instrumentality, or by the depositor, the master servicer, the trustee or any of
their respective affiliates. Proceeds of the assets included in the trust will
be the sole source of payments on the offered certificates, and there will be no
recourse to the depositor, the master servicer, the mortgage loan seller, the
trustee or any other entity in the event that these proceeds are insufficient or
otherwise unavailable to make all payments provided for under the offered
certificates].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON YOUR CERTIFICATES WILL BE
AFFECTED BY THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS.
S-11
<PAGE>
The rate and timing of distributions allocable to principal on the offered
certificates will depend on the rate and timing of principal payments, including
prepayments and collections upon defaults, liquidations and repurchases, on the
mortgage loans and the allocation to pay principal on these certificates as
provided in this prospectus supplement. As is the case with mortgage
pass-through certificates, the offered certificates are subject to substantial
inherent cash-flow uncertainties because the mortgage loans may be prepaid at
any time. However, with respect to approximately _____% of the mortgage loans,
by aggregate principal balance as of ________ __, ____, a full and voluntary
prepayment may subject the related mortgagor to a prepayment charge. A
prepayment charge may or may not act as a deterrent to prepayment of the related
mortgage loan. SEE "THE MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT.
Distributions of principal will be made to the holders of the Class A-2
Certificates, the Class M-1 Certificates, the Class M-2 Certificates and the
Class M-3 Certificates according to the priorities described in this prospectus
supplement. The timing of commencement of principal distributions and the
weighted average life of each such class of certificates will be affected by the
rates of prepayment on the mortgage loans experienced both before and after the
commencement of principal distributions on such class.
FOR FURTHER INFORMATION REGARDING THE EFFECT OF PRINCIPAL PREPAYMENTS ON
THE WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES, SEE "YIELD ON THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT, INCLUDING THE TABLE ENTITLED
"PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF THE PREPAYMENT ASSUMPTION".
[THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS WILL VARY DEPENDING ON FUTURE
MARKET CONDITIONS WHICH COULD IMPACT THE RATE AND TIMING OF PRINCIPAL
DISTRIBUTIONS ON YOUR CERTIFICATES.
In most cases, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. A decrease in the prepayment rates on
the mortgage loans will result in a reduced rate of return of principal to
investors in the offered certificates at a time when reinvestment at these
higher prevailing rates would be desirable. Conversely, when prevailing interest
rates are declining, prepayment rates on mortgage loans tend to increase. An
increase in the prepayment rates on the mortgage loans will result in a greater
rate of return of principal to investors in the offered certificates, at time
when reinvestment at comparable yields may not be possible.
[THE YIELD ON YOUR CERTIFICATES WILL VARY DEPENDING ON THE RATE OF PREPAYMENTS.
The yield to maturity on the offered certificates will depend on:
o with respect to each class of offered certificates other than the Class
M-3 certificates, the applicable pass-through rate thereon from time to
time;
o the applicable purchase price; and
S-12
<PAGE>
o the rate and timing of principal payments, including prepayments and
collections upon defaults, liquidations and repurchases, on the related
mortgage loans and the allocation to reduce the certificate principal
balance as well as other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation to the offered certificates of interest shortfalls on
the mortgage loans.
If the offered certificates are purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if the offered certificates are
purchased at a discount and principal distributions thereon occur at a rate
slower than that anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered certificates
were determined based on a number of assumptions, including a prepayment
assumption of ____% of the standard prepayment assumption, and weighted average
lives corresponding to the prepayment assumption. No representation is made that
the mortgage loans will prepay at that rate or at any other rate, or that the
mortgage loans will prepay at the same rate. The yield assumptions for the
offered certificates will vary as determined at the time of sale. SEE "YIELD ON
THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT].
[THE YIELD ON YOUR CERTIFICATES WILL BE AFFECTED BY THE SPECIFIC TERMS THAT
APPLY TO THAT CLASS, DISCUSSED IN THIS RISK FACTOR.
Because distributions of principal will be made to the holders of the Class
A-2 Certificates and the Class M Certificates according to the priorities
described in this prospectus supplement, the yield to maturity on such classes
of certificates will be sensitive to the rates of prepayment on the mortgage
loans experienced both before and after the commencement of principal
distributions on such classes. The yield to maturity on such classes of
certificates will also be extremely sensitive to losses due to defaults on the
mortgage loans (and the timing thereof), to the extent such losses are not
covered by excess cash flow otherwise payable to the Class CE Certificates and
(i) with respect to the Class A-2 Certificates, the Class M Certificates or (ii)
with respect to the Class M Certificates, a class of Class M Certificates with a
higher numerical class designation. Furthermore, as described in this prospectus
supplement, the timing of receipt of principal and interest by the Class A-2
Certificates and the Class M Certificates may be adversely affected by losses
even if such classes of certificates do not ultimately bear such loss.]
[VIOLATION OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS AND YOUR CERTIFICATES.
Applicable state laws regulate interest rates and other charges, require
disclosure, and require licensing of the originator. In addition, other state
laws, public policy and principles of equity relating to the protection of
consumers, unfair and deceptive practices and debt collection practices may
apply to the origination, servicing and collection of the mortgage loans.
S-13
<PAGE>
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require disclosures to the borrowers regarding
the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience;
o the Depository Institutions Deregulation and Monetary Control Act
of 1980, which preempts certain state usury laws; and
o the Alternative Mortgage Transaction Parity Act of 1982, which
preempts certain state lending laws which regulate alternative
mortgage transactions.
Approximately ____% of the mortgage loans, by aggregate principal balance
as of _______ __, ____, will be subject to the Riegle Community Development and
Regulatory Improvement Act of 1994, or the Riegle Act, which incorporates the
Home Ownership and Equity Protection Act of 1994. The Riegle Act adds additional
provisions to Regulation Z, which is the implementing regulation of the Federal
Truth-in-Lending Act. These provisions impose additional disclosure and other
requirements on creditors with respect to non-purchase money mortgage loans with
high interest rates or high up-front fees and charges. In most cases, mortgage
loans covered by the Riegle Act have annual percentage rates over 10% greater
than the yield on treasury securities of comparable maturity and fees and points
which exceed the greater of 8% of the total loan amount or $441, which amount is
adjusted annually based on changes in the consumer price index for the year. The
provisions of the Riegle Act apply on a mandatory basis to all applicable
mortgage loans originated on or after October 1, 1995. These provisions can
impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the related loans. In
addition, any assignee of the creditor would, in most cases, be subject to all
claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the originator
to damages and administrative enforcement.
The originator will represent that as of the closing date, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of this representation, it will be obligated to cure the
breach or repurchase or replace the affected mortgage loan in the
manner described in the prospectus].
S-14
<PAGE>
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE MASTER SERVICER TO
PERFORM ITS DUTIES.
As is the case with most companies using computers in their operations,
each of the master servicer and the trustee is faced with the task of completing
its compliance goals in connection with the year 2000 issue. The year 2000 issue
is the result of prior computer programs being written using two digits, rather
than four digits, to define the applicable year. Any of the master servicer's or
the trustee's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. Any occurrence of
this kind could result in major computer system failure or miscalculations. Each
of the master servicer and the trustee is presently engaged in various
procedures to ensure that its computer systems and software will be year 2000
compliant. However, in the event that the master servicer or the trustee, or any
of their respective suppliers, customers, brokers or agents do not successfully
and timely achieve year 2000 compliance, the performance of obligations of the
master servicer or the trustee, as the case may be, under the pooling and
servicing agreement could be materially adversely affected].
All capitalized terms used in this prospectus supplement will have the
meanings assigned to them under "Description of the Certificates--Glossary of
Terms" or in the prospectus under "Glossary."
USE OF PROCEEDS
The mortgage loan seller will sell the mortgage loans to the depositor and
the depositor will convey the mortgage loans to the trust fund in exchange for
and concurrently with the delivery of the certificates. Net proceeds from the
sale of the certificates will be applied by the depositor to the purchase of the
mortgage loans from the mortgage loan seller. These net proceeds will represent
the purchase price to be paid by the depositor to the mortgage loan seller for
the mortgage loans. The mortgage loans were previously purchased by the mortgage
loan seller either directly or indirectly from the originator.
THE MORTGAGE POOL
GENERAL DESCRIPTION OF THE MORTGAGE LOANS
References to percentages of the mortgage loans in the mortgage pool unless
otherwise noted are calculated based on the aggregate principal balance of the
mortgage loans as of ___________ __, ____, which date will also be referred to
in this prospectus supplement as the cut-off date.
The mortgage pool will initially consist of approximately _____
conventional, one- to four-family, adjustable-rate, fully-amortizing mortgage
loans secured by first liens on residential real properties and having an
aggregate principal balance as of the cut-off date, of approximately
$___________, after application of scheduled payments due on or before the
cut-off date whether or not received and subject to a permitted variance of plus
or minus 5%. The mortgage loans in the mortgage pool have original terms to
maturity of not greater than [30] years.
The statistical information presented in this prospectus supplement
describes only the initial mortgage loans and does not include the mortgage
loans to be purchased by the trust after the closing
S-15
<PAGE>
date. References to percentages of the mortgage loans, unless otherwise noted,
are calculated based on the aggregate principal balance of the initial mortgage
loans as of the cut-off date and do not include any subsequent mortgage loans.
Subsequent mortgage loans are intended to be purchased by the trust from
the depositor from time to time on or before _______________ from funds on
deposit in the pre-funding account. The subsequent mortgage loans, if available,
will be purchased by the depositor and sold by the depositor to the trust fund
for deposit in the mortgage pool. The pooling and servicing agreement will
provide that each mortgage loan in the mortgage pool must conform to certain
specified characteristics and, following the conveyance of the subsequent
mortgage loans, the mortgage pool must conform to certain specified
characteristics, as described below under "--Conveyance of Subsequent Mortgage
Loans and the Pre-Funding Account".
The mortgage loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties. The mortgaged properties in the mortgage pool consist of
attached, attached or semi-attached, one- to four-family dwelling units,
townhouses, individual condominium units, individual units in planned unit
developments and manufactured housing. The mortgage loans to be included in the
mortgage pool will be acquired by the depositor from the mortgage loan seller.
The mortgage loan seller, in its capacity as master servicer, will act as the
master servicer for the mortgage loans originated by it under the pooling and
servicing agreement.
All of the mortgage loans in the mortgage pool have scheduled monthly
payments due on the first day of the month and that day will be referred to in
this prospectus supplement as the due date. Each mortgage loan in the mortgage
pool will contain a customary due-on-sale clause.
The mortgage loans have mortgage rates subject to a semiannual adjustment
after an initial three-year period on the day of the month specified in the
related mortgage note to equal the sum, rounded to the nearest 0.125%, of (1) a
per annum rate equal to the average of interbank offered rates for six-month
U.S. dollar-denominated deposits in the London market based on quotations of
major banks as published in THE WALL STREET JOURNAL and as most recently
available as of the date specified in the related mortgage note, and (2) a fixed
percentage amount specified in the related mortgage note; provided, however,
that the mortgage rate will not increase or decrease on any adjustment date
after the initial adjustment date by more than 1%. All of the mortgage loans
provide that over the life of the mortgage loan the mortgage rate will in no
event be more than the fixed percentage set forth in the mortgage note.
Effective with the first payment due on a mortgage loan after each related
adjustment date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of the mortgage loan over its
remaining term, and pay interest at the mortgage rate as so adjusted.
If the six-month LIBOR index ceases to be published or is otherwise
unavailable, the master servicer will select an alternative index for mortgage
loans on comparable properties, based upon comparable information, over which it
has no control and which is readily verifiable by mortgagors.
None of the mortgage loans permit the related mortgagor to convert the
adjustable mortgage rate thereon to a fixed mortgage rate.
S-16
<PAGE>
Approximately _____% of the initial mortgage loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on prepayments.
Each mortgage loan in the mortgage pool that provides for the payment of a
prepayment charge provides for payment of a prepayment charge on partial or full
prepayments made within one year, five years or other designated period as
provided in the related mortgage note from the date of origination of the
particular mortgage loan. The amount of the prepayment charge is as provided in
the related mortgage note, and the prepayment charge will apply if, in any
twelve-month period during the first year, five years or other designated period
as provided in the related mortgage note from the date of origination of the
particular mortgage loan, the mortgagor prepays an aggregate amount exceeding
__% of the original principal balance of the particular mortgage loan. With
respect to _____% of these mortgage loans, the amount of the prepayment charge
will be equal to ___ months' advance interest calculated on the basis of the
mortgage rate in effect at the time of the prepayment on the amount prepaid in
excess of __% of the original principal balance of the mortgage loan for a
period of five years and one year, respectively. The Class P certificates will
be entitled to all prepayment charges received on the mortgage loans, and these
amounts will not be available for distribution on the certificates. Under those
circumstances described in the pooling and servicing agreement, the master
servicer may, in its discretion, waive the collection of any otherwise
applicable prepayment charge or reduce the amount of the prepayment charge
actually collected. Investors should conduct their own analysis as to the
effect, if any, that the prepayment charges and the decisions of the master
servicer with respect to the waiver of prepayment charges may have on the
prepayment performance of the mortgage loans. The depositor makes no
representation as to the effect that the prepayment charges, and the decisions
of the master servicer with respect to the waiver of the prepayment charges may
have on the prepayment performance of the mortgage loans.
The average principal balance of the initial mortgage loans at origination
was approximately $______. No initial mortgage loan had a principal balance at
origination of greater than approximately $_______ or less than approximately
$______. The average principal balance of the initial mortgage loans as of the
cut-off date was approximately $______. No initial mortgage loan had a principal
balance as of the cut-off date of greater than approximately $_______ or less
than approximately $______.
As of the cut-off date, the initial mortgage loans had mortgage rates
ranging from approximately _____% per annum to approximately ______% per annum
and the weighted average mortgage rate was approximately _____% per annum. The
weighted average remaining term to stated maturity of the initial mortgage loans
will be approximately __ years and __ months as of the cut-off date. None of the
initial mortgage loans will have its first payment due prior to ________ ____ or
after _________ ____, or will have a remaining term to maturity of less than __
years and __ months or greater than __ years as of the cut-off date. The latest
maturity date of any initial mortgage loan in the mortgage pool is ________
____.
The weighted average loan-to-value ratio at origination of the initial
mortgage loans was approximately ______%. No loan-to-value ratio at origination
was greater than approximately _____% or less than approximately ____%.
The following information sets forth in tabular format certain
characteristics of the initial mortgage loans as of the cut-off date.
S-17
<PAGE>
Principal Balances of the Initial Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Range ($) Loans as of Cut-off Date Cut-off Date
--------- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Mortgage Rates of the Initial Mortgage Loans as of the Cut-off Date:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Mortgage Number of Outstanding Outstanding as of the
Rate Loans as of Cut-off Date Cut-off Date
---- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Maximum Mortgage Rates of the Initial Mortgage Loans:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Maximum Principal Principal Balance
Mortgage Number of Outstanding Outstanding as of the
Rate Loans as of Cut-off Date Cut-off Date
---- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Minimum Mortgage Rates of the Initial Mortgage Loans:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Minimum Number of Outstanding Outstanding as of the
Mortgage Rate Loans as of Cut-off Date Cut-off Date
------------- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Gross Margins of the Initial Mortgage Loans:
S-18
<PAGE>
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Gross Margin Loans as of Cut-off Date Cut-off Date
------------ ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Original Loan-to-Value Ratios of the Initial Mortgage Loans:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Loan to Number of Outstanding Outstanding as of the
Value Ratio (%) Loans as of Cut-off Date Cut-off Date
--------------- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
Geographic Distribution of the Mortgaged Properties of the Initial Mortgage
Loans:
<TABLE>
<CAPTION>
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Location Loans as of Cut-off Date Cut-off Date
-------- ----- ------------------ ------------
<S> <C> <C> <C>
</TABLE>
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNT
Under and to the extent provided in the pooling and servicing, following
the initial issuance of the certificates, the trust fund will be obligated to
purchase from the depositor on or before _____________, subject to the
availability thereof, the subsequent mortgage loans. The subsequent mortgage
loans will be transferred to the trust fund pursuant to subsequent transfer
instruments between the depositor and the trust fund. In connection with the
purchase of subsequent mortgage loans on such dates of transfer, the trust fund
will be required to pay to the depositor from amounts on deposit in the
pre-funding account a cash purchase price of 100% of the principal balance
thereof. The depositor will designate the first day of the month in which the
related subsequent transfer date occurs as the cut-off date with respect to the
related subsequent mortgage loans. The amount paid from the pre-funding account
on each subsequent transfer date will not include accrued interest on the
related subsequent mortgage loans. Following each subsequent transfer date, the
aggregate principal balance of the mortgage loans in the mortgage pool will
increase by an amount equal to the
S-19
<PAGE>
aggregate principal balance of the related subsequent mortgage loans so
purchased and the amount in the pre-funding account will decrease accordingly.
A pre-funding account will be established by the trustee and funded on the
closing date by the depositor with approximately $___________, subject to a
permitted variance, as described herein, equal to the aggregate principal
balance of any of the initial mortgage loans which are added or removed from the
trust fund, to provide the trust fund with sufficient funds to purchase
subsequent mortgage loans, provided that the original pre-funded amount will not
exceed 25% of the aggregate initial certificate principal balance of the
certificates. The original pre-funded amount will be reduced during the funding
period by the amount used to purchase subsequent mortgage loans for the mortgage
pool in accordance with the pooling and servicing agreement. During the period
from the closing date until the earliest of (i) the date on which the amount on
deposit in the pre-funding account is reduced to zero or (ii) _______________,
such amount will be maintained in the pre-funding account.
Any conveyance of subsequent mortgage loans on a subsequent transfer date
is subject to certain conditions including, but not limited to, the following:
o each subsequent mortgage loan must satisfy the representations and
warranties specified in the subsequent transfer instrument and the
pooling and servicing agreement;
o the depositor will not select such subsequent mortgage loans in a
manner that it believes is adverse to the interests of the
certificateholders;
o the depositor will deliver opinions of counsel with respect to the
validity of the conveyance of such subsequent mortgage loans;
o each subsequent mortgage loan may not be 30 or more days
contractually delinquent as of the related subsequent cut-off
date;
o the original term to maturity of such subsequent mortgage loan
will not be less than ___ months and will not exceed ___ months;
o each subsequent mortgage loan may not provide for negative
amortization;
o each subsequent mortgage loan will not have an loan-to-value ratio
greater than 90%;
o each subsequent mortgage loan will have, as of the subsequent
cut-off date, a weighted average term since origination not in
excess of ____ months;
o no subsequent mortgage loan will have a mortgage rate less than
____% or greater than ___%;
o each subsequent mortgage loan will have been serviced by the
master servicer since origination or purchase by the depositor;
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<PAGE>
o each subsequent mortgage loan will have a first payment date not
later than ___________; and
o each subsequent mortgage loan will be underwritten in accordance
with the criteria set forth under "-Underwriting Standards of
__________ and Representations Concerning the Mortgage Loans".
In addition, following the purchase of all subsequent mortgage loans by the
trust fund, the mortgage loans (including the subsequent mortgage loans) will as
of the subsequent cut-off date:
o have a weighted average remaining term to stated maturity of not
more than ___ months and not less than ___ months;
o have a weighted average mortgage rate of not less than ____% and
not more than ____% by aggregate principal balance of the mortgage
loans;
o have a weighted average loan-to-value ratio of not more than ___%;
o have no mortgage loan with a principal balance in excess of
$_________; and
o have a weighted average gross margin not less than ____%.
Notwithstanding the foregoing, any subsequent mortgage loan may be rejected
by either [RA] or [RA] if the inclusion of such subsequent mortgage loan would
adversely affect the ratings on any class of offered certificates.
UNDERWRITING STANDARDS OF ___________ AND REPRESENTATIONS CONCERNING THE
MORTGAGE LOANS
The mortgage loans will be acquired by the depositor from the mortgage loan
seller. All of the mortgage loans were originated or acquired by the originator,
generally in accordance with the underwriting criteria described below.
The information set forth below with regard to the originator's
underwriting standards has been provided to the depositor by the originator.
None of the depositor, the trustee, the underwriter or any of their respective
affiliates has made any independent investigation of such information or has
made or will make any representation as to the accuracy or completeness of such
information.
The mortgage loans were originated generally in accordance with
underwriting guidelines established by the originator under the "Full
Documentation", "Fast Trac Documentation" or "Stated Income" residential loan
programs. The underwriting guidelines are primarily intended to evaluate the
value and adequacy of the mortgaged property as collateral and are also intended
to consider the applicant's credit standing and repayment ability. On a
case-by-case basis, the originator may determine that, based upon compensating
factors, a prospective applicant not strictly qualifying under the underwriting
risk category guidelines described below warrants an underwriting exception.
Compensating factors may include, but are not limited to, low loan-to-value
ratio, low
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<PAGE>
debt-to-income ratio, good credit history, stable employment and time in
residence at the applicant's current address. It is expected that a substantial
number of the mortgage loans to be included in the mortgage pool will represent
such underwriting exceptions.
All of the mortgage loans originated in the underwriting programs are based
on loan application packages submitted through the originator's branches. Each
prospective applicant completes an application which includes information with
respect to the applicant's liabilities, income, credit history and employment
history, as well as certain other personal information. The originator obtains a
credit report on each applicant from a credit reporting company. The report
typically contains information relating to such matters as credit history with
local and national merchants and lenders, installment debt payment and any
record of default, bankruptcy, repossession, suits or judgments. The applicant
must generally provide to the originator a letter explaining all late payments
on mortgage debt and, generally, consumer (I.E. non-mortgage) debt.
Under the underwriting programs, during the underwriting process, the
Originator reviews and verifies the loan applicant's sources of income (except
under the Stated Income and Fast Trac Documentation residential loan programs)
and calculates the amount of income from all such sources indicated on the loan
application, reviews the credit history of the applicant and calculates the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
reviews the mortgaged property for compliance with the underwriting guidelines.
The underwriting guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires (i)
an appraisal of the mortgaged property which conforms to Uniform Standards of
Professional Appraisal Practice standards and (ii) a review of such appraisal,
which review may be conducted by a representative of the originator or a fee
appraiser and, depending upon the original principal balance and loan-to-value
ratio of the mortgaged property, may include a desk review of the original
appraisal or a drive-by review appraisal of the mortgaged property. The
underwriting guidelines permit loans with loan-to-value ratios at origination of
up to 90%. The maximum allowable loan-to-value ratio varies based upon the
income documentation, property type, creditworthiness, debt service-to-income
ratio of the applicant and the overall risks associated with the loan decision.
Under the underwriting programs, the maximum combined loan-to-value ratio,
including any second deeds of trust subordinate to the originator's first deed
of trust, is 100%.
UNDERWRITING PROGRAMS (INCOME DOCUMENTATION TYPES)
FULL DOCUMENTATION. The Full Documentation residential loan program is
generally based upon current year to date income documentation as well as
previous years' income documentation (I.E. tax returns and/or W-2 forms). The
documentation required is specific to the applicant's sources of income. The
applicant's employment and/or business licenses are generally verified.
FAST TRAC DOCUMENTATION. The Fast Trac Documentation residential loan
program is generally based on bank statements from the past twelve months
supported by additional documentation provided by the applicant or current year
to date documentation. The applicant's employment and/or business licenses are
generally verified.
STATED INCOME. The Stated Income residential loan program requires the
applicant's employment and income sources to be stated on the application. The
applicant's income as stated must be
S-22
<PAGE>
reasonable for the related occupation in the loan underwriter's discretion.
However, the applicant's income as stated on the application is not
independently verified. Verbal verification of employment is generally obtained
for salaried applicants.
PROPERTY REQUIREMENTS
Properties that are to secure mortgage loans are appraised by qualified
independent appraisers who are approved by the originator's senior appraisers.
In most cases, properties below average standards in condition and repair
(including properties requiring major deferred maintenance) are not acceptable
as security for mortgage loans in the underwriting programs. Each appraisal
includes a market data analysis based on recent sales of comparable homes in the
area and, where deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home. Every independent appraisal is
reviewed by a representative of the originator or a fee appraiser before the
loan is funded.
The originator requires that all mortgage loans have title insurance. The
originator also requires that fire and extended coverage casualty insurance be
maintained on the secured property in an amount equal to the lesser of the
principal balance of the mortgage loan or the replacement cost of the property.
UNDERWRITING GUIDELINES
The underwriting guidelines are less stringent than the standards generally
acceptable to Fannie Mae and Freddie Mac with regard to the property offered as
collateral and the applicant's credit standing and repayment ability. Applicants
who qualify under the underwriting programs generally have payment histories and
debt ratios which would not satisfy Fannie Mae and Freddie Mac underwriting
guidelines and may have a record of major derogatory credit items such as
outstanding judgments or prior bankruptcies. The underwriting guidelines
establish the maximum permitted loan-to-value ratio for each loan type based
upon these and other risk factors.
RISK CATEGORIES
Under the underwriting programs, various risk categories are used to grade
the likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the underwriting programs
establish lower maximum loan-to-value ratios and lower maximum loan amounts for
loans graded in such categories.
The underwriting guidelines have the following categories and criteria for
grading the potential likelihood that an applicant will satisfy the repayment
obligations of a mortgage loan:
CREDIT GRADE: "AAA". Under the "AAA" credit grade, the applicant generally
must have a minimum FICO score of 670 and no late payments within the last 12
months are permitted on any
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<PAGE>
existing mortgage loan. No bankruptcy, discharge, or notice of default filings
may have occurred during the preceding thirty-six months. Generally, the debt
service-to-income ratios must be equal to or less than 40%. A maximum
loan-to-value ratio of 90% in a variable loan product is permitted on any
purchase money and/or refinance transaction.
CREDIT GRADE: "AA". Under the "AA" credit grade, the applicant generally
must have a minimum FICO score of 620 and no late payments within the last 12
months are permitted on an existing mortgage loan. No bankruptcy, discharge, or
notice of default filings may have occurred during the preceding two years.
Generally, the debt service-to-income ratio must be equal to or less than 42%. A
maximum loan-to-value ratio of 85% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "A". Under the "A" credit grade, the applicant generally must
have a minimum FICO score of 550 and a maximum of three 30-day late payments
within the last 12 months are permitted on an existing mortgage loan. No
bankruptcy, discharge, or notice of default filings may have occurred during the
preceding two years. Generally, the debt service-to-income ratio must be equal
to or less than 50%. A maximum loan-to-value ratio of 80% is permitted for
purchase money and/or refinance transactions.
CREDIT GRADE: "B". Under the "B" credit grade, the applicant generally must
have a minimum FICO score of 520 and a maximum of one 60-day late payment within
the last 12 months is permitted on an existing mortgage loan. No bankruptcy,
discharge, or notice of default filings may have occurred during the preceding
year. Generally, the debt service-to-income ratio must be equal to or less than
55%. A maximum loan-to-value ratio of 75% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "C". Under the "C" credit grade, a maximum of one 90-day late
payment within the last 12 months is permitted on an existing mortgage loan. The
applicant must not currently be in bankruptcy or foreclosure. Generally, the
debt service-to-income ratio must be equal to or less than 55%. A maximum
loan-to-value ratio of 70% is permitted for purchase money and/or refinance
transactions.
CREDIT GRADE: "D". Under the "D" credit grade, the applicant's derogatory
consumer and mortgage credit history may be waived if a reasonable explanation
for the problem is provided. The problem that caused the derogatory items to
occur must no longer exist or must be resolved through the loan transaction.
Generally, the debt-to-service income ratio must be equal to or less than 60%. A
maximum loan-to-value ratio of 60% is permitted for purchase money and/or
refinance transactions.
The originator will make representations and warranties as of the closing
date with respect to the mortgage loans, and will be obligated to replace, cure
or repurchase any such Mortgage Loan in respect of which a material breach of
the representations and warranties it has made has occurred (other than those
breaches which have been cured). For a discussion of the representations and
warranties made and the repurchase obligation, see "The Depositor's Mortgage
Loan Purchase Program--Representations by or on behalf of the Mortgage Loan
Sellers; Remedies for Breach of Representation" in the prospectus.
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<PAGE>
ADDITIONAL INFORMATION CONCERNING THE MORTGAGE LOANS
The description in this prospectus supplement of the initial mortgage pool
and the initial mortgaged properties is based upon the mortgage pool as
constituted at the close of business on the cut-off date, as adjusted for the
scheduled principal payments due on or before the cut-off date. Prior to the
issuance of the certificates, mortgage loans may be removed from the mortgage
pool as a result of incomplete documentation or otherwise if the depositor deems
the removal necessary or desirable, and may be prepaid at any time. A limited
number of other mortgage loans may be included in the mortgage pool prior to the
issuance of the certificates unless including these mortgage loans would
materially alter the characteristics of the mortgage pool as described in this
prospectus supplement. The depositor believes that the information set forth in
this prospectus supplement will be representative of the characteristics of the
mortgage pool as it will be constituted at the time the certificates are issued,
although the range of mortgage rates and maturities and other characteristics of
the mortgage loans may vary.
The subsequent mortgage loans may have characteristics different from those
of the initial mortgage loans. However each subsequent mortgage loan must
satisfy the eligibility criteria referred to herein under "-Conveyance of
Subsequent Mortgage Loans and the Pre-Funding Account."
YIELD ON THE CERTIFICATES
DELAY IN DISTRIBUTIONS ON THE OFFERED CERTIFICATES
The effective yield to holders of the Class M-3 Certificates will be less
than the yields otherwise produced by the pass-through rate thereon and purchase
prices because:
o on the first distribution date, one month's interest is payable on
the offered certificates even though __ days will have elapsed from the date on
which interest begins to accrue thereon,
o on each succeeding distribution date the interest payable on the
offered certificates is the interest accrued during the month preceding the
month of the particular distribution date, which ends __ days prior to the
distribution date; and
o during each Interest Accrual Period, other than the first Interest
Accrual Period, interest accrues on a certificate principal balance that is less
than the certificate principal balance of such class actually outstanding for
the first __ days of the Interest Accrual Period.
SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period beginning with the date on
which the scheduled monthly payment was due for the preceding monthly payment up
to the date of the prepayment, instead of for a full month. When a partial
principal prepayment is made on a mortgage loan, the mortgagor is not charged
interest on the amount of the prepayment for the month in which the prepayment
is made. In addition, the application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended or the Relief Act, to any mortgage loan will adversely
affect, for an indeterminate period of time, the ability
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<PAGE>
of the master servicer to collect full amounts of interest on the mortgage loans
affected by application of the Relief Act. The master servicer is obligated to
pay from its own funds only those interest shortfalls attributable to full and
partial prepayments by the mortgagors on the mortgage loans master serviced by
it, but only to the extent of its aggregate servicing fee for the related due
period. The due period, with respect to any distribution date, commences on the
second day of the month immediately preceding the month in which the
distribution date occurs and ends on the first day of the month in which the
distribution date occurs. Accordingly, the effect of:
o any principal prepayments on the mortgage loans, to the extent that
Prepayment Interest Shortfalls exceed Compensating Interest or
o any shortfalls resulting from the application of the Relief Act, will
be to reduce the aggregate amount of interest collected that is available for
distribution to holders of the certificates.
Any of these shortfalls will be allocated among the certificates as
provided in this prospectus supplement under "Description of the
Certificates--Interest Distributions". See "Legal Aspects of the Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act of 1940" in the prospectus. See
"Pooling and Servicing Agreement--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on each class of offered certificates, the
aggregate amount of distributions on each class of offered certificates and the
yield to maturity of each class of offered certificates will be related to the
rate and timing of payments of principal on the mortgage loans and the amount,
if any, contributed from the pre-funding account at the end of the funding
period. The rate of principal payments on the mortgage loans in the mortgage
pool will in turn be affected by the amortization schedules of the mortgage
loans as they change from time to time to accommodate changes in the mortgage
rates and by the rate of principal prepayments on the mortgage loans, including
for this purpose payments resulting from refinancings, liquidations of the
mortgage loans due to defaults, casualties, condemnations and repurchases,
whether optional or required, by the depositor, the mortgage loan seller, the
originator, the master servicer or the majorityholder of the Class CE
Certificates. The mortgage loans may be prepaid by the mortgagors at any time;
however, with respect to approximately _____% of the mortgage loans, by
aggregate principal balance as of the cut-off date, a prepayment may subject the
related mortgagor to a prepayment charge.
Prepayments, liquidations and repurchases of the mortgage loans will result
in distributions in respect of principal to the holders of the class or classes
of offered certificates then entitled to receive distributions that otherwise
would be distributed over the remaining terms of these mortgage loans. Since the
rates of payment of principal on the mortgage loans will depend on future events
and a variety of factors, no assurance can be given as to the rate of principal
prepayments. The extent to which the yield to maturity of any class of offered
certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and the degree to which the
timing of payments on these certificates is sensitive to prepayments on the
mortgage loans. Further, an investor should consider, in the case of any
certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the mortgage loans could result
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<PAGE>
in an actual yield to the investor that is lower than the anticipated yield. In
the case of any certificate purchased at a premium, the risk that a faster than
anticipated rate of principal payments could result in an actual yield to the
investor that is lower than the anticipated yield. In most cases, the earlier a
prepayment of principal on the mortgage loans occurs, the greater the effect on
the investor's yield to maturity. As a result, the effect on an investor's yield
of principal payments occurring at a rate higher or lower than the rate
anticipated by the investor during the period immediately following the issuance
of the certificates would not be fully offset by a subsequent like reduction or
increase in the rate of principal payments. See "Yield Considerations" and
"Maturity and Prepayment Considerations" in this prospectus supplement and
"Yield and Maturity Considerations" in the prospectus.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the offered certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
Because principal distributions are paid to certain classes of offered
certificates before other classes, holders of classes of offered certificates
having a later priority of payment bear a greater risk of losses than holders of
classes having earlier priorities for distribution of principal. This is because
the certificates having later priority will represent an increasing percentage
interest in the trust fund before principal distributions are made on these
certificates. Prior to a certain date, as described herein, all principal
payments on the mortgage loans will be allocated to the Class A-1 Certificates.
Thereafter, during certain periods subject to certain delinquency triggers
described herein, all principal payments on the mortgage loans will be allocated
to the offered certificates in the priorities described under "Description of
the Certificates-Principal Distributions on the Offered Certificates" in the
prospectus supplement.
The rate of payments, including prepayments, on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the mortgage rates on the
mortgage loans in the mortgage pool, the rate of prepayment and refinancing
would be expected to increase. Conversely, if prevailing mortgage rates rise
significantly above the mortgage rates on the mortgage loans in the mortgage
pool, the rate of prepayment on the mortgage loans would be expected to
decrease. Other factors affecting prepayment of mortgage loans include changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. There can be no
certainty as to the rate of prepayments on the mortgage loans in the mortgage
pool during any period or over the life of the certificates. See "Yield and
Maturity Considerations" in the prospectus.
Defaults on mortgage loans are expected to occur with greater frequency in
their early years. In addition, default rates in most cases are higher for
mortgage loans used to refinance an existing mortgage loan. In the event of a
mortgagor's default on a mortgage loan in the mortgage pool, there can be no
assurance that recourse beyond the specific mortgaged property pledged as
security for repayment will be available. See "The Mortgage Pool--Underwriting
Standards of __________ and Representations Concerning the Mortgage Loans" in
this prospectus supplement.
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<PAGE>
Furthermore, to the extent that the original pre-funded amount has not been
fully applied to the purchase of subsequent mortgage loans by the end of the
funding period, the holders of the Class A-1 Certificates will receive on the
distribution date immediately following the end of the funding period a
prepayment of principal in an amount equal to the lesser of (i) any amounts
remaining in the pre-funding account and (ii) the outstanding certificate
principal balance of the Class A-1 Certificates. Although no assurance can be
given, it is anticipated by the depositor that the principal amount of
subsequent mortgage loans sold to the trust fund will require the application of
substantially all amounts on deposit in the pre-funding account and that there
will be no material amount of principal prepaid to the holders of the Class A-1
Certificates. However, it is unlikely that the depositor will be able to deliver
subsequent mortgage loans with an aggregate principal balance identical to the
pre-funded amount.
SPECIAL YIELD CONSIDERATIONS
The mortgage rates on the mortgage loans adjust semi-annually based upon
the six-month LIBOR index, after an initial period of approximately three years,
whereas the pass-through rate on the offered certificates (other than the Class
M-3 Certificates) adjusts monthly and may be based upon one-month LIBOR as
described under "Description of the Certificates--Calculation of One- Month
LIBOR" herein. One-month LIBOR and the six-month LIBOR index applicable to the
mortgage loans may respond differently to economic and market factors, and there
is not necessarily a correlation between them. It is possible, for example, that
if both one-month LIBOR and the six-month LIBOR index rise during the same
period, one-month LIBOR may rise more rapidly than the six-month LIBOR index or
may rise higher than the six-month LIBOR index. Thus, the interest due on the
mortgage loans during any due period, net of the expenses of the trust fund, may
not equal the amount of interest that would accrue at one-month LIBOR plus the
applicable spread on the offered certificates during the related Interest
Accrual Period. In such an event the rate payable to the holders of the offered
certificates (other than the Class M-3 Certificates) will be the Net WAC Pass-
Through Rate, this would adversely affect the yield to maturity on such
certificates, and the holders of such Certificates WILL NOT be entitled to
interest in excess of the Net WAC Pass-Through Rate on any future distribution
date. In addition, the Net WAC Pass-Through Rate will be reduced by the
prepayment of mortgage loans with high mortgage rates.
All of the mortgage loans are adjustable-rate mortgage loans. As is the
case with conventional fixed-rate mortgage loans, adjustable-rate mortgage loans
may be subject to a greater rate of principal prepayments in a declining
interest rate environment. For example, if prevailing interest rates were to
fall significantly, adjustable-rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates were to remain constant
because the availability of fixed-rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their adjustable-rate mortgage loans
to "lock in" lower fixed interest rates. The rate of payments (including
prepayments) on pools of mortgage loans is influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. No assurances can be given as to the rate of
prepayments on the mortgage loans in stable or changing interest rate
environments and the seller makes no representations as to the particular
factors that will affect the prepayment of the mortgage loans.
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<PAGE>
In addition, amounts otherwise distributable to holders of the Class A-2
Certificates and the Class M Certificates may be made available to protect the
holders of the Class A-1 Certificates against interruptions in distributions due
to certain mortgagor delinquencies, to the extent not covered by P&I Advances.
Such delinquencies may affect the yield to investors on the Class A-2
Certificates and the Class M Certificates and, even if subsequently cured, will
affect the timing of the receipt of distributions by the holders of the Class
A-2 Certificates and the Class M Certificates. The rate of delinquencies or
losses will also affect the rate of principal payments on the Class A-2
Certificates and each Class of Class M certificates. See "Description of the
Certificates--Principal Distributions on the Offered Certificates" herein.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average life of the
offered certificates of each class will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled
payments or prepayments, including repurchases and prepayments of principal by
the mortgagor as well as amounts received by virtue of condemnation, insurance
or foreclosure with respect to the mortgage loans, and the timing of these
payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a prepayment rate for the mortgage loans of ___% CPR. No representation
is made that the mortgage loans in the mortgage pool will prepay at this rate or
any other rate. To assume __% CPR or any other CPR percentage is to assume that
the stated percentage of the outstanding principal balance of the pool is
prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial certificate principal balance of the indicated classes of certificates
that would be outstanding after each of the dates shown at various constant
percentages of the prepayment model and the corresponding weighted average life
of each class of certificates. The table is based on the following assumptions:
o the mortgage pool consists of ____ mortgage loans with the
characteristics set forth in the table immediately following these
bullet points entitled "Assumed Mortgage Loan Characteristics",
o distributions on the certificates are received, in cash, on the __ day
of each month, commencing in ________ ____,
o the mortgage loans prepay at the constant percentages of the prepayment
model indicated, o no defaults or delinquencies occur in the payment by
mortgagors of principal and interest on the mortgage loans and no
shortfalls due to the application of the Relief Act are incurred,
o none of the depositor, the mortgage loan seller, the originator, the
majorityholder of the Class CE certificates, the master servicer or any
other person purchases from the trust fund any mortgage loan based on
any obligation or option under the pooling and servicing agreement,
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<PAGE>
except as indicated in the second sentence following the table entitled
"Percent of Initial Certificate Principal Balance Outstanding at the
Specified Percentage of the Prepayment Model",
o scheduled monthly payments on the mortgage loans are received on the
first day of each month commencing in ________ ____, and are computed
prior to giving effect to any prepayments received in the prior month,
o prepayments representing payment in full of individual mortgage loans
are received on the last day of each month commencing in _______ ____,
and include 30 days' interest on the mortgage loan,
o the scheduled monthly payment for each mortgage loan is calculated
based on its principal balance, mortgage rate and remaining term to
maturity so that the mortgage loan will amortize in amounts sufficient
to repay the remaining principal balance of the mortgage loan by its
remaining term to maturity,
o the certificates are purchased on _______ __, ____;
o the six-month LIBOR index remains constant at ____% per annum and the
mortgage rate on each mortgage loan is adjusted on the due date
immediately following the next adjustment date and in subsequent
adjustable dates necessary to equal the six-month LIBOR index plus the
applicable gross margin, subject to the applicable periodic rate cap
each as set forth in the related mortgage note;
o one-month LIBOR remains constant at ____% per annum;
o the monthly payment on each mortgage loan is adjusted on the due date
immediately following the next adjustment date (and on subsequent
adjustment dates if necessary) to equal a fully amortizing monthly
payment;
o the subsequent mortgage loan are purchased on ____________ resulting in
no mandatory prepayment from the pre-funding account on the
distribution date immediately following the end of the funding period;
o the initial mortgage loans and the subsequent mortgage loans are
included in the mortgage pool as of the cut-off date; and
o the servicing fee rate is ____% per annum and the trustee's fee rate is
_____% per annum.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
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<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
BALANCE ORIGINAL TERM REMAINING TERM NEXT RATE MAXIMUM MINIMUM PERIODIC
AS OF THE MORTGAGE TO MATURITY TO MATURITY ADJUSTMENT GROSS MORTGAGE MORTGAGE RATE
CUT-OFF DATE RATE (MONTHS) (MONTHS) DATE MARGIN (%) RATE(%) RATE(%) CAP(%)
- ------------ ---- -------- -------- ---- ---------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % %
$ % % % % %
$ % % % % %
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans (after the purchase of subsequent mortgage loans) and the
characteristics assumed in preparing the table immediately following this
paragraph. Any discrepancy may have an effect upon the percentages of the
initial certificate principal balances outstanding and the weighted average
lives of the classes of certificates set forth in the table. In addition, to the
extent that the actual mortgage loans included in the mortgage pool have
characteristics that differ from those assumed in preparing the table
immediately following this paragraph and since it is not likely that the level
of the six-month LIBOR index or one-month LIBOR will remain constant as assumed,
the classes of certificates may mature earlier or later than indicated by the
table immediately following this paragraph. Based on the foregoing assumptions,
the table immediately following this paragraph indicates the weighted average
life of each class of the offered certificates and sets forth the percentage of
the initial certificate principal balance of each class of certificates that
would be outstanding after each of the dates shown, at various percentages of
the prepayment model. Neither the prepayment model used in this prospectus
supplement nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans included in the trust fund. Variations in the prepayment
experience and the balance of the mortgage loans that prepay may increase or
decrease the percentages of initial certificate principal balance and weighted
average lives shown in the following table. These variations may occur even if
the average prepayment experience of all of the mortgage loans equals any of the
specified percentages of the prepayment model.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT MODEL
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
---------------------- ----------------------
DISTRIBUTION DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
----------------- -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
................................
................................
................................
Weighted Average Life
in Years......................
Weighted Average Life
in Years......................
</TABLE>
The weighted average life of a certificate is determined by (a)
multiplying the amount of each distribution of principal by the number of
years from the date of issuance of the certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by the
initial certificate principal balance of the certificate. The last row of
weighted average lives is calculated using the calculation set forth in the
prior sentence but assumes that the majorityholder of the Class CE
Certificates or master servicer exercises its option to purchase the
mortgage loans on the earliest possible distribution date on which it is
permitted to exercise this option. See "Pooling and Servicing
Agreement--Termination" in this prospectus supplement.
<TABLE>
<CAPTION>
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT MODEL
CLASS M-1 CERTIFICATES CLASS M-2 CERTIFICATES CLASS M-3 CERTIFICATES
---------------------- ---------------------- ----------------------
DISTRIBUTION DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ----------------- -- --- --- --- --- -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
................................
................................
................................
Weighted Average Life
in Years......................
Weighted Average Life
in Years......................
</TABLE>
The weighted average life of a certificate is determined by (a)
multiplying the amount of each distribution of principal by the number of
years from the date of issuance of the certificate to the related
distribution date, (b) adding the results and (c) dividing the sum by the
initial certificate principal balance of the certificate. The last row of
weighted average lives is calculated using the calculation set forth in the
prior sentence but assumes that the majorityholder of the Class CE
Certificates or master servicer exercises its option to purchase the
mortgage loans on the earliest possible distribution date on which it is
permitted to exercise this option. See "Pooling and Servicing
Agreement--Termination" in this prospectus supplement.
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<PAGE>
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the prepayment model indicated in the immediately
preceding table or to any other level, or that the actual weighted average life
of any class of certificates will conform to any of the weighted average lives
set forth in the immediately preceding table. Furthermore, the information
contained in the table with respect to the weighted average life of each
specified class of certificates is not necessarily indicative of the weighted
average life of each class that might be calculated or projected under different
or varying prepayment assumptions.
The characteristics of the mortgage loans included in the mortgage pool
will differ from those assumed in preparing the immediately preceding table. In
addition, it is unlikely that any mortgage loan will prepay at any constant
percentage of the prepayment model until maturity or that all of the mortgage
loans included in the mortgage pool will prepay at the same rate. The timing of
changes in the rate of prepayments may significantly affect the actual yield to
maturity to investors, even if the average rate of principal prepayments is
consistent with the expectations of investors.
YIELD SENSITIVITY OF THE CLASS A-2 CERTIFICATES AND THE CLASS M CERTIFICATES
If the certificate principal balances of the Class CE Certificates, Class
M-3 Certificates, Class M-2 Certificates and Class M-1 Certificates have been
reduced to zero, the yield to maturity on the Class A-2 Certificates will become
extremely sensitive to losses on the mortgage loans that are covered by
subordination and the timing of losses on the mortgage loans, because the entire
amount of these losses will be allocated to the Class A-2 Certificates. If the
certificate principal balances of the Class CE Certificates, Class M-3
Certificates and Class M-2 certificates have been reduced to zero, the yield to
maturity on the Class M-1 Certificates will become extremely sensitive to losses
on the mortgage loans that are covered by subordination and the timing of losses
on the mortgage loans, because the entire amount of these losses will be
allocated to the Class M-1 Certificates. If the certificate principal balances
of the Class CE Certificates and Class M-3 Certificates have been reduced to
zero, the yield to maturity on the Class M-2 Certificates will become extremely
sensitive to losses on the mortgage loans that are covered by subordination and
the timing of losses on the mortgage loans, because the entire amount of these
losses will be allocated to the Class M-2 Certificates. If the certificate
principal balance of the Class CE Certificates has been reduced to zero, the
yield to maturity on the Class M-3 Certificates will become extremely sensitive
to losses on the mortgage loans that are covered by subordination and the timing
of losses on the mortgage loans because the entire amount of these loans will be
allocated to the Class M-3 Certificates. The initial undivided interest in the
trust fund evidenced by the Class A-2 Certificates, the Class M-1 Certificates,
the Class M-2 Certificates, the Class M-3 certificates and the Class CE
certificates is approximately ____%, approximately ____%, approximately ____%,
approximately ____% and approximately ____%, respectively. Investors in the
Class A-2 Certificates and the Class M Certificates should fully consider the
risk that Realized Losses on the mortgage loans could result in the failure of
these investors to fully recover their investments. In addition once Realized
Losses have been allocated to the Class A-2 Certificates and the Class M
Certificates, such amounts with respect to such certificates will no longer
accrue interest, will not be reinstated thereafter and no amounts in respect
thereof will be distributable to the holders of the Class A-2 Certificates and
the Class M Certificates. For additional considerations relating to the yield on
the Class A-2 and Class M Certificates, see "Yield and Maturity Considerations"
in the prospectus.
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<PAGE>
Unless the certificate principal balance of the Class A-1 Certificates has
been reduced to zero, the Class A-2 Certificates and the Class M Certificates
will not be entitled to any principal distributions until the Stepdown Date or
during any period in which a Trigger Event is in effect and unless the
certificate principal balance of the Class A-2 Certificates has been reduced to
zero, the Class M Certificates will not be entitled to any principal
distributions until the Stepdown Date or during any period in which a Trigger
Event is in effect. As a result, the weighted average lives of the Class A-2
Certificates and the Class M Certificates will be longer than would otherwise be
the case if distributions of principal were allocated on a PRO RATA basis among
the Class A Certificates and the Class M Certificates. As a result of the longer
weighted average lives of the Class A-2 Certificates and the Class M
Certificates, the holders of such certificates have a greater risk of suffering
a loss on their investments. Further, because a Trigger Event is based on
delinquencies and not losses, it is possible for (i) the Class A-2 Certificates
and the Class M Certificates to receive no principal distributions (unless the
certificate principal balance of the Class A-1 Certificates has been reduced to
zero) and (ii) the Class M Certificates to receive no principal distributions
(unless the certificate principal balance of the Class A-1 Certificates and the
Class A-2 Certificates has been reduced to zero) on and after the Stepdown Date
even if no losses have occurred on the mortgage pool. For additional
considerations relating to the yield on the Class A-2 Certificates and the Class
M Certificates, see "Yield and Maturity Considerations" in the prospectus.
DESCRIPTION OF THE CERTIFICATES
GENERAL DESCRIPTION OF THE CERTIFICATES
The certificates will consist of ________ classes of certificates,
designated as:
o the Class A-1 Certificates and the Class A-2 Certificates which will also
be referred to in this prospectus supplement as the Class A Certificates;
o the Class M-1 Certificates, the Class M-2 Certificates and the Class M-3
Certificates, which will also be referred to in this prospectus supplement as
the Class M Certificates;
o the Class CE Certificates;
o the Class P Certificates, and
o the Class R-I Certificates, the Class R-II Certificates and the Class
R-III Certificates which will also be referred to in this prospectus supplement
as the Residual Certificates.
Only the Class A Certificates and the Class M Certificates are offered by
this prospectus supplement. The Class CE Certificates, the Class P Certificates
and the Residual Certificates which are not being offered hereby, will be
delivered on the closing date to a wholly-owned bankruptcy remote subsidiary of
the originator as partial consideration for the mortgage loans.
The certificates represent in the aggregate the entire beneficial ownership
interest in a trust fund consisting primarily of a segregated pool of
conventional, one- to four-family, adjustable-rate, fully-amortizing, first lien
mortgage loans having original terms to maturity of not greater than 30 years,
S-34
<PAGE>
and funds deposited by the depositor in the pre-funding account and the interest
coverage account and an aggregate principal balance as of _______ __, ____,
which date shall also be referred to in this prospectus supplement as the
cut-off date, after application of scheduled payments due whether or not
received, of approximately $___________, subject to a permitted variance as
described in this prospectus supplement under "The Mortgage Pool".
Each class of the offered certificates will have the approximate initial
certificate principal balance as set forth in the summary of this prospectus
supplement and will have the Pass-Through Rate determined as provided under
"Summary of Prospectus Supplement--Pass-Through Rate" and
"--Interest Distributions" in this prospectus supplement.
The Class A Certificates and the Class M Certificates will be issued,
maintained and transferred on the book-entry records of the Depository Trust
Company, or DTC, and its participants and in that capacity, will be referred to
in this prospectus supplement as the book-entry certificates. The book-entry
certificates will be issued in minimum denominations of $_____ and integral
multiples of $____ in excess of the minimum denominations.
The depositor has been informed by DTC that DTC's nominee will be CEDE &
Co. No person acquiring an interest in any class of the book-entry certificates
will be entitled to receive a certificate representing that person's interest,
except as set forth in the section of this prospectus supplement entitled
"--Definitive Certificates". Unless and until a certificate is issued in fully
registered certificated form, a definitive certificate, under the limited
circumstances described in this prospectus supplement, all references to actions
by certificateholders with respect to the book-entry certificates shall refer to
actions taken by DTC upon instructions from its participants, and all references
in this prospectus supplement to distributions, notices, reports and statements
to certificateholders with respect to the book-entry certificates shall refer to
distributions, notices, reports and statements to DTC CEDE & Co., as the
registered holder of the book-entry certificates, for distribution to
certificate owners in accordance with DTC procedures. See "--Registration of the
Book-Entry Certificates" and "--Definitive Certificates" in this prospectus
supplement.
No service charge will be imposed for any registration of transfer or
exchange, but the trustee may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in
connection with any registration of this kind.
All distributions to holders of the certificates, other than the final
distribution on any class of certificates, will be made on each distribution
date by or on behalf of the trustee to the persons in whose names the
certificates are registered at the close of business on the related record date.
The record date for each distribution date is:
o with respect to any book-entry certificates, the close of business on
the business day immediately preceding the distribution date or
o with respect to any other class of certificates, including any
definitive certificates, the close of business on the last business day of the
month preceding the month in which the distribution date occurs.
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<PAGE>
Distributions will be made either by check mailed to the address of each
the certificateholder as it appears in the certificate register or upon written
request to the trustee at least five business days prior to the relevant Record
Date by any holder of certificates having an aggregate initial certificate
principal balance that is in excess of the lesser of:
o $5,000,000 or
o two-thirds of the initial aggregate certificate principal balance or
Notional Amount, as applicable, of that class of certificates
by wire transfer in immediately available funds to the account of the
certificateholder specified in the request. The final distribution on any class
of certificates will be made in like manner, but only upon presentment and
surrender of these certificates at the corporate trust office of the trustee or
another location specified in the notice to certificateholders of the final
distribution.
REGISTRATION OF THE BOOK-ENTRY CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
participating organizations and to facilitate the clearance and settlement of
securities transactions between its participants through electronic book
entries, thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, including the underwriter
of the certificates offered by this prospectus supplement, banks, trust
companies and clearing corporations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Certificate owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the book-entry certificates may do so only through participants and indirect
participants. In addition, certificate owners will receive all distributions of
principal of and interest on the book-entry certificates from the trustee
through DTC and DTC participants. The trustee will forward payments to DTC in
same day funds and DTC will forward these payments to participants in next day
funds settled through the New York Clearing House. Each participant will be
responsible for disbursing these payments to indirect participants or to
certificate owners. Unless and until definitive certificates are issued, it is
anticipated that the only certificateholder of the book-entry certificates will
be CEDE & Co., as nominee of DTC. Certificate owners will not be recognized by
the trustee as certificateholders, as the term is used in the pooling and
servicing agreement and certificate owners will be permitted to exercise the
rights of certificateholders only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the book-entry
certificates among participants and to receive and transmit distributions of
principal of, and interest on, the book-entry certificates. Participants and
indirect participants with which certificate owners have accounts with respect
to the book-entry certificates similarly are required to make book-entry
transfers and receive and transmit
S-36
<PAGE>
payments on behalf of their respective certificate owners. Accordingly, although
certificate owners will not possess definitive certificates, the rules,
regulations and procedures creating and affecting DTC and its operations provide
a mechanism by which certificate owners through their participants and indirect
participants will receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of banks, the ability of a
certificate owner to pledge book-entry certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to these
certificates, may be limited due to the absence of physical certificates for the
book-entry certificates. In addition, under a book-entry format, certificate
owners may experience delays in their receipt of payments since distributions
will be made by the trustee to CEDE & Co., as nominee for DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations , DTC will take action permitted to be taken by a
certificateholder under the pooling and servicing agreement only at the
direction of one or more participants to whose DTC account the book-entry
certificates are credited. Additionally, under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC will take actions
with respect to specified voting rights only at the direction of and on behalf
of participants whose holdings of book-entry certificates evidence these
specified voting rights. DTC may take conflicting actions with respect to voting
rights, to the extent that participants whose holdings of book-entry
certificates evidencing these voting rights, authorize divergent action.
DTC management is aware that computer applications, systems and similar
items 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 computer
applications, systems and similar items for processing data, as the same relate
to the timely payment of distributions, including principal and income payments,
to securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting and will continue to contact third
party vendors from whom DTC acquires services to impress upon them the
importance of their services being Year 2000 compliant and determine the extent
of their efforts for Year 2000 remediation and, as appropriate, testing of their
services. In addition, DTC is in the process of developing contingency plans as
it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
S-37
<PAGE>
The depositor, the master servicer and the trustee will have no liability
for any actions taken by DTC or its nominee including, without limitation any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the book-entry certificates held by CEDE & Co., as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to certificate owners or their
nominees, respectively, rather than to DTC or its nominee, only if:
o the depositor advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as clearing agency
with respect to the book-entry certificates
and the depositor is unable to locate a qualified successor,
o the depositor, at its option, elects to terminate the book-entry
system through DTC, or
o after the occurrence of an event of default, certificate owners
representing in the aggregate not less than 51% of the Voting Rights of the
book-entry certificates advise the trustee and DTC through participants, in
writing, that the continuation of a book-entry system through DTC, or a
successor to DTC, is no longer in the certificate owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the trustee is required to notify all certificate owners through
participants of the availability of definitive certificates. Upon surrender by
DTC of the definitive certificates representing the book-entry certificates and
receipt of instructions for re-registration, the trustee will reissue the
book-entry certificates as definitive certificates issued in the respective
principal amounts owned by individual certificate owners, and thereafter the
trustee will recognize the holders of definitive certificates as
certificateholders under the pooling and servicing agreement. Definitive
certificates will be issued in minimum denominations of $______, except that any
beneficial ownership represented by a book-entry certificate in an amount less
than $______ immediately prior to the issuance of a definitive certificate shall
be issued in a minimum denomination equal to the amount of this beneficial
ownership.
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe the
cash flows on the certificates:
AVAILABLE DISTRIBUTION AMOUNT: The Available Distribution Amount for any
distribution date is equal to the sum, net of amounts reimbursable therefrom to
the master servicer or the trustee, of (i) the aggregate amount of scheduled
monthly payments on the mortgage loans due on the related due date and received
on or prior to the related determination date, after deduction of the servicing
fee and the trustee fee, (ii) certain unscheduled payments in respect of the
mortgage loans, including prepayments, insurance proceeds, liquidation proceeds
and proceeds from repurchases of and substitutions for the mortgage loans
occurring during the preceding calendar month, (iii) all P&I Advances with
respect to the mortgage loans received for such distribution date, (iv) with
respect
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<PAGE>
to the distribution date immediately following the end of the funding period,
any amounts remaining in the pre-funding account after giving effect to any
purchase of subsequent mortgage loans and (v) with respect to each distribution
date during the funding period and on the distribution date immediately
following the end of the funding period, any amounts withdrawn by the trustee
from the Interest Coverage Account for distribution on the certificates. The
holders of the Class P Certificates will be entitled to all prepayment charges
received on the mortgage loans and such amounts will not be available for
distribution to the offered certificates.
BANKRUPTCY LOSS: A Bankruptcy Loss is a Deficient Valuation or a Debt
Service Reduction.
CERTIFICATE PRINCIPAL BALANCE: The certificate principal balance of a
certificate outstanding at any time represents the then maximum amount that the
holder thereof is entitled to receive as distributions allocable to principal
from the cash flow on the mortgage loans and the other assets in the trust fund.
The certificate principal balance of any class of offered certificates as of any
date of determination is equal to the initial certificate principal balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such certificate and (b) any reductions
in the certificate principal balance thereof deemed to have occurred in
connection with allocations of Realized Losses in the manner described herein.
The certificate principal balance of the Class CE Certificates as of any date of
determination is equal to the excess, if any, of (a) the then aggregate
principal balance of the mortgage loans over (b) the then aggregate certificate
principal balance of the offered certificates and the Class P Certificates.
CLASS A-1 INTEREST DISTRIBUTION AMOUNT: The Class A-1 Interest Distribution
Amount on any distribution date is equal to the Interest Distribution Amounts
for such distribution date for the Class A-1 Certificates and the Interest Carry
Forward Amount, if any, for that Distribution Date for the
Class A-1 Certificates.
CLASS A-1 PRINCIPAL DISTRIBUTION AMOUNT: The Class A-1 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the Certificate Principal Balance of the Class A-1 Certificates immediately
prior to such distribution date over (y) the lesser of (A) the product of (i)
approximately _____% and (ii) the aggregate principal balance of the mortgage
loans as of the last day of the related Due Period and (B) the aggregate
principal balance of the mortgage loans as of the last day of the related Due
Period minus approximately $_________.
CLASS A-2 INTEREST DISTRIBUTION AMOUNT: The Class A-2 Interest Distribution
Amount on any distribution date is equal to the Interest Distribution Amounts
for such distribution date for the Class A-2 Certificates and the Interest Carry
Forward Amount, if any, for that distribution date for the
Class A-2 Certificates.
CLASS A-2 PRINCIPAL DISTRIBUTION AMOUNT: The Class A-2 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the sum of (i) the Certificate Principal Balance of the Class A-1
Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount on such distribution date) and (ii) the Certificate
Principal Balance of the Class A-2 Certificates immediately prior to such
distribution date over (y) the lesser of (A) the product of (i) approximately
_____% and (ii) the aggregate principal balance of the mortgage loans as of the
last
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<PAGE>
day of the related Due Period and (B) the aggregate principal balance of the
mortgage loans as of the last day of the related Due Period minus approximately
$_________.
CLASS M-1 PRINCIPAL DISTRIBUTION AMOUNT: The Class M-1 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the sum of (i) the Certificate Principal Balance of the Class A-1
Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount on such distribution date), (ii) the Certificate Principal
Balance of the Class A-2 Certificates (after taking into account the payment of
the Class A-2 Principal Distribution Amount on such distribution date) and (iii)
the Certificate Principal Balance of the Class M-1 Certificates immediately
prior to such distribution date over (y) the lesser of (A) the product of (i)
approximately _____% and (ii) the aggregate principal balance of the mortgage
loans as of the last day of the related Due Period and (B) the aggregate
principal balance of the mortgage loans as of the last day of the related Due
Period minus approximately $_________.
CLASS M-2 PRINCIPAL DISTRIBUTION AMOUNT: The Class M-2 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the sum of (i) the Certificate Principal Balance of the Class A-1
Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount on such distribution date), (ii) the Certificate Principal
Balance of the Class A-2 Certificates (after taking into account the payment of
the Class A-2 Principal Distribution Amount on such distribution date), (iii)
the Certificate Principal Balance of the Class M-1 Certificates (after taking
into account the payment of the Class M-1 Principal Distribution Amount on such
distribution date) and (iv) the Certificate Principal Balance of the Class M-2
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately _____% and (ii) the aggregate principal
balance of the mortgage loans as of the last day of the related Due Period and
(B) the aggregate principal balance of the mortgage loans as of the last day of
the related Due Period minus approximately $_________.
CLASS M-3 PRINCIPAL DISTRIBUTION AMOUNT: The Class M-3 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the sum of (i) the Certificate Principal Balance of the Class A-1
Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount on such distribution date), (ii) the Certificate Principal
Balance of the Class A-2 Certificates (after taking into account the payment of
the Class A-2 Principal Distribution Amount on such distribution date), (iii)
the Certificate Principal Balance of the Class M-1 Certificates (after taking
into account the payment of the Class M-1 Principal Distribution Amount on such
distribution date), (iv) the Certificate Principal Balance of the Class M-2
Certificates (after taking into account the payment of the Class M-2 Principal
Distribution Amount on such distribution date) and (v) the Certificate Principal
Balance of the Class M-3 Certificates immediately prior to such distribution
date over (y) the lesser of (A) the product of (i) approximately _____% and (ii)
the aggregate principal balance of the mortgage loans as of the last day of the
related Due Period and (B) the aggregate principal balance of the mortgage loans
as of the last day of the related Due Period minus approximately $_________.
COMPENSATORY INTEREST: With respect to any principal prepayments, any
payments made by the master servicer from its own funds to cover Prepayment
Interest Shortfalls.
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<PAGE>
CREDIT ENHANCEMENT PERCENTAGE: The Credit Enhancement Percentage for any
Distribution Date is the percentage obtained by dividing (x) the aggregate
Certificate Principal Balance of the Class A-2 Certificates, the Class CE
Certificates and the Class M Certificates by (y) the aggregate principal balance
of the mortgage loans, calculated after taking into account distributions of
principal on the mortgage loans and distributions of principal to the holders of
the certificates then entitled to distributions of principal on such
distribution date.
DEBT SERVICE REDUCTION: A Debt Service Reduction is any reduction in the
amount which a mortgagor is obligated to pay on a monthly basis with respect to
a mortgage loan as a result of any proceeding initiated under the United States
Bankruptcy Code, other than a reduction attributable
to a Deficient Valuation.
DEFICIENT VALUATION: A Deficient Valuation is a valuation by a court of
competent jurisdiction of the mortgaged property in an amount less than the then
outstanding indebtedness under the mortgage loan, which valuation results from a
proceeding initiated under the United States
Bankruptcy Code.
DUE PERIOD: The Due Period with respect to any distribution date commences
on the second day of the month immediately preceding the month in which such
distribution date occurs and ends on the first day of the month in which such
distribution date occurs.
EXPENSE ADJUSTED MORTGAGE RATE: The Expense Adjusted Mortgage Rate on any
mortgage loan is equal to the then applicable mortgage rate thereon minus the
sum of (i) the trustee fee rate and (ii) the servicing fee rate. For any
distribution date, the trustee fee rate is equal to _____% per
annum and the servicing fee rate is equal to ____% per annum.
INTEREST ACCRUAL PERIOD: The Interest Accrual Period for any distribution
date and the offered certificates (other than the Class M-3 Certificates) is the
period commencing on the distribution date of the month immediately preceding
the month in which such distribution date occurs (or, in the case of the first
period, commencing on the closing date) and ending on the day preceding such
distribution date, and all distributions of interest on the offered certificates
will be based on a 360- day year and the actual number of days in the applicable
Interest Accrual Period. The INTEREST ACCRUAL PERIOD for any distribution date
and the Class M-3 Certificates is the one-month period preceding the month in
which such distribution date occurs, and all distributions of interest on the
Class M-3 Certificates will be based on a 360-day year consisting of twelve
30-day months.
INTEREST CARRY FORWARD AMOUNT: The Interest Carry Forward Amount with
respect to the offered certificates and any distribution date is equal to the
amount, if any, by which the Interest Distribution Amount for such class of
certificates for the immediately preceding distribution date exceeded the actual
amount distributed on such certificates in respect of interest on such
immediately preceding distribution date, together with any Interest Carry
Forward Amount with respect to such certificates remaining unpaid from the
previous distribution date plus interest accrued thereon at the related
Pass-Through Rate on such certificates for the most recently ended Interest
Accrual Period. The Interest Carry Forward Amount with respect to the Class A-1
Certificates or the Class A-2 Certificates, if any, is distributed as part of
the Class A-1 Interest Distribution Amount or the Class A-2 Interest
Distribution Amount, as applicable, on each distribution date. The Interest
Carry Forward Amount with respect to the Class M Certificates, if any, may be
carried forward to
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<PAGE>
succeeding distribution dates and, subject to available funds, will be
distributed in the manner set forth in "--Overcollateralization Provisions"
herein.
INTEREST DISTRIBUTION AMOUNT: The Interest Distribution Amount for the
offered certificates of any class on any distribution date is equal to interest
accrued during the related Interest Accrual Period on the Certificate Principal
Balance of that class immediately prior to such distribution date at the then
applicable Pass-Through Rate for such class, and reduced (to not less than
zero), in the case of each such class, by the allocable share, if any, for such
class of Prepayment Interest Shortfalls to the extent not covered by
Compensating Interest paid by the master servicer, shortfalls resulting from the
application of the Relief Act and certain other interest shortfalls not covered
by the subordination provided by more subordinate classes of certificates. On
any distribution date, any shortfalls resulting from application of the Relief
Act and any Prepayment Interest Shortfalls to the extent not covered by
Compensating Interest paid by the master servicer will be allocated first, to
the interest distribution amount with respect to the Class CE Certificates, and
thereafter, to the Interest Distribution Amounts with respect to the Offered
Certificates on a PRO RATA basis based on the respective amounts of interest
accrued on such Certificates for such Distribution Date. The Holders of the
Offered Certificates will be entitled to reimbursement for any such interest
shortfalls, subject to available funds, in the priorities described under
"--Overcollateralization Provisions" herein.
INTEREST REMITTANCE AMOUNT: The Interest Remittance Amount for any
distribution date is that portion of the Available Distribution Amount for such
distribution date that represents interest received or advanced on the mortgage
loans.
NET MONTHLY EXCESS CASHFLOW: The Net Monthly Excess Cashflow for any
distribution date is equal to the sum of (a) any Overcollateralization Reduction
Amount and (b) the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the sum for such distribution date of the aggregate
of the Interest Distribution Amounts payable to the holders of the offered
certificates and the sum of the amounts described in clauses (b)(i) through
(iii) of the definition of Principal Distribution Amount.
NET WAC PASS-THROUGH RATE: The Net WAC Pass-Through Rate for any
distribution date is a rate per annum equal to the weighted average of the
Expense Adjusted Mortgage Rates on the then outstanding mortgage loans, weighted
based on their Scheduled Principal Balances as of the first day of the calendar
month preceding the month in which the distribution date occurs multiplied by a
fraction, the numerator of which is 30 and the denominator of which is the
actual number of days elapsed in the related Interest Accrual Period. If for any
distribution date the Pass-Through Rate for any class of the offered
certificates (other than the Class M-3 Certificates) is limited to the Net WAC
Pass-Through Rate for such distribution date, the holders of such Certificates
WILL NOT be entitled to recover the resulting basis risk shortfall on any future
distribution date.
OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount with respect to
any distribution date, is the excess, if any, of (a) the sum of the aggregate
principal balance of the mortgage loans immediately following such distribution
date and the amount of any funds in the pre-funding account over (b) the sum of
the aggregate Certificate Principal Balances of the offered certificates and the
Class P Certificates, after taking into account the payment of the amounts
described in clauses (b)(i) through (iv) of the definition of Principal
Distribution Amount on such distribution date.
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OVERCOLLATERALIZATION INCREASE AMOUNT: The Overcollateralization Increase
Amount with respect to the offered certificates and any distribution date, is
any amount of Net Monthly Excess Cashflow actually applied as an accelerated
payment of principal to the extent the Required Overcollateralized Amount
exceeds the Overcollateralized Amount as of such distribution date.
OVERCOLLATERALIZED REDUCTION AMOUNT: The Overcollateralized Reduction
Amount with respect to the offered certificates and any distribution date, is
the amount by which the Overcollateralized Amount exceeds the Required
Overcollateralized Amount after taking into account all other distributions to
be made on such distribution date, which amount shall be distributed as Net
Monthly Excess Cashflow pursuant to the priorities set forth under
"Overcollateralization Provisions" in this prospectus supplement.
PASS-THROUGH RATE: The Pass-Through Rate for each class of certificates,
other than the Class M-3 Certificates will be a rate per annum equal to the
lesser of (i) one-month LIBOR plus ----% in the case of each distribution date
through and including the distribution date on which the aggregate principal
balance of the mortgage loans (and properties acquired in respect thereof)
remaining in the trust fund is reduced to less than 10% of the sum of the
aggregate principal balance of the initial mortgage loans as of the cut-off date
and the original pre-funded amount, or one-month LIBOR plus ____%, in the case
of any distribution date thereafter and (ii) the Net WAC Pass- Through Rate for
such Distribution Date. The Pass-Through Rate for the Class M-3 Certificates is
____% per annum.
PREPAYMENT INTEREST SHORTFALLS: With respect to any principal prepayments
of the mortgage loans, any resulting interest shortfall.
PREPAYMENT PERIOD: The Prepayment Period with respect to any distribution
date is the calendar month immediately preceding the month in which such
distribution date occurs.
PRINCIPAL DISTRIBUTION AMOUNT: The Principal Distribution Amount for any
Distribution Date will be the lesser of:
(a) the excess of the Available Distribution Amount over the aggregate
of the Interest Distribution Amounts for the offered certificates; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments on
the mortgage loans due during the related Due Period, whether or
not received on or prior to the related
Determination Date;
(ii) the principal portion of all proceeds received in respect
of the repurchase of a mortgage loan (or, in the case of a
substitution, certain amounts representing a principal adjustment)
as required by the pooling and servicing agreement during the
related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received
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during the related Prepayment Period, to the extent applied as
recoveries of principal on the mortgage loans, and with respect to
the distribution date immediately following the end of the funding
period, any amounts remaining in the pre-funding account after
giving effect to the purchase of any subsequent mortgage loans;
(iv) the principal portion of any Realized Losses incurred on
any mortgage loans in the calendar month preceding such
distribution date to the extent covered by Net Monthly Excess
Cashflow for such distribution date; and
(v) the amount of any Overcollateralization Increase Amount
for such distribution date;
MINUS
(vi) the amount of any Overcollateralization Reduction Amount
for such distribution date.
REALIZED LOSS: A Realized Loss is any Bankruptcy Loss or the amount of loss
realized with respect to any defaulted mortgage loan that is finally liquidated
through foreclosure sale, disposition of the related mortgaged property (if
acquired on behalf of the certificateholders by deed in lieu of foreclosure) or
otherwise. The amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such mortgage loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the master
servicer for P&I Advances, servicing advances and other related expenses,
including attorney's fees) towards interest and principal owing on the mortgage
loan.
REQUIRED OVERCOLLATERALIZED AMOUNT: The Required Overcollateralized Amount
is the overcollaterized amount required at any time as set forth in the pooling
and servicing agreement.
SCHEDULED PRINCIPAL BALANCE: The Scheduled Principal Balance of any
mortgage loan as of any date of determination is equal to the principal balance
thereof as of the cut-off date (after application of all scheduled principal
payments due on or before the cut-off date, whether or not received), reduced by
(x) the principal portion of all monthly payments due on or before the date of
determination, whether or not received, (y) all amounts allocable to unscheduled
principal that were received prior to the calendar month in which the date of
determination occurs and (z) any Bankruptcy Loss (as defined herein) occurring
out of a Deficient Valuation (as defined herein) that was incurred prior to the
calendar month in which the date of determination occurs.
STEPDOWN DATE: The Stepdown Date for any distribution date is the later to
occur of (x) the distribution date occurring in _____________ and (y) the first
distribution date on which the Credit Enhancement Percentage (calculated for
this purpose only after taking into account distributions of principal on the
mortgage loans, but prior to any distribution of principal to the holders of the
certificates then entitled to distributions of principal on such distribution
date) is greater than or equal to approximately _____%.
TRIGGER EVENT: A Trigger Event is in effect with respect to any
distribution date, if the percentage obtained by dividing (x) the principal
amount of mortgage loans delinquent 60 days or
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more by (y) the aggregate principal balance of the mortgage loans, in each case,
as of the last day of the previous calendar month, exceeds the lesser of (i) __%
of the Credit Enhancement Percentage (calculated for this purpose only with the
aggregate Certificate Principal Balance of the Class CE Certificates and the
Class M Certificates) and (ii) approximately _____%.
INTEREST DISTRIBUTIONS
Distributions on each distribution date will be made to the extent of the
Interest Remittance Amount for the distribution date.
Distributions in respect of interest will be made in the following order of
priority:
first, to the holders of the Class A-1 Certificates, the Class A-1 Interest
Distribution Amount;
second, to the holders of the Class A-2 Certificates, the Class A-2
Interest Distribution Amount;
third, to the holders of the Class M-1 Certificates, the Interest
Distribution Amount allocable to such certificates;
fourth, to the holders of the Class M-2 Certificates, the Interest
Distribution Amount allocable to such certificates; and
fifth, to the holders of the Class M-3 Certificates, the Interest
Distribution Amount allocable to such certificates.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding the beginning of each accrual period,
the trustee will determine one-month LIBOR for such accrual period with respect
to each class of the offered certificates (other than the Class M-3
Certificates). One-month LIBOR will be the rate for deposits in United States
dollars for a term equal to the relevant accrual period which appears in the
Telerate Page 3750 as of 11:00 a.m., London time, on such date. The first
accrual period shall begin on the closing date. If such rate does not appear on
Telerate Page 3750, the rate for that day will be determined on the basis of the
rates at which deposits in United States dollars are offered by the Reference
Banks at approximately 11:00 a.m., London time, on that day to banks in the
London interbank market for a term equal to the relevant accrual period. The
trustee will request the principal London office of each of the Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations
(rounded upwards if necessary to the nearest whole multiple of 0.0625%). If
fewer than two quotations are provided as requested, the rate for that day will
be the higher of (x) one-month LIBOR as determined on the previous interest
determination date and (y) the Reserve Interest Rate. The Reserve Interest Rate
shall be either (i) the arithmetic mean (rounded upwards if necessary to the
nearest whole multiple of 0.0625%) of the rates quoted by major banks in New
York City, selected by the trustee, at approximately 11:00 a.m., New York City
time, on that day for loans in United States dollars to leading European banks
for a term equal to the relevant accrual period or (ii) in the event that the
trustee can determine no such arithmetic mean, the lowest rate quoted by major
banks
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in New York City on that day for loans in United States dollars to leading
European banks for a term equal to the relevant accrual period.
Telerate Page 3750 means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace the page on that
service for the purpose of displaying comparable rates or prices) and Reference
Banks means leading banks selected by the trustee and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market which are not
controlling, controlled by, or under common control with, the depositor, the
originator or the mortgage loan seller.
The establishment of one-month LIBOR on each interest determination date by
the trustee and the trustee's calculation of the rate of interest applicable to
the offered certificates (other than the Class M-3 Certificates) for the related
accrual period shall (in the absence of manifest error) be final and binding.
PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES
On each distribution date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, the Principal Distribution Amount shall be
distributed: first, to the Class A-1 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; second, to the Class A-2
Certificates until the Certificate Principal Balance thereof has been reduced to
zero; third, to the Class M-1 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; fourth, to the Class M-2 Certificates,
until the Certificate Principal Balance thereof has been reduced to zero; and
fifth, to the Class M-3 Certificates, until the Certificate Principal Balance
thereof has been reduced to zero.
On each distribution date (a) on or after the Stepdown Date and (b) on
which a Trigger Event is not in effect, the holders of each class of offered
certificates shall be entitled to receive distributions in respect of principal
to the extent of the Principal Distribution Amount in the following amounts and
order of priority:
first, the lesser of (x) the Principal Distribution Amount and (y) the
Class A-1 Principal Distribution Amount, shall be distributed to the
holders of the Class A-1 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero;
second, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amounts distributed to the holders of the
Class A-1 Certificates pursuant to clause first above and (y) the Class A-2
Principal Distribution Amount, shall be distributed to the holders of the
Class A-2 Certificates, until the Certificate Principal Balance thereof has
been reduced to zero
third, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amounts distributed to the holders of the
Class A-1 Certificates pursuant to clause first above and to the holders of
the Class A-2 Certificates pursuant to clause second above and (y) the
Class M- 1 Principal Distribution Amount, shall be distributed to the
holders of the Class M-1 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; and
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fourth, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amounts distributed to the holders of the
Class A-1 Certificates pursuant to clause first above, to the holders of
the Class A-2 Certificates pursuant to clause second above and to the
holders of the Class M-1 Certificates pursuant to clause third above and
(y) the Class M-2 Principal Distribution Amount, shall be distributed to
the holders of the Class M-2 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero.
fifth, the lesser of (x) the excess of (i) the Principal Distribution
Amount over (ii) the sum of the amounts distributed to the holders of the
Class A-1 Certificates pursuant to clause first above, to the holders of
the Class A-2 Certificates pursuant to clause second above, to the holders
of the Class M-1 Certificates pursuant to clause third above and to the
holders of the Class M-2 Certificates pursuant to clause fourth above and
(y) the Class M-3 Principal Distribution Amount, shall be distributed to
the holders of the Class M-3 Certificates, until the Certificate Principal
Balance thereof has been reduced to zero.
The allocation of distributions in respect of principal to the Class A-1
Certificates on each Distribution Date (a) prior to the Stepdown Date or (b) on
which a Trigger Event has occurred, will have the effect of accelerating the
amortization of the Class A-1 Certificates while, in the absence of Realized
Losses, increasing the respective percentage interest in the principal balance
of the mortgage loans evidenced by the Class A-2 Certificates, the Class M
Certificates and the Class CE Certificates. Increasing the respective percentage
interest in the trust fund of the Class A-2 Certificates, the Class M
Certificates and the Class CE Certificates relative to that of the Class A-1
Certificates is intended to preserve the availability of the subordination
provided by the Class A-2 Certificates, the Class M Certificates and the Class
CE Certificates.
CREDIT ENHANCEMENT
The Credit Enhancement provided for the benefit of the holders of the Class
A-1 Certificates consists of subordination, as described below, and
overcollateralization, as described under "--Overcollateralization Provisions"
herein.
The rights of the holders of the Class A-2 Certificates, the Class M
Certificates and the Class CE Certificates to receive distributions will be
subordinated, to the extent described herein, to the rights of the holders of
the Class A-1 Certificates. This subordination is intended to enhance the
likelihood of regular receipt by the holders of the Class A-1 Certificates of
the full amount of their scheduled monthly payments of interest and principal
and to afford such holders protection against Realized Losses.
The protection afforded to the holders of the Class A-1 Certificates by
means of the subordination of the Class A-2 Certificates, the Class M
Certificates and the Class CE Certificates will be accomplished by (i) the
preferential right of the holders of the Class A-1 Certificates to receive on
any distribution date, prior to distribution to the holders of the Class A-2
Certificates, the Class M Certificates and the Class CE Certificates,
distributions in respect of interest and principal, subject to available funds
and (ii) if necessary, the right of the holders of the Class A-1 Certificates to
receive future distributions of amounts that would otherwise be payable to the
holders of the Class A-2 Certificates, the Class M Certificates and the Class CE
Certificates.
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In addition, the rights of the holders of the Class M Certificates and the
Class CE Certificates to receive distributions in respect of the mortgage loans
will be subordinated to the rights of the holders of the Class A-2 Certificates.
Furthermore, the rights of the holders of the Class M Certificates with lower
numerical class designations will be senior to the rights of holders of the
Class M Certificates with higher numerical class designations, and the rights of
the holders of the Class M Certificates to receive distributions in respect of
the mortgage loans will be senior to the rights of the holders of the Class CE
Certificates, in each case to the extent described herein. This subordination is
intended to enhance the likelihood of regular receipt by the holders of more
senior certificates of distributions in respect of interest and principal and to
afford such holders protection against Realized Losses.
OVERCOLLATERALIZATION PROVISIONS
The weighted average Expense Adjusted Mortgage Rate for the mortgage loans
is generally expected to be higher than the weighted average of the Pass-Through
Rates on the offered certificates, thus generating excess interest collections
which, in the absence of Realized Losses, will not be necessary to fund interest
distributions on the offered certificates. The pooling and servicing requires
that, on each distribution date, the Net Monthly Excess Cashflow, if any, be
applied on such distribution date as an accelerated payment of principal on the
class or classes of offered certificates then entitled to receive distributions
in respect of principal, but only to the limited extent hereafter described.
With respect to any distribution date, any Net Monthly Excess Cashflow (or,
in the case of clause first below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of certificates then entitled
to receive distributions in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred on the mortgage loans;
SECOND, to the holders of the class or classes of Certificates then
entitled to receive distributions in respect of principal, in an amount
equal to the Overcollateralization Increase Amount;
THIRD, to the holders of the Class M-1 Certificates, in an amount equal to
the Interest Carry Forward Amount allocable to such certificates;
FOURTH, to the holders of the Class M-2 Certificates, in an amount equal to
the Interest Carry Forward Amount allocable to such certificates;
FIFTH, to the holders of the Class M-3 Certificates, in an amount equal to
the Interest Carry Forward Amount allocable to such certificates;
SIXTH, to the holders of the Class A-1 Certificates, in an amount equal to
such certificates' allocated share of any Prepayment Interest Shortfalls on
the mortgage loans to the extent not covered by Compensating Interest paid
by the master servicer and any shortfalls resulting from the application of
the Relief Act with respect to the mortgage loans;
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SEVENTH, to the holders of the Class A-2 Certificates, in an amount equal
to such certificates' allocated share of any Prepayment Interest Shortfalls
on the mortgage loans to the extent not covered by Compensating Interest
paid by the master servicer and any shortfalls resulting from the
application of the Relief Act with respect to the mortgage loans;
EIGHTH, to the holders of the Class M-1 Certificates, in an amount equal to
such certificates' allocated share of any Prepayment Interest Shortfalls on
the mortgage loans to the extent not covered by Compensating Interest paid
by the master servicer and any shortfalls resulting from the application of
the Relief Act with respect to the mortgage loans;
NINTH, to the holders of the Class M-2 Certificates, in an amount equal to
such certificates' allocated share of any Prepayment Interest Shortfalls on
the mortgage loans to the extent not covered by Compensating Interest paid
by the master servicer and any shortfalls resulting from the application of
the Relief Act with respect to the Mortgage Loans;
TENTH, to the holders of the Class M-3 Certificates, in an amount equal to
such certificates' allocated share of any Prepayment Interest Shortfalls on
the mortgage loans to the extent not covered by Compensating Interest paid
by the master servicer and any shortfalls resulting from the application of
the Relief Act with respect to the mortgage loans;
ELEVENTH, to the holders of the Class CE Certificates as provided in the
pooling and servicing; and
TWELFTH, to the holders of the Residual Certificates, any remaining
amounts; provided that if such distribution date is the distribution date
immediately following the expiration of the latest prepayment charge term
or any distribution date thereafter, then any such remaining amounts will
be distributed FIRST, to the holders of the Class P Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and SECOND,
to the holders of the Residual Certificates.
As of the closing date, the sum of the aggregate principal balance of the
initial mortgage loans as of the cut-off date and the original pre-funded amount
will exceed the sum of the aggregate certificate principal balances of the
offered certificates and the Class P Certificates by an amount equal to
approximately $__________, which is equal to the initial certificate principal
balance of the Class CE Certificates. Such amount represents approximately ____%
of the sum of the aggregate principal balance of the initial mortgage loans as
of the cut-off date and the original pre-funded amount, which is the initial
amount of overcollateralization required to be provided by the mortgage pool
under the pooling and servicing. Under the pooling and servicing, the
Overcollateralized Amount is required to be maintained at the Required
Overcollateralized Amount. In the event that Realized Losses are incurred on the
mortgage loans, such Realized Losses may result in an overcollateralization
deficiency since such Realized Losses will reduce the principal balance of the
mortgage loans without a corresponding reduction to the aggregate certificate
principal balances of the offered certificates. In such event, the pooling and
servicing requires the payment from Net Monthly Excess Cashflow, subject to
available funds, of an amount equal to such overcollateralization deficiency,
which shall constitute a principal distribution on the offered certificates in
reduction of the certificate principal balances thereof. This has the effect of
accelerating the amortization of the offered certificates relative to the
amortization of the mortgage loans, and of increasing the Overcollateralized
Amount.
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On and after the Stepdown Date and provided that a Trigger Event is not in
effect, the Required Overcollateralized Amount may be permitted to decrease
("step down") below the initial $__________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the mortgage loans (after giving effect to principal payments to be
distributed on such distribution date), subject to a floor of approximately
$_________. In the event that the Required Overcollateralized Amount is
permitted to step down on any distribution date, the pooling and servicing
provides that a portion of the principal which would otherwise be distributed to
the holders of the offered certificates on such distribution date shall be
distributed to the holders of the Class CE Certificates pursuant to the
priorities set forth above. With respect to each such distribution date, the
Principal Distribution Amount will be reduced by an amount equal to the
Overcollateralized Reduction Amount. This has the effect of decelerating the
amortization of the offered certificates relative to the amortization of the
mortgage loans, and of reducing the Overcollateralized Amount. However, if on
any distribution date a Trigger Event is in effect, the Required
Overcollateralized Amount will not be permitted to step down on such
distribution date.
ALLOCATION OF LOSSES; SUBORDINATION
Any Realized Losses on the mortgage loans will be allocated on any
distribution date, first, to Net Monthly Excess Cashflow, second, to the Class
CE Certificates, third, to the Class M-3 Certificates, fourth, to the Class M-2
Certificates, fifth, to the Class M-1 Certificates and sixth, to the Class A-2
Certificates. The pooling and servicing does not permit the allocation of
Realized Losses to the Class A-1 Certificates or the Class P Certificates.
Investors in the Class A-1 Certificates should note that although Realized
Losses cannot be allocated to the Class A-1 Certificates, under certain loss
scenarios there will not be enough principal and interest on the mortgage loans
to pay the Class A-1 Certificates all interest and principal amounts to which
they are then entitled.
Once Realized Losses have been allocated to the Class A-2 Certificates and
the Class M Certificates, such amounts with respect to such certificates will no
longer accrue interest nor will such amounts be reinstated thereafter (even if
Net Monthly Excess Cashflow and/or the Overcollateralized Amount are greater
than zero on any subsequent distribution dates).
Any allocation of a Realized Loss to a certificate will be made by reducing
the certificate principal balance thereof by the amount so allocated as of the
distribution date in the month following the calendar month in which such
Realized Loss was incurred. Notwithstanding anything to the contrary described
herein, in no event will the certificate principal balance of any certificate be
reduced more than once in respect of any particular amount both (i) allocable to
such certificate in respect of Realized Losses and (ii) payable as principal to
the holder of such certificate from Net Monthly Excess Cashflow.
MANDATORY PREPAYMENTS ON CLASS A-1 CERTIFICATES
The Class A-1 Certificates will be prepaid on the distribution date
immediately following the end of the funding period to the extent of any amounts
remaining on deposit in the pre-funding account on such distribution date.
Although no assurance can be given, it is anticipated by the depositor that the
principal amount of subsequent mortgage loans sold to the trust fund will
require the application of substantially all of the original pre-funded amount
and that there will be no material amount of
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principal prepaid to the holders of the Class A-1 Certificates from the
pre-funding account. It is unlikely, however, that the depositor will be able to
deliver subsequent mortgage loans with an aggregate principal balance identical
to the related original pre-funded amount. Accordingly, a small amount of
principal is likely to be prepaid on the Class A-1 Certificates on the
distribution date immediately following the end of the funding period.
INTEREST COVERAGE ACCOUNT
The depositor will establish for the benefit of the holders of the
certificates an interest coverage account. On the closing date, the depositor
will deposit in the interest coverage account a cash amount as specified in the
pooling and servicing agreement. On each distribution date during the funding
period and on the distribution date immediately following, funds on deposit in
the interest coverage account will be applied by the trustee to cover shortfalls
in the amount of interest generated by the assets of the trust fund attributable
to the pre-funding feature. Such shortfall will exist during the funding period
because the interest accruing on the aggregate principal balance of the mortgage
loans during such period will be less than the amount of interest which would
have accrued on the mortgage loans if the subsequent mortgage loans were
included in the trust fund as of the closing date. On the first distribution
date following the termination of the funding period (after the distribution on
the certificates to be made on such distribution date), funds on deposit in the
interest coverage account, net of any investment income earned on such funds by
the master servicer, will be released by the trustee to the depositor or its
designee.
P&I ADVANCES
Subject to the limitations described in the next paragraph, the master
servicer will be obligated to advance or cause to be advanced on or before each
distribution date its own funds, or funds in the certificate account that are
not included in the Available Distribution Amount for that distribution date.
The amount of the master servicer's advance will be equal to the aggregate of
all payments of principal and interest, net of the servicing fee, that were due
during the related due period on the mortgage loans master serviced by it and
that were delinquent on the related determination date, plus amounts
representing assumed payments not covered by any current net income on the
mortgaged properties acquired by foreclosure or deed in lieu of foreclosure. The
determination date with respect to any distribution date is on the 1st day of
the month in which the distribution date occurs or, if the 1st day is not a
business day, on the immediately preceding business day.
P&I Advances are required to be made only to the extent they are deemed by
the master servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making P&I Advances is to
maintain a regular cash flow to the certificateholders, rather than to guarantee
or insure against losses. The master servicer will not be required to make any
P&I Advances with respect to reductions in the amount of the monthly payments on
the mortgage loans due to bankruptcy proceedings or the application of the
Relief Act.
All P&I Advances will be reimbursable to the master servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which the unreimbursed P&I Advance was made. In addition, any P&I Advances
previously made in respect of any mortgage loan that are deemed by the master
servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the master servicer out of any
funds in the
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certificate account prior to the distributions on the certificates. In the event
the master servicer fails in its obligation to make any P&I Advance, the trustee
will be obligated to make any P&I Advance, to the extent required in the pooling
and servicing agreement.
RESTRICTIONS ON TRANSFER OF THE CLASS A-2 CERTIFICATES AND THE CLASS M
CERTIFICATES
Since the Class A-2 Certificates and the Class M Certificates are
subordinate to the Class A-1 Certificates, any Plan purchasing such Class A-2
Certificates or Class M Certificates will be deemed to have represented that
certain conditions have been satisfied in connection with such purchase.
See "ERISA Considerations" in this prospectus supplement.
THE MORTGAGE LOAN SELLER
____________________________, a ______________ company, obtained the
mortgage loans from the originator. The mortgage loan seller will transfer the
mortgage loans to the depositor pursuant to a mortgage loan purchase agreement,
dated as of ________________, among the mortgage loan seller, the originator and
the depositor.
POOLING AND SERVICING AGREEMENT
GENERAL DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
The certificates will be issued under the pooling and servicing agreement,
a form of which is filed as an exhibit to the registration statement. A current
report on Form 8-K relating to the certificates containing a copy of the pooling
and servicing agreement as executed will be filed by the depositor with the
Securities and Exchange Commission within fifteen days of the initial issuance
of the certificates. The trust fund created under the pooling and servicing
agreement will consist of:
o all of the depositor's right, title and interest in and to the
mortgage loans, the related mortgage notes, mortgages and other related
documents,
o all payments on or collections in respect of the mortgage loans due
after the cut-off date, together with any proceeds of the mortgage loans,
o any mortgaged properties acquired on behalf of certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues received on the
mortgaged properties,
o the rights of the trustee under all insurance policies required to be
maintained under the pooling and servicing agreement,
o the rights of the depositor under the mortgage loan purchase
agreement among the depositor, the mortgage loan seller and the originator,
other than rights of the depositor to indemnification by the originator, and
o all of the depositor's right, title and interest in and to the
subsequent mortgage loans and the rights of the depositor under any related
subsequent transfer instrument.
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Reference is made to the prospectus for important information in addition
to that set forth in this prospectus supplement regarding the trust fund, the
terms and conditions of the pooling and servicing agreement and the offered
certificates. The offered certificates will be transferable and exchangeable at
the corporate trust offices of the trustee, located in Minneapolis, Minnesota.
The depositor will provide to a prospective or actual certificateholder without
charge, on written request, a copy, without exhibits, of the pooling and
servicing agreement. Requests should be addressed to the ______________________.
ASSIGNMENT OF THE MORTGAGE LOANS
The depositor will deliver to the trustee or to a custodian with respect to
each mortgage loan:
o the mortgage note endorsed without recourse to the trustee to reflect
the transfer of the mortgage loan,
o the original mortgage with evidence of recording indicated on the
mortgage and
o an assignment of the mortgage in recordable form to the trustee,
reflecting the transfer of the mortgage loan. These assignments of mortgage
loans are required to be recorded by or on behalf of the depositor in the
appropriate offices for real property records except for mortgages held under
the MERS(R) System and except in the state of California or in other states
where, in the opinion of counsel acceptable to the trustee, recording of the
assignment is not required to protect the trustee's interest in the mortgage
loan against the claim of any subsequent transferee or any successor to or
creditor of the depositor, the master servicer, the mortgage loan seller or the
originator. If the depositor uses the MERS(R) System with respect to any
mortgage loan, it will deliver evidence that the mortgage is held for the
trustee through the MERS(R) System instead of an assignment of the mortgage in
recordable form.
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided by
[name of master servicer]. None of the depositor, the trustee, the underwriter
or any of their respective affiliates has made or will make any representation
as to the accuracy or completeness of such information.
[Name of master servicer], a __________ [corporation], is engaged in the
business of [originating, purchasing and selling sub-prime mortgage loans
secured by one-to four-family residences. [Name of master servicer]'s business
was begun in ___________.
Pursuant to the pooling and servicing agreement, [name of master servicer]
will serve as the master servicer for the mortgage loans sold indirectly by it
to the depositor. The master servicer is approved as a seller/servicer for
Fannie Mae and Freddie Mac and as a non-supervised mortgagee by the U.S.
Department of Housing and Urban Development. As of __________________, the
master servicer had ___ offices, consisting of __ loan origination centers
located in __________ and ___ loan origination centers located throughout the
rest of the United States.
LENDING ACTIVITIES AND LOAN SALES. The master servicer currently originates
real estate loans through its network of retail offices and loan origination
centers. The master servicer also
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participates in secondary market activities by originating and selling mortgage
loans while continuing to service the majority of the loans sold. In other cases
the master servicer's whole loan sale agreements provide for the transfer of
servicing rights.
The master servicer's primary lending activity is funding loans to enable
mortgagors to purchase or refinance residential real property, which loans are
secured by first or second liens on the related real property. The master
servicer's single-family real estate loans are predominantly "conventional"
mortgage loans, meaning that they are not insured by the Federal Housing
Administration or partially guaranteed by the U.S. Department of Veterans
Affairs.
The following table summarizes the master servicer's retail originated one-
to four-family residential mortgage loan origination and sales activity for the
periods shown below. Sales activity may include sales of mortgage loans
purchased by the master servicer from other loan
originators.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Originations...... $ $ $ $ $
Sales............. $ $ $ $ $
</TABLE>
LOAN SERVICING. The master servicer services all of the mortgage loans it
originates which are retained in its portfolio and continues to service at least
a majority of the loans that have been sold to investors. Servicing includes
collecting and remitting loan payments, accounting for principal and interest,
contacting delinquent mortgagors, and supervising foreclosure in the event of
unremedied defaults. The master servicer's servicing activities are audited
periodically by applicable regulatory authorities. Certain financial records of
the master servicer relating to its loan servicing activities are reviewed
annually as part of the audit of the master servicer's financial statements
conducted by its independent accountants.
COLLECTION PROCEDURES; DELINQUENCY AND LOSS EXPERIENCE. When a mortgagor
fails to make a required payment on a residential mortgage loan, the master
servicer attempts to cause the deficiency to be cured by corresponding or making
telephone contact with the mortgagor. Pursuant to the master servicer's
customary procedures for residential mortgage loans serviced by it for its own
account, the master servicer generally mails a notice of intent to foreclose to
the mortgagor within ten days after the loan has become 31 days past due (two
payments due but not received) and upon expiration of the notice of intent to
foreclose, generally one month thereafter, if the loan remains delinquent,
typically institutes appropriate legal action to foreclose on the property
securing the loan. If foreclosed, the property is sold at a public or private
sale. The master servicer typically enters a bid based upon an analysis of the
property value, estimated marketing and carrying costs and presence of junior
liens, which may be equal to or less than the full amount owed. In the event the
property is acquired at the foreclosure sale by the master servicer it is placed
on the market for sale through local real estate brokers experienced in the sale
of similar properties. When the foreclosure of a property results in a loss, the
master servicer may (but it is not required), if practical and
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permitted by applicable laws, pursue legal action against the borrowers for
recovery of such deficiency.
THE MASTER SERVICER'S RESIDENTIAL LOAN SERVICING PORTFOLIO
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family and multifamily) retail
first lien loans serviced by the master servicer
that were originated or purchased by the master servicer:
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<TABLE>
<CAPTION>
SEPTEMBER
AT DECEMBER 31, 30,
199_ 199_ 199_ 199_ 199_
------------- --------------- -------------- -------------- ---------------
------------- --------------- -------------- -------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance.................................. $ $ $ $ $
Number of Loans............................
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding Principal
Balance.......................... % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
61-90 Days
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
91 Days or More
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
Total Delinquencies:
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
FORECLOSURES PENDING(1)
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.......................... % % % % %
Foreclosures Pending as
a Percentage of Number of
Loans.............................. % % % % %
NET LOAN LOSSES for the
Period(2)................................ $ $ $ $ $
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance........................ % % % % %
</TABLE>
- ----------------
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of residential loans serviced by the master servicer
have been conveyed to REMIC trust funds.
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<PAGE>
As of September 30, 199_, ___ one- to four-family residential properties
relating to loans in the master servicer's retail servicing portfolio had been
acquired through foreclosure or deed in lieu of foreclosure and were not
liquidated.
There can be no assurance that the delinquency and loss experience of the
mortgage loans will correspond to the loss experience of the master servicer's
mortgage portfolio set forth in the foregoing table. The statistics shown above
represent the delinquency and loss experience for the master servicer's total
servicing portfolio only for the years presented, whereas the aggregate
delinquency and loss experience on the mortgage loans will depend on the results
obtained over the life of the trust fund. The master servicer's portfolio
includes mortgage loans with payment and other characteristics which are not
representative of the payment and other characteristics of the mortgage loans. A
substantial number of the mortgage loans may also have been originated based on
the master servicer guidelines that are less stringent than those generally
applicable to the servicing portfolio reflected in the foregoing table. If the
residential real estate market should experience an overall decline in property
values, the actual rates of delinquencies, foreclosures and losses could be
higher than those previously experienced by the master servicer. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the mortgage loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the mortgage loans.
The delinquency and loss experience percentages set forth above in the
immediately preceding table are calculated on the basis of the total mortgage
loans serviced as of the end of the periods indicated. However, because the
total outstanding principal balance of residential loans serviced by the master
servicer has increased from $___________ at December 31, 199_ to $_____________
at September 30, 199_, the total outstanding principal balance of retail
originated loans serviced as of the end of any indicated period includes many
loans that will not have been outstanding long enough to give rise to some or
all of the indicated periods of delinquency. In the absence of such substantial
and continual additions of newly originated loans to the total amount of loans
serviced, the percentages indicated above would be higher and could be
substantially higher. The actual delinquency percentages with respect to the
mortgage loans may be expected to be substantially higher than the delinquency
percentages indicated above because the composition of the mortgage loans will
not change.
If the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by
the master servicer.
THE TRUSTEE
___________________, a national banking association, will act as trustee
for the certificates under the pooling and servicing agreement. The trustee's
offices for notices under the pooling and servicing agreement are located at .
The principal compensation to be paid to the trustee, or the trustee's fee,
in respect of its obligations under the pooling and servicing agreement will be
equal to accrued interest at the trustee's fee rate of ______% per annum on the
stated principal balance of each mortgage loan. The pooling and servicing
agreement will provide that the trustee and any director, officer, employee or
agent of the trustee will be indemnified by the trust fund and will be held
harmless against any loss, liability or expense, incurred by the trustee in
connection with any pending or threatened claim or
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<PAGE>
legal action arising out of or in connection with the acceptance or
administration of its obligations and duties under the pooling and servicing
agreement, other than any loss, liability or expense:
o resulting from a breach of the master servicer's obligations and
duties under the pooling and servicing agreement,
o that constitutes a specific liability of trustee under the pooling
and servicing agreement or
o incurred by reason of willful misfeasance, bad faith or negligence in
the performance of the trustee's duties under the pooling and servicing
agreement or as a result of a breach, or by reason of reckless disregard, of the
trustee's obligations and duties under the pooling and servicing
agreement.
In addition the pooling and servicing agreement will provide that the
trustee and any director, officer, employee or agent of the trustee will be
reimbursed from the trust fund for all costs associated with the transfer of
servicing in the event of a master servicer event of default.
This indemnification will not include expenses, disbursements and advances
incurred or made by the trustee, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the trustee's
performance in accordance with the provisions of the pooling and servicing
agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the master servicer, or the
servicing fee, in respect of its servicing activities for the certificates will
be equal to accrued interest at the servicing fee rate of ____% per annum with
respect to each mortgage loan master serviced by it for each calendar month on
the same principal balance on which interest on the mortgage loan accrues for
the calendar month. As additional servicing compensation, the master servicer is
entitled to retain all ancillary income including assumption fees, NSF fees,
reconveyance and late payment charges (with the exception of prepayment charges
to be distributed to the holders of the Class P Certificates) to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the certificate account and any escrow accounts in respect of
mortgage loans master serviced by it. The master servicer is obligated to offset
any Prepayment Interest Shortfall in respect of mortgage loans master serviced
by it on any distribution date with Compensating Interest to the extent of its
aggregate servicing fee for the distribution date. The master servicer is
obligated to pay insurance premiums and ongoing expenses associated with the
mortgage pool in respect of mortgage loans master serviced by it and incurred by
the master servicer in connection with its responsibilities under the pooling
and servicing agreement. The master servicer is entitled to reimbursement for
these expenses as provided in the pooling and servicing agreement. See
"Description of the Securities--Retained Interest; Servicing or Administration
Compensation and Payment of Expenses" in the prospectus for information
regarding expenses payable by the master servicer and "Federal Income Tax
Consequences" in this prospectus supplement regarding taxes payable by the
master servicer.
VOTING RIGHTS
At all times, __% of all voting rights will be allocated among the holders
of the offered certificates in proportion to the then outstanding certificate
principal balances of their respective certificates, 1% of all voting rights
will be allocated among the holders of the Class P Certificates and 1/3 of 1% of
all voting rights will be allocated among the holders of each class of the
Residual Certificates in proportion to the percentage interests in each class
evidenced by their respective certificates.
S-58
<PAGE>
TERMINATION
The majority holder of the Class CE Certificates (or if such holder does
not exercise such option, the master servicer) will have the right to purchase
the mortgage loans and any properties acquired in respect of the mortgage loans
on any distribution date, once the aggregate principal balance of the mortgage
loans and properties at the time of purchase is reduced to less than __% of the
sum of the aggregate principal balance of the mortgage loans as of the cut-off
date plus the original pre-funded amount. If the majority Class CE
certificateholder or the master servicer elects to exercise this option, the
election will effect the termination of the trust fund and the early retirement
of the certificates. In the event the majority Class CE certificateholder or the
master servicer exercises this option, notwithstanding the terms of the
prospectus, the purchase price payable in connection with the termination will
be equal to the greater of par or the fair market value of the mortgage loans,
plus accrued interest for each mortgage loan at the related mortgage rate to but
not including the first day of the month in which the repurchase price is
distributed. The portion of the purchase price allocable to the certificates of
each class will be, to the extent of available funds:
o in the case of the certificates of any class 100% of the then
outstanding certificate principal balance of the class, PLUS
o in the case of the certificates of any class, one month's interest on
the then outstanding certificate principal balance of the class at the then
applicable Pass-Through Rate for the class plus any previously accrued but
unpaid interest on the class.
The holders of the Residual Certificates shall pledge any amount received
in a termination in excess of par to the holders of the Class CE Certificates.
In no event will the trust created by the pooling and servicing agreement
continue beyond the expiration of 21 years from the death of the survivor of the
persons named in the pooling and servicing agreement. For further information
regarding the circumstances under which the obligations created by the pooling
and servicing agreement will terminate in respect of the certificates see,
"Description of the Securities--Termination" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the
trust fund (exclusive of the pre-funding account and the interest coverage
account) as real estate mortgage investment conduits or REMICs, designated as
REMIC I, REMIC II and REMIC III, for federal income tax purposes. Prior to the
sale of the offered certificates, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion to the effect that, assuming compliance with
all provisions of the pooling and servicing agreement, for federal income tax
purposes, the REMICs will qualify as REMICs under Sections 860A through 860G of
the Internal Revenue Code of 1986.
For federal income tax purposes:
o the Class R-I Certificates will be the sole class of residual interests
in REMIC I,
o separate non-certificated regular interests in REMIC I will be issued and
will be the regular interests in REMIC I,
o the Class R-II Certificates will be the sole class of residual interests
in REMIC II,
o separate non-certificated regular interests in REMIC II will be issued
and will be the regular interests in REMIC II,
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<PAGE>
o the Class R-III Certificates will be the sole class of residual interests
in REMIC III, and
o the offered certificates, the Class CE Certificates and the Class P
Certificates will be the regular interests in, and will be treated as debt
instruments of, REMIC III. See "Federal Income Tax
Consequences--REMICs--Classification of REMICs" in the prospectus.
For federal income tax reporting purposes, the offered certificates (other
than the Class M-3 Certificates) will not, and the Class M-3 Certificates will,
be treated as having been issued with original issue discount. The prepayment
assumption that will be used in determining the rate of accrual of original
issue discount, premium and market discount, if any, for federal income tax
purposes will be based on the assumption that, subsequent to the date of any
determination, the mortgage loans will prepay at a rate equal to ____% of CPR.
No representation is made that the mortgage loans will prepay at that rate or at
any other rate. See "Federal Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates--Original Issue Discount" in the prospectus.
The IRS has issued regulations, referred to in this prospectus supplement
as the OID Regulations, under Sections 1271 to 1275 of the Code addressing the
treatment of debt instruments issued with original issue discount. Purchasers of
the offered certificates should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
prepayable securities such as the offered certificates. In addition, there is
considerable uncertainty concerning the application of the OID Regulations to
REMIC regular certificates that provide for payments based on an adjustable rate
such as the offered certificates (other than the Class M-3 Certificates).
Because of the uncertainty concerning the application of Section 1272(a)(6) of
the Code to such certificates and because the rules of the OID Regulations
relating to debt instruments having an adjustable rate of interest are limited
in their application in ways that could preclude their application to such
certificates even in the absence of Section 1272(a)(6) of the Code, the IRS
could assert that the Class A Certificates, the Class M-1 Certificates and the
Class M-2 Certificates should be treated as issued with original issue discount
or should be governed by the rules applicable to debt instruments having
contingent payments or by some other method not yet set forth in regulations.
Prospective purchasers of the offered certificates are advised to consult their
tax advisors concerning the tax treatment of such certificates.
The OID Regulations may permit the holder of a debt instrument to recognize
original issue discount under a method that differs from that of the issuer.
Accordingly, it is possible that holders of offered certificates issued with
original issue discount may be able to select a method for recognizing original
issue discount that differs from that used in preparing reports to
certificateholders and the IRS. Prospective purchasers of offered certificates
issued with original issue discount are advised to consult their tax advisors
concerning the tax treatment of the certificates in this regard.
It appears that a reasonable method of reporting original issue discount
with respect to the Class A Certificates, the Class M-1 Certificates and the
Class M-2 Certificates, if such certificates are required to be treated as
issued with original issue discount, generally would be to report all income
with respect to such certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index will remain constant for purposes of determining the original
yield to maturity of, and projecting future distributions on such certificates,
thereby treating such certificates as fixed rate instruments to which the
original issue discount computation rules described in the prospectus can be
applied, and (ii) by accounting for any positive or negative variation in the
actual value of the applicable index in any period from its assumed value as a
current adjustment to original issue discount with respect to such period. See
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<PAGE>
"Federal Income Tax Consequences-- REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" in the prospectus.
Some classes of certificates may be treated for federal income tax purposes
as having been issued with a premium. Certificateholders may elect to amortize
this premium under a constant yield method in which case the amortizable premium
will be allocated among the interest payments on these certificates and will be
applied as an offset against these interest payments. See "Federal
Income Tax Consequences--REMICs--Taxation of Owners of REMIC Regular
Certificates--Premium" in the prospectus.
The offered certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and real estate assets under Section 856(c)(4)(A) of
the Code, in the same proportion that the assets in the related trust fund would
be so treated. In addition, interest on the offered certificates will be treated
as interest on obligations secured by mortgages on real property under Section
856(c)(3)(B) of the Code, generally to the extent that the offered certificates
are treated as real estate assets under Section 856(c)(4)(A) of the Code.
Amounts held in the pre-funding account and interest coverage account may not be
treated as assets described in the foregoing sections of the Code. The offered
certificates also will be treated as qualified mortgages under Section
860G(a)(3) of the Code. See "Federal Income Tax
Consequences--REMICs--Characterization of Investments in REMIC Certificates" in
the prospectus.
It is not anticipated that the REMICs will engage in any transactions that
would subject the REMICs to the prohibited transactions tax as defined in
Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any tax is
imposed on REMIC I, REMIC II or REMIC III, this tax will be borne:
o by the trustee, if the trustee has breached its obligations with
respect to REMIC compliance under the pooling and servicing agreement,
o by the master servicer, if the master servicer has breached its
obligations with respect to REMIC compliance under the pooling and servicing
agreement and
o otherwise by the trust fund, with a resulting reduction in amounts
otherwise distributable to holders of the related offered certificates. See
"Description of the Securities" and "Federal Income Tax Consequences--REMICs" in
the prospectus.
The responsibility for filing annual federal information returns and other
reports will be borne by the trustee or the master servicer. See "Federal Income
Tax Consequences--REMICs--Reporting and Other Administrative Matters" in the
prospectus.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated _________ __, ____, the depositor has agreed to sell, and
______________, the underwriter, has agreed to purchase the offered
certificates. The underwriter is obligated to purchase all offered certificates
of the respective classes offered by this prospectus supplement if it purchases
any.
Distribution of the offered certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the depositor from
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the sale of the offered certificates, before deducting expenses payable by the
depositor, will be approximately _________% of the aggregate initial certificate
principal balance of the offered certificates, plus accrued interest in the case
of the Class M-3 Certificates. In connection with the purchase and sale of the
offered certificates, the underwriter may be deemed to have received
compensation from the depositor in the form of underwriting discounts.
The offered certificates are offered subject to receipt and acceptance by
the underwriter, to prior sale and to the underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the offered certificates will be made
through the facilities of DTC, Cedel and the Euroclear system on or about the
closing date. The offered certificates will be offered in Europe and the United
States.
The underwriting agreement provides that the depositor will indemnify the
underwriter against those civil liabilities set forth in the underwriting
agreement, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the underwriter may be required to make in
respect of these liabilities.
SECONDARY MARKET
There is currently no secondary market for the offered certificates and
there can be no assurance that a secondary market for the offered certificates
will develop or, if it does develop, that it will continue. The underwriter
intends to establish a market in the offered certificates but is not obligated
to do so. There can be no assurance that any additional information regarding
the offered certificates will be available through any other source. In
addition, the depositor is not aware of any source through which price
information about the offered certificates will be available on an ongoing
basis. The limited nature of the information regarding the offered certificates
may adversely affect the liquidity of the offered certificates, even if a
secondary market for the offered certificates becomes available. The primary
source of information available to investors concerning the offered certificates
will be the monthly statements discussed in the prospectus under "Description of
the Securities--Reports to Securityholders", which will include information as
to the outstanding principal balance of the offered certificates and the status
of the applicable form of credit enhancement.
LEGAL OPINIONS
Legal matters relating to the offered certificates will be passed upon for
the depositor by Thacher Proffitt & Wood, New York, New York and for the
underwriter by ____________________.
RATINGS
It is a condition to the issuance of the certificates that the Class A
Certificates be rated "AAA" by _________________ and "AAA" by ____________, that
the Class M-1 Certificates be rated at least "AA" by _________ and at least "AA"
by _______, that the Class M-2 Certificates be rated at least "A" by _________
and at least "A" by ________, and that the Class M-3 Certificates be rated at
least "BBB" by __________ and at least "BBB" by ______________________.
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The ratings of _________ and ________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which these certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which prepayments will differ from that originally anticipated. The
ratings do not address the possibility that certificateholders might suffer a
lower than anticipated yield due to non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
offered certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the offered certificates.
The depositor has not requested that any rating agency rate any class of
the offered certificates other than as stated in the immediately preceding
paragraph. However, there can be no assurance as to whether any other rating
agency will rate any class of the offered certificates, or, if it does, what
rating would be assigned by that rating agency. A rating on any class of the
offered certificates by another rating agency, if assigned at all, may be lower
than the ratings assigned to the classes of the offered certificates as stated
in the first paragraph of this section.
LEGAL INVESTMENT
The Class A Certificates and the Class M-1 Certificates will not constitute
mortgage related securities for purposes of the SMMEA until such time as the
balance of the pre-funding account is reduced to zero. At such time, the Class A
Certificates and the Class M-1 Certificates will constitute mortgage related
securities for purposes of SMMEA for so long as they are rated not lower than
the second highest rating category by a rating agency, as defined in the
prospectus, and, therefore, will be legal investments for some entities to the
extent provided in SMMEA. SMMEA, however, provides for state limitation on the
authority of these entities to invest in mortgage related securities provided
that restrictive legislation was enacted prior to October 3, 1991. There are ten
states that have enacted legislation which overrides the preemption provisions
of SMMEA. The Class M-2 Certificates and the Class M-3 Certificates will not
constitute mortgage related securities for purposes of SMMEA.
The depositor makes no representations as to the proper characterization of
any class of offered certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase any class of offered
certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of offered certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of offered certificates constitutes a legal
investment or is subject to investment, capital or other restrictions. On
December 1, 1998, the OTS issued Thrift Bulletin 13a entitled "Management of
Interest Rate Risk, Investment Securities and Derivative Activities", which is
applicable to thrift institutions regulated by the OTS. TB 13a should be
reviewed by any thrift institution prior to investing in the offered
certificates.
See "Legal Investment" in the prospectus.
S-63
<PAGE>
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any other plan or arrangement
subject to ERISA or Section 4975 of the Code, each referred to in this
prospectus supplement as a Plan, or any person investing Plan Assets of any Plan
should carefully review with its legal advisors whether the purchase, sale or
holding of certificates will give rise to a prohibited transaction under ERISA
or Section 4975 of the Code.
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23, or the exemption, as described under
"Considerations for Benefit Plan Investors" in the prospectus, to the
underwriter. The exemption exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA and the excise taxes imposed on
these prohibited transactions by Section 4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to the purchase, sale and holding of
pass-through certificates underwritten by the underwriter such as the Class A-1
Certificates, and the servicing and operation of asset pools such as the
mortgage pool. To obtain the benefit of the exemption, however, the conditions
set forth under "Considerations for Benefit Plan Investors" in the prospectus
must be satisfied. The purchase of the Class A-1 Certificates by, on behalf of
or with the Plan Assets of any Plan may qualify for exemptive relief under the
exemption. However, the exemption contains a number of conditions which must be
met for the exemption to apply, as described in the prospectus, including the
requirement that any Plan 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 of 1933, as amended. Additional conditions, as described in the
prospectus, must be met for the exemption to apply to certificates evidencing
interests in a trust fund including a pre-funding account. A fiduciary of a Plan
contemplating purchasing a Class A-1 Certificate must make its own determination
that the conditions set forth in the exemption will be satisfied with respect to
the Class A-1 Certificates.
Because the characteristics of the Class A-2 Certificates and the Class M
Certificates will not meet the requirements of Prohibited Transaction Class
Exemption, or PTCE, 83-1, as described in the prospectus, or the exemption, the
purchase, sale or holding of the Class A-2 Certificates or the Class M
Certificates by, on behalf of or with Plan Assets of any Plan may result in
prohibited transactions or the imposition of excise taxes or civil penalties.
Therefore, the pooling and servicing agreement provides that transfers of Class
A-2 Certificates or Class M Certificates to a Plan, a trustee or other person
acting on behalf of any Plan or to any person using Plan Assets to effect this
acquisition will not be registered by the trustee unless the purchaser of these
certificates provides the depositor, the trustee and the master servicer with
either:
o an opinion of counsel satisfactory to the depositor, the trustee and
the master servicer, which opinion will not be at the expense of the depositor,
the master servicer, the trustee or the trust fund, to the effect that the
purchase of these certificates is permissible under applicable law, will not
constitute or result in any non-exempt prohibited transaction under ERISA or
Section 4975 of the Code and will not subject the depositor, the master
servicer, the trustee or the trust fund to any obligation in addition to those
undertaken in the pooling and servicing agreement OR
o a certification of facts, which in the case of the Class A-2
Certificates, the Class M-1 Certificates, the Class M-2 Certificates and the
Class M-3 Certificates, the purchaser will be deemed to have represented the
certification of facts, substantially to the effect that the purchase of offered
certificates by or on behalf of a Plan is permissible under applicable law, will
not constitute or result
S-64
<PAGE>
on a non-exempt prohibited transaction under ERISA or Section 4975 of the Code,
will not subject the depositor, the trustee or the master servicer to any
obligation in addition to those undertaken in the pooling and servicing
agreement and the following conditions are met:
o the transferee is an insurance company and:
o the source of funds used to purchase the offered certificates is
an insurance company general account, as that term is defined in PTCE 95-60,
o the conditions set forth in Sections I and III of PTCE 95-60
have been satisfied and
o there is no Plan with respect to which the amount of the general
account's reserves and liabilities for contracts held by or on behalf of the
Plan and all other Plans maintained by the same employer, or any affiliate
thereof, as defined in PTCE 95-60, or by the same employee organization, exceeds
10% of the total of all reserves and liabilities of the general account, as
determined under PTCE 95-60, as of the date of the acquisition of the
certificates;
o the transferee is an insurance company and:
o the source of funds used to purchase the certificates is an
insurance company general account,
o the requirements of Sections 401(c) of ERISA and the regulations
to be promulgated thereunder have been satisfied and will continue to be
satisfied and
o the insurance company represents that it understands that the
operation of the general account after December 31, 1998 may affect its ability
to continue to hold the certificates after the date which is 18 months after the
401(c) Regulations become final and that unless a class exemption or an
exception under Section 401(c) of ERISA is then available for the continued
holding of the certificates, it will dispose of the certificates prior to the
date which is 18 months after the 401(c) Regulations become final;
o the transferee is an insurance company and:
o the source of funds used to purchase the certificates is an
insurance company pooled separate account, as that term is defined in PTCE 90-1,
o the conditions set forth in PTCE 90-1 have been satisfied and
o there is no Plan, together with all other Plans maintained by
the same employer, or any affiliate thereof, as defined in PTCE 90-1, or by the
same employee organization, with assets which exceed 10% of the total of all
assets in such pooled separate account, as determined under PTCE 90- 1, as of
the date of the acquisition of the certificates;
o the transferee is a bank and:
o the source of funds used to purchase the certificates is a
collective investment fund, as defined in PTCE 91-38,
o the conditions set forth in PTCE 91-38 have been satisfied and
o there is no Plan, the interests of which, together with the
interests of any other Plans maintained by the same employer or employee
organization, in the collective investment fund exceed 10% of the total of all
assets in the collective investment fund, as determined under PTCE 91-38,
as of the date of acquisition of the certificates;
S-65
<PAGE>
o the transferee is a qualified professional asset manager described in
PTCE 84-14 and the conditions set forth in PTCE 84-14 have been satisfied and
will continue to be satisfied; or
o the transferee is an in-house asset manager described in PTCE 96-23
and the conditions set forth in PTCE 96-23 have been satisfied and will continue
to be satisfied. The Class A-2 Certificates and the Class M Certificates will
contain a legend describing these restrictions on transfer.
Before purchasing a Class A-1 Certificate, a fiduciary of a Plan should
itself confirm that the Class A-1 Certificates constitute certificates for
purposes of the exemption and that the specific conditions of the exemption and
the other requirements set forth in the exemption would be satisfied. In
addition, before purchasing a Class A-2 Certificate or Class M Certificate, a
fiduciary of a Plan should itself confirm that the conditions to the purchase
described in this section would be satisfied. Any Plan fiduciary that proposes
to cause a Plan to purchase a certificate should consult with its counsel with
respect to the potential applicability to this investment of the fiduciary
responsibility and prohibited transaction provisions of ERISA and the Code to
the proposed investment. For further information regarding the ERISA
considerations of investing in the Certificates, see "ERISA Considerations" in
the prospectus.
S-66
<PAGE>
$____________ (APPROXIMATE)
AMERIQUEST MORTGAGE SECURITIES INC.
DEPOSITOR
AQ FLOATING-RATE MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-__
PROSPECTUS SUPPLEMENT
DATED _________ ___, ____
MASTER SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered by this prospectus supplement
and with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ ___, ____.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, Dated January 11, 2000
[Version 2]
Prospectus Supplement (to Prospectus dated , ____)
$_______________ (APPROXIMATE)
AQ FLOATING RATE MORTGAGE PASS-THROUGH CERTIFICATES, SERIES ____-
AMERIQUEST MORTGAGE SECURITIES INC.
DEPOSITOR
MASTER SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
This prospectus supplement, together with the accompanying prospectus will
constitute the complete prospectus.
- --------------------------------------------------------------------------------
OFFERED CERTIFICATES The trust created for the series _____-__
certificates will hold a pool of one- to four-family, adjustable
rate, residential first mortgage loans. The trust will issue
______ classes of offered certificates. You can find a list of
these classes, together with their principal balances,
pass-through rates and other characteristics, on Page S-__ of
this prospectus supplement. Credit enhancement for all of the
offered certificates will be provided by a certificate insurance
policy and overcollateralization.
UNDERWRITING _______________________, as underwriter, will offer to the public
the Class A-1 Certificates and the Class A-2 Certificates at
varying prices to be determined at the time of sale. The proceeds
to the depositor from the sale of the underwritten certificates
will be approximately _____% of the principal balance of the
underwritten certificates plus accrued interest, before deducting
expenses. See "Method of Distribution".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED CERTIFICATES OR DETERMINED
THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY 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.
_________________________
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered certificates in two separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of certificates; and
o this prospectus supplement, which describes the specific terms of this
series of certificates.
Ameriquest Mortgage Securities Inc.'s principal offices are located at 1100 Town
& Country Road, Orange, California 92868 and its phone number is (___) ________.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement.............................................S-3
Risk Factors................................................................S-10
Use of Proceeds.............................................................S-16
The Mortgage Pool...........................................................S-16
Yield on the Certificates...................................................S-27
Description of the Certificates.............................................S-34
The Mortgage Loan Seller....................................................S-53
Pooling and Servicing Agreement.............................................S-53
The Insurer.................................................................S-61
Federal Income Tax Consequences.............................................S-63
Method of Distribution......................................................S-65
Secondary Market............................................................S-65
Legal Opinions..............................................................S-66
Experts.....................................................................S-66
Legal Investment............................................................S-67
ERISA Considerations........................................................S-67
S-2
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE CERTIFICATES OFFERED
BY THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT
YOU SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE
TERMS OF THE OFFERED CERTIFICATES, READ CAREFULLY THIS ENTIRE PROSPECTUS
SUPPLEMENT AND THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series................. AQ Floating Rate Mortgage Pass-Through
Certificates, Series ____-_.
Cut-off Date.................... __________ __, ____.
Closing Date.................... On or about __________ __, ____.
Depositor....................... Ameriquest Mortgage Securities Inc. The
depositor will deposit the mortgage loans
into the trust. The depositor's principal
offices are located at 1100 Town & Country
Road, Orange, California 92868 and its
telephone number is (___) ________. SEE "THE
DEPOSITOR" IN THE PROSPECTUS.
Mortgage Loan Seller............ __________________________________. SEE "THE
MORTGAGE LOAN SELLER" IN THIS PROSPECTUS
SUPPLEMENT.
Master Servicer and Originator.. SEE "THE MORTGAGE POOL--UNDERWRITING
STANDARDS Of _________ AND REPRESENTATIONS
CONCERNING THE MORTGAGE LOANS" AND "POOLING
AND SERVICING AGREEMENT--THe ORIGINATOR AND
MASTER SERVICER" IN THIS PROSPECTUS
SUPPLEMENT.
Trustee......................... __________________. SEE "POOLING AND
SERVICING AGREEMENT--THE TRUSTEE" IN THIS
PROSPECTUS SUPPLEMENT.
Insurer......................... __________________. SEE "THE INSURER" IN THIS
PROSPECTUS SUPPLEMENT.
Distribution Dates.............. Distributions on the offered certificates
will be made on the __ day of each month, or,
if that day is not a business day, on the
next succeeding business day, beginning in
________ ______.
Offered Certificates............ Only the certificates listed in the
immediately following table are being offered
by this prospectus supplement. Each class of
offered certificates and their pass-through
S-3
<PAGE>
rates and certificate principal balances are
set forth in the immediately following table.
S-4
<PAGE>
<TABLE>
<CAPTION>
========== =================== ============== =========== ===================== ===============
INITIAL CERTIFICATE PASS-THROUGH INITIAL CERTIFICATE PASS-THROUGH
CLASS PRINCIPAL BALANCE RATE CLASS PRINCIPAL BALANCE RATE
- ---------- ------------------- -------------- ----------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
A-1....... $_________ Variable A-2 .... $__________ Variable
========== =================== ============== =========== ===================== ===============
</TABLE>
The initial certificate principal balance of each class of certificates listed
in the immediately preceding table is approximate. The pass-through rate on each
class of certificates is generally based on one-month LIBOR plus an applicable
spread, subject to a rate cap equal to the weighted average of the net mortgage
rates of the mortgage loans as described in this prospectus supplement.
THE TRUST
The depositor will establish a trust with respect to the certificates, under the
pooling and servicing agreement dated as of __________ __, ____ among the
depositor, the master servicer and the trustee. There are _____ classes of
certificates representing the trust. SEE "DESCRIPTION OF THE CERTIFICATES" IN
THIS PROSPECTUS SUPPLEMENT.
The certificates represent in the aggregate the entire beneficial ownership
interest in the trust. Distributions of interest and principal on the offered
certificates will be made only from payments received in connection with the
mortgage loans described in the next section and payments under the certificate
insurance policy.
THE MORTGAGE LOANS
The trust will contain approximately _____ [conventional] [sub-prime]
[nonconforming], one- to four-family, adjustable-rate mortgage loans secured by
first liens on residential real properties. The mortgage loans have an aggregate
principal balance of approximately $__________ as of _________ __ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of ___________ ___, ___.
Approximate range of mortgage rates: _____% to _____%.
Approximate weighted average mortgage rate: _____%.
Approximate range of gross margins: _____% to _____%.
Approximate weighted average gross margin: _____%.
Approximate range of minimum mortgage rates: _____% to _____%.
Approximate weighted average minimum mortgage rate: _____%.
Approximate range of maximum mortgage rates: _____% to _____%.
Approximate weighted average maximum mortgage rate: _____%.
Approximate weighted average remaining term
to stated maturity: ___ years and ___ months.
Approximate range of principal balances: $_________ to $_________.
Average principal balance: $_________.
Approximate range of loan-to-value ratios: _____% to _____%.
Approximate weighted average loan-to-value ratio: _____%.
S-5
<PAGE>
Approximate weighted average next adjustment date _____% to _____%.
The interest rate on each mortgage loan will adjust semi-annually on each
adjustment date to equal the sum of six-month LIBOR and the related gross
margin, subject to periodic and lifetime limitations, as described herein.
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
PRE-FUNDING ACCOUNT AND SUBSEQUENT MORTGAGE LOANS
On or before ________, the depositor will sell subsequent mortgage loans to be
included in the trust fund. On the closing date, the Depositor will pay to the
trustee approximately $__________ which will be held by the trustee in the
pre-funding account.
The amount on deposit in the pre-funding account will be reduced by the amount
used to purchase subsequent mortgage loans during the period from the closing
date up to and including ____________. Any amounts remaining in the pre-funding
account after ______________ will be distributed on the next distribution date
to the holders of the Class A-1 Certificates. SEE "THE MORTGAGE POOL--CONVEYANCE
OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNT" IN THIS PROSPECTUS
SUPPLEMENT.
INTEREST COVERAGE ACCOUNT
On the closing date, the depositor will pay to the trustee for deposit in the
interest coverage account, an amount as specified in the pooling and servicing
agreement. Funds on deposit in the interest coverage account will be applied by
the trustee to cover shortfalls in the amount of interest generated by the
assets of the trust fund attributable to the pre-funding feature during the
funding period. SEE "DESCRIPTION OF THE CERTIFICATES--INTEREST COVERAGE ACCOUNT"
IN THIS PROSPECTUS SUPPLEMENT.
THE CERTIFICATES
OFFERED CERTIFICATES. The offered certificates will have the characteristics
shown in the table appearing on page S-__ in this prospectus supplement. The
pass-through rate on the offered certificates is variable and will be calculated
for each distribution date as described under the definition of pass-through
rate contained in "Description of the Certificates--Glossary of Terms" in this
prospectus supplement.
The offered certificates will be sold by the depositor to the underwriter on the
closing date.
The offered certificates will initially be represented by one or more global
certificates registered in the name of CEDE & Co., as nominee of DTC in minimum
denominations of $[10,000] and integral multiples of $[1.00] in excess of the
minimum denominations. SEE "DESCRIPTION OF THE CERTIFICATES --REGISTRATION OF
THE BOOK-ENTRY CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
CLASS CE CERTIFICATES. The Class CE Certificates are one of the ____ classes of
certificates representing the trust, but are not offered by this prospectus
supplement. The Class CE Certificates will have an initial certificate principal
balance of approximately $_______, which is equal to the initial
overcollateralization required by the pooling and servicing agreement. The Class
CE Certificates initially evidence an interest of approximately ___% in the
trust. The Class CE
S-6
<PAGE>
Certificates will be delivered to a wholly-owned bankruptcy remote subsidiary of
the depositor as partial consideration for the mortgage loans.
CLASS P CERTIFICATES. The Class P certificates are one of the ___ classes of
certificates representing the trust, but are not offered by this prospectus
supplement. The Class P Certificates will have an initial certificate principal
balance of $[100] and will not be entitled to distributions in respect of
interest. The Class P Certificates will be entitled to all prepayment charges
received in respect of the mortgage loans. The Class P Certificates will be
delivered to a wholly-owned bankruptcy remote subsidiary of the depositor as
partial consideration for the mortgage loans.
RESIDUAL CERTIFICATES. The Class R-I Certificates, the Class R-II Certificates
and the Class R-III Certificates are the classes of certificates representing
the residual interests in the trust, but are not offered by this prospectus
supplement. The Class R-I Certificates, the Class R-II Certificates and the
Class R-III Certificates will be delivered to a wholly-owned bankruptcy remote
subsidiary of the depositor as partial consideration for the mortgage loans.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
certificates consists of the certificate insurance policy and
overcollateralization each as described in the next section and under
"DESCRIPTION OF THE CERTIFICATES--OVERCOLLATERALIZATION PROVISIONS" and
"--CREDIT ENHANCEMENT" IN THIS PROSPECTUS SUPPLEMENT."
OVERCOLLATERALIZATION. The sum of the aggregate principal balance of the initial
mortgage loans as of the cut-off date and the original pre-funded amount will
exceed the aggregate certificate principal balance of the offered certificates
and the Class P Certificates on the closing date by approximately $__________,
which is equal to the initial certificate principal balance of the Class CE
Certificates. Such amount represents approximately ____% of the sum of the
aggregate principal balance of the initial mortgage loans as of the cut-off date
and the original pre-funded amount, and is the initial amount of
overcollateralization required to be provided by the mortgage pool under the
pooling and servicing agreement.
CERTIFICATE INSURANCE POLICY. The offered certificates will be entitled to the
benefit of the certificate insurance policy to be issued by _____________. The
insurer will issue the certificate insurance policy as a means of providing
additional credit enhancement to the offered certificates. The certificate
insurance policy will irrevocably and unconditionally guarantee payment for the
benefit of the holders of the offered certificates of an amount that will cover:
o interest shortfalls, except for the shortfalls described in this
prospectus supplement, allocated to the offered certificates,
o the amount by which the outstanding principal amount of the offered
certificates EXCEEDS the sum of the principal amount of the mortgage
loans and the amounts, if any, on deposit in the prefunding account
and
o without duplication of the amount specified in the
S-7
<PAGE>
immediately preceding paragraph, the outstanding principal amount of
the offered certificates to the extent unpaid on the final
distribution date or the earlier termination of the trust under the
terms of the pooling and servicing agreement. SEE "DESCRIPTION OF THE
CERTIFICATES--FINANCIAL GUARANTY INSURANCE POLICY" IN THIS PROSPECTUS
SUPPLEMENT.
ALLOCATION OF LOSSES. If, on any distribution date, there is not sufficient
excess interest or overcollateralization to absorb realized losses on the
mortgage loans then realized losses on the mortgage loans will be allocated to
the offered certificates. The pooling and servicing agreement does not permit
the allocation of realized losses on the mortgage loans to the Class P
Certificates. Subject to the terms of the certificate insurance policy, all
realized losses allocated to the offered certificates will be covered by the
certificate insurance policy. SEE "DESCRIPTION OF THE CERTIFICATES--ALLOCATION
OF LOSSES; SUBORDINATION" AND "--FINANCIAL GUARANTY INSURANCE POLICY" IN THIS
PROSPECTUS SUPPLEMENT.
P&I ADVANCES
The master servicer is required to advance delinquent payments of principal and
interest on the mortgage loans, as described in this prospectus supplement. The
master servicer is entitled to be reimbursed for these advances, and therefore
these advances are not a form of credit enhancement. SEE "DESCRIPTION OF THE
CERTIFICATES--P&I ADVANCES" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF
THE SECURITIES--ADVANCES BY MASTER SERVICER IN RESPECT OF DELINQUENCIES ON THE
TRUST FUND ASSETS" IN THE PROSPECTUS.
OPTIONAL TERMINATION
At its option, the majority holder of the Class CE Certificates, or if such
holder does not exercise such option, the master servicer or the insurer, may
purchase all of the mortgage loans, together with any properties in respect of
the mortgage loans acquired on behalf of the trust, and thereby effect
termination and early retirement of the certificates, after the aggregate
principal balance of the mortgage loans, and properties acquired in respect of
the mortgage loans, remaining in the trust has been reduced to less than [10%]
or ___%, as further provided in this prospectus supplement, of the sum of the
aggregate principal balance of the mortgage loans as of __________ __, ____ and
the original pre- funded amount. SEE "POOLING AND SERVICING AGREEMENT--
TERMINATION" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--
TERMINATION OF THE TRUST FUND AND DISPOSITION OF TRUST FUND ASSETS" IN THE
PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the trust
(exclusive of the pre-funding account and the interest coverage account) as real
estate mortgage investment conduits for federal income tax purposes. SEE
"FEDERAL INCOME TAX CONSEQUENCES--REMIC'S--CHARACTERIZATI ON OF INVESTMENTS IN
REMIC CERTIFICATES" IN THE PROSPECTUS.
FOR FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF
INVESTING IN THE OFFERED CERTIFICATES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN
THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
S-8
<PAGE>
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates receive a rating of "AAA" from ___________ and ____________.
The ratings on the offered certificates are based in part on the ratings of the
claims-paying ability to the insurer by _______ and _____________. A security
rating does not address the frequency of prepayments on the mortgage loans or
the corresponding effect on yield to investors. SEE "YIELD ON THE CERTIFICATES"
AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD AND MATURITY
CONSIDERATIONS" IN THE PROSPECTUS.
LEGAL INVESTMENT
The offered certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 until such
time as the balance of the pre-funding account is reduced to zero. At such time,
the offered certificates will constitute "mortgage related securities" for
purposes of SMMEA for so long as they are rated not lower than the second
highest rating category by one or more nationally recognized statistical rating
organizations and, as such, will be legal investments for certain entities to
the extent provided in SMMEA and applicable state laws. SEE "LEGAL INVESTMENT"
IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
The U.S. Department of Labor has issued an individual exemption to the
underwriter. This exemption applies to the offered certificates, provided that
the conditions set forth under "Considerations for Benefit Plan Investors" in
the prospectus are satisfied. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND "CONSIDERATIONS FOR BENEFIT PLAN INVESTORS" IN THE PROSPECTUS.
S-9
<PAGE>
RISK FACTORS
The offered certificates are not suitable investments for all investors. In
particular, you should not purchase the offered certificates unless you
understand and are able to bear the prepayment, credit, liquidity and market
risks associated with these securities.
You should carefully consider the following factors in connection with the
purchase of the offered certificates:
[APPROPRIATE RISK FACTORS AS NECESSARY]
[THE MORTGAGE LOANS WERE UNDERWRITTEN TO STANDARDS WHICH DO NOT CONFORM TO THE
STANDARDS OF FANNIE MAE OR FREDDIE MAC WHICH MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS ALLOCATED TO YOUR CERTIFICATES.
The originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of the property
as collateral for the mortgage loan. The originator provides loans primarily to
borrowers who do not qualify for loans conforming to Fannie Mae and Freddie Mac
guidelines but who do have equity in their property. While the originator's
primary consideration in underwriting a mortgage loan is the value of the
mortgaged property, the originator also considers, among other things, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the mortgaged property. The originator's
underwriting standards do not prohibit a mortgagor from obtaining secondary
financing at the time of origination of the originator's first lien, which
secondary financing would reduce the equity the mortgagor would otherwise have
in the related mortgaged property as indicated in the originator's loan-to-value
ratio determination.
As a result of the underwriting standards described in the immediately
preceding paragraph, the mortgage loans in the mortgage pool are likely to
experience rates of delinquency, foreclosure and bankruptcy that are higher, and
that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITINg STANDARDS OF __________ AND REPRESENTATIONS
CONCERNING THE MORTGAGE LOANS" IN THIS PROSPECTUS SUPPLEMENT].
S-10
<PAGE>
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL HAVE HIGH
LOAN-TO-VALUE RATIOS, SO THAT THE RELATED BORROWER HAS LITTLE OR NO EQUITY IN
THE RELATED MORTGAGED PROPERTY, WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE
MORTGAGE LOANS ALLOCATED TO YOUR CERTIFICATES.
Approximately _____% of the initial mortgage loans, by aggregate principal
balance as of _______ __, ____, had a loan-to-value ratio at origination in
excess of 80%. No initial mortgage loan in the mortgage pool with a
loan-to-value ratio at origination in excess of 80% will be covered by a primary
mortgage insurance policy. No initial mortgage loan will have a loan-to-value
ratio exceeding __% at origination. Mortgage loans with higher loan-to-value
ratios may present a greater risk of loss in that an overall decline in the
residential real estate market, a rise in interest rates over a period of time
and the condition of a mortgaged property, as well as other factors, may have
the effect of reducing the value of the mortgaged property from the appraised
value at the time the mortgage loan was originated. If there is a reduction in
value of the mortgaged property, the loan-to-value ratio may increase over what
it was at the time the mortgage loan was originated. This increase may reduce
the likelihood of liquidation or other proceeds being insufficient to satisfy
the mortgage loan and any losses, to the extent not covered by the credit
enhancement, may affect the yield to maturity or your certificates. Furthermore,
investors should note that the value of the mortgaged property may be
insufficient to cover the outstanding balance of the certificates. There can be
no assurance that the loan-to-value ratio of any mortgage loan determined at any
time after origination is less than or equal to its original loan-to-value
ratio.
[APPROXIMATELY ____% OF THE INITIAL MORTGAGE LOANS IN THE MORTGAGE POOL ARE
DELINQUENT AS OF THE CUT-OFF DATE, WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS.
Approximately ____% of the initial mortgage loans, by aggregate principal
balance as of _______ __, ____, were thirty days or more but less than sixty
days delinquent in their monthly payments as of ______ __, ____. Approximately
____% of the initial mortgage loans, by aggregate principal balance as of
_______ __, ____, were sixty days or more but less than ninety days delinquent
in their monthly payments as of the _______ __, ____. However, investors in the
mortgage loans should realize that approximately _____% of the initial mortgage
loans, by aggregate principal balance as of _______ __, ____, have a first
payment date occurring on or after _______ __, ____ and, therefore, these
mortgage loans could not have been delinquent as of _______ __, ____].
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL ARE CONCENTRATED
IN THE STATE OF [NAME OF STATE], WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS.
Approximately ___% of the initial mortgage loans are in the state of [Name
of State.] Investors should note that some geographic regions of the United
States from time to time will experience weaker regional economic conditions and
housing markets causing a decline in property values in those areas, and
consequently, will experience higher rates of loss and delinquency than will be
experienced on mortgage loans located in other geographic regions. A region's
economic condition and housing market may be directly, or indirectly, adversely
affected by a number of factors including natural disasters or civil
disturbances such as earthquakes, hurricanes, floods, eruptions or riots. The
economic impact of any of these types of events may also be felt in areas beyond
the region immediately affected by the disaster or disturbance. A concentration
of mortgage
S-11
<PAGE>
loans in the trust fund in a region experiencing a deterioration in economic
conditions or a decline in real estate values may expose your certificates to
losses in addition to those present for similar mortgage-backed securities
without this concentration. The depositor cannot assure you that the values of
the mortgaged properties have remained or will remain at the appraised values on
the dates of origination of the mortgage loans. Any deterioration of economic
conditions in [name of state] which adversely affects the ability of borrowers
to make payments on the mortgage loans may increase the likelihood of
delinquency and foreclosure of the mortgage loans that may result in losses
that, to the extent not covered by the [credit enhancement] will be allocated to
your certificates.
[THE SUBSEQUENT MORTGAGE LOANS MAY HAVE DIFFERENT CHARACTERISTICS THAN THE
INITIAL MORTGAGE LOANS
The subsequent mortgage loans may have characteristics different from those
of the initial mortgage loans. However, each subsequent mortgage loan must
satisfy the eligibility criteria referred to in this prospectus supplement under
"The Mortgage Pool--Conveyance of Subsequent Mortgage Loans and the Pre-Funding
Account" at the time of its conveyance to the trust fund and be underwritten in
accordance with the criteria set forth under "The Mortgage Pool--Underwriting
Standards of ____________ and Representations concerning the Mortgage Loans" in
this prospectus supplement.]
[THE CLASS A-1 CERTIFICATES MAY RECEIVE A PREPAYMENT OF PRINCIPAL AS A RESULT OF
EXCESS FUNDS IN THE PRE-FUNDING ACCOUNT
To the extent that amounts on deposit in the pre-funding account have not
been fully applied to the purchase of subsequent mortgage loans by the end of
the funding period, the holders of the Class A-1 Certificates will receive on
the distribution date immediately following the end of the funding period, any
amounts in the pre-funding account after giving effect to any purchase of
subsequent mortgage loans, as further described in this prospectus supplement.
Although no assurance can be given, the depositor intends that the principal
amount of subsequent mortgage loans sold to the trust fund will require the
application of substantially all amounts on deposit in the pre- funding account
and that there will be no material principal payment to the holders of the Class
A-1 Certificates on such distribution date.]
[YOUR CERTIFICATES WILL BE LIMITED OBLIGATIONS SOLELY OF THE TRUST FUND AND NOT
OF ANY OTHER PARTY.
The certificates will not represent an interest in or obligation of the
depositor, the master servicer, the mortgage loan seller, the trustee or any of
their respective affiliates. Neither the certificates nor the underlying
mortgage loans will be guaranteed or insured by any governmental agency or
instrumentality, or by the depositor, the master servicer, the trustee or any of
their respective affiliates. The offered certificates are covered by the
certificate insurance policy, as and to the extent described under the caption
"Description of the Certificates--Financial Guaranty Insurance Policy" in this
prospectus supplement. Proceeds of the assets included in the trust and proceeds
of the certificate insurance policy will be the sole source of payments on the
offered certificates, and there will be no recourse to the depositor, the master
servicer, the mortgage loan seller, the trustee or any other entity in the event
that these proceeds are insufficient or otherwise unavailable to make all
payments provided for under the offered certificates].
S-12
<PAGE>
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON YOUR CERTIFICATES WILL BE
AFFECTED BY THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS.
The rate and timing of distributions allocable to principal on the offered
certificates will depend on the rate and timing of principal payments, including
prepayments and collections upon defaults, liquidations and repurchases, on the
mortgage loans and the allocation to pay principal on these certificates as
provided in this prospectus supplement. As is the case with mortgage
pass-through certificates, the offered certificates are subject to substantial
inherent cash-flow uncertainties because the mortgage loans may be prepaid at
any time. However, with respect to approximately _____% of the mortgage loans,
by aggregate principal balance as of ________ __, ____, a full and voluntary
prepayment may subject the related mortgagor to a prepayment charge. A
prepayment charge may or may not act as a deterrent to prepayment of the related
mortgage loan. SEE "THE MORTGAGE POOL" IN THIS PROSPECTUS SUPPLEMENT.
[THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS WILL VARY DEPENDING ON FUTURE
MARKET CONDITIONS WHICH COULD IMPACT THE RATE AND TIMING OF PRINCIPAL
DISTRIBUTIONS ON YOUR CERTIFICATES.
In most cases, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. A decrease in the prepayment rates on
the mortgage loans will result in a reduced rate of return of principal to
investors in the offered certificates at a time when reinvestment at these
higher prevailing rates would be desirable. Conversely, when prevailing interest
rates are declining, prepayment rates on mortgage loans tend to increase. An
increase in the prepayment rates on the mortgage loans will result in a greater
rate of return of principal to investors in the offered certificates, at time
when reinvestment at comparable yields may not be possible.
Except as otherwise described in this prospectus supplement, distributions
of principal will be made to the classes of offered certificates according to
the priorities described in this prospectus supplement, rather than on a PRO
RATA basis among these classes. The timing of commencement of principal
distributions and the weighted average life of each class of certificates will
be affected by the rates of prepayment on the mortgage loans experienced both
before and after the commencement of principal distributions on that class.
FOR FURTHER INFORMATION REGARDING THE EFFECT OF PRINCIPAL PREPAYMENTS ON
THE WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES, SEE "YIELD ON THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT, INCLUDING THE TABLE ENTITLED
"PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE FOLLOWING
PERCENTAGES OF THE PREPAYMENT ASSUMPTION"].
[THE YIELD ON YOUR CERTIFICATES WILL VARY DEPENDING ON THE RATE OF PREPAYMENTS.
The yield to maturity on the offered certificates will depend on:
o with respect to each class of offered certificates, the applicable
pass-through rate thereon from time to time;
o the applicable purchase price; and
S-13
<PAGE>
o the rate and timing of principal payments, including prepayments and
collections upon defaults, liquidations and repurchases, on the related
mortgage loans, payments by the insurer and the allocation of those
payments to reduce the certificate principal balance as well as
other factors.
The yield to investors on the offered certificates will be adversely
affected by any allocation to the offered certificates of interest shortfalls on
the mortgage loans not covered by the insurer.
If the offered certificates are purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if the offered certificates are
purchased at a discount and principal distributions thereon occur at a rate
slower than that anticipated at the time of purchase, the investor's actual
yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered certificates
were determined based on a number of assumptions, including a prepayment
assumption of ____% of the standard prepayment assumption, and weighted average
lives corresponding to the prepayment assumption. No representation is made that
the mortgage loans will prepay at that rate or at any other rate, or that the
mortgage loans will prepay at the same rate. The yield assumptions for the
offered certificates will vary as determined at the time of sale. SEE "YIELD ON
THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT].
[THE YIELD ON YOUR CERTIFICATES WILL BE AFFECTED BY THE SPECIFIC TERMS THAT
APPLY TO THAT CLASS, DISCUSSED IN THIS RISK FACTOR.
The multiple class structure of the offered certificates causes the yield
of some classes to be particularly sensitive to changes in the rates of
prepayments of the mortgage loans. Because distributions of principal will be
made to the classes of offered certificates according to the priorities
described in this prospectus supplement, the yield to maturity on these classes
of certificates will be sensitive to the rates of prepayment on the mortgage
loans experienced both before and after the commencement of principal
distributions on that class.
In particular, the Class ___ Certificates do not receive, unless the
certificate principal balances of the other classes of offered certificates have
been reduced to zero, any portion of principal payments prior to the
distribution date in _______ ____. In addition, the Class ___ Certificates will
receive, unless the certificate principal balances of the other classes of
offered certificates have been reduced to zero, a disproportionately small or
large portion of the amount of principal then payable to the offered
certificates thereafter. Therefore, the weighted average life of the Class ___
Certificates will be longer or shorter than would otherwise be the case. The
effect on the market value of the Class ___ Certificates of changes in market
interest rates or market yields for similar securities may be greater or lesser
than for the other classes of offered certificates entitled to principal
distributions].
S-14
<PAGE>
[VIOLATION OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS AND YOUR CERTIFICATES.
Applicable state laws regulate interest rates and other charges, require
disclosure, and require licensing of the originator. In addition, other state
laws, public policy and principles of equity relating to the protection of
consumers, unfair and deceptive practices and debt collection practices may
apply to the origination, servicing and collection of the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require disclosures to the borrowers regarding
the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under
the Consumer Credit Protection Act, in the extension of credit;
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience;
o the Depository Institutions Deregulation and Monetary Control Act
of 1980, which preempts certain state usury laws; and
o the Alternative Mortgage Transaction Parity Act of 1982, which
preempts certain state lending laws which regulate alternative
mortgage transactions.
Approximately ____% of the mortgage loans, by aggregate principal balance
as of _______ __, ____, will be subject to the Riegle Community Development and
Regulatory Improvement Act of 1994, or the Riegle Act, which incorporates the
Home Ownership and Equity Protection Act of 1994. The Riegle Act adds additional
provisions to Regulation Z, which is the implementing regulation of the Federal
Truth-in-Lending Act. These provisions impose additional disclosure and other
requirements on creditors with respect to non-purchase money mortgage loans with
high interest rates or high up-front fees and charges. In most cases, mortgage
loans covered by the Riegle Act have annual percentage rates over 10% greater
than the yield on treasury securities of comparable maturity and fees and points
which exceed the greater of 8% of the total loan amount or $441, which amount is
adjusted annually based on changes in the consumer price index for the year. The
provisions of the Riegle Act apply on a mandatory basis to all applicable
mortgage loans originated on or after October 1, 1995. These provisions can
impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the related loans. In
addition, any assignee of the creditor would, in most cases, be subject to all
claims and defenses that the consumer could assert against the creditor,
including, without limitation, the right to rescind the mortgage loan.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the
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trust to collect all or part of the principal of or interest on the mortgage
loans, may entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the originator to damages and administrative
enforcement.
The originator will represent that as of the closing date, each mortgage
loan is in compliance with applicable federal and state laws and regulations. In
the event of a breach of this representation, it will be obligated to cure the
breach or repurchase or replace the affected mortgage loan in the manner
described in the prospectus].
[IF THE INSURER FAILS TO MEET ITS OBLIGATIONS UNDER THE POLICY, YOU MAY
EXPERIENCE A LOSS ON YOUR INVESTMENT
If the protection created by the overcollateralization is insufficient and
the insurer is unable to meet its obligations under the certificate insurance
policy, then you could experience a loss on your investment. In addition, any
reduction in a rating of the claims-paying ability of the insurer may result in
a reduction in the rating of the offered certificates].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE MASTER SERVICER TO
PERFORM ITS DUTIES.
As is the case with most companies using computers in their operations,
each of the master servicer and the trustee is faced with the task of completing
its compliance goals in connection with the year 2000 issue. The year 2000 issue
is the result of prior computer programs being written using two digits, rather
than four digits, to define the applicable year. Any of the master servicer's or
the trustee's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. Any occurrence of
this kind could result in major computer system failure or miscalculations. Each
of the master servicer and the trustee is presently engaged in various
procedures to ensure that its computer systems and software will be year 2000
compliant. However, in the event that the master servicer or the trustee, or any
of their respective suppliers, customers, brokers or agents do not successfully
and timely achieve year 2000 compliance, the performance of obligations of the
master servicer or the trustee, as the case may be, under the pooling and
servicing agreement could be materially adversely affected].
All capitalized terms used in this prospectus supplement will have the
meanings assigned to them under "Description of the Certificates--Glossary of
Terms" or in the prospectus under "Glossary."
USE OF PROCEEDS
The mortgage loan seller will sell the mortgage loans to the depositor and
the depositor will convey the mortgage loans to the trust fund in exchange for
and concurrently with the delivery of the certificates. Net proceeds from the
sale of the certificates will be applied by the depositor to the purchase of the
mortgage loans from the mortgage loan seller. These net proceeds will represent
the purchase price to be paid by the depositor to the mortgage loan seller for
the mortgage loans. The mortgage loans were previously purchased by the mortgage
loan seller either directly or indirectly from the originator.
THE MORTGAGE POOL
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<PAGE>
GENERAL DESCRIPTION OF THE MORTGAGE LOANS
References to percentages of the mortgage loans in the mortgage pool unless
otherwise noted are calculated based on the aggregate principal balance of the
mortgage loans as of ___________ __, ____, which date will also be referred to
in this prospectus supplement as the cut-off date.
The mortgage pool will initially consist of approximately _____
conventional, one- to four-family, adjustable-rate, fully-amortizing mortgage
loans secured by first liens on residential real properties and having an
aggregate principal balance as of the cut-off date, of approximately
$___________, after application of scheduled payments due on or before the
cut-off date whether or not received and subject to a permitted variance of plus
or minus 5%. The mortgage loans in the mortgage pool have original terms to
maturity of not greater than [30] years.
The statistical information presented in this prospectus supplement
describes only the initial mortgage loans and does not include the mortgage
loans to be purchased by the trust after the Closing Date. References to
percentages of the mortgage loans, unless otherwise noted, are calculated based
on the aggregate principal balance of the initial mortgage loans as of the
cut-off date
and do not include any subsequent mortgage loans.
Subsequent mortgage loans are intended to be purchased by the trust from
the depositor from time to time on or before _______________ from funds on
deposit in the pre-funding account. The subsequent mortgage loans, if available,
will be purchased by the depositor and sold by the depositor to the trust fund
for deposit in the mortgage pool. The pooling and servicing agreement will
provide that each mortgage loan in the mortgage pool must conform to certain
specified characteristics and, following the conveyance of the subsequent
mortgage loans, the mortgage pool must conform to certain specified
characteristics, as described below under "--Conveyance of Subsequent Mortgage
Loans and the Pre-Funding Account".
The mortgage loans are secured by first mortgages or deeds of trust or
other similar security instruments creating first liens on one- to four-family
residential properties. The mortgaged properties in the mortgage pool consist of
attached, attached or semi-attached, one- to four-family dwelling units,
townhouses, individual condominium units, individual units in planned unit
developments and manufactured housing. The mortgage loans to be included in the
mortgage pool will be acquired by the depositor from the mortgage loan seller.
The mortgage loan seller, in its capacity as master servicer, will act as the
master servicer for the mortgage loans originated by it under the pooling and
servicing agreement.
All of the mortgage loans in the mortgage pool have scheduled monthly
payments due on the first day of the month and that day will be referred to in
this prospectus supplement as the due date. Each mortgage loan in the mortgage
pool will contain a customary due-on-sale clause.
The mortgage loans have mortgage rates subject to a semiannual adjustment
after an initial three-year period on the day of the month specified in the
related mortgage note to equal the sum, rounded to the nearest 0.125%, of (1) a
per annum rate equal to the average of interbank offered rates for six-month
U.S. dollar-denominated deposits in the London market based on quotations of
major banks as published in THE WALL STREET JOURNAL and as most recently
available as of the date specified
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<PAGE>
in the related mortgage note, and (2) a fixed percentage amount specified in the
related mortgage note; provided, however, that the mortgage rate will not
increase or decrease on any adjustment date by more than 1%. All of the mortgage
loans provide that over the life of the mortgage loan the mortgage rate will in
no event be more than the fixed percentage set forth in the mortgage note.
Effective with the first payment due on a mortgage loan after each related
adjustment date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of the mortgage loan over its
remaining term, and pay interest at the mortgage rate as so adjusted.
If the six-month LIBOR index ceases to be published or is otherwise
unavailable, the master servicer will select an alternative index for mortgage
loans on comparable properties, based upon comparable information, over which it
has no control and which is readily verifiable by mortgagors.
None of the mortgage loans permit the related mortgagor to convert the
adjustable mortgage rate thereon to a fixed mortgage rate.
Approximately _____% of the initial mortgage loans provide for payment by
the mortgagor of a prepayment charge in limited circumstances on prepayments.
Each mortgage loan in the mortgage pool that provides for the payment of a
prepayment charge provides for payment of a prepayment charge on partial or full
prepayments made within one year, five years or other designated period as
provided in the related mortgage note from the date of origination of the
particular mortgage loan. The amount of the prepayment charge is as provided in
the related mortgage note, and the prepayment charge will apply if, in any
twelve-month period during the first year, five years or other designated period
as provided in the related mortgage note from the date of origination of the
particular mortgage loan, the mortgagor prepays an aggregate amount exceeding
__% of the original principal balance of the particular mortgage loan. With
respect to _____% of these mortgage loans, the amount of the prepayment charge
will be equal to ___ months' advance interest calculated on the basis of the
mortgage rate in effect at the time of the prepayment on the amount prepaid in
excess of __% of the original principal balance of the mortgage loan for a
period of five years and one year, respectively. The Class P certificates will
be entitled to all prepayment charges received on the mortgage loans, and these
amounts will not be available for distribution on the certificates. Under those
circumstances described in the pooling and servicing agreement, the master
servicer may, in its discretion, waive the collection of any otherwise
applicable prepayment charge or reduce the amount of the prepayment charge
actually collected. Investors should conduct their own analysis to the effect,
if any, that the prepayment charges and the decisions of the master servicer
with respect to the waiver of prepayment charges may have on the prepayment
performance of the mortgage loans. The depositor makes no representation as to
the effect that the prepayment charges, and the decisions of the master servicer
with respect to the waiver of the prepayment charges, may have on the prepayment
performance of the mortgage loans.
The average principal balance of the initial mortgage loans at origination
was approximately $______. No initial mortgage loan had a principal balance at
origination of greater than approximately $_______ or less than approximately
$______. The average principal balance of the initial mortgage loans as of the
cut-off date was approximately $______. No initial mortgage loan had a principal
balance as of the cut-off date of greater than approximately $_______ or less
than approximately $______.
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As of the cut-off date, the initial mortgage loans had mortgage rates
ranging from approximately _____% per annum to approximately ______% per annum
and the weighted average mortgage rate was approximately _____% per annum. The
weighted average remaining term to stated maturity of the initial mortgage loans
will be approximately __ years and __ months as of the cut-off date. None of the
initial mortgage loans will have its first payment due prior to ________ ____ or
after _________ ____, or will have a remaining term to maturity of less than __
years and __ months or greater than __ years as of the cut-off date. The latest
maturity date of any initial mortgage loan in the mortgage pool is ________
____.
The weighted average loan-to-value ratio at origination of the initial
mortgage loans was approximately ______%. No loan-to-value ratio at origination
was greater than approximately _____% or less than approximately ____%.
The following information sets forth in tabular format certain
characteristics of the initial mortgage loans as of the cut-off date.
Principal Balances of the Initial Mortgage Loans as of the Cut-off Date:
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Range ($) Loans as of Cut-off Date Cut-off Date
- ------------ --------------- ---------------------- ----------------------
Mortgage Rates of the Initial Mortgage Loans as of the Cut-off Date:
Aggregate % of Aggregate
Principal Principal Balance
Mortgage Number of Outstanding Outstanding as of the
Rate Loans as of Cut-off Date Cut-off Date
- ------------ --------------- ---------------------- ----------------------
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<PAGE>
Maximum Mortgage Rates of the Initial Mortgage Loans:
Aggregate % of Aggregate
Maximum Principal Principal Balance
Mortgage Number of Outstanding Outstanding as of the
Rate Loans as of Cut-off Date Cut-off Date
- ------------ --------------- ---------------------- ----------------------
Minimum Mortgage Rates of the Initial Mortgage Loans:
Aggregate % of Aggregate
Principal Principal Balance
Minimum Number of Outstanding Outstanding as of the
Mortgage Rate Loans as of Cut-off Date Cut-off Date
- ------------- --------------- ---------------------- ----------------------
Gross Margins of the Initial Mortgage Loans:
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Gross Margin Loans as of Cut-off Date Cut-off Date
- ------------ --------------- ---------------------- ----------------------
Original Loan-to-Value Ratios of the Initial Mortgage Loans:
Aggregate % of Aggregate
Principal Principal Balance
Loan-to Number of Outstanding Outstanding as of the
Value Ratio(%) Loans as of Cut-off Date Cut-off Date
- -------------- --------------- ---------------------- ----------------------
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<PAGE>
Geographic Distribution of the Mortgaged Properties of the Initial Mortgage
Loans:
Aggregate % of Aggregate
Principal Principal Balance
Number of Outstanding Outstanding as of the
Location Loans as of Cut-off Date Cut-off Date
- ------------ --------------- ---------------------- ----------------------
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS AND THE PRE-FUNDING ACCOUNT
Under and to the extent provided in the pooling and servicing, following
the initial issuance of the certificates, the trust fund will be obligated to
purchase from the depositor on or before _____________, subject to the
availability thereof, the subsequent mortgage loans. The subsequent mortgage
loans will be transferred to the trust fund pursuant to subsequent transfer
instruments between the depositor and the trust fund. In connection with the
purchase of subsequent mortgage loans on such dates of transfer, the trust fund
will be required to pay to the depositor from amounts on deposit in the
pre-funding account a cash purchase price of 100% of the principal balance
thereof. The depositor will designate the first day of the month in which the
related subsequent transfer date occurs as the cut-off date with respect to the
related subsequent mortgage loans. The amount paid from the pre-funding account
on each subsequent transfer date will not include accrued interest on the
related subsequent mortgage loans. Following each subsequent transfer date, the
aggregate principal balance of the mortgage loans in the mortgage pool will
increase by an amount equal to the aggregate principal balance of the related
subsequent mortgage loans so purchased and the amount in the pre-funding account
will decrease accordingly.
A pre-funding account will be established by the trustee and funded on the
closing date by the depositor with approximately $___________, subject to a
permitted variance, as described herein, equal to the aggregate principal
balance of any of the initial mortgage loans which are added or removed from the
trust fund, to provide the trust fund with sufficient funds to purchase
subsequent mortgage loans, provided that the original pre-funded amount will not
exceed 25% of the aggregate initial certificate principal balance of the
certificates. The original pre-funded amount will be reduced during the funding
period by the amount used to purchase subsequent mortgage loans for the mortgage
pool in accordance with the pooling and servicing agreement. During the period
from the closing date until the earliest of (i) the date on which the amount on
deposit in the pre-funding account is reduced to zero or (ii) _______________,
such amount will be maintained in the pre-funding account.
Any conveyance of subsequent mortgage loans on a subsequent transfer date
is subject to certain conditions including, but not limited to, the following:
o each subsequent mortgage loan must satisfy the representations and
warranties specified in the subsequent transfer instrument and the
pooling and servicing agreement;
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o the depositor will not select such subsequent mortgage loans in a
manner that it believes is adverse to the interests of the
certificateholders;
o the depositor will deliver opinions of counsel with respect to the
validity of the conveyance of such subsequent mortgage loans;
o each subsequent mortgage loan may not be 30 or more days contractually
delinquent as of the related subsequent cut-off date;
o the original term to maturity of such subsequent mortgage loan will
not be less than ___ months and will not exceed ___ months;
o each subsequent mortgage loan may not provide for negative
amortization;
o each subsequent mortgage loan will not have an loan-to-value ratio
greater than 90%;
o each subsequent mortgage loan will have, as of the subsequent cut-off
date, a weighted average term since origination not in excess of ____
months;
o no subsequent mortgage loan will have a mortgage rate less than ____%
or greater than _____%;
o each subsequent mortgage loan will have been serviced by the master
servicer since origination or purchase by the depositor;
o each subsequent mortgage loan will have a first payment date not later
than ___________; and
o each subsequent mortgage loan will be underwritten in accordance with
the criteria set forth under "-Underwriting Standards of __________
and Representations Concerning the Mortgage Loans".
In addition, following the purchase of all subsequent mortgage loans by the
trust fund, the mortgage loans (including the subsequent mortgage loans) will as
of the subsequent cut-off date:
o have a weighted average remaining term to stated maturity of not more
than ___ months and not less than ___ months;
o have a weighted average mortgage rate of not less than ____% and not
more than ____% by aggregate principal balance of the mortgage loans;
o have a weighted average loan-to-value ratio of not more than ___%;
o have no mortgage loan with a principal balance in excess of
$_________; and
o have a weighted average gross margin not less than ____%.
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Notwithstanding the foregoing, any subsequent mortgage loan may be rejected
by either [RA] or [RA] if the inclusion of such subsequent mortgage loan would
adversely affect the ratings on any class of offered certificates.
UNDERWRITING STANDARDS OF _________ AND REPRESENTATIONS CONCERNING THE MORTGAGE
LOANS
The mortgage loans will be acquired by the depositor from the mortgage loan
seller. All of the mortgage loans were originated or acquired by the originator,
generally in accordance with the underwriting criteria described below.
The information set forth below with regard to the originator's
underwriting standards has been provided to the depositor by the originator.
None of the depositor, the trustee, the underwriter or any of their respective
affiliates has made any independent investigation of such information or has
made or will make any representation as to the accuracy or completeness of such
information.
The mortgage loans were originated generally in accordance with
underwriting guidelines established by the originator under the "Full
Documentation", "Fast Trac Documentation" or "Stated Income" residential loan
programs. The underwriting guidelines are primarily intended to evaluate the
value and adequacy of the mortgaged property as collateral and are also intended
to consider the applicant's credit standing and repayment ability. On a
case-by-case basis, the originator may determine that, based upon compensating
factors, a prospective applicant not strictly qualifying under the underwriting
risk category guidelines described below warrants an underwriting exception.
Compensating factors may include, but are not limited to, low loan-to-value
ratio, low debt-to-income ratio, good credit history, stable employment and time
in residence at the applicant's current address. It is expected that a
substantial number of the mortgage loans to be included in the mortgage pool
will represent such underwriting exceptions.
All of the mortgage loans originated in the underwriting programs are based
on loan application packages submitted through the originator's branches. Each
prospective applicant completes an application which includes information with
respect to the applicant's liabilities, income, credit history and employment
history, as well as certain other personal information. The originator obtains a
credit report on each applicant from a credit reporting company. The report
typically contains information relating to such matters as credit history with
local and national merchants and lenders, installment debt payment and any
record of default, bankruptcy, repossession, suits or judgments. The applicant
must generally provide to the originator a letter explaining all late payments
on mortgage debt and, generally, consumer (I.E. non-mortgage) debt.
Under the underwriting programs, during the underwriting process, the
Originator reviews and verifies the loan applicant's sources of income (except
under the Stated Income and Fast Trac Documentation residential loan programs)
and calculates the amount of income from all such sources indicated on the loan
application, reviews the credit history of the applicant and calculates the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
reviews the mortgaged property for compliance with the underwriting guidelines.
The underwriting guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and
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regulations and requires (i) an appraisal of the mortgaged property which
conforms to Uniform Standards of Professional Appraisal Practice standards and
(ii) a review of such appraisal, which review may be conducted by a
representative of the originator or a fee appraiser and, depending upon the
original principal balance and loan-to-value ratio of the mortgaged property,
may include a desk review of the original appraisal or a drive-by review
appraisal of the mortgaged property. The underwriting guidelines permit loans
with loan-to-value ratios at origination of up to 90%. The maximum allowable
loan-to-value ratio varies based upon the income documentation, property type,
creditworthiness, debt service-to-income ratio of the applicant and the overall
risks associated with the loan decision. Under the underwriting programs, the
maximum combined loan-to-value ratio, including any second deeds of trust
subordinate to the originator's first deed of trust, is 100%.
UNDERWRITING PROGRAMS (INCOME DOCUMENTATION TYPES)
FULL DOCUMENTATION. The Full Documentation residential loan program is
generally based upon current year to date income documentation as well as
previous years' income documentation (I.E. tax returns and/or W-2 forms). The
documentation required is specific to the applicant's sources of income. The
applicant's employment and/or business licenses are generally verified.
FAST TRAC DOCUMENTATION. The Fast Trac Documentation residential loan
program is generally based on bank statements from the past twelve months
supported by additional documentation provided by the applicant or current year
to date documentation. The applicant's employment and/or business licenses are
generally verified.
STATED INCOME. The Stated Income residential loan program requires the
applicant's employment and income sources to be stated on the application. The
applicant's income as stated must be reasonable for the related occupation in
the loan underwriter's discretion. However, the applicant's income as stated on
the application is not independently verified. Verbal verification of employment
is generally obtained for salaried applicants.
PROPERTY REQUIREMENTS
Properties that are to secure mortgage loans are appraised by qualified
independent appraisers who are approved by the originator's senior appraisers.
In most cases, properties below average standards in condition and repair
(including properties requiring major deferred maintenance) are not acceptable
as security for mortgage loans in the underwriting programs. Each appraisal
includes a market data analysis based on recent sales of comparable homes in the
area and, where deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home. Every independent appraisal is
reviewed by a representative of the originator or a fee appraiser before the
loan is funded.
The originator requires that all mortgage loans have title insurance. The
originator also requires that fire and extended coverage casualty insurance be
maintained on the secured property in an amount equal to the lesser of the
principal balance of the mortgage loan or the replacement cost of the property.
S-24
<PAGE>
UNDERWRITING GUIDELINES
The underwriting guidelines are less stringent than the standards generally
acceptable to Fannie Mae and Freddie Mac with regard to the property offered as
collateral and the applicant's credit standing and repayment ability. Applicants
who qualify under the underwriting programs generally have payment histories and
debt ratios which would not satisfy Fannie Mae and Freddie Mac underwriting
guidelines and may have a record of major derogatory credit items such as
outstanding judgments or prior bankruptcies. The underwriting guidelines
establish the maximum permitted loan-to-value ratio for each loan type based
upon these and other risk factors.
RISK CATEGORIES
Under the underwriting programs, various risk categories are used to grade
the likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the underwriting programs
establish lower maximum loan-to-value ratios and lower maximum loan amounts for
loans graded in such categories.
The underwriting guidelines have the following categories and criteria for
grading the potential likelihood that an applicant will satisfy the repayment
obligations of a mortgage loan:
CREDIT GRADE: "AAA". Under the "AAA" credit grade, the applicant generally
must have a minimum FICO score of 670 and no late payments within the last 12
months are permitted on any existing mortgage loan. No bankruptcy, discharge, or
notice of default filings may have occurred during the preceding thirty-six
months. Generally, the debt service-to-income ratios must be equal to or less
than 40%. A maximum loan-to-value ratio of 90% in a variable loan product is
permitted on any purchase money and/or refinance transaction.
CREDIT GRADE: "AA". Under the "AA" credit grade, the applicant generally
must have a minimum FICO score of 620 and no late payments within the last 12
months are permitted on an existing mortgage loan. No bankruptcy, discharge, or
notice of default filings may have occurred during the preceding two years.
Generally, the debt service-to-income ratio must be equal to or less than 42%. A
maximum loan-to-value ratio of 85% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "A". Under the "A" credit grade, the applicant generally must
have a minimum FICO score of 550 and a maximum of three 30-day late payments
within the last 12 months are permitted on an existing mortgage loan. No
bankruptcy, discharge, or notice of default filings may have occurred during the
preceding two years. Generally, the debt service-to-income ratio must be equal
to or less than 50%. A maximum loan-to-value ratio of 80% is permitted for
purchase money and/or refinance transactions.
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CREDIT GRADE: "B". Under the "B" credit grade, the applicant generally must
have a minimum FICO score of 520 and a maximum of one 60-day late payment within
the last 12 months is permitted on an existing mortgage loan. No bankruptcy,
discharge, or notice of default filings may have occurred during the preceding
year. Generally, the debt service-to-income ratio must be equal to or less than
55%. A maximum loan-to-value ratio of 75% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "C". Under the "C" credit grade, a maximum of one 90-day late
payment within the last 12 months is permitted on an existing mortgage loan. The
applicant must not currently be in bankruptcy or foreclosure. Generally, the
debt service-to-income ratio must be equal to or less than 55%. A maximum
loan-to-value ratio of 70% is permitted for purchase money and/or refinance
transactions.
CREDIT GRADE: "D". Under the "D" credit grade, the applicant's derogatory
consumer and mortgage credit history may be waived if a reasonable explanation
for the problem is provided. The problem that caused the derogatory items to
occur must no longer exist or must be resolved through the loan transaction.
Generally, the debt-to-service income ratio must be equal to or less than 60%. A
maximum loan-to-value ratio of 60% is permitted for purchase money and/or
refinance transactions.
The originator will make representations and warranties as of the closing
date with respect to the mortgage loans, and will be obligated to replace, cure
or repurchase any such Mortgage Loan in respect of which a material breach of
the representations and warranties it has made has occurred (other than those
breaches which have been cured). For a discussion of the representations and
warranties made and the repurchase obligation, see "The Depositor's Mortgage
Loan Purchase Program--Representations by or on behalf of the Mortgage Loan
Sellers; Remedies for Breach of Representation" in the prospectus.
ADDITIONAL INFORMATION CONCERNING THE MORTGAGE LOANS
The description in this prospectus supplement of the initial mortgage pool
and the initial mortgaged properties is based upon the mortgage pool as
constituted at the close of business on the cut-off date, as adjusted for the
scheduled principal payments due on or before the cut-off date. Prior to the
issuance of the certificates, mortgage loans may be removed from the mortgage
pool as a result of incomplete documentation or otherwise if the depositor deems
the removal necessary or desirable, and may be prepaid at any time. A limited
number of other mortgage loans may be included in the mortgage pool prior to the
issuance of the certificates unless including these mortgage loans would
materially alter the characteristics of the mortgage pool as described in this
prospectus supplement. The depositor believes that the information set forth in
this prospectus supplement will be representative of the characteristics of the
mortgage pool as it will be constituted at the time the certificates are issued,
although the range of mortgage rates and maturities and other characteristics of
the mortgage loans may vary.
The subsequent mortgage loans may have characteristics different from those
of the initial mortgage loans. However each subsequent mortgage loan must
satisfy the eligibility criteria referred to herein under "-Conveyance of
Subsequent Mortgage Loans and the Pre-Funding Account."
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<PAGE>
YIELD ON THE CERTIFICATES
SHORTFALLS IN COLLECTIONS OF INTEREST
When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period beginning with the date on
which the scheduled monthly payment was due for the preceding monthly payment up
to the date of the prepayment, instead of for a full month. When a partial
principal prepayment is made on a mortgage loan, the mortgagor is not charged
interest on the amount of the prepayment for the month in which the prepayment
is made. In addition, the application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended or the Relief Act, to any mortgage loan will adversely
affect, for an indeterminate period of time, the ability of the master servicer
to collect full amounts of interest on the mortgage loans affected by
application of the Relief Act. The master servicer is obligated to pay from its
own funds only those interest shortfalls attributable to full and partial
prepayments by the mortgagors on the mortgage loans master serviced by it, but
only to the extent of its aggregate servicing fee for the related due period.
The due period, with respect to any distribution date, commences on the second
day of the month immediately preceding the month in which the distribution date
occurs and ends on the first day of the month in which the distribution date
occurs. Accordingly, the effect of:
o any principal prepayments on the mortgage loans, to the extent that
Prepayment Interest Shortfalls exceed Compensating Interest or
o any shortfalls resulting from the application of the Relief Act, will
be to reduce the aggregate amount of interest collected that is available for
distribution to holders of the certificates.
Any of these shortfalls will be allocated among the certificates as
provided in this prospectus supplement under "Description of the
Certificates--Interest Distributions" and "--Overcollateralization Provisions".
The certificate insurance policy will not cover any shortfalls resulting from
the application of the Relief Act. See "Legal Aspects of the Mortgage
Loans--Soldiers' and Sailors' Civil Relief Act of 1940" in the prospectus. See
"Pooling and Servicing Agreement--Servicing and Other Compensation and Payment
of Expenses" in this prospectus supplement.
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on each class of offered certificates, the
aggregate amount of distributions on each class of offered certificates and the
yield to maturity of each class of offered certificates will be related to the
rate and timing of payments of principal on the mortgage loans and the amount,
if any, contributed from the pre-funding account at the end of the funding
period. The rate of principal payments on the mortgage loans in the mortgage
pool will in turn be affected by the amortization schedules of the mortgage
loans as they change from time to time to accommodate changes in the mortgage
rates and by the rate of principal prepayments on the mortgage loans, including
for this purpose payments resulting from refinancings, liquidations of the
mortgage loans due to defaults, casualties, condemnations and repurchases,
whether optional or required, by the depositor, the mortgage loan seller, the
originator, the insurer, the master servicer or the majorityholder of the Class
CE Certificates. The mortgage loans may be prepaid by the mortgagors
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<PAGE>
at any time; however, with respect to approximately _____% of the mortgage
loans, by aggregate principal balance as of the cut-off date, a prepayment may
subject the related mortgagor to a prepayment charge.
Prepayments, liquidations and repurchases of the mortgage loans will result
in distributions in respect of principal to the holders of the class or classes
of offered certificates then entitled to receive distributions that otherwise
would be distributed over the remaining terms of these mortgage loans. Since the
rates of payment of principal on the mortgage loans will depend on future events
and a variety of factors, no assurance can be given as to the rate of principal
prepayments. The extent to which the yield to maturity of any class of offered
certificates may vary from the anticipated yield will depend upon the degree to
which they are purchased at a discount or premium and the degree to which the
timing of payments on these certificates is sensitive to prepayments on the
mortgage loans. Further, an investor should consider, in the case of any
certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the mortgage loans could result in an actual yield
to the investor that is lower than the anticipated yield. In the case of any
certificate purchased at a premium, the risk that a faster than anticipated rate
of principal payments could result in an actual yield to the investor that is
lower than the anticipated yield. In most cases, the earlier a prepayment of
principal on the mortgage loans occurs, the greater the effect on the investor's
yield to maturity. As a result, the effect on an investor's yield of principal
payments occurring at a rate higher or lower than the rate anticipated by the
investor during the period immediately following the issuance of the
certificates would not be fully offset by a subsequent like reduction or
increase in the rate of principal payments. See "Yield Considerations" and
"Maturity and Prepayment Considerations" in this prospectus supplement and
"Yield and Maturity Considerations" in the prospectus.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the offered certificates,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation.
Because principal distributions are paid to certain classes of offered
certificates before other classes, holders of classes of offered certificates
having a later priority of payment bear a greater risk of losses than holders of
classes having earlier priorities for distribution of principal. This is because
the certificates having later priority will represent an increasing percentage
interest in the trust fund before principal distributions are made on these
certificates. Prior to a certain date, as described herein, all principal
payments on the mortgage loans will be allocated to the Class A-1 Certificates.
Thereafter, during certain periods subject to certain delinquency triggers
described herein, all principal payments on the mortgage loans will be allocated
to the offered certificates in the priorities described under "Description of
the Certificates-Principal Distributions on the Offered Certificates" in the
prospectus supplement.
The rate of payments, including prepayments, on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing mortgage rates fall significantly below the mortgage rates on the
mortgage loans in the mortgage pool, the rate of prepayment and refinancing
would be expected to increase. Conversely, if prevailing mortgage rates
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rise significantly above the mortgage rates on the mortgage loans in the
mortgage pool, the rate of prepayment on the mortgage loans would be expected to
decrease. Other factors affecting prepayment of mortgage loans include changes
in mortgagors' housing needs, job transfers, unemployment, mortgagors' net
equity in the mortgaged properties and servicing decisions. There can be no
certainty as to the rate of prepayments on the mortgage loans in the mortgage
pool during any period or over the life of the certificates. See "Yield and
Maturity Considerations" in the prospectus.
Defaults on mortgage loans are expected to occur with greater frequency in
their early years. In addition, default rates in most cases are higher for
mortgage loans used to refinance an existing mortgage loan. In the event of a
mortgagor's default on a mortgage loan in the mortgage pool, other than as
provided by the certificate insurance policy as described in this prospectus
supplement, there can be no assurance that recourse beyond the specific
mortgaged property pledged as security for repayment will be available. See "The
Mortgage Pool--Underwriting Standards of __________ and Representations
Concerning the Mortgage Loans" in this prospectus supplement.
Furthermore, to the extent that the original pre-funded amount has not been
fully applied to the purchase of subsequent mortgage loans by the end of the
funding period, the holders of the Class A-1 Certificates will receive on the
distribution date immediately following the end of the funding period a
prepayment of principal in an amount equal to the lesser of (i) any amounts
remaining in the pre-funding account and (ii) the outstanding certificate
principal balance of the Class A-1 Certificates. Although no assurance can be
given, it is anticipated by the depositor that the principal amount of
subsequent mortgage loans sold to the trust fund will require the application of
substantially all amounts on deposit in the pre-funding account and that there
will be no material amount of principal prepaid to the holders of the Class A-1
Certificates. However, it is unlikely that the depositor will be able to deliver
subsequent mortgage loans with an aggregate principal balance identical to the
pre-funded amount.
SPECIAL YIELD CONSIDERATIONS
The mortgage rates on the mortgage loans adjust semi-annually based upon
the six-month LIBOR index, after an initial period of approximately three years,
whereas the pass-through rate on the offered certificates (other than the Class
M-3 Certificates) adjusts monthly and may be based upon one-month LIBOR as
described under "Description of the Certificates--Calculation of One- Month
LIBOR" herein. One-month LIBOR and the six-month LIBOR index applicable to the
mortgage loans may respond differently to economic and market factors, and there
is not necessarily a correlation between them. It is possible, for example, that
if both one-month LIBOR and the six-month LIBOR index rise during the same
period, one-month LIBOR may rise more rapidly than the six-month LIBOR index or
may rise higher than the six-month LIBOR index. Thus, the interest due on the
mortgage loans during any due period, net of the expenses of the trust fund, may
not equal the amount of interest that would accrue at one-month LIBOR plus the
applicable spread on the offered certificates during the related Interest
Accrual Period. In such an event the rate payable to the holders of the offered
certificates (other than the Class M-3 Certificates) will be the Net WAC Pass-
Through Rate, this would adversely affect the yield to maturity on such
certificates, and the holders of such Certificates WILL NOT be entitled to
interest in excess of the Net WAC Pass-Through Rate on
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any future distribution date. In addition, the Net WAC Pass-Through Rate will be
reduced by the prepayment of mortgage loans with high mortgage rates.
All of the mortgage loans are adjustable-rate mortgage loans. As is the
case with conventional fixed-rate mortgage loans, adjustable-rate mortgage loans
may be subject to a greater rate of principal prepayments in a declining
interest rate environment. For example, if prevailing interest rates were to
fall significantly, adjustable-rate mortgage loans could be subject to higher
prepayment rates than if prevailing interest rates were to remain constant
because the availability of fixed-rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their adjustable-rate mortgage loans
to "lock in" lower fixed interest rates. The rate of payments (including
prepayments) on pools of mortgage loans is influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. No assurances can be given as to the rate of
prepayments on the mortgage loans in stable or changing interest rate
environments and the seller makes no representations as to the particular
factors that will affect the prepayment of the mortgage loans.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of the
security will be repaid to the investor. The weighted average life of the
offered certificates of each class will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled
payments or prepayments, including repurchases and prepayments of principal by
the mortgagor as well as amounts received by virtue of condemnation, insurance
or foreclosure with respect to the mortgage loans, and the timing of these
payments.
Except as otherwise described under "Description of the
Certificates--Principal Distributions on the Offered Certificates" in this
prospectus supplement, distributions of principal will be made to the classes of
the offered certificates according to the priorities described in this
prospectus supplement, rather than on a PRO RATA basis among the classes of
Class A Certificates, unless an insurer default exists. The timing of
commencement of principal distributions to each class of the offered
certificates and the weighted average life of each class will be affected by the
rates of prepayment on the mortgage loans experienced both before and after the
commencement of principal distributions on each class.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a prepayment rate for the mortgage loans of ___% CPR. No representation
is made that the mortgage loans in the mortgage pool will prepay at this rate or
any other rate. To assume __% CPR or any other CPR percentage is to assume that
the stated percentage of the outstanding principal balance of the pool is
prepaid over the course of a year.
The tables following the next paragraph indicate the percentage of the
initial certificate principal balance of the indicated classes of certificates
that would be outstanding after each of the dates
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shown at various constant percentages of the prepayment model and the
corresponding weighted average life of each class of certificates. The table is
based on the following assumptions:
o the mortgage pool consists of ____ mortgage loans with the
characteristics set forth in the table immediately following these
bullet points entitled "Assumed Mortgage Loan Characteristics",
o distributions on the certificates are received, in cash, on the __ day
of each month, commencing in ________ ____,
o the mortgage loans prepay at the constant percentages of the
prepayment model indicated,
o no defaults or delinquencies occur in the payment by mortgagors of
principal and interest on the mortgage loans and no shortfalls due to
the application of the Relief Act are incurred,
o none of the depositor, the mortgage loan seller, the originator, the
majorityholder of the Class CE certificates, the insurer, the master
servicer or any other person purchases from the trust fund any
mortgage loan based on any obligation or option under the pooling and
servicing agreement, except as indicated in the second sentence
following the table entitled "Percent of Initial Certificate Principal
Balance Outstanding at the Specified Percentages of the Prepayment
Model",
o scheduled monthly payments on the mortgage loans are received on the
first day of each month commencing in ________ ____, and are computed
prior to giving effect to any prepayments received in the prior month,
o prepayments representing payment in full of individual mortgage loans
are received on the last day of each month commencing in _______ ____,
and include 30 days' interest on the mortgage loan,
o the scheduled monthly payment for each mortgage loan is calculated
based on its principal balance, mortgage rate and remaining term to
maturity so that the mortgage loan will amortize in amounts sufficient
to repay the remaining principal balance of the mortgage loan by its
remaining term to maturity,
o the certificates are purchased on _______ __, ____;
o the six-month LIBOR index remains constant at ____% per annum and the
mortgage rate on each mortgage loan is adjusted on the due date
immediately following the next adjustment date and in subsequent
adjustable dates necessary to equal the six-month LIBOR index plus the
applicable gross margin, subject to the applicable periodic rate cap
each as set forth in the related mortgage note;
o one-month LIBOR remains constant at ____% per annum;
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o the monthly payment on each mortgage loan is adjusted on the due date
immediately following the next adjustment date (and on subsequent
adjustment dates if necessary) to equal a fully amortizing monthly
payment;
o the subsequent mortgage loan are purchased on ____________ resulting
in no mandatory prepayment from the pre-funding account on the
distribution date immediately following the end of the funding period;
o the initial mortgage loans and the subsequent mortgage loans are
included in the mortgage pool as of the cut-off date; and
o the servicing fee rate is ____% per annum, the trustee's fee rate is
_____% per annum and the amount of the premium payable to the insurer
is as described under the heading "Pooling and Servicing
Agreement-Matters Regarding the Insurer".
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
PRINCIPAL
BALANCE ORIGINAL TERM REMAINING TERM NEXT RATE MAXIMUM MINIMUM PERIODIC
AS OF THE MORTGAGE TO MATURITY TO MATURITY ADJUSTMENT GROSS MORTGAGE MORTGAGE RATE
CUT-OFF DATE RATE (MONTHS) (MONTHS) DATE MARGIN(%) RATE(%) RATE(%) CAP(%)
- ------------ ---- -------- -------- ---- --------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % % % %
$ % % % % %
$ % % % % %
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans (after the purchase of subsequent mortgage loans) and the
characteristics assumed in preparing the table immediately following this
paragraph. Any discrepancy may have an effect upon the percentages of the
initial certificate principal balances outstanding and the weighted average
lives of the classes of certificates set forth in the table. In addition, to the
extent that the actual mortgage loans included in the mortgage pool have
characteristics that differ from those assumed in preparing the table
immediately following this paragraph and since it is not likely that the level
of the six-month LIBOR index or one-month LIBOR will remain constant as assumed,
the classes of certificates may mature earlier or later than indicated by the
table immediately following this paragraph. Based on the foregoing assumptions,
the table immediately following this paragraph indicates the weighted average
life of each class of the offered certificates and sets forth the percentage of
the initial certificate principal balance of each class of certificates that
would be outstanding after each of the dates shown, at various percentages of
the prepayment model. Neither the prepayment model used in this prospectus
supplement nor any other prepayment model or assumption purports to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans included in the trust fund. Variations in the prepayment
experience and the balance of the mortgage loans that prepay may increase or
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decrease the percentages of initial certificate principal balance and weighted
average lives shown in the following table. These variations may occur even if
the average prepayment experience of all of the mortgage loans equals any of the
specified percentages of the prepayment model.
PERCENT OF INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT MODEL
CLASS A-1 CERTIFICATES CLASS A-2 CERTIFICATES
--------------------------- --------------------------
DISTRIBUTION DATE 0% 15% 28% 35% 45% 0% 15%% 28% 35% 45%
- ----------------- ---- ---- ----- ----- ---- ---- ---- ---- ----- ----
.........................
.........................
.........................
Weighted Average Life
in Years...............
Weighted Average Life
in Years...............
The weighted average life of a certificate is determined by (a) multiplying
the amount of each distribution of principal by the number of years from the
date of issuance of the certificate to the related distribution date, (b) adding
the results and (c) dividing the sum by the initial certificate principal
balance of the certificate. The last row of weighted average lives is calculated
using the calculation set forth in the prior sentence but assumes that the
majorityholder of the Class CE Certificates or master servicer exercises its
option to purchase the mortgage loans on the earliest possible distribution date
in which it is permitted to exercise this option. See "Pooling and Servicing
Agreement--Termination" in this prospectus supplement.
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the prepayment model indicated in the immediately
preceding table or to any other level, or that the actual weighted average life
of any class of certificates will conform to any of the weighted average lives
set forth in the immediately preceding table. Furthermore, the information
contained in the table with respect to the weighted average life of each
specified class of certificates is not necessarily indicative of the weighted
average life of each class that might be calculated or projected under different
or varying prepayment assumptions.
The characteristics of the mortgage loans included in the mortgage pool
will differ from those assumed in preparing the immediately preceding table. In
addition, it is unlikely that any mortgage loan will prepay at any constant
percentage of the prepayment model until maturity or that all of the mortgage
loans included in the mortgage pool will prepay at the same rate. The timing of
changes in the rate of prepayments may significantly affect the actual yield to
maturity to investors, even if the average rate of principal prepayments is
consistent with the expectations of investors.
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DESCRIPTION OF THE CERTIFICATES
GENERAL DESCRIPTION OF THE CERTIFICATES
The certificates will consist of ________ classes of certificates,
designated as:
o the Class A-1 Certificates and the Class A-2 Certificates which will also
be referred to in this prospectus supplement as the Class A Certificates;
o the Class CE Certificates;
o the Class P Certificates, and
o the Class R-I Certificates, the Class R-II Certificates and the Class
R-III Certificates which will also be referred to in this prospectus supplement
as the Residual Certificates.
Only the Class A Certificates are offered by this prospectus supplement.
The Class CE Certificates, the Class P Certificates and the Residual
Certificates which are not being offered hereby, will be delivered on the
closing date to a wholly-owned bankruptcy remote subsidiary of the
originator as partial consideration for the mortgage loans.
The certificates represent in the aggregate the entire beneficial ownership
interest in a trust fund consisting primarily of a segregated pool of
conventional, one- to four-family, adjustable-rate, fully-amortizing, first lien
mortgage loans having original terms to maturity of not greater than 30 years,
and funds deposited by the depositor in the pre-funding account and the interest
coverage account and an aggregate principal balance as of _______ __, ____,
which date shall also be referred to in this prospectus supplement as the
cut-off date, after application of scheduled payments due whether or not
received, of approximately $___________, subject to a permitted variance as
described in this prospectus supplement under "The Mortgage Pool".
Each class of the offered certificates will have the approximate initial
certificate principal balance as set forth in the summary of this prospectus
supplement and will have the Pass-Through Rate determined as provided under
"Summary of Prospectus Supplement--Pass-Through Rate" and
"--Interest Distributions" in this prospectus supplement.
The offered certificates will be issued, maintained and transferred on the
book-entry records of the Depository Trust Company, or DTC, and its participants
and in that capacity, will be referred to in this prospectus supplement as the
book-entry certificates. The book-entry certificates will be issued in minimum
denominations of $_____ and integral multiples of $____ in excess of the minimum
denominations.
The depositor has been informed by DTC that DTC's nominee will be CEDE &
Co. No person acquiring an interest in any offered certificate will be entitled
to receive a certificate representing that person's interest, except as set
forth in the section of this prospectus supplement entitled "--Definitive
Certificates". Unless and until a certificate is issued in fully registered
certificated form, a definitive certificate, under the limited circumstances
described in this prospectus
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supplement, all references to actions by certificateholders with respect to the
offered certificates shall refer to actions taken by DTC upon instructions from
its participants, and all references in this prospectus supplement to
distributions, notices, reports and statements to certificateholders with
respect to the offered certificates shall refer to distributions, notices,
reports and statements to DTC CEDE & Co., as the registered holder of the
offered certificates, for distribution to certificate owners in accordance with
DTC procedures. See "--Registration of the Book-Entry Certificates" and
"--Definitive Certificates" in this prospectus supplement.
No service charge will be imposed for any registration of transfer or
exchange, but the trustee may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection with any registration of
this kind.
All distributions to holders of the certificates, other than the final
distribution on any class of certificates, will be made on each distribution
date by or on behalf of the trustee to the persons in whose names the
certificates are registered at the close of business on the related record date.
The record date for each distribution date is:
o with respect to any book-entry certificates, the close of business on
the business day immediately preceding the distribution date or
o with respect to any other class of certificates, including any
definitive certificates, the close of business on the last business day of the
month preceding the month in which the distribution date occurs.
Distributions will be made either by check mailed to the address of each
the certificateholder as it appears in the certificate register or upon written
request to the trustee at least five business days prior to the relevant Record
Date by any holder of certificates having an aggregate initial certificate
principal balance that is in excess of the lesser of:
o $5,000,000 or
o two-thirds of the initial aggregate certificate principal balance or
Notional Amount, as applicable, of that class of certificates
by wire transfer in immediately available funds to the account of the
certificateholder specified in the request. The final distribution on any class
of certificates will be made in like manner, but only upon presentment and
surrender of these certificates at the corporate trust office of the trustee or
another location specified in the notice to certificateholders of the final
distribution.
REGISTRATION OF THE BOOK-ENTRY CERTIFICATES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities for its
participating organizations and to facilitate the clearance and settlement of
securities transactions
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between its participants through electronic book entries, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, including the underwriter of the certificates offered by
this prospectus supplement, banks, trust companies and clearing corporations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers, and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificate owners that are not participants or indirect participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, the book-entry certificates may do so only through participants and indirect
participants. In addition, certificate owners will receive all distributions of
principal of and interest on the book-entry certificates from the trustee
through DTC and DTC participants. The trustee will forward payments to DTC in
same day funds and DTC will forward these payments to participants in next day
funds settled through the New York Clearing House. Each participant will be
responsible for disbursing these payments to indirect participants or to
certificate owners. Unless and until definitive certificates are issued, it is
anticipated that the only certificateholder of the book-entry certificates will
be CEDE & Co., as nominee of DTC. Certificate owners will not be recognized by
the trustee as certificateholders, as the term is used in the pooling and
servicing agreement and certificate owners will be permitted to exercise the
rights of certificateholders only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the book-entry
certificates among participants and to receive and transmit distributions of
principal of, and interest on, the book-entry certificates. Participants and
indirect participants with which certificate owners have accounts with respect
to the book-entry certificates similarly are required to make book-entry
transfers and receive and transmit payments on behalf of their respective
certificate owners. Accordingly, although certificate owners will not possess
definitive certificates, the rules, regulations and procedures creating and
affecting DTC and its operations provide a mechanism by which certificate owners
through their participants and indirect participants will receive payments and
will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of banks, the ability of a
certificate owner to pledge book-entry certificates to persons or entities that
do not participate in the DTC system, or to otherwise act with respect to these
certificates, may be limited due to the absence of physical certificates for the
book-entry certificates. In addition, under a book-entry format, certificate
owners may experience delays in their receipt of payments since distributions
will be made by the trustee to CEDE & Co., as nominee for DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations , DTC will take action permitted to be taken by a
certificateholder under the pooling and servicing agreement only at the
direction of one or more participants to whose DTC account the book-entry
certificates are credited. Additionally, under the rules, regulations and
procedures creating and affecting DTC and its operations, DTC will take actions
with respect to specified voting rights only at the direction of and on behalf
of participants whose holdings of book-entry certificates evidence these
specified voting rights. DTC may take conflicting actions with respect to voting
rights, to the
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extent that participants whose holdings of book-entry certificates evidencing
these voting rights, authorize divergent action.
DTC management is aware that computer applications, systems and similar
items 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 computer
applications, systems and similar items for processing data, as the same relate
to the timely payment of distributions, including principal and income payments,
to securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting and will continue to contact third
party vendors from whom DTC acquires services to impress upon them the
importance of their services being Year 2000 compliant and determine the extent
of their efforts for Year 2000 remediation and, as appropriate, testing of their
services. In addition, DTC is in the process of developing contingency plans as
it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
The depositor, the master servicer, the insurer and the trustee will have
no liability for any actions taken by DTC or its nominee including, without
limitation, actions for any aspect of the records relating to or payments made
on account of beneficial ownership interests in the offered certificates held by
CEDE & Co., as nominee for DTC, or for maintaining, supervising or reviewing
any records relating to beneficial ownership interests.
DEFINITIVE CERTIFICATES
Definitive certificates will be issued to certificate owners or their
nominees, respectively, rather than to DTC or its nominee, only if:
o the depositor advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as clearing agency
with respect to the book-entry certificates and the depositor is unable to
locate a qualified successor,
o the depositor, at its option, elects to terminate the book-entry
system through DTC, or
o after the occurrence of an event of default, certificate owners
representing in the aggregate not less than 51% of the Voting Rights of the
book-entry certificates advise the trustee and DTC
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through participants, in writing, that the continuation of a book-entry system
through DTC, or a successor to DTC, is no longer in the certificate owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the trustee is required to notify all certificate owners through
participants of the availability of definitive certificates. Upon surrender by
DTC of the definitive certificates representing the book-entry certificates and
receipt of instructions for re-registration, the trustee will reissue the
book-entry certificates as definitive certificates issued in the respective
principal amounts owned by individual certificate owners, and thereafter the
trustee will recognize the holders of definitive certificates as
certificateholders under the pooling and servicing agreement. Definitive
certificates will be issued in minimum denominations of $______, except that any
beneficial ownership represented by a book-entry certificate in an amount less
than $______ immediately prior to the issuance of a definitive certificate shall
be issued in a minimum denomination equal to the amount of this beneficial
ownership.
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe the
cash flows on the certificates:
AVAILABLE DISTRIBUTION AMOUNT: The Available Distribution Amount for any
distribution date is equal to the sum, net of amounts reimbursable therefrom to
the master servicer or the trustee, of (i) the aggregate amount of scheduled
monthly payments on the mortgage loans due on the related due date and received
on or prior to the related determination date, after deduction of the servicing
fee, the trustee fee and the premium payable with respect to the certificate
insurance policy, (ii) certain unscheduled payments in respect of the mortgage
loans, including prepayments, insurance proceeds, liquidation proceeds and
proceeds from repurchases of and substitutions for the mortgage loans occurring
during the preceding calendar month, (iii) all P&I Advances with respect to the
mortgage loans received for such distribution date, (iv) with respect to the
distribution date immediately following the end of the funding period, any
amounts remaining in the pre-funding account after giving effect to any purchase
of subsequent mortgage loans and (v) with respect to each distribution date
during the funding period and on the distribution date immediately following the
end of the funding period, any amounts withdrawn by the trustee from the
Interest Coverage Account for distribution on the certificates. The holders of
the Class P Certificates will be entitled to all prepayment charges received on
the mortgage loans and such amounts will not be available for distribution to
the offered certificates.
BANKRUPTCY LOSS: A Bankruptcy Loss is a Deficient Valuation or a Debt
Service Reduction.
CERTIFICATE PRINCIPAL BALANCE: The certificate principal balance of a
certificate outstanding at any time represents the then maximum amount that the
holder thereof is entitled to receive as distributions allocable to principal
from the cash flow on the mortgage loans and the other assets in the trust fund.
The certificate principal balance of any class of offered certificates as of any
date of determination is equal to the initial certificate principal balance
thereof reduced by the aggregate of (a) all amounts allocable to principal
previously distributed with respect to such certificate and (b) any reductions
in the certificate principal balance thereof deemed to have occurred in
connection
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with allocations of Realized Losses in the manner described herein. The
certificate principal balance of the Class CE Certificates as of any date of
determination is equal to the excess, if any, of (a) the then aggregate
principal balance of the mortgage loans over (b) the then aggregate certificate
principal balance of the offered certificates and the Class P Certificates.
CLASS A-1 PRINCIPAL DISTRIBUTION AMOUNT: The Class A-1 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the Certificate Principal Balance of the Class A-1 Certificates immediately
prior to such distribution date over (y) the lesser of (A) the product of (i)
approximately _____% and (ii) the aggregate principal balance of the mortgage
loans as of the last day of the related Due Period and (B) the aggregate
principal balance of the mortgage loans as of the last day of the related Due
Period minus approximately $_________.
CLASS A-2 PRINCIPAL DISTRIBUTION AMOUNT: The Class A-2 Principal
Distribution Amount for any distribution date on or after the Stepdown Date and
on which a Trigger Event is not in effect, is an amount equal to the excess of
(x) the sum of (i) the Certificate Principal Balance of the Class A-1
Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount on such distribution date) and (ii) the Certificate
Principal Balance of the Class A-2 Certificates immediately prior to such
distribution date over (y) the lesser of (A) the product of (i) approximately
_____% and (ii) the aggregate principal balance of the mortgage loans as of the
last day of the related Due Period and (B) the aggregate principal balance of
the mortgage loans as of the last day of the related Due Period minus
approximately $_________.
COMPENSATING INTEREST: With respect to any principal prepayments, any
payments made by the master servicer from its own funds to cover Prepayment
Interest Shortfalls.
CREDIT ENHANCEMENT PERCENTAGE: The Credit Enhancement Percentage for any
Distribution Date is the percentage obtained by dividing (x) the aggregate
Certificate Principal Balance of the Class A-2 Certificates, the Class CE
Certificates and the Class M Certificates by (y) the aggregate principal balance
of the mortgage loans, calculated after taking into account distributions of
principal on the mortgage loans and distributions of principal to the holders of
the certificates then entitled to distributions of principal on such
distribution date.
CUMULATIVE INSURANCE PAYMENTS: As of any distribution date, Cumulative
Insurance Payments refers to the aggregate of any payments made by the insurer
under the certificate insurance policy to the extent not previously reimbursed,
plus interest on these payments.
DEBT SERVICE REDUCTION: A Debt Service Reduction is any reduction in the
amount which a mortgagor is obligated to pay on a monthly basis with respect to
a mortgage loan as a result of any proceeding initiated under the United States
Bankruptcy Code, other than a reduction attributable to a Deficient Valuation.
DEFICIENT VALUATION: A Deficient Valuation is a valuation by a court of
competent jurisdiction of the mortgaged property in an amount less than the then
outstanding indebtedness under the mortgage loan, which valuation results from a
proceeding initiated under the United States Bankruptcy Code.
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DUE PERIOD: The Due Period with respect to any distribution date commences
on the second day of the month immediately preceding the month in which such
distribution date occurs and ends on the first day of the month in which such
distribution date occurs.
EXPENSE ADJUSTED MORTGAGE RATE: The Expense Adjusted Mortgage Rate on any
mortgage loan is equal to the then applicable mortgage rate thereon minus the
sum of (i) the trustee fee rate and (ii) the servicing fee rate. For any
distribution date, the trustee fee rate is equal to _____% per
annum and the servicing fee rate is equal to ____% per annum.
INSURED PAYMENTS: Insured Payments shall mean with respect to the offered
certificates as of any distribution date, the sum of:
(i) any shortfall in amounts available in the distribution account, as
defined in the pooling and servicing agreement, to pay the Interest Distribution
Amount on the offered certificates for the related Interest Accrual Period,
(ii) the excess, if any, of:
o the aggregate Certificate Principal Balance of the offered
certificates then outstanding over
o the aggregate principal balances of the mortgage loans then
outstanding and
(iii) without duplication of the amount specified in clause (ii), the
aggregate Certificate Principal Balance of the offered certificates to the
extent unpaid on the final distribution date or the earlier termination of the
trust fund under the terms of the pooling and servicing agreement.
INTEREST ACCRUAL PERIOD: The Interest Accrual Period for any distribution
date and the offered certificates is the period commencing on the distribution
date of the month immediately preceding the month in which such distribution
date occurs (or, in the case of the first period, commencing on the closing
date) and ending on the day preceding such distribution date, and all
distributions of interest on the offered certificates will be based on a 360-day
year and the actual number of days in the applicable Interest Accrual Period.
INTEREST CARRY FORWARD AMOUNT: The Interest Carry Forward Amount with
respect to the offered certificates and any distribution date is equal to the
amount, if any, by which the Interest Distribution Amount for such class of
certificates for the immediately preceding distribution date exceeded the actual
amount distributed on such certificates in respect of interest on such
immediately preceding distribution date, together with any Interest Carry
Forward Amount with respect to such certificates remaining unpaid from the
previous distribution date plus interest accrued thereon at the related
Pass-Through Rate on such certificates for the most recently ended Interest
Accrual Period. The Interest Carry Forward Amount with respect to the Class A-1
Certificates or the Class A-2 Certificates, if any, is distributed as part of
the Class A-1 Interest Distribution Amount or the Class A-2 Interest
Distribution Amount, as applicable, on each distribution date.
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INTEREST DISTRIBUTION AMOUNT: The Interest Distribution Amount for the
offered certificates of any class on any distribution date is equal to interest
accrued during the related Interest Accrual Period on the Certificate Principal
Balance of that class immediately prior to such distribution date at the then
applicable Pass-Through Rate for such class, and reduced (to not less than
zero), in the case of each such class, by the allocable share, if any, for such
class of Prepayment Interest Shortfalls to the extent not covered by
Compensating Interest paid by the master servicer, shortfalls resulting from the
application of the Relief Act and certain other interest shortfalls not covered
by the subordination provided by more subordinate classes of certificates. On
any distribution date, any shortfalls resulting from application of the Relief
Act and any Prepayment Interest Shortfalls to the extent not covered by
Compensating Interest paid by the master servicer will be allocated first, to
the interest distribution amount with respect to the Class CE Certificates, and
thereafter, to the Interest Distribution Amounts with respect to the Offered
Certificates on a PRO RATA basis based on the respective amounts of interest
accrued on such Certificates for such Distribution Date. The Holders of the
Offered Certificates will be entitled to reimbursement for any such interest
shortfalls, subject to available funds, in the priorities described under
"--Overcollateralization Provisions" herein.
INTEREST REMITTANCE AMOUNT: The Interest Remittance Amount for any
distribution date is that portion of the Available Distribution Amount for such
distribution date that represents interest received or advanced on the mortgage
loans.
NET MONTHLY EXCESS CASHFLOW: The Net Monthly Excess Cashflow for any
distribution date is equal to the sum of (a) any Overcollateralization Reduction
Amount and (b) the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the sum for such distribution date of the aggregate
of the Interest Distribution Amounts payable to the holders of the offered
certificates and the sum of the amounts described in clauses (b)(i) through
(iii) of the definition of Principal Distribution Amount.
NET WAC PASS-THROUGH RATE: The Net WAC Pass-Through Rate for any
distribution date is a rate per annum equal to the weighted average of the
Expense Adjusted Mortgage Rates on the then outstanding mortgage loans, weighted
based on their Scheduled Principal Balances as of the first day of the calendar
month preceding the month in which the distribution date occurs multiplied by a
fraction, the numerator of which is 30 and the denominator of which is the
actual number of days elapsed in the related Interest Accrual Period. If for any
distribution date the Pass-Through Rate for any class of the offered
certificates is limited to the Net WAC Pass-Through Rate for such distribution
date, the holders of such Certificates WILL NOT be entitled to recover the
resulting basis risk shortfall on any future distribution date.
OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount with respect to
any distribution date, is the excess, if any, of (a) the sum of the aggregate
principal balance of the mortgage loans immediately following such distribution
date and the amount of any funds in the pre-funding account over (b) the sum of
the aggregate Certificate Principal Balances of the offered certificates and the
Class P Certificates, after taking into account the payment of the amounts
described in clauses (b)(i) through (iv) of the definition of Principal
Distribution Amount on such distribution date.
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OVERCOLLATERALIZATION INCREASE AMOUNT: The Overcollateralization Increase
Amount with respect to the offered certificates and any distribution date, is
any amount of Net Monthly Excess Cashflow actually applied as an accelerated
payment of principal to the extent the Required Overcollateralized Amount
exceeds the Overcollateralized Amount as of such distribution date.
OVERCOLLATERALIZED REDUCTION AMOUNT: The Overcollateralized Reduction
Amount with respect to the offered certificates and any distribution date, is
the amount by which the Overcollateralized Amount exceeds the Required
Overcollateralized Amount after taking into account all other distributions to
be made on such distribution date, which amount shall be distributed as Net
Monthly Excess Cashflow pursuant to the priorities set forth under
"Overcollateralization Provisions" in this prospectus supplement.
PASS-THROUGH RATE: The Pass-Through Rate for each class of certificates
will be a rate per annum equal to the lesser of (i) one-month LIBOR plus ____%
in the case of each distribution date through and including the distribution
date on which the aggregate principal balance of the mortgage loans (and
properties acquired in respect thereof) remaining in the trust fund is reduced
to less than 10% of the sum of the aggregate principal balance of the initial
mortgage loans as of the cut-off date and the original pre-funded amount, or
one-month LIBOR plus ____%, in the case of any distribution date thereafter and
(ii) the Net WAC Pass-Through Rate for such Distribution Date.
PREPAYMENT INTEREST SHORTFALLS: With respect to any principal prepayments
of the mortgage loans, any resulting interest shortfall.
PREPAYMENT PERIOD: The Prepayment Period with respect to any distribution
date is the calendar month immediately preceding the month in which such
distribution date occurs.
PRINCIPAL DISTRIBUTION AMOUNT: The Principal Distribution Amount for any
Distribution Date will be the lesser of:
(a) the excess of the Available Distribution Amount over the aggregate
of the Interest Distribution Amounts for the offered certificates; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments
on the mortgage loans due during the related Due Period, whether
or not received on or prior to the related Determination Date;
(ii) the principal portion of all proceeds received in
respect of the repurchase of a mortgage loan (or, in the case of
a substitution, certain amounts representing a principal
adjustment) as required by the pooling and servicing agreement
during the related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received during
the related Prepayment Period, to the extent applied as
recoveries of principal on
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the mortgage loans, and with respect to the distribution date
immediately following the end of the funding period, any amounts
remaining in the pre-funding account after giving effect to the
purchase of any subsequent mortgage loans;
(iv) the principal portion of any Realized Losses incurred
on any mortgage loans in the calendar month preceding such
distribution date to the extent covered by Net Monthly Excess
Cashflow for such distribution date; and
(v) the amount of any Overcollateralization Increase Amount
for such distribution date;
MINUS
(vi) the amount of any Overcollateralization Reduction
Amount for such distribution date.
REALIZED LOSS: A Realized Loss is any Bankruptcy Loss or the amount of loss
realized with respect to any defaulted mortgage loan that is finally liquidated
through foreclosure sale, disposition of the related mortgaged property (if
acquired on behalf of the certificateholders by deed in lieu of foreclosure) or
otherwise. The amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest thereon through the
last day of the month in which such mortgage loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the master
servicer for P&I Advances, servicing advances and other related expenses,
including attorney's fees) towards interest and principal owing on the mortgage
loan.
REQUIRED OVERCOLLATERALIZED AMOUNT: The Required Overcollateralized Amount
is the overcollaterized amount required at any time as set forth in the pooling
and servicing agreement.
SCHEDULED PRINCIPAL BALANCE: The Scheduled Principal Balance of any
mortgage loan as of any date of determination is equal to the principal balance
thereof as of the cut-off date (after application of all scheduled principal
payments due on or before the cut-off date, whether or not received), reduced by
(x) the principal portion of all monthly payments due on or before the date of
determination, whether or not received, (y) all amounts allocable to unscheduled
principal that were received prior to the calendar month in which the date of
determination occurs and (z) any Bankruptcy Loss (as defined herein) occurring
out of a Deficient Valuation (as defined herein) that was incurred prior to the
calendar month in which the date of determination occurs.
STEPDOWN DATE: The Stepdown Date for any distribution date is the later to
occur of (x) the distribution date occurring in _____________ and (y) the first
distribution date on which the Credit Enhancement Percentage (calculated for
this purpose only after taking into account distributions of principal on the
mortgage loans, but prior to any distribution of principal to the holders of the
certificates then entitled to distributions of principal on such distribution
date) is greater than or equal to approximately _____%.
TRIGGER EVENT: A Trigger Event is in effect with respect to any
distribution date, if the percentage obtained by dividing (x) the principal
amount of mortgage loans delinquent 60 days or
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more by (y) the aggregate principal balance of the mortgage loans, in each case,
as of the last day of the previous calendar month, exceeds the lesser of (i) __%
of the Credit Enhancement Percentage (calculated for this purpose only with the
aggregate Certificate Principal Balance of the Class CE
Certificates) and (ii) approximately _____%.
INTEREST DISTRIBUTIONS
Distributions in respect of interest will be made on each distribution date
to the holders of each class of offered certificates in an amount, allocable
among the offered certificates PRO RATA in accordance with the respective
amounts payable as to each in respect of interest, equal to the Interest
Remittance Amount for that class for that distribution date.
On any distribution date, any shortfalls resulting from the application of
the Relief Act will be allocated, first, to the interest distribution amount
with respect to the Class CE Certificates, and thereafter, to the Interest
Distribution Amounts with respect to the offered certificates on a PRO RATA
basis based on the respective amounts of interest accrued on these certificates
for the distribution date. On any distribution date, any Prepayment Interest
Shortfalls to the extent not covered by Compensating Interest paid by the
servicers will be allocated to the interest distribution amount with respect to
the Class CE Certificates. The holders of the offered certificates will be
entitled to reimbursement for any shortfalls resulting from application of the
Relief Act, subject to available funds, in the priority described under
"--Overcollateralization Provisions" in this prospectus supplement.
Subject to the terms of the certificate insurance policy, any interest
losses incurred by the offered certificates, other than shortfalls resulting
from the application of the Relief Act, will be covered under the certificate
insurance policy. Notwithstanding the foregoing, however, if payments are not
made as required under the certificate insurance policy, any of these interest
losses may be borne by the offered certificates to the extent the amount of
these losses is not paid from Net Monthly Excess Cashflow, in the priority
described under "--Overcollateralization Provisions" in this prospectus
supplement.
CALCULATION OF ONE-MONTH LIBOR
On the second business day preceding the beginning of each accrual period,
the trustee will determine one-month LIBOR for such accrual period with respect
to each class of the offered certificates (other than the Class M-3
Certificates). One-month LIBOR will be the rate for deposits in United States
dollars for a term equal to the relevant accrual period which appears in the
Telerate Page 3750 as of 11:00 a.m., London time, on such date. The first
accrual period shall begin on the closing date. If such rate does not appear on
Telerate Page 3750, the rate for that day will be determined on the basis of the
rates at which deposits in United States dollars are offered by the Reference
Banks at approximately 11:00 a.m., London time, on that day to banks in the
London interbank market for a term equal to the relevant accrual period. The
trustee will request the principal London office of each of the Reference Banks
to provide a quotation of its rate. If at least two such quotations are
provided, the rate for that day will be the arithmetic mean of the quotations
(rounded upwards if necessary to the nearest whole multiple of 0.0625%). If
fewer than two quotations are provided as requested, the rate for that day will
be the higher of (x) one-month LIBOR
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as determined on the previous interest determination date and (y) the Reserve
Interest Rate. The Reserve Interest Rate shall be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of the
rates quoted by major banks in New York City, selected by the trustee, at
approximately 11:00 a.m., New York City time, on that day for loans in United
States dollars to leading European banks for a term equal to the relevant
accrual period or (ii) in the event that the trustee can determine no such
arithmetic mean, the lowest rate quoted by major banks in New York City on that
day for loans in United States dollars to leading European banks for a term
equal to the relevant accrual period.
Telerate Page 3750 means the display page currently so designated on the
Dow Jones Telerate Service (or such other page as may replace the page on that
service for the purpose of displaying comparable rates or prices) and Reference
Banks means leading banks selected by the trustee and engaged in transactions in
Eurodollar deposits in the international Eurocurrency market which are not
controlling, controlled by, or under common control with, the depositor, the
originator or the mortgage loan seller.
The establishment of one-month LIBOR on each interest determination date by
the trustee and the trustee's calculation of the rate of interest applicable to
the offered certificates for the related accrual period shall (in the absence of
manifest error) be final and binding.
PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES
On each distribution date, the Principal Distribution Amount will be
distributed to the holders of the offered certificates then entitled to these
distributions.
Notwithstanding the foregoing, as described under "--Overcollateralization
Provisions" in this prospectus supplement, no amounts will be distributed to the
holders of the offered certificates under clause (v) of the definition of
Principal Distribution Amount except to the extent of any Net Monthly Excess
Cashflow remaining after payment to the holders of the offered certificates of
all amounts in respect of Realized Losses under clause (iv) of the definition of
Principal Distribution Amount and payment to the insurer of any Cumulative
Insurance Payments.
In no event will the Principal Distribution Amount with respect to any
distribution date be:
o less than zero or
o greater than the then outstanding aggregate Certificate Principal
Balance of the offered certificates.
The holders of the Class P Certificates will be entitled to all prepayment
charges received on the mortgage loans and these amounts will not be available
for distribution on the offered certificates.
In addition, on each distribution date, funds received as a result of a
claim under the certificate insurance policy in respect of the principal portion
of Realized Losses allocated to the offered certificates will be distributed by
the trust administrator on behalf of the trustee to the holders of these
certificates. See "--Financial Guaranty Insurance Policy" in this prospectus
supplement.
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Distributions of the Principal Distribution Amount, and any amounts
distributable in accordance with clauses first and third under
"--Overcollateralization Provisions" in this prospectus supplement, on the
offered certificates on each distribution date will be made as follows:
o First, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance of the Class A-1 Certificates has been
reduced to zero; and
o Second, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance of the Class A-2 Certificates has been
reduced to zero.
Notwithstanding the foregoing priorities, if an Insurer Default exists, the
priority of distributions of principal among the offered certificates will be
disregarded and distributions allocable to principal will be paid on each
succeeding distribution date to holders of the offered certificates, on a PRO
RATA basis, based on the Certificate Principal Balances of the offered
certificates.
OVERCOLLATERALIZATION PROVISIONS
The weighted average Expense Adjusted Mortgage Rate for the mortgage loans
is generally expected to be higher than the weighted average of the Pass-Through
Rates on the offered certificates, thus generating excess interest collections
which, in the absence of Realized Losses, will not be necessary to fund interest
distributions on the offered certificates. The pooling and servicing requires
that, on each distribution date, the Net Monthly Excess Cashflow, if any, be
applied on such distribution date as an accelerated payment of principal on the
offered certificates, but only to the limited extent hereafter described.
With respect to any distribution date, any Net Monthly Excess Cashflow (or,
in the case of clause first below, the Net Monthly Excess Cashflow exclusive of
any Overcollateralization Reduction Amount) shall be paid as follows:
FIRST, to the holders of the class or classes of certificates then entitled
to receive distributions in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred on the mortgage loans;
SECOND, to the insurer, in an amount equal to any Cumulative Insurance
Payments;
THIRD, to the holders of the class or classes of Certificates then entitled
to receive distributions in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
FOURTH, to the holders of the offered certificates, in an amount equal to
such certificates' allocated share of any Prepayment Interest Shortfalls on
the mortgage loans to the extent not covered by Compensating Interest paid
by the master servicer and any shortfalls resulting from the application of
the Relief Act with respect to the mortgage loans;
FIFTH, to the insurer, for any amounts remaining due to the insurer under
the terms of the insurance agreement;
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SIXTH, to the holders of the Class CE Certificates as provided in the
pooling and servicing; and
SEVENTH, to the holders of the Residual Certificates, any remaining
amounts; provided that if such distribution date is the distribution date
immediately following the expiration of the latest prepayment charge term
or any distribution date thereafter, then any such remaining amounts will
be distributed FIRST, to the holders of the Class P Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and SECOND,
to the holders of the Residual Certificates.
As of the closing date, the sum of the aggregate principal balance of the
initial mortgage loans as of the cut-off date and the original pre-funded amount
will exceed the sum of the aggregate certificate principal balances of the
offered certificates and the Class P Certificates by an amount equal to
approximately $__________, which is equal to the initial certificate principal
balance of the Class CE Certificates. Such amount represents approximately ____%
of the sum of the aggregate principal balance of the initial mortgage loans as
of the cut-off date and the original pre-funded amount, which is the initial
amount of overcollateralization required to be provided by the mortgage pool
under the pooling and servicing. Under the pooling and servicing, the
Overcollateralized Amount is required to be maintained at the Required
Overcollateralized Amount. In the event that Realized Losses are incurred on the
mortgage loans, such Realized Losses may result in an overcollateralization
deficiency since such Realized Losses will reduce the principal balance of the
mortgage loans without a corresponding reduction to the aggregate certificate
principal balances of the offered certificates. In such event, the pooling and
servicing requires the payment from Net Monthly Excess Cashflow, subject to
available funds, of an amount equal to such overcollateralization deficiency,
which shall constitute a principal distribution on the offered certificates in
reduction of the certificate principal balances thereof. This has the effect of
accelerating the amortization of the offered certificates relative to the
amortization of the mortgage loans, and of increasing the Overcollateralized
Amount.
On and after the Stepdown Date and provided that a Trigger Event is not in
effect, the Required Overcollateralized Amount may be permitted to decrease
("step down") below the initial $__________ level to a level equal to
approximately ____% of the then current aggregate outstanding principal balance
of the mortgage loans (after giving effect to principal payments to be
distributed on such distribution date), subject to a floor of approximately
$_________.
In the event that the Required Overcollateralized Amount is required to
step up on any distribution date, the pooling and servicing agreement provides
that all Net Monthly Excess Cashflow remaining after the distributions described
in clauses first and second will be distributed in respect of the
Overcollateralization Increase Amount for the offered certificates until the
Overcollateralized Amount is equal to the stepped up Required Overcollateralized
Amount. This has the effect of accelerating the amortization of the offered
certificates relative to the amortization of the mortgage loans, and of
increasing the Overcollateralized Amount.
In the event that the Required Overcollateralized Amount is permitted to
step down on any distribution date, the pooling and servicing provides that a
portion of the principal which would otherwise be distributed to the holders of
the offered certificates on such distribution date shall be distributed to the
holders of the Class CE Certificates pursuant to the priorities set forth above.
With respect to each such distribution date, the Principal Distribution Amount
will be reduced by an
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amount equal to the Overcollateralized Reduction Amount. This has the effect of
decelerating the amortization of the offered certificates relative to the
amortization of the mortgage loans, and of reducing the Overcollateralized
Amount. However, if on any distribution date a Trigger Event is in effect, the
Required Overcollateralized Amount will not be permitted to step down on such
distribution date.
MANDATORY PREPAYMENTS ON CLASS A-1 CERTIFICATES
The Class A-1 Certificates will be prepaid on the distribution date
immediately following the end of the funding period to the extent of any amounts
remaining on deposit in the pre-funding account on such distribution date.
Although no assurance can be given, it is anticipated by the depositor that the
principal amount of subsequent mortgage loans sold to the trust fund will
require the application of substantially all of the original pre-funded amount
and that there will be no material amount of principal prepaid to the holders of
the Class A-1 Certificates from the pre-funding account. It is unlikely,
however, that the depositor will be able to deliver subsequent mortgage loans
with an aggregate principal balance identical to the related original pre-funded
amount. Accordingly, a small amount of principal is likely to be prepaid on the
Class A-1 Certificates on the distribution date immediately following the end of
the funding period.
INTEREST COVERAGE ACCOUNT
The depositor will establish for the benefit of the holders of the
certificates an interest coverage account. On the closing date, the depositor
will deposit in the interest coverage account a cash amount as specified in the
pooling and servicing agreement. On each distribution date during the funding
period and on the distribution date immediately following, funds on deposit in
the interest coverage account will be applied by the trustee to cover shortfalls
in the amount of interest generated by the assets of the trust fund attributable
to the pre-funding feature. Such shortfall will exist during the funding period
because the interest accruing on the aggregate principal balance of the mortgage
loans during such period will be less than the amount of interest which would
have accrued on the mortgage loans if the subsequent mortgage loans were
included in the trust fund as of the closing date. On the first distribution
date following the termination of the funding period (after the distribution on
the certificates to be made on such distribution date), funds on deposit in the
interest coverage account, net of any investment income earned on such funds by
the master servicer, will be released by the trustee to the depositor or its
designee.
FINANCIAL GUARANTY INSURANCE POLICY
The following summary of the terms of the certificate insurance policy does
not purport to be complete and is qualified in its entirety by reference to the
certificate insurance policy. A form of the certificate insurance policy may be
obtained, upon request, from the depositor.
Simultaneously with the issuance of the offered certificates, the insurer
will deliver the certificate insurance policy to the trust administrator for the
benefit of the holders of the offered certificates. Under the certificate
insurance policy, the insurer will irrevocably and unconditionally guarantee
payment to the trust administrator on behalf of the trustee on each distribution
date for the benefit of the holders of the offered certificates, the full and
complete payment of Insured Payments with
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respect to the offered certificates calculated in accordance with the original
terms of the offered certificates when issued and without regard to any
amendment or modification of the offered certificates or the pooling and
servicing agreement except amendments or modifications to which the insurer has
given its prior written consent. The certificate insurance policy does not cover
Relief Act shortfalls.
If any Insured Payment is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Insurer will pay that
amount out of funds of the insurer
on the later of:
o the date when due to be paid under the order referred to below Or
o the first to occur of
o the fourth business day following receipt by the insurer
from the trust administrator of:
(A) a certified copy of the order of the court or other
governmental body which exercised jurisdiction to the effect that
a holder of offered certificates is required to return principal
or interest distributed with respect to an offered certificate
during the term of the certificate insurance policy because those
distributions were avoidable preferences under applicable
bankruptcy law, which order shall be referred to in this
prospectus supplement as the order,
(B) a certificate of the holder of offered certificates that
the Order has been entered and is not subject to any stay, and
(C) an assignment duly executed and delivered by the holder
of offered certificates, in the form as is reasonably required by
the insurer and provided to the holder of offered certificates by
the insurer, irrevocably assigning to the insurer all rights and
claims of the holder of offered certificates relating to or
arising under the offered certificates against the debtor which
made the preference payment or otherwise with respect to the
preference payment, or
o the date of receipt by the insurer from the trust administrator
of the items referred to in clauses (A), (B) and (C) if, at least four
business days prior to the date of receipt, the insurer shall have
received written notice from the trust administrator that these items
were to be delivered on that date and that date was specified in the
notice. These payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and
not to the trust administrator or holder of offered certificates
directly, unless a holder of offered certificates has previously paid
these amount to the receiver, conservator, debtor-in-possession or
trustee in bankruptcy named in the Order, in which case the payment
shall be disbursed to the trust administrator for distribution to the
holder of the offered certificates upon proof of the payment
reasonably satisfactory to the insurer. In connection with the
foregoing, the insurer shall have the rights provided under the
pooling and servicing agreement.
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Payment of claims under the certificate insurance policy made in respect of
Insured Payments will be made by the insurer following receipt by the insurer of
the appropriate notice for payment on the later to occur of 12:00 noon, New York
City time, on the second business day following receipt of notice for payment,
and 12:00 noon, New York City time, on the relevant distribution date.
The terms receipt and received, with respect to the certificate insurance
policy, means actual delivery to the insurer and to its fiscal agent appointed
by the insurer at its option, if any, prior to 12:00 p.m., New York City time,
on a business day; delivery either on a day that is not a business day or after
12:00 p.m., New York City time, shall be deemed to be receipt on the next
succeeding business day. If any notice or certificate given under the
certificate insurance policy by the trust administrator is not in proper form or
is not properly completed, executed or delivered, it shall be deemed not to have
been received, and the insurer or the fiscal agent shall promptly so advise the
trust administrator and the trust administrator may submit an amended notice.
Under the certificate insurance policy, business day means any day other
than:
o a Saturday or Sunday or
o a day on which banking institutions in the City of New York, New
York, the State of New York or in the city in which the corporate trust office
of the trust administrator is located, are authorized or obligated by law or
executive order to be closed.
The insurer's obligations under the certificate insurance policy to make
Insured Payments shall be discharged to the extent funds are transferred to the
trust administrator as provided in the certificate insurance policy, whether or
not these funds are properly applied by the trust administrator.
The term of the certificate insurance policy means the period from and
including the date of issuance of the certificate insurance policy to and
including the date on which the Certificate Principal Balances of the offered
certificates are reduced to zero, plus the additional period, to the extent
specified in the certificate insurance policy, during which any payment on the
offered certificates could be avoided in whole or in part as a preference
payment.
The insurer shall be subrogated to the rights of the holders of the offered
certificates to receive payments of principal and interest, as applicable, with
respect to distributions on these certificates to the extent of any payment by
the insurer under the certificate insurance policy. To the extent the insurer
makes Insured Payments, either directly or indirectly, as by paying through the
trust administrator, to the holders of the offered certificates, the insurer
will be subrogated to the rights of the holders of the offered certificates, as
applicable, with respect to the Insured Payment and shall be deemed to the
extent of the payments so made to be a registered holder of the offered
certificates for purposes of payment.
Claims under the certificate insurance policy constitute direct unsecured
and unsubordinated obligations of the insurer, and will rank not less than PARI
PASSU with any other unsecured and unsubordinated indebtedness of the insurer
except for obligations in respect to tax and other payments to which preference
is or may become afforded by statute. The terms of the certificate
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insurance policy cannot be modified, altered or affected by any other agreement
or instrument, or by the merger, consolidation or dissolution of the depositor.
The certificate insurance policy by its terms may not be canceled or revoked
prior to distribution in full of all guaranteed distributions, as defined in the
certificate insurance policy. The certificate insurance policy is governed by
the laws of the State of New York. The certificate insurance policy is not
covered by the property/casualty insurance security fund specified in Article 76
of the New York Insurance Law.
To the fullest extent permitted by applicable law, the insurer agrees under
the certificate insurance policy not to assert, and waives, for the benefit of
each holder of the offered certificates, all its rights, whether by
counterclaim, setoff or otherwise, and defenses, including, without limitation,
the defense of fraud, whether acquired by subrogation, assignment or otherwise,
to the extent that these rights and defenses may be available to the insurer to
avoid payment of its obligations under the certificate insurance policy in
accordance with the express provisions of the certificate insurance policy.
Under the terms of the pooling and servicing agreement, unless an insurer
default exists, the insurer will be entitled to exercise rights of the holders
of the offered certificates, without the consent of the certificateholders, and
the holders of the offered certificates may exercise these rights only with the
prior written consent of the insurer. See "Pooling and Servicing
Agreement--Voting Rights" and "--Matters Regarding the Insurer" in this
prospectus supplement.
The depositor, the mortgage loan seller, the servicers and the insurer will
enter into an insurance and indemnity agreement under which the depositor, the
mortgage loan seller and the servicers will agree to reimburse, with interest,
the insurer for amounts paid due to claims under the certificate insurance
policy. The depositor, the mortgage loan seller and the servicers will further
agree to pay the insurer all reasonable charges and expenses which the insurer
may pay or incur relative to any amounts paid under the certificate insurance
policy or otherwise in connection with the transaction and to indemnify the
insurer against liabilities as set forth in the insurance and indemnity
agreement. Except to the extent provided tin this prospectus supplement, amounts
owing under the insurance and indemnity agreement will be payable solely from
the trust fund. An event of default by either servicer under the insurance and
indemnity agreement will constitute an event of default by that servicer under
the pooling and servicing agreement and allow the insurer, among other things,
to direct the trustee to terminate that servicer. An event of default by each
servicer under the insurance and indemnity agreement includes:
o the servicer's failure to pay when due any amount owed under the
insurance and indemnity agreement or other documents,
o the servicer's untruth or incorrectness in any material respect of
any representation or warranty of the servicer in the insurance and indemnity
agreement, the pooling and servicing agreement, in its capacity as servicer, or
other documents,
o the servicer's failure to perform or to observe any covenant or
agreement in the insurance and indemnity agreement, the pooling and servicing
agreement, in its capacity as servicer, and other documents,
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o the servicer's failure to pay its debts or the occurrence of events
of insolvency or bankruptcy with respect to the servicer and
o the occurrence of an event of default relating to the servicer under
the pooling and servicing agreement or other documents.
ALLOCATION OF LOSSES; SUBORDINATION
In the event that amounts recovered in connection with the final
liquidation of a defaulted mortgage loan are insufficient to reimburse the
servicers for P&I Advances and servicing advances, these amounts may be
reimbursed to the servicers out of any funds in the certificate account prior to
the distribution on the certificates.
Any Realized Losses on the mortgage loans will be allocated on any
distribution date,
FIRST, to Net Monthly Excess Cashflow,
SECOND, to the Class CE Certificates until the Certificate Principal
Balance of the Class CE Certificates has been reduced to zero, and
THIRD, to the offered certificates on a PRO RATA basis.
The pooling and servicing agreement does not permit the allocation of any
Realized Losses to the Class P Certificates. The certificate insurance policy
will cover any Realized Losses allocable to the offered certificates under
clause third. Notwithstanding the foregoing, however, if payments are not made
as required under the certificate insurance policy, Realized Losses will be
allocated to the offered certificates.
If Realized Losses have been allocated to the offered certificates and the
insurer has defaulted in its obligation to cover these Realized Losses, these
amounts with respect to the certificates will no longer accrue interest nor will
these amounts be reinstated thereafter, even if Net Monthly Excess Cashflow and
the Overcollateralized Amount are greater than zero on any subsequent
distribution dates.
Any allocation of a Realized Loss to a certificate will be made by reducing
the Certificate Principal Balance of that certificate by the amount so allocated
as of the distribution date in the month following the calendar month in which
the Realized Loss was incurred. An allocation of a Realized Loss on a PRO RATA
basis between two or more classes of certificates means an allocation to each
class of certificates on the basis of its then outstanding Certificate Principal
Balance prior to giving effect to distributions to be made on the distribution
date. Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Certificate Principal Balance of an offered
certificate be reduced more than once in respect of any particular amount both:
o allocable to the offered certificate in respect of Realized Losses
and
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o payable as principal to the holder of the offered certificate from
Net Monthly Excess Cashflow or from amounts paid under the certificate insurance
policy.
P&I ADVANCES
Subject to the limitations described in the next paragraph, the master
servicer will be obligated to advance or cause to be advanced on or before each
distribution date its own funds, or funds in the certificate account that are
not included in the Available Distribution Amount for that distribution date.
The amount of the master servicer's advance will be equal to the aggregate of
all payments of principal and interest, net of the servicing fee, that were due
during the related due period on the mortgage loans master serviced by it and
that were delinquent on the related determination date, plus amounts
representing assumed payments not covered by any current net income on the
mortgaged properties acquired by foreclosure or deed in lieu of foreclosure. The
determination date with respect to any distribution date is on the 1st day of
the month in which the distribution date occurs or, if the 1st day is not a
business day, on the immediately preceding business day.
P&I Advances are required to be made only to the extent they are deemed by
the master servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making P&I Advances is to
maintain a regular cash flow to the certificateholders, rather than to guarantee
or insure against losses. The master servicer will not be required to make any
P&I Advances with respect to reductions in the amount of the monthly payments on
the mortgage loans due to bankruptcy proceedings or the application of the
Relief Act.
All P&I Advances will be reimbursable to the master servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which the unreimbursed P&I Advance was made. In addition, any P&I Advances
previously made in respect of any mortgage loan that are deemed by the master
servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the master servicer out of any
funds in the certificate account prior to the distributions on the certificates.
In the event the master servicer fails in its obligation to make any P&I
Advance, the trustee will be obligated to make any P&I Advance, to the extent
required in the pooling and servicing agreement.
THE MORTGAGE LOAN SELLER
_______________________, a ________________________ company, obtained the
mortgage loans from the originator. The mortgage loan seller will transfer the
mortgage loans to the depositor pursuant to a mortgage loan purchase agreement,
dated as of ____________, among the mortgage loan seller, the originator and the
depositor.
POOLING AND SERVICING AGREEMENT
GENERAL DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
The certificates will be issued under the pooling and servicing agreement,
a form of which is filed as an exhibit to the registration statement. A current
report on Form 8-K relating to the certificates containing a copy of the pooling
and servicing agreement as executed will be filed by the
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depositor with the Securities and Exchange Commission within fifteen days of the
initial issuance of the certificates. The trust fund created under the pooling
and servicing agreement will consist of:
o all of the depositor's right, title and interest in and to the
mortgage loans, the related mortgage notes, mortgages and other related
documents,
o all payments on or collections in respect of the mortgage loans due
after the cut-off date, together with any proceeds of the mortgage loans,
o any mortgaged properties acquired on behalf of certificateholders by
foreclosure or by deed in lieu of foreclosure, and any revenues received on the
mortgaged properties,
o the rights of the trustee under all insurance policies required to
be maintained under the pooling and servicing agreement,
o the rights of the depositor under the mortgage loan purchase
agreement among the depositor, the mortgage loan seller and the originator,
other than rights of the depositor to indemnification by the originator, and
o all of the depositor's right, title and interest in and to the
subsequent mortgage loans and the rights of the depositor under any related
subsequent transfer instrument.
Reference is made to the prospectus for important information in addition
to that set forth in this prospectus supplement regarding the trust fund, the
terms and conditions of the pooling and servicing agreement and the offered
certificates. The offered certificates will be transferable and exchangeable at
the corporate trust offices of the trustee, located in Minneapolis, Minnesota.
The depositor will provide to a prospective or actual certificateholder without
charge, on written request, a copy, without exhibits, of the pooling and
servicing agreement. Requests should be addressed to the ______________________.
ASSIGNMENT OF THE MORTGAGE LOANS
The depositor will deliver to the trustee or to a custodian with respect to
each mortgage loan:
o the mortgage note endorsed without recourse to the trustee to
reflect the transfer of the mortgage loan,
o the original mortgage with evidence of recording indicated on the
mortgage and
o an assignment of the mortgage in recordable form to the trustee,
reflecting the transfer of the mortgage loan. These assignments of mortgage
loans are required to be recorded by or on behalf of the depositor in the
appropriate offices for real property records except for mortgages held under
the MERS(R) System and except in the state of California or in other states
where, in the opinion of counsel acceptable to the trustee, recording of the
assignment is not required to protect the trustee's interest in the mortgage
loan against the claim of any subsequent transferee or any successor to or
creditor of the depositor, the master servicer, the mortgage loan seller or the
originator. If the
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depositor uses the MERS(R) System with respect to any mortgage loan, it will
deliver evidence that the mortgage is held for the trustee through the MERS(R)
System instead of an assignment of the
mortgage in recordable form.
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided by
[name of master servicer]. None of the depositor, the trustee, the underwriter
or any of their respective affiliates has made or will make any representation
as to the accuracy or completeness of such information.
[Name of master servicer], a ________ [corporation], is engaged in the
business of originating, purchasing and selling sub-prime mortgage loans secured
by one- to four-family residences. [Name of master servicer] mortgage business
was begun in ______________________________.
Pursuant to the pooling and servicing agreement, [name of master servicer]
will serve as the master servicer for the mortgage loans sold indirectly by it
to the depositor. The master servicer is approved as a seller/servicer for
Fannie Mae and Freddie Mac and as a non-supervised mortgagee by the U.S.
Department of Housing and Urban Development. As of __________________, the
master servicer had ___ offices, consisting of ___ loan origination centers
located in _________ and ___ loan origination centers located throughout the
rest of the United States.
LENDING ACTIVITIES AND LOAN SALES. The master servicer currently originates
real estate loans through its network of retail offices and loan origination
centers. The master servicer also participates in secondary market activities by
originating and selling mortgage loans while continuing to service the majority
of the loans sold. In other cases the master servicer's whole loan
sale agreements provide for the transfer of servicing rights.
The master servicer's primary lending activity is funding loans to enable
mortgagors to purchase or refinance residential real property, which loans are
secured by first or second liens on the related real property. The master
servicer's single-family real estate loans are predominantly "conventional"
mortgage loans, meaning that they are not insured by the Federal Housing
Administration or partially guaranteed by the U.S. Department of Veterans
Affairs.
The following table summarizes the master servicer's retail originated one-
to four-family residential mortgage loan origination and sales activity for the
periods shown below. Sales activity may include sales of mortgage loans
purchased by the master servicer from other loan
originators.
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------
199__ 199__ 199__ 199__ 199__
----------------------------------------------------------
(DOLLARS IN THOUSANDS)
------------------------------------------------------------
Originations... $ $ $ $ $
Sales.......... $ $ $ $ $
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LOAN SERVICING. The master servicer services all of the mortgage loans it
originates which are retained in its portfolio and continues to service at least
a majority of the loans that have been sold to investors. Servicing includes
collecting and remitting loan payments, accounting for principal and interest,
contacting delinquent mortgagors, and supervising foreclosure in the event of
unremedied defaults. The master servicer's servicing activities are audited
periodically by applicable regulatory authorities. Certain financial records of
the master servicer relating to its loan servicing activities are reviewed
annually as part of the audit of the master servicer's financial statements
conducted by its independent accountants.
COLLECTION PROCEDURES; DELINQUENCY AND LOSS EXPERIENCE. When a mortgagor
fails to make a required payment on a residential mortgage loan, the master
servicer attempts to cause the deficiency to be cured by corresponding or making
telephone contact with the mortgagor. Pursuant to the master servicer's
customary procedures for residential mortgage loans serviced by it for its own
account, the master servicer generally mails a notice of intent to foreclose to
the mortgagor within ten days after the loan has become 31 days past due (two
payments due but not received) and upon expiration of the notice of intent to
foreclose, generally one month thereafter, if the loan remains delinquent,
typically institutes appropriate legal action to foreclose on the property
securing the loan. If foreclosed, the property is sold at a public or private
sale. The master servicer, typically enters a bid based upon an analysis of the
property value, estimated marketing and carrying costs and presence of junior
liens, which may be equal to or less than the full amount owed. In the event the
property is acquired at the foreclosure sale by the master servicer, it is
placed on the market for sale through local real estate brokers experienced in
the sale of similar properties. When the foreclosure of a property results in a
loss, the master servicer may (but it is not required), if practical and
permitted by applicable laws, pursue legal action against the borrowers for
recovery of such deficiency.
THE MASTER SERVICER RESIDENTIAL LOAN SERVICING PORTFOLIO
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family and multifamily) retail
first lien loans serviced by Ameriquest that
were originated or purchased by the master servicer:
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<TABLE>
<CAPTION>
SEPTEMBER
AT DECEMBER 31, 30,
--------------------------------------------------
199__ 199__ 199__ 199__ 199__
--------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance...............................
Number of Loans.........................
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding Principal
Balance.......................
Delinquency as a Percentage
of Number of Loans............
61-90 Days
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
91 Days or More
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
Total Delinquencies:
Principal Balance...............
Number of Loans.................
Delinquency as a Percentage
of Total Outstanding
Principal Balance.............
Delinquency as a Percentage
of Number of Loans............
FORECLOSURES PENDING(1)
Principal Balance...............
Number of Loans.................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.......................
Foreclosures Pending as
a Percentage of Number of
Loans...........................
NET LOAN LOSSES for the
Period(2).............................
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance.....................
</TABLE>
_______________
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of residential loans serviced by the master servicer
have been conveyed to REMIC trust funds.
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As of September 30, 1999, ___ one- to four-family residential properties
relating to loans in the master servicer's retail servicing portfolio had been
acquired through foreclosure or deed in lieu of foreclosure and were not
liquidated.
There can be no assurance that the delinquency and loss experience of the
mortgage loans will correspond to the loss experience of the master servicer's
mortgage portfolio set forth in the foregoing table. The statistics shown above
represent the delinquency and loss experience for the master servicer's total
servicing portfolio only for the years presented, whereas the aggregate
delinquency and loss experience on the mortgage loans will depend on the results
obtained over the life of the trust fund. The master servicer's portfolio
includes mortgage loans with payment and other characteristics which are not
representative of the payment and other characteristics of the mortgage loans. A
substantial number of the mortgage loans may also have been originated based on
the master servicer's guidelines that are less stringent than those generally
applicable to the servicing portfolio reflected in the foregoing table. If the
residential real estate market should experience an overall decline in property
values, the actual rates of delinquencies, foreclosures and losses could be
higher than those previously experienced by the master servicer. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the mortgage loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the mortgage loans.
The delinquency and loss experience percentages set forth above in the
immediately preceding table are calculated on the basis of the total mortgage
loans serviced as of the end of the periods indicated. However, because the
total outstanding principal balance of residential loans serviced by the master
servicer has increased from $___________ at December 31, 199__ to $____________
at September 30, 199__, the total outstanding principal balance of retail
originated loans serviced as of the end of any indicated period includes many
loans that will not have been outstanding long enough to give rise to some or
all of the indicated periods of delinquency. In the absence of such substantial
and continual additions of newly originated loans to the total amount of loans
serviced, the percentages indicated above would be higher and could be
substantially higher. The actual delinquency percentages with respect to the
mortgage loans may be expected to be substantially higher than the delinquency
percentages indicated above because the composition of the mortgage loans will
not change.
If the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the master servicer.
THE TRUSTEE
___________________, a national banking association, will act as trustee
for the certificates under the pooling and servicing agreement. The trustee's
offices for notices under the pooling and servicing agreement are located at .
The principal compensation to be paid to the trustee, or the trustee's fee,
in respect of its obligations under the pooling and servicing agreement will be
equal to accrued interest at the trustee's fee rate of ______% per annum on the
stated principal balance of each mortgage loan. The pooling and servicing
agreement will provide that the trustee and any director, officer, employee or
agent of the trustee will be indemnified by the trust fund and will be held
harmless against any loss, liability or expense, incurred by the trustee in
connection with any pending or threatened claim or
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legal action arising out of or in connection with the acceptance or
administration of its obligations and duties under the pooling and servicing
agreement, other than any loss, liability or expense:
o resulting from a breach of the master servicer's obligations and
duties under the pooling and servicing agreement,
o that constitutes a specific liability of trustee under the pooling
and servicing agreement or
o incurred by reason of willful misfeasance, bad faith or negligence
in the performance of the trustee's duties under the pooling and servicing
agreement or as a result of a breach, or by reason of reckless disregard, of the
trustee's obligations and duties under the pooling and servicing agreement.
In addition the pooling and servicing agreement will provide that the
trustee and any director, officer, employee or agent of the trustee will be
reimbursed from the trust fund for all costs associated with the transfer of
servicing in the event of a master servicer event of default.
This indemnification will not include expenses, disbursements and advances
incurred or made by the trustee, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the trustee's
performance in accordance with the provisions of the
pooling and servicing agreement.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the master servicer, or the
servicing fee, in respect of its servicing activities for the certificates will
be equal to accrued interest at the servicing fee rate of ____% per annum with
respect to each mortgage loan master serviced by it for each calendar month on
the same principal balance on which interest on the mortgage loan accrues for
the calendar month. As additional servicing compensation, the master servicer is
entitled to retain all ancillary income including assumption fees, NSF fees,
reconveyance and late payment charges (with the exception of prepayment charges
to be distributed to the holders of the Class P Certificates) to the extent
collected from mortgagors, together with any interest or other income earned on
funds held in the certificate account and any escrow accounts in respect of
mortgage loans master serviced by it. The master servicer is obligated to offset
any Prepayment Interest Shortfall in respect of mortgage loans master serviced
by it on any distribution date with Compensating Interest to the extent of its
aggregate servicing fee for the distribution date. The master servicer is
obligated to pay insurance premiums and ongoing expenses associated with the
mortgage pool in respect of mortgage loans master serviced by it and incurred by
the master servicer in connection with its responsibilities under the pooling
and servicing agreement. The master servicer is entitled to reimbursement for
these expenses as provided in the pooling and servicing agreement. See
"Description of the Securities--Retained Interest; Servicing or Administration
Compensation and Payment of Expenses" in the prospectus for information
regarding expenses payable by the master servicer and "Federal Income Tax
Consequences" in this prospectus supplement regarding taxes payable by the
master servicer.
VOTING RIGHTS
At all times, __% of all voting rights will be allocated among the holders
of the offered certificates in proportion to the then outstanding certificate
principal balances of their respective certificates, 1% of all voting rights
will be allocated among the holders of the Class P Certificates and 1/3 of 1% of
all voting rights will be allocated among the holders of each class of the
Residual Certificates in proportion to the percentage interests in each class
evidenced by their respective certificates.
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MATTERS REGARDING THE INSURER
Under the pooling and servicing agreement, on each distribution date, the
trustee is required to pay to the insurer a premium with respect to the
certificate insurance policy equal to __/__ times ____% per annum times the
Certificate Principal Balance of the offered certificates.
Under the terms of the pooling and servicing agreement, unless there exists
a continuance of any failure by the insurer to make a required payment under the
certificate insurance policy or there exists a proceeding in bankruptcy by or
against the insurer, either of these conditions constituting, an insurer
default, the insurer will be entitled to exercise, among others, the following
rights of the holders of the offered certificates, without the consent of those
holders, and the holders of the offered certificates may exercise these rights
only with the prior written consent of the insurer:
o the right to direct the trustee to terminate the rights and
obligations of the master servicer under the pooling and servicing agreement in
the event of a default by the master servicer;
o the right to consent to or direct any waivers of defaults by the
master servicer;
o the right to remove the trustee under the pooling and servicing
agreement; and
o the right to institute proceedings against master servicer in the
event of default by the master servicer and refusal of the trustee to institute
these proceedings.
In addition, unless an insurer default exists, the insurer will have the
right to direct all matters relating to any proceeding seeking the avoidance as
a preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law of any distribution made with respect to the offered certificates,
and, unless an insurer default exists, the insurer's consent will be required
prior to, among other things:
o the removal of the trustee,
o the appointment of any successor trustee or master servicer, as the
case may be, or
o any amendment to the pooling and servicing agreement.
TERMINATION
The majority holder of the Class CE Certificates (or if such holder does
not exercise such option, the master servicer or the insurer) will have the
right to purchase the mortgage loans and any properties acquired in respect of
the mortgage loans on any distribution date, once the aggregate principal
balance of the mortgage loans and properties at the time of purchase is reduced
to less than __% of the sum of the aggregate principal balance of the mortgage
loans as of the cut-off date plus the original pre-funded amount. If the
majority Class CE certificateholder, the master servicer or the insurer, elects
to exercise this option, the election will effect the termination of the trust
fund and the early retirement of the certificates. In the event the majority
Class CE certificateholder, the master servicer or the insurer exercises this
option, notwithstanding the terms of the prospectus, the purchase price payable
in connection with the termination will be equal to the greater of par or the
fair market value of the mortgage loans, plus accrued interest for each mortgage
loan at the related mortgage rate to but not including the first day of the
month in which the repurchase price is distributed. The portion of the purchase
price allocable to the certificates of each class will be, to the extent of
available funds:
o in the case of the certificates of any class 100% of the then
outstanding certificate principal balance of the class, PLUS
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o in the case of the certificates of any class, one month's interest
on the then outstanding certificate principal balance of the class at the then
applicable Pass-Through Rate for the class plus any previously accrued but
unpaid interest on the class.
The holders of the Residual Certificates shall pledge any amount received
in a termination in excess of par to the holders of the Class CE Certificates.
In no event will the trust created by the pooling and servicing agreement
continue beyond the expiration of 21 years from the death of the survivor of the
persons named in the pooling and servicing agreement. For further information
regarding the circumstances under which the obligations created by the pooling
and servicing agreement will terminate in respect of the certificates see,
"Description of the Securities--Termination" in the prospectus.
THE INSURER
The following information has been supplied by __________________, or the
insurer, for inclusion in this prospectus supplement. No representation is made
by the depositor or the underwriter as to the accuracy and completeness of this
information.
GENERAL
The principal executive offices of the insurer are located at
_______________, and its telephone number at that location is __________.
REINSURANCE
According to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by the insurer or any of its
domestic or Bermuda operating insurance company subsidiaries are generally
reinsured among these companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, the insurer reinsures a
portion of its liabilities under its financial guaranty insurance policies with
other reinsurers under various treaties and on a transaction-by-transaction
basis. This reinsurance is utilized by the insurer as a risk management device
and to comply with statutory and rating agency requirements; it does not alter
or limit the insurer's obligations under any financial guaranty insurance
policy.
RATINGS
The insurer's insurance financial strength is rated "Aaa" by _________. The
insurer's insurer financial strength is rated "AAA" by each of ____________ and
____________. The insurer's claims-paying ability is rated "AAA" by ___________
and ___________ and _______________. These ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by the rating
agencies. See "Ratings".
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CAPITALIZATION
SEPTEMBER 30, 1999
ACTUAL AS ADJUSTED
(UNAUDITED)
(IN THOUSANDS)
--------------------------
Deferred Premium Revenue
(net of prepaid reinsurance premiums)........... $ $
--------- ----------
Surplus Notes........................................
Minority Interest....................................
Shareholder's Equity
Common Stock....................................
Additional Paid-In Capital......................
Accumulated Other Comprehensive Income
(net of deferred income taxes)..................
Accumulated Earnings............................
Total Shareholder's Equity...........................
Total Deferred Premium Revenue, Surplus Notes,
Minority Interest and Shareholder's Equity...........
__________________
As adjusted in the immediately preceding table is necessary to give effect
to the:
o purchase by _________ of $__ million of surplus notes from the
insurer in connection with the formation of a new indirect _________
subsidiary of the insurer, initially capitalized with $___ million,
including a $__ million minority interest owned by ____________, and
o contribution by _______ to the capital of the insurer of
approximately $__ million, representing a portion of the proceeds from
the sale by Holdings of $___ million of _______% Senior Quarterly
Income Debt Securities due ____.
For further information concerning the insurer, see the Consolidated
Financial Statements of the insurer and subsidiaries, and the notes to those
statements, incorporated by reference in this prospectus supplement. The
insurer's financial statements are included as exhibits in the Annual Reports on
Form 10-K and the Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission and may be reviewed at the EDGAR web site maintained by the
Securities and Exchange Commission and at Holding's website,
http://www._______.com. Copies of the statutory quarterly and annual financial
statements filed with the State of New York Insurance Department by the insurer
are available upon request to the State of New York Insurance Department.
INCORPORATION OF DOCUMENTS BY REFERENCE
In addition to the documents described under "Incorporation of Certain
Information by Reference" in the prospectus, the consolidated financial
statements of the insurer and subsidiaries included in or as exhibits to the
following documents which have been filed with the Securities and Exchange
Commission by _________, are hereby incorporated by reference in this prospectus
supplement, which together with the prospectus, forms a part of the depositor's
registration statement:
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o the Annual Report on Form 10-K for the year ended December 31, 1998
and
o the Quarterly Report on Form 10-Q for the period ended _________.
All financial statements of the insurer and subsidiaries included in
documents filed by Holdings under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934, as amended, subsequent to the date of this
prospectus supplement and prior to the termination of the offering of the
offered certificates shall be deemed to be incorporated by reference into this
prospectus supplement and to be a part of this prospectus supplement from the
respective dates of filing these documents.
The depositor will provide without charge to any person to whom this
prospectus supplement is delivered, upon oral or written request of that person,
a copy of any or all of the foregoing financial statements incorporated by
reference. Requests for these copies should be directed to ____________________.
INSURANCE REGULATION
The insurer is licensed and subject to regulation as a financial guaranty
insurance corporation under the laws of the State of New York, its state of
domicile. In addition, the insurer and its insurance subsidiaries are subject to
regulation by insurance laws of the various other jurisdictions in which they
are licensed to do business. As a financial guaranty insurance corporation
licensed to do business in the State of New York, the insurer is subject to
Article 69 of the New York Insurance Law which, among other things, limits the
business of each insurer to financial guaranty insurance and related lines,
requires that each insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for each
insurer, and limits the size of individual transactions or single risks and the
volume of transactions or aggregate risks that may be underwritten by each
insurer. Other provisions of the New York Insurance Law, applicable to non-life
insurance companies such as the insurer, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
FEDERAL INCOME TAX CONSEQUENCES
Three separate elections will be made to treat designated portions of the
trust fund (exclusive of the pre-funding account and the interest coverage
account) as real estate mortgage investment conduits or REMICs, designated as
REMIC I, REMIC II and REMIC III, for federal income tax purposes. Prior to the
sale of the offered certificates, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion to the effect that, assuming compliance with
all provisions of the pooling and servicing agreement, for federal income tax
purposes, the REMICs will qualify as REMICs under Sections 860A through 860G of
the Internal Revenue Code of 1986.
For federal income tax purposes:
o the Class R-I Certificates will be the sole class of residual interests
in REMIC I,
o separate non-certificated regular interests in REMIC I will be issued
and will be the regular interests in REMIC I,
o the Class R-II Certificates will be the sole class of residual interests
in REMIC II,
o separate non-certificated regular interests in REMIC II will be issued
and will be the regular interests in REMIC II,
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o the Class R-III Certificates will be the sole class of residual
interests in REMIC III, and
o the offered certificates, the Class CE Certificates and the Class P
Certificates will be the regular interests in, and will be treated as debt
instruments of, REMIC III. See "Federal Income Tax Consequences--REMICs--
Classification of REMICs" in the prospectus.
For federal income tax reporting purposes, the offered certificates will
not be treated as having been issued with original issue discount. The
prepayment assumption that will be used in determining the rate of accrual of
original issue discount, premium and market discount, if any, for federal income
tax purposes will be based on the assumption that, subsequent to the date of any
determination, the mortgage loans will prepay at a rate equal to ____% of CPR.
No representation is made that the mortgage loans will prepay at that rate or at
any other rate. See "Federal Income Tax Consequences--REMICs--Taxation of Owners
of REMIC Regular Certificates--Original Issue Discount" in the prospectus.
The IRS has issued regulations, referred to in this prospectus supplement
as the OID Regulations, under Sections 1271 to 1275 of the Code addressing the
treatment of debt instruments issued with original issue discount. The OID
Regulations may permit the holder of a debt instrument to recognize original
issue discount under a method that differs from that of the issuer. Accordingly,
it is possible that holders of offered certificates issued with original issue
discount may be able to select a method for recognizing original issue discount
that differs from that used in preparing reports to certificateholders and the
IRS. Prospective purchasers of offered certificates issued with original issue
discount are advised to consult their tax advisors concerning the tax treatment
of the certificates in this regard.
The offered certificates may be treated for federal income tax purposes as
having been issued with a premium. Whether any holder of an offered certificate
will be treated as holding a certificate with amortizable bond premium will
depend on that certificateholder's purchase price and the distributions
remaining to be made on the certificate at the time of its acquisition by the
certificateholder. Holders of offered certificates should consult their own tax
advisors regarding the possibility of making an election to amortize this
premium. See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Regular Certificates--Premium" in the prospectus.
The offered certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and real estate assets under Section 856(c)(4)(A) of
the Code, in the same proportion that the assets in the related trust fund would
be so treated. In addition, interest on the offered certificates will be treated
as interest on obligations secured by mortgages on real property under Section
856(c)(3)(B) of the Code, generally to the extent that the offered certificates
are treated as real estate assets under Section 856(c)(4)(A) of the Code.
Amounts held in the pre-funding account and interest coverage account may not be
treated as assets described in the foregoing sections of the Code. The offered
certificates also will be treated as qualified mortgages under Section
860G(a)(3) of the Code. See "Federal Income Tax Consequences--REMICs--
Characterization of Investments in REMIC Certificates" in the prospectus.
It is not anticipated that the REMICs will engage in any transactions that
would subject the REMICs to the prohibited transactions tax as defined in
Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any tax is
imposed on REMIC I, REMIC II or REMIC III, this tax will be borne:
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o by the trustee, if the trustee has breached its obligations with
respect to REMIC compliance under the pooling and servicing agreement,
o by the master servicer, if the master servicer has breached its
obligations with respect to REMIC compliance under the pooling and servicing
agreement and
o otherwise by the trust fund, with a resulting reduction in amounts
otherwise distributable to holders of the related offered certificates. See
"Description of the Securities" and "Federal Income Tax Consequences--REMICs" in
the prospectus.
The responsibility for filing annual federal information returns and other
reports will be borne by the trustee or the master servicer. See "Federal Income
Tax Consequences--REMICs--Reporting and Other Administrative Matters" in the
prospectus.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated _________ __, ____, the depositor has agreed to sell, and
______________, the underwriter, has agreed to purchase the offered
certificates. The underwriter is obligated to purchase all offered certificates
of the respective classes offered by this prospectus supplement if it purchases
any.
Distribution of the offered certificates will be made from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. Proceeds to the depositor from the sale of the offered
certificates, before deducting expenses payable by the depositor, will be
approximately _________% of the aggregate initial certificate principal balance
of the offered certificates, plus accrued interest on the offered certificates.
In connection with the purchase and sale of the offered certificates, the
underwriter may be deemed to have received compensation from the depositor in
the form of underwriting discounts.
The offered certificates are offered subject to receipt and acceptance by
the underwriter, to prior sale and to the underwriter's right to reject any
order in whole or in part and to withdraw, cancel or modify the offer without
notice. It is expected that delivery of the offered certificates will be made
through the facilities of DTC, Cedel and the Euroclear system on or about the
closing date. The offered certificates will be offered in Europe and the United
States.
The underwriting agreement provides that the depositor will indemnify the
underwriter against those civil liabilities set forth in the underwriting
agreement, including liabilities under the Securities Act of 1933, as amended,
or will contribute to payments the underwriter may be required to make in
respect of these liabilities.
SECONDARY MARKET
There is currently no secondary market for the offered certificates and
there can be no assurance that a secondary market for the offered certificates
will develop or, if it does develop, that it will continue. The underwriter
intends to establish a market in the offered certificates but is not obligated
to do so. There can be no assurance that any additional information regarding
the offered certificates will be available through any other source. In
addition, the depositor is not aware of any source through which price
information about the offered certificates will be available on an ongoing
basis. The limited nature of the information regarding the offered certificates
may adversely affect the
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liquidity of the offered certificates, even if a secondary market for the
offered certificates becomes available. The primary source of information
available to investors concerning the offered certificates will be the monthly
statements discussed in the prospectus under "Description of the
Securities--Reports to Certificateholders", which will include information as to
the outstanding principal balance of the offered certificates and the status of
the applicable form of credit enhancement.
LEGAL OPINIONS
Legal matters relating to the offered certificates will be passed upon for
the depositor by Thacher Proffitt & Wood, New York, New York.
EXPERTS
The consolidated balance sheets of the insurer and subsidiaries as of
December 31, 1997 and 1996 and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended December 31, 1997, incorporated by reference in this prospectus
supplement, have been incorporated in this prospectus supplement in reliance on
the report of _______________, independent accountants, given on the authority
of that firm as experts in accounting and auditing.
RATINGS
It is a condition to the issuance of the certificates that the offered
certificates be rated "AAA" by _________________ and ____________.
The ratings of _________ and ________ assigned to mortgage pass-through
certificates address the likelihood of the receipt by certificateholders of all
distributions to which these certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the certificates,
including the nature of the underlying mortgage loans. The ratings assigned to
mortgage pass-through certificates do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which prepayments will differ from that originally anticipated. The
ratings assigned by ________________ and _______________ on the offered
certificates are based in part upon the insurer's claims paying ability. Any
change in the ratings of the insurer by ____________ or ______________ may
result in a change on the ratings on the offered certificates. The ratings do
not address the possibility that certificateholders might suffer a lower than
anticipated yield due to non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
offered certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the offered certificates.
The depositor has not requested that any rating agency rate any class of
the offered certificates other than as stated in the immediately preceding
paragraph. However, there can be no assurance as to whether any other rating
agency will rate any class of the offered certificates, or, if it does, what
rating would be assigned by that rating agency. A rating on any class of the
offered certificates by
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<PAGE>
another rating agency, if assigned at all, may be lower than the ratings
assigned to the classes of the offered certificates as stated in the first
paragraph of this section.
LEGAL INVESTMENT
The offered certificates will not constitute mortgage related securities
for purposes of the SMMEA until such time as the balance of the pre-funding
account is reduced to zero. At such time, the offered certificates will
constitute mortgage related securities for purposes of SMMEA for so long as they
are rated not lower than the second highest rating category by a rating agency,
as defined in the prospectus, and, therefore, will be legal investments for some
entities to the extent provided in SMMEA. SMMEA, however, provides for state
limitation on the authority of these entities to invest in mortgage related
securities provided that restrictive legislation was enacted prior to October 3,
1991. There are ten states that have enacted legislation which overrides the
preemption provisions of SMMEA.
The depositor makes no representations as to the proper characterization of
any class of offered certificates for legal investment or other purposes, or as
to the ability of particular investors to purchase any class of offered
certificates under applicable legal investment restrictions. These uncertainties
may adversely affect the liquidity of any class of offered certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their legal advisors in determining
whether and to what extent any class of offered certificates constitutes a legal
investment or is subject to investment, capital or other restrictions. On
December 1, 1998, the OTS issued Thrift Bulletin 13a entitled "Management of
Interest Rate Risk, Investment Securities and Derivative Activities", which is
applicable to thrift institutions regulated by the OTS. TB 13a should be
reviewed by any thrift institution prior to investing in the offered
certificates
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or any other plan or arrangement
subject to ERISA or Section 4975 of the Code, each referred to in this
prospectus supplement as a Plan, or any person investing Plan Assets of any Plan
should carefully review with its legal advisors whether the purchase, sale or
holding of certificates will give rise to a prohibited transaction under ERISA
or Section 4975 of the Code.
The U.S. Department of Labor has issued an individual exemption, Prohibited
Transaction Exemption 91-23, or the exemption, as described under
"Considerations for Benefit Plan Investors" in the prospectus, to the
underwriter. The exemption exempts from the application of the prohibited
transaction provisions of Section 406 of ERISA and the excise taxes imposed on
these prohibited transactions by Section 4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to the purchase, sale and holding of
pass-through certificates underwritten by the underwriter such as the offered
certificates, and the servicing and operation of asset pools such as the
mortgage pool. To obtain the benefit of the exemption, however, the conditions
set forth under "Considerations for Benefit Plan Investors" in the prospectus
must be satisfied. The purchase of the offered certificates by, on behalf of or
with the Plan Assets of any Plan may qualify for exemptive relief under the
exemption. However, the exemption contains a number of conditions which must
S-67
<PAGE>
be met for the exemption to apply, as described in the prospectus, including the
requirement that any Plan 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 of 1933, as amended. Additional conditions, as described in the
prospectus, must be met for the exemption to apply to certificates evidencing
interests in a trust fund including a pre-funding account. A fiduciary of a Plan
contemplating purchasing a offered certificate must make its own determination
that the conditions set forth in the exemption will be satisfied with respect to
the offered certificates.
Before purchasing an offered certificate, a fiduciary of a Plan should
itself confirm that the offered certificates constitute certificates for
purposes of the exemption and that the specific conditions of the exemption and
the other requirements set forth in the exemption would be satisfied. Any Plan
fiduciary that proposes to cause a Plan to purchase a certificate should consult
with its counsel with respect to the potential applicability to this investment
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to the proposed investment. For further information regarding the
ERISA considerations of investing in the Certificates, see "ERISA
Considerations" in the prospectus.
S-68
<PAGE>
$____________ (APPROXIMATE)
AMERIQUEST MORTGAGE SECURITIES INC.
Depositor
AQ FLOATING-RATE MORTGAGE PASS-THROUGH CERTIFICATES
SERIES ____-__
PROSPECTUS SUPPLEMENT
DATED _________ ___, ____
Master Servicer
Underwriter
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT
INFORMATION.
WE ARE NOT OFFERING THE CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN
ANY STATE WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the certificates offered by this prospectus supplement
and with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ ___, ____.
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus
supplement is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
Subject to Completion, Dated January 11, 2000
[Version 3]
Prospectus Supplement (to Prospectus dated , ____)
$_______________ (APPROXIMATE)
AQ ASSET BACKED FLOATING RATE NOTES, SERIES ____-
AMERIQUEST TRUST SERIES ____-__
AMERIQUEST MORTGAGE SECURITIES INC.
DEPOSITOR
MASTER SERVICER
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-__ IN THIS
PROSPECTUS SUPPLEMENT AND PAGE __ IN THE PROSPECTUS.
This prospectus supplement, together with the accompanying prospectus will
constitute the complete prospectus.
- --------------------------------------------------------------------------------
OFFERED NOTES The trust created for the Series _____-__ notes will hold
a pool of one- to four- family residential first mortgage
loans. The trust will issue ______ classes of offered
notes. You can find a list of these classes, together with
their note balances, interest rates and certain other
characteristics, on Page S-__ of this prospectus
supplement. Credit enhancement for the offered notes will
be provided by ______ classes of subordinated Class M
Notes. Each class of Class M Notes is subordinated to the
senior notes and any Class M Notes with a higher payment
priority.
UNDERWRITING _______________________, as underwriter, will offer to the
public the Class A Notes, the Class M-1 Notes, the Class
M-2 Notes and the Class M-3 Notes at varying prices to be
determined at the time of sale. The proceeds to the
depositor from the sale of the underwritten notes will be
approximately _____% of the principal balance of the
underwritten notes plus accrued interest, before deducting
expenses. See "Method of Distribution".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE OFFERED NOTES OR DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY 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.
------------------------------
Underwriter
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
We provide information to you about the offered notes in three separate
documents that progressively provide more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to this series of notes;
o this prospectus supplement, which describes the specific terms of this
series of notes; and
o the annex to this prospectus supplement, which is an integral part of
the prospectus supplement.
Ameriquest Mortgage Securities Inc.'s principal offices are located at 1100 Town
& Country Road, Orange, California 92868 and its phone number is (___)
_________.
S-2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
<S> <C>
Summary of Prospectus Supplement........................................................................................S-3
Risk Factors............................................................................................................S-8
The Issuer.............................................................................................................S-59
The Seller.............................................................................................................S-60
The [SPE]..............................................................................................................S-60
The Owner Trustee......................................................................................................S-60
The Servicing Agreement................................................................................................S-62
The Indenture and Owner Trust Agreement................................................................................S-66
</TABLE>
S-3
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS A VERY BROAD OVERVIEW OF THE NOTES OFFERED BY
THIS PROSPECTUS SUPPLEMENT AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER IN MAKING YOUR INVESTMENT DECISION. TO UNDERSTAND ALL OF THE
TERMS OF THE OFFERED NOTES, READ CAREFULLY THIS ENTIRE PROSPECTUS SUPPLEMENT AND
THE ENTIRE ACCOMPANYING PROSPECTUS.
Title of Series................AQ Asset-Backed Floating Rate Notes, Series
____-_.
Cut-off Date...................__________ __, ____.
Closing Date...................On or about __________ __, ____.
Issuer.........................Ameriquest Trust Series ____-__.
Depositor......................Ameriquest Mortgage Securities Inc. The
depositor's principal offices are located at 1100
Town & Country Road, Orange, California 92868 and
its telephone number is (__) _________. The
depositor will deposit the mortgage loans into
the trust. SEE "THE DEPOSITOR" IN THE PROSPECTUS.
Master Servicer and
Originator.............. __________________. SEE "THE SERVICING
AGREEMENTS--MASTER SERVICER" IN THIS PROSPECTUs
SUPPLEMENT.
Seller........................._______________. SEE "THE SELLER" IN THIS
PROSPECTUS SUPPLEMENT.
________ SPE..................._______________. SEE "THE [SPE]" IN THIS
PROSPECTUS SUPPLEMENT.
Owner Trustee..................________________. SEE "THE OWNER TRUSTEE" IN THIS
PROSPECTUS SUPPLEMENT.
Indenture Trustee..............__________________. SEE "THE INDENTURE TRUSTEE"
IN THIS PROSPECTUS SUPPLEMENT.
Payment Dates..................Payments on the offered notes will be made on the
__th day of each month, or, if that day is not a
business day, on the next succeeding business
day, beginning in ______ ____.
Offered Notes..................Only the notes listed in the immediately
following table are being offered by this
prospectus supplement. Each class of offered
notes and their interest rates, note balances and
final maturity date are set forth in the
immediately following table.
S-4
<PAGE>
<TABLE>
<CAPTION>
CLASS INITIAL NOTE NOTE INTEREST FINAL MATURITY DATE
BALANCE RATE
- -------------------------- ------------------ ------------------------------ ----------------------------------
<S> <C> <C> <C>
A......................... $_________ Variable ________ ____
M-1....................... $_________ Variable ________ ____
M-2....................... $_________ Variable ________ ____
M-3....................... $_________ Variable ________ ____
</TABLE>
The initial note balances of each class of offered notes listed in the
immediately preceding table is approximate. The note interest rate on each class
of offered notes is variable and will be calculated as described in this
prospectus supplement under "Description of the Notes--Note Interest Rates."
THE ISSUER
The notes will be issued by the issuer, a Delaware business trust established
under a trust agreement between the depositor and the owner trustee. The issuer
will issue _____ classes of notes representing non-recourse debt obligations of
the issuer secured by the trust estate. SEE "DESCRIPTION OF THE NOTES" IN THIS
PROSPECTUS SUPPLEMENT.
Distributions of interest and principal on the offered notes will be made only
from payments received in connection with the mortgage loans described in this
summary under the heading "Mortgage Loans."
EQUITY CERTIFICATES
Ameriquest Trust Certificates, Series ____- __, will be issued under the owner
trust agreement and will represent the beneficial ownership interest in the
issuer. The equity certificates are not offered by this prospectus supplement.
THE MORTGAGE LOANS
The trust will contain approximately _____ [conventional] [sub-prime]
[nonconforming], one- to four-family, fixed-rate and adjustable-rate mortgage
loans secured by first liens on residential real properties. The mortgage loans
have an aggregate principal balance of approximately $__________ as of _________
__ ____.
The mortgage loans have original terms to maturity of not greater than [30]
years and the following characteristics as of __________ __, ____________.
Approximate range of _____% to
mortgage rates: _____%.
Approximate weighted ______%.
average mortgage rate:
Approximate weighted ___ years
average remaining term to and ___
stated maturity: months.
Approximate range of $______ to
principal balances: $_______.
S-5
<PAGE>
Approximate average $_______.
principal balance:
Approximate range of _____% to
loan-to-value ratios: _____%.
Approximate weighted ______%.
average loan-to-value ratio:
FOR ADDITIONAL INFORMATION REGARDING THE MORTGAGE LOANS, SEE "THE MORTGAGE POOL"
IN THIS PROSPECTUS SUPPLEMENT.
THE NOTES
OFFERED NOTES. The offered notes will have the characteristics shown in the
table appearing on pages S-__ in this prospectus supplement. The interest rates
on each class of offered notes are variable and are calculated for each
distribution date as described in this prospectus supplement under "Description
of the Notes--Note Interest Rates."
The offered notes will be sold by the depositor to the underwriter on the
closing date.
The offered notes will initially be represented by one or more global notes
registered in the name of CEDE & Co., as nominee of DTC in minimum denominations
of $[10,000] and integral multiples of $[1.00] in excess of the minimum
denominations. SEE "DESCRIPTION OF THE NOTES --REGISTRATION" IN THIS PROSPECTUS
SUPPLEMENT.
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the holders of the offered
notes consists of subordination as described in this prospectus supplement under
"Description of the Notes--Allocation of Losses; Subordination" in this
prospectus supplement.
SUBORDINATION. The rights of the holders of the Class M-1 Notes, the Class M-2
Notes and the Class M-3 Notes to receive distributions will be subordinated, to
the extent described in this prospectus supplement, to the rights of the holders
of the Class A Notes. The Class M-1 Notes, the Class M-2 Notes and the Class M-3
Notes are referred to in the prospectus supplement as subordinate notes.
In addition, the rights of the holders of subordinate notes with higher
numerical class designations will be subordinated to the rights of holders of
subordinate notes with lower numerical class designations, to the extent
described in this prospectus supplement.
Subordination is intended to enhance the likelihood of regular distributions on
the more senior notes in respect of interest and principal and to afford the
more senior notes protection against realized losses on the mortgage loans as
described in the next section.
ALLOCATION OF LOSSES. If subordinate notes remain outstanding, losses on the
mortgage loans will be allocated first to the class of subordinate notes with
the lowest payment priority, and the other classes of notes will not bear any
portion of these losses. If none of the subordinate notes remain outstanding,
losses on mortgage loans will be allocated to the Class A Notes.
P&I ADVANCES
Each servicer is required to advance delinquent payments of principal and
interest on the mortgage loans, subject to the limitations described under "P&I
Advances" in this prospectus supplement. These advances shall be referred to in
this prospectus supplement as P&I Advances. Each servicer is entitled to be
S-6
<PAGE>
reimbursed for these advances, and therefore these advances are not a form of
credit enhancement. SEE "DESCRIPTION OF THE NOTES--P&I ADVANCES" IN THIS
PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--ADVANCES IN RESPECT OF
DELINQUENCIES" IN THE PROSPECTUS.
OPTIONAL REDEMPTION
At its option, the majority holder of the equity certificates may redeem the
notes and thereby effect termination and early retirement of the notes, after
the aggregate note balance has been reduced to less than [20%] of the aggregate
initial note balance. SEE "THE INDENTURE AND OWNER TRUST AGREEMENT-- OPTIONAL
REDEMPTION" IN THIS PROSPECTUS SUPPLEMENT AND "DESCRIPTION OF THE SECURITIES--
TERMINATION" IN THE PROSPECTUS.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the notes, Thacher Proffitt & Wood, counsel to the
depositor, will deliver its opinion to the effect that the notes will be
characterized as indebtedness and the issuer will not be classified as an
association taxable as a corporation or a publicly traded partnership. FOR
FURTHER INFORMATION REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF INVESTING
IN THE OFFERED NOTES, SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
RATINGS
It is a condition to the issuance of the notes that the offered notes receive
the following ratings from ______________ and ___________:
OFFERED [RA] [RA]
NOTES ---- ----
- -----
Class A AAA AAA
Class M-1 AA AA
Class M-2 A A
Class M-3 BBB BBB
A security rating does not address the frequency of prepayments on the mortgage
loans, the corresponding effect on yield to investors. SEE "YIELD ON THE NOTES"
AND "RATINGS" IN THIS PROSPECTUS SUPPLEMENT AND "YIELD CONSIDERATIONS" IN THE
PROSPECTUS.
LEGAL INVESTMENT
The offered notes, other than the Class ___ and Class ___ Notes, will constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, or SMMEA, for so long as they are rated not lower than
the second highest rating category by one or more nationally recognized
statistical rating organizations and therefore will be legal investments for
entities to the extent provided in SMMEA and applicable state laws. The Class
___ Notes and the Class ___ Notes will not constitute mortgage related
securities for purposes of SMMEA. SEE "LEGAL INVESTMENT" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
ERISA CONSIDERATIONS
Subject to important considerations discussed in this prospectus supplement, the
notes may be eligible for purchase by persons investing assets of employee
benefit plans or individual retirement accounts. Plans should consult with their
legal advisors before investing. SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS
SUPPLEMENT AND IN THE PROSPECTUS.
S-7
<PAGE>
RISK FACTORS
The offered notes are not suitable investments for all investors. In
particular, you should not purchase the offered notes unless you understand and
are able to bear the prepayment, credit, liquidity and market risks associated
with these securities.
You should carefully consider the following factors in connection with the
purchase of the offered notes:
[APPROPRIATE RISK FACTORS AS NECESSARY]
[THE MORTGAGE LOANS WERE UNDERWRITTEN TO STANDARDS WHICH DO NOT CONFORM TO THE
STANDARDS OF FANNIE MAE OR FREDDIE MAC WHICH MAY RESULT IN LOSSES ON THE
MORTGAGE LOANS ALLOCATED TO YOUR NOTES.
The originator's underwriting standards are primarily intended to assess
the value of the mortgaged property and to evaluate the adequacy of the property
as collateral for the mortgage loan. The originator provides loans primarily to
borrowers who do not qualify for loans conforming to Fannie Mae and Freddie Mac
guidelines but who do have equity in their property. While the originator's
primary consideration in underwriting a mortgage loan is the value of the
mortgaged property, the originator also considers, among other things, a
mortgagor's credit history, repayment ability and debt service-to-income ratio,
as well as the type and use of the mortgaged property. The originator's
underwriting standards do not prohibit a mortgagor from obtaining secondary
financing at the time of origination of the originator's first lien, which
secondary financing would reduce the equity the mortgagor would otherwise have
in the related mortgaged property as indicated in the originator's loan-to-value
ratio determination.
As a result of the underwriting standards described in the immediately
preceding paragraph, the mortgage loans in the mortgage pool are likely to
experience rates of delinquency, foreclosure and bankruptcy that are higher, and
that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner.
Furthermore, changes in the values of mortgaged properties may have a
greater effect on the delinquency, foreclosure, bankruptcy and loss experience
of the mortgage loans in the mortgage pool than on mortgage loans originated in
a more traditional manner. No assurance can be given that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans. SEE "THE
MORTGAGE POOL--UNDERWRITINg STANDARDS OF ___________ AND REPRESENTATIONS
CONCERNING THE MORTGAGE LOANS" IN THIS PROSPECTUS SUPPLEMENT].
[THE PAYMENT PERFORMANCE OF YOUR NOTES WILL BE RELATED TO THE PAYMENT
PERFORMANCE OF THE MORTGAGE LOANS IN THE TRUST FUND; THE MORTGAGE LOANS IN THE
TRUST FUND WHICH ARE DISCUSSED IN THIS SECTION MAY EXPOSE YOUR NOTES TO GREATER
LOSSES.
The notes represent an interest in mortgage loans. In the event that the
mortgaged properties fail to provide adequate security for the mortgage loans
included in the trust fund, any resulting losses,
S-8
<PAGE>
to the extent not covered by the credit enhancement, will be allocated to the
notes as described in this prospectus supplement, and consequently may adversely
affect the yield to maturity on your notes. The depositor cannot assure you that
the values of the mortgaged properties have remained or will remain at the
appraised values on the dates of origination of the mortgage loans. Furthermore,
particular mortgage loans, including negative amortization mortgage loans,
buydown mortgage loans and mortgage loans requiring the mortgagor to make a
balloon payment, may have a greater likelihood of delinquency and foreclosure,
and a greater likelihood of loss in the event of delinquency or foreclosure. You
should consider the following risks associated with the mortgage loans included
in the trust fund: [AS APPLICABLE]
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL MAY RESULT IN
OUTSTANDING PRINCIPAL BALANCES IN EXCESS OF THE VALUE OF THE UNDERLYING
MORTGAGED PROPERTY WHICH COULD RESULT IN LOSSES ON YOUR NOTES.
Approximately ___% of the mortgage loans by aggregate principal balance as
of _______________, are subject to negative amortization. In the case of
mortgage loans that are subject to negative amortization, the principal balances
of these mortgage loans could be increased to an amount equal to or in excess of
the value of the underlying mortgaged properties, thereby increasing the
likelihood of default. To the extent that these losses are not covered the
credit enhancement in the trust fund, holders of the notes will bear all risk of
loss resulting from default by mortgagors and will have to look primarily to the
value of the mortgaged properties for recovery of the outstanding principal and
unpaid interest on the defaulted mortgage loans.
[THE INABILITY OF A MORTGAGOR TO MAKE LARGER MONTHLY PAYMENTS FOLLOWING THE
BUYDOWN PERIOD OF A BUYDOWN MORTGAGE LOAN MAY RESULT IN LOSSES ON THOSE MORTGAGE
LOANS.
Approximately ___% of the mortgage loans by aggregate principal balance as
of _________________ are buydown mortgage loans, subject to temporary buydown
plans under which the monthly payments made by the mortgagor during the early
years of the mortgage loan will be less than the scheduled monthly payments on
the mortgage loan, the resulting difference to be made up from :
o an amount contributed by the borrower, the seller of the mortgaged
property or another source and placed in a custodial account,
o investment earnings on the amount, if any, contributed by the borrower,
or
o additional buydown funds to be contributed over time by the mortgagor's
employer or another source.
In most cases, the mortgagor under each buydown mortgage loan will be qualified
at the applicable lower monthly payment. Accordingly, the repayment of a buydown
mortgage loan is dependent on the ability of the mortgagor to make larger level
monthly payments after the buydown funds have been depleted and, for some
buydown mortgage loans, during the initial buydown period. The inability of a
mortgagor to make these larger monthly payments could lead to losses on the
mortgage
S-9
<PAGE>
loans, and to the extent not covered by the credit enhancement, may adversely
affect the yield to maturity on your notes.
[THE INABILITY OF A MORTGAGOR TO MAKE A BALLOON PAYMENT AT MATURITY, MAY EXPOSE
YOUR NOTES TO LOSSES.
Approximately ___% of the mortgage loans by aggregate principal balance as
of ________________ may not be fully amortizing, or may not amortize at all,
over their terms to maturity and, thus, will require substantial payments of
principal and interest, that is, balloon payments, at their stated maturity.
Mortgage loans of this type involve a greater degree of risk than
self-amortizing loans because the ability of a mortgagor to make a balloon
payment typically will depend upon its ability either to fully refinance the
loan or to sell the related mortgaged property at a price sufficient to permit
the mortgagor to make the balloon payment. The ability of a mortgagor to
accomplish either of these goals will be affected by a number of factors,
including the value of the related mortgaged property, the level of available
mortgage rates at the time of sale or refinancing, the mortgagor's equity in the
related mortgaged property, prevailing economic conditions and the availability
of credit for loans secured by comparable real properties.
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL HAVE LIMITED
RECOURSE TO THE RELATED BORROWER, WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS ALLOCATED TO YOUR NOTES.
Approximately ___% of the mortgage loans by aggregate principal balance as
of ________________ are nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to those mortgage loans, recourse in the event
of mortgagor default will be limited to the specific real property and other
assets, if any, that were pledged to secure the mortgage loan. If the value of
the mortgaged property and other security has declined, the trust fund could
suffer losses on these mortgage loans that, to the extent not covered by [the
credit enhancement] may be allocated to your notes. However, even with respect
to those mortgage loans that provide for recourse against the mortgagor and its
assets, there can be no assurance that enforcement of the recourse provisions
will be practicable, or that the other assets of the mortgagor will be
sufficient to permit a recovery in respect of a defaulted mortgage loan in
excess of the liquidation value of the related mortgaged property.
[THE INABILITY OF A MORTGAGOR TO MAKE VARYING MONTHLY PAYMENTS UNDER A HOME
EQUITY LINE OF CREDIT LOAN MAY RESULT IN LOSSES ON YOUR NOTES.
Approximately ___% of the mortgage loans by aggregate principal balance as
of ________________ are mortgage loans that provide the borrower with a line of
credit under which amounts may be advanced to the borrower by the lender from
time to time. Collection on these types of mortgage loans may vary because,
among other things:
o borrowers may make payments during any month as low as the minimum
monthly payment for that month, or just the interest and fees for that month
during any interest-only period, or
S-10
<PAGE>
o borrowers may make payments as high as the entire outstanding charges
on the mortgage loan.
It is possible that borrowers may fail to make the required periodic
payment and, to the extent not covered by the credit enhancement, these losses
may adversely affect the yield to maturity on your motes.
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL ARE SECURED BY
JUNIOR LIENS, WHICH MAY EXPOSE THE OFFERED NOTES TO LOSSES IF THE TRUST FUND
DOES NOT RECEIVE ADEQUATE FUNDS IN CONNECTION WITH A FORECLOSURE OF THE RELATED
SENIOR LIEN TO SATISFY BOTH THE SENIOR AND JUNIOR LIEN.
Approximately ___% of the mortgage loans by aggregate principal balance as
of ________________ are mortgage loans secured by junior liens and with respect
to approximately ___% of these junior liens, the related senior liens are not
included in the trust fund. The primary risk to holders of mortgage loans
secured by junior liens is the possibility that adequate funds will not be
received in connection with a foreclosure of the related senior liens to satisfy
fully both the senior liens and the junior lien mortgage loan. The claims of the
holders of the senior liens will be satisfied in full out of proceeds of the
liquidation of the mortgage loan, if these proceeds are sufficient, before the
trust fund as holder of the junior lien receives any payments in respect of the
mortgage loan. If the master servicer were to foreclose on any junior lien
mortgage loan, it would do so subject to any related senior liens. In order for
the debt related to the mortgage loan to be paid in full at this type of sale, a
bidder at the foreclosure sale of a junior lien mortgage loan would have to bid
an amount sufficient to pay off all sums due under the junior lien mortgage loan
and the senior liens or purchase the mortgaged property subject to the senior
liens. Liquidation expenses with respect to defaulted junior mortgage loans do
not vary directly with the outstanding principal balance of the loan at the time
of default. A decline in the value of the mortgaged properties securing the
mortgage loans with junior liens may increase the likelihood that, in the event
of a default by the related mortgagor, liquidation or other proceeds will be
insufficient to satisfy the junior lien mortgage loan after satisfaction of any
senior liens and the payment of any liquidation expenses. In the event that the
proceeds from a foreclosure or similar sale of the related mortgaged property
are insufficient to satisfy all senior liens and the mortgage loan in the
aggregate, the trust fund, as the holder of the junior lien, and, accordingly,
holders of the notes bear:
o the risk of delay in distributions while a deficiency judgment
against the borrower is obtained,
o the risk of loss if the deficiency judgment is not realized upon and
o the risk that deficiency judgments may not be available in all
jurisdictions.
Other factors may affect the prepayment rate of junior lien mortgage loans,
such as the amounts of, and interest on, the related senior mortgage loans and
the use of senior lien mortgage loans as long-term financing for home purchases
and junior lien mortgage loans as shorter-term financing for a variety of
purposes, such as home improvement, educational expenses and purchases of
consumer durable such as automobiles. Accordingly, junior lien mortgage loans
may experience a higher rate
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of prepayments than traditional senior lien mortgage loans. In addition, any
future limitations on the rights of borrowers to deduct interest payments on
junior lien mortgage loans for federal income tax purposes may further increase
the rate of prepayments on junior lien mortgage loans.
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL WERE ORIGINATED
OUTSIDE THE UNITED STATES, WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE
MORTGAGE LOANS.
Approximately ___% of the mortgage loans by aggregate principal balance as
of ________________, are mortgage loans secured by properties located in Puerto
Rico and Guam. The risk of loss on mortgage loans secured by properties located
in Puerto Rico and Guam may be greater than on mortgage loans that are made to
mortgagors who are United States residents and citizens or that are secured by
properties located in the United States. In particular, the procedure for the
foreclosure of a real estate mortgage under the laws of the Commonwealth of
Puerto Rico varies from the procedures applicable in each of the fifty states of
the United States which may affect the satisfaction of the related mortgage
loan. In addition, the depositor is not aware of any historical prepayment
experience with respect to mortgage loans secured by properties located in
Puerto Rico or Guam and, accordingly, prepayments on these loans may not occur
at the same rate or be affected by the same factors as other mortgage loans.
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL ARE DELINQUENT
AS OF THE CUT-OFF DATE, WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE
MORTGAGE LOANS.
Approximately ____% of the mortgage loans, by aggregate principal balance
as of _______ __, ____, were thirty days or more but less than sixty days
delinquent in their monthly payments as of ______ __, ____. Approximately ____%
of the mortgage loans, by aggregate principal balance as of _______ __, ____,
were sixty days or more but less than ninety days delinquent in their monthly
payments as of the _______ __, ____. However, investors in the mortgage loans
should realize that approximately _____% of the mortgage loans, by aggregate
principal balance as of _______ __, ____, have a first payment date occurring on
or after _______ __, ____ and, therefore, these mortgage loans could not have
been delinquent as of _______ __, ____].
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL HAVE HIGH
LOAN-TO-VALUE RATIOS, SO THAT THE RELATED BORROWER HAS LITTLE OR NO EQUITY IN
THE RELATED MORTGAGED PROPERTY, WHICH MAY RESULT IN LOSSES WITH RESPECT TO THESE
MORTGAGE LOANS ALLOCATED TO YOUR NOTES.
Approximately _____% of the mortgage loans, by aggregate principal balance
as of _______ __, ____, had a loan-to-value ratio or a combined loan-to-value
ratio, in the case of any second lien mortgage loan, at origination in excess of
80%. No mortgage loan in the mortgage pool with a loan-to-value ratio or a
combined loan-to-value ratio, in the case of any second lien mortgage loan, at
origination in excess of 80% will be covered by a primary mortgage insurance
policy. No first lien mortgage loan will have a loan-to-value ratio exceeding
__% at origination and no second lien mortgage loan will have a combined
loan-to-value ratio exceeding _____% at origination. Mortgage loans with higher
loan-to-value ratios may present a greater risk of loss in that an overall
decline in the residential real estate market, a rise in interest rates over a
period of time and the condition of a mortgaged property, as well as other
factors, may have the effect of reducing the value of the mortgaged property
from the appraised value at the time the mortgage loan was originated. If there
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is a reduction in value of the mortgaged property, the loan-to-value ratio may
increase over what it was at the time the mortgage loan was originated. This
increase may reduce the likelihood of liquidation or other proceeds being
insufficient to satisfy the mortgage loan and any losses, to the extent not
covered by the credit enhancement, may affect the yield to maturity or your
notes. Furthermore, investors should note that the value of the mortgaged
property may be insufficient to cover the outstanding balance of the notes.
There can be no assurance that the loan-to-value ratio of any mortgage loan
determined at any time after origination is less than or equal to its original
loan-to-value ratio.
[APPROXIMATELY ____% OF THE MORTGAGE LOANS IN THE MORTGAGE POOL ARE CONCENTRATED
IN THE STATE OF [NAME OF STATE], WHICH MAY RESULT IN LOSSES WITH RESPECT TO
THESE MORTGAGE LOANS.
Approximately ___% of the mortgage loans are in the state of [Name of
State.] Investors should note that some geographic regions of the United States
from time to time will experience weaker regional economic conditions and
housing markets causing a decline in property values in those areas, and
consequently, will experience higher rates of loss and delinquency than will be
experienced on mortgage loans located in other geographic regions. A region's
economic condition and housing market may be directly, or indirectly, adversely
affected by a number of factors including natural disasters or civil
disturbances such as earthquakes, hurricanes, floods, eruptions or riots. The
economic impact of any of these types of events may also be felt in areas beyond
the region immediately affected by the disaster or disturbance. A concentration
of mortgage loans in the trust fund in a region experiencing a deterioration in
economic conditions or a decline in real estate values may expose your notes to
losses in addition to those present for similar mortgage-backed securities
without this concentration. The depositor cannot assure you that the values of
the mortgaged properties have remained or will remain at the appraised values on
the dates of origination of the mortgage loans. Any deterioriation of economic
conditions in [name of state] which adversely affects the ability of borrowers
to make payments on the mortgage loans may increase the likelihood of
delinquency and foreclosure of the mortgage loans that may result in losses
that, to the extent not covered by the [credit enhancement] will be allocated to
your notes.
[THE CLASS M-1 NOTES, THE CLASS M-2 NOTES AND THE CLASS M-3 NOTES WILL BE
PARTICULARLY SENSITIVE TO LOSSES ON THE MORTGAGE LOANS.
The weighted average lives of, and the yields to maturity on, the Class M-1
Notes, the Class M-2 Nots and the Class M-3 Notes will be progressively more
sensitive, in increasing order of their numerical class designations, to the
rate and timing of mortgagor defaults and the severity of ensuing losses on the
mortgage loans. If the actual rate and severity of losses on the mortgage loans
is higher than those assumed by an investor in one of the Class M-1 Notes, the
Class M-2 Notes or the Class M-3 Notes, the actual yield to maturity of that
note may be lower than the yield anticipated by the holder based on that
assumption. The timing of losses on the mortgage loans will also affect an
investor's actual yield to maturity, even if the rate of defaults and severity
of losses over the life of the mortgage pool are consistent with an investor's
expectations. In most cases, the earlier a loss occurs, the greater the effect
on an investor's yield to maturity. Losses on the mortgage loans in any due
period, to the extent they exceed the overcollateralized amount following
payments of principal on the related payment date, will reduce the note balance
of the class of notes then outstanding with
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<PAGE>
the highest numerical class designation. As a result of these reductions, less
interest will accrue on the class of subordinate notes than would otherwise be
the case].
[THE CLASS M-1 NOTES, THE CLASS M-2 NOTES AND THE CLASS M-3 NOTES WILL NOT BE
ENTITLED TO RECEIVE PRINCIPAL PAYMENTS UNTIL ALL PRINCIPAL PAYMENTS HAVE BEEN
MADE ON THE CLASS A NOTES WHICH MAY LEAD TO LOSSES WITH RESPECT TO THESE NOTES
Unless the note balance of the Class A Notes has been reduced to zero, the
Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes will not be
entitled to any principal payments until _________ ____ or a later period as
described in this prospectus supplement. As a result, the weighted average lives
of these notes will be longer than would otherwise be the case if payments of
principal were allocated among all of the notes at the same time. As a result of
the longer weighted average lives of these notes, the holders of these notes
have a greater risk of suffering a loss on their investments. Further, because
these notes might not receive any principal if certain delinquency levels occur,
it is possible for these notes to receive no principal payments even if no
losses have occurred on the mortgage pool].
[YOUR NOTES WILL BE LIMITED OBLIGATIONS SOLELY OF THE TRUST FUND AND NOT OF ANY
OTHER PARTY.
The notes will not represent an interest in or obligation of the depositor,
the master servicer, the seller, the [SPE], the indenture trustee, the owner
trustee or any of their respective affiliates. Neither the notes nor the
underlying mortgage loans will be guaranteed or insured by any governmental
agency or instrumentality, or by the depositor, the master servicer, the
indenture trustee, the owner trustee or any of their respective affiliates.
Proceeds of the assets included in the trust will be the sole source of payments
on the offered notes, and there will be no recourse to the depositor, the master
servicer, the seller, the [SPE], the indenture trustee, the owner trustee or any
other entity in the event that these proceeds are insufficient or otherwise
unavailable to make all payments provided for under the offered notes].
[THE DIFFERENCE BETWEEN THE INTEREST RATES ON THE NOTES AND THE MORTGAGE LOANS
MAY RESULT IN INTEREST SHORTFALLS ALLOCATED TO YOUR NOTES.
The note interest rate for each class of notes adjusts monthly based on a
particular index, subject to limitations as described in this prospectus
supplement. However, the mortgage rates on the fixed rate mortgage loans are
fixed and will not vary with any index, and the mortgage rates on the adjustable
rate mortgage loans adjust semi-annually, after an initial fixed rate period in
the case of delayed first-adjustment adjustable rate mortgage loans, based on a
separate index which may not move in tandem with the index for the notes and
which is subject to periodic and lifetime limitations. As a result of the
foregoing as well as other factors such as the prepayment behavior of the
mortgage pool, relative increases in the index or relative decreases in the
weighted average of the mortgage rates on the mortgage loans could:
o cause the amount of interest generated by the mortgage pool to be
less than the aggregate of the amount of interest that would otherwise be
payable on the notes, leading one or more classes of notes to accept payments of
interest at a later date, or
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<PAGE>
o cause the maximum note interest rate to apply to one or more classes
of notes.
Because the mortgage rate for each adjustable rate mortgage loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
index and the related gross margin, these rates could be higher than prevailing
market interest rates, possibly resulting in an increase in the rate of
prepayments on the adjustable rate mortgage loans after their adjustments. In
particular, investors should note that approximately _____% of the adjustable
rate mortgage loans have their interest rates fixed for two years following
origination and approximately _____% of the adjustable rate mortgage loans have
their interest rates fixed for three years following origination, in each case
by aggregate principal balance as of _________ __, ___. The weighted average
next adjustment date for the adjustable rate mortgage loans whose interest rates
are fixed for two years is _______ ____, and the weighted average next
adjustment date for the adjustable rate mortgage loans whose interest rates are
fixed for three years is _______ ____].
[THE RATE AND TIMING OF PRINCIPAL DISTRIBUTIONS ON YOUR NOTES WILL BE AFFECTED
BY THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS.
The rate and timing of distributions allocable to principal on the offered
notes will depend, in most cases, on the rate and timing of principal payments,
including prepayments and collections upon defaults, liquidations and
repurchases, on the mortgage loans and the allocation of these payments to pay
principal on the offered notes. As is the case with mortgage-backed securities,
the offered notes are subject to substantial inherent cash-flow uncertainties
because the mortgage loans may be prepaid at any time. However, with respect to
approximately ____% of the mortgage loans, by aggregate principal balance as of
_______ __, ____, a full and voluntary prepayment may subject the related
mortgagor to a prepayment charge. A prepayment charge may or may not act as a
deterrent to prepayment of these mortgage loans. See "The Mortgage Pool" in this
prospectus supplement.
[THE RATE OF PREPAYMENTS ON THE MORTGAGE LOANS WILL VARY DEPENDING ON FUTURE
MARKET CONDITIONS WHICH COULD IMPACT THE RATE AND TIMING OF PRINCIPAL
DISTRIBUTIONS ON YOUR NOTES.
In most cases, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. This decrease in the prepayment rates
on the mortgage loans will result in a reduced rate of return of principal to
investors in the offered notes at a time when reinvestment at higher prevailing
rates would be desirable. Conversely, when prevailing interest rates are
declining, prepayment rates on mortgage loans tend to increase. This increase in
the prepayment rates on the mortgage loans will result in a greater rate of
return of principal to investors in the offered notes at a time when
reinvestment at comparable yields may not be possible.
Distributions of principal will be made to the subordinate notes according
to the priorities described in this prospectus supplement. The timing of
commencement of principal distributions and the weighted average life of each
class of notes will be affected by the rates of prepayment on the mortgage loans
experienced both before and after the commencement of principal distributions on
each class. For further information regarding the effect of principal
prepayments on the weighted average lives of the offered notes, see "Yield on
the Notes" in this prospectus supplement and the
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<PAGE>
table entitled "Percent of initial note balance outstanding at the following
percentages of the prepayment assumption" in that section].
[THE YIELD ON YOUR NOTES WILL VARY DEPENDING ON THE RATE OF PREPAYMENTS.
The yield to maturity on the offered notes will depend on:
o the applicable note interest rate and note accrual rate on that
interest rate from time to time;
o the applicable purchase price; and
o the rate and timing of principal payments, including prepayments and
collections upon defaults, liquidations and repurchases, on the
mortgage loans and the allocation of these payments to reduce the note
balance of the notes, as well as other factors.
The yield to investors on any class of offered notes will be adversely
affected by any allocation to the class of interest shortfalls on the mortgage
loans.
In most cases, if the offered notes are purchased at a premium and
principal distributions on the offered notes occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if the
offered notes are purchased at a discount and principal distributions on the
offered notes occur at a rate slower than that anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
originally assumed.
The proceeds to the depositor from the sale of the offered notes were
determined based on a number of assumptions, including a prepayment assumption
of __% CPR and weighted average lives corresponding to that prepayment
assumption. No representation is made that the mortgage loans will prepay at
that rate or at any other rate. The yield assumptions for the offered notes will
vary as determined at the time of sale].
[VIOLATION OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS AND YOUR NOTES.
Applicable state laws regulate interest rates and other charges, require
disclosure, and require licensing of the originators. In addition, other state
laws, public policy and principles of equity relating to the protection of
consumers, unfair and deceptive practices and debt collection practices may
apply to the origination, servicing and collection of the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated
thereunder, which require disclosures to the borrowers regarding
the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age,
race, color, sex, religion, marital status,
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national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act, in the
extension of credit; and
o the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit
experience.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these federal or state laws, policies
and principles may limit the ability of the trust to collect all or part of the
principal of or interest on the mortgage loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the
Originators to damages and administrative enforcement.
The seller will represent that as of the closing date, each mortgage loan
is in compliance with applicable federal and state laws and regulations. In the
event of a breach of this representation, the seller will be obligated to cure
the breach or repurchase or replace the affected mortgage loan in the manner
described in the prospectus].
[YEAR 2000 SYSTEMS RISK COULD AFFECT THE ABILITY OF THE SERVICERS TO PERFORM
THEIR DUTIES.
As is the case with most companies using computers in their operations,
each servicer is faced with the task of completing its compliance goals in
connection with the year 2000 issue. The year 2000 issue is the result of prior
computer programs being written using two digits, rather than four digits, to
define the applicable year. Any of the servicers' computer programs that have
time- sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. Any occurrence of this kind could result in major computer
system failure or miscalculations. Each servicer is presently engaged in various
procedures to ensure that its computer systems and software will be year 2000
compliant. However, in the event that the related servicer or any of its
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the performance of obligations of that servicer under the
indenture could be materially adversely affected].
All capitalized terms used in this prospectus supplement will have the
meanings assigned to them under "Description of the Notes--Glossary of Terms" or
in the prospectus under "Glossary."
THE MORTGAGE POOL
GENERAL DESCRIPTION OF THE MORTGAGE LOANS
The mortgage pool will consist of approximately _____ conventional, one- to
four-family, fixed-rate mortgage loans and approximately _____ conventional,
one-to four-family, adjustable-rate mortgage loans. In each case, the mortgage
loans will be secured by first liens on residential real properties and have an
aggregate principal balance as of ________ __, ____, which date will also be
referred to in this prospectus supplement as the cut-off date, of approximately
$___________ after application of scheduled payments due on or before the
cut-off date whether or not received, subject to a permitted variance of plus or
minus 5%. The mortgage loans have original terms to maturity of not greater than
[30] years. References to percentages of the mortgage loans, unless
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otherwise noted, are calculated based on the aggregate principal balance of the
mortgage loans as of the cut-off date. The mortgage loans are secured by first
mortgages or deeds of trust or other similar security instruments creating first
liens on residential properties consisting of attached, detached or
semi-detached, one- to four-family dwelling units, townhouses, individual
condominium units, individual units in planned unit developments and
manufactured housing.
The mortgage loans to be included in the mortgage pool will be acquired by
the depositor on the closing date from the [SPE], who will have acquired the
mortgage loans on the closing date from the seller. The seller in turn will have
acquired the mortgage loans on the closing date from ________________, an
affiliate of the depositor who will have acquired the mortgage loans directly or
indirectly from the originators. See "--Underwriting Standards of ___________
and Representations Concerning the Mortgage Loans", "[The SPE]" and "The Seller"
in this prospectus supplement.
Each adjustable rate mortgage loan provides for semi-annual adjustment to
its mortgage rate and for corresponding adjustments to the monthly payment
amount due on the mortgage loan, in each case on each adjustment date applicable
to the mortgage loan. However, in the case of approximately _____% and
approximately _____% of the adjustable rate mortgage loans by aggregate
principal balance as of the cut-off date which are referred to in this
prospectus supplement as delayed first adjustment mortgage loans, the first
adjustment date will occur after an initial period of approximately ____ years
and approximately __ years, respectively from the date of origination of those
mortgage loans. The weighted average month of origination of the ____ year
delayed first adjustment mortgage loans is _________ _____, and the weighted
average month of origination of the ____ year delayed first adjustment mortgage
loans is _________ _____.
On each adjustment date, the mortgage rate on each adjustable rate mortgage
loan will be adjusted to equal the sum, rounded as provided in the related
mortgage note, of the index applicable to the adjustable rate mortgage loans and
a fixed percentage amount, or gross margin. However, the mortgage rate on each
adjustable rate mortgage loan, including each delayed first adjustment mortgage
loan, will usually not increase or decrease by more than a specified periodic
adjustment limitation, or periodic rate cap, on any related adjustment date.
Furthermore, the mortgage rate on each adjustable rate mortgage loan will not
exceed a specified maximum mortgage rate over the life of the mortgage loan, or
be less than a specified minimum mortgage rate over the life of the mortgage
loan. For adjustment dates other than the first adjustment date after
origination, the periodic rate cap for the majority of the adjustable rate
mortgage loans is 1.00% per annum. With respect to substantially all of the
adjustable rate mortgage loans, for adjustment dates other than the first
adjustment date after origination, the periodic rate cap will not exceed ____%
per annum.
Effective with the first monthly payment due on each adjustable rate
mortgage loan after each related adjustment date, the monthly payment amount
will be adjusted to an amount that will amortize fully the outstanding principal
balance of the related adjustable rate mortgage loan over its remaining term and
pay interest at the mortgage rate as so adjusted. Due to the application of the
periodic rate caps and the maximum mortgage rates, the mortgage rate on each
mortgage loan, as adjusted on any related adjustment date, may be less than the
sum of the index applicable to the adjustable rate mortgage loans and gross
margin, calculated as described under "--The Index Applicable to the Adjustable
Rate Mortgage Loans" in this prospectus supplement. None of the
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adjustable rate mortgage loans permits the related mortgagor to convert the
adjustable mortgage rate on the adjustable rate mortgage loan to a fixed
mortgage rate.
In most cases, the mortgage loans have scheduled monthly payments due on
the first day of the month. Each mortgage loan will contain a customary
due-on-sale clause or will be assumable by a creditworthy purchaser of the
related mortgaged property.
Approximately ______% of the mortgage loans provide for payment by the
mortgagor of a prepayment charge in limited circumstances on voluntary
prepayments in full made within one to five years from the date of origination
of these mortgage loans. The amount of the prepayment charge is as provided in
the related mortgage note. In most cases, prepayment charge obligations expire
by their terms after a limited period specified in the related mortgage note.
The weighted average month of origination of the mortgage loans with prepayment
charges is _________ ____. The holders of the equity certificates will be
entitled to all prepayment charges received on the mortgage loans, and this
amount will not be available for distribution on the notes. Under certain
instances, as described in the related servicing agreement, the related servicer
may waive the payment of any otherwise applicable prepayment charge, and
accordingly, there can be no assurance that the prepayment charges will have any
effect on the prepayment performance of the mortgage loans.
None of the mortgage loans are buydown mortgage loans.
Approximately ____% of the mortgage loans are balloon loans. Each balloon
loan is a fixed rate mortgage loan that amortizes over ___ months, but the final
payment, or balloon payment, on each balloon loan is due and payable on the
___th month. The amount of the balloon payment on each balloon loan is
substantially in excess of the amount of the scheduled monthly payment on the
balloon loan for the period prior to the due date of the balloon payment.
The average principal balance of the mortgage loans at origination was
approximately $________. No mortgage loan had a principal balance at origination
greater than approximately $________ or less than approximately $______. The
average principal balance of the mortgage loans as of the cut-off date was
approximately $_______.
The mortgage loans had mortgage rates as of the cut-off date ranging from
approximately ____% per annum to approximately _____% per annum, and the
weighted average mortgage rate was approximately ______% per annum. The weighted
average loan-to-value ratio of the mortgage loans at origination was
approximately _____%. At origination, no mortgage loan will have a loan-to-value
ratio greater than approximately _____% or less than approximately ____%.
The weighted average remaining term to maturity of the mortgage loans will
be approximately __ years and __ months as of the cut-off date. None of the
mortgage loans will have a first due date prior to _______ ____ or after
___________ ____, or will have a remaining term to maturity of less than __
years or greater than __ years as of the cut-off date. The latest maturity date
of any mortgage loan is __________ ____.
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As of the cut-off date, the adjustable rate mortgage loans had gross
margins ranging from approximately ____% to approximately ____%, minimum
mortgage rates ranging from approximately ____% per annum to approximately
_____% per annum and maximum mortgage rates ranging from approximately _____%
per annum to approximately _____% per annum. As of the cut-off date, the
weighted average gross margin was approximately ______%, the weighted average
minimum mortgage rate was approximately _____% per annum and the weighted
average maximum mortgage rate was approximately _______% per annum. The latest
first adjustment date following the cut-off date on any adjustable rate mortgage
loan occurs in _______ ____ and the weighted average next adjustment date for
all of the mortgage loans following the cut-off date is
- ------- ----.
The mortgage loans are expected to have the following characteristics as of
the cut-off date (the sum in any column may not equal the total indicated due to
rounding):
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<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AT ORIGINATION
% OF
AGGREGATE AGGREGATE
ORIGINAL ORIGINAL
NUMBER PRINCIPAL PRINCIPAL
RANGE ($) OF LOANS BALANCE BALANCE
- --------- -------- -------- -------
<S> <C> <C> <C>
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
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. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL BALANCES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RANGE ($) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- -------- ---------------- ----------------
<S> <C> <C> <C>
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
. . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . .
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
MORTGAGE RATES OF THE MORTGAGE LOANS AS OF THE CUT-OFF DATE
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MAXIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
% OF AGGREGATE
PRINCIPAL
AGGREGATE BALANCE
PRINCIPAL BALANCE OUTSTANDING AS
MAXIMUM NUMBER OUTSTANDING AS OF OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ------------------ -----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MINIMUM MORTGAGE RATES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
MINIMUM NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MORTGAGE RATE (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
GROSS MARGINS OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
GROSS MARGIN (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN-TO-VALUE RATIO (%) OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE MORTGAGED PROPERTIES
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOCATION OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY TYPES OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
PROPERTY TYPE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-23
<PAGE>
<TABLE>
<CAPTION>
MORTGAGED PROPERTY OCCUPANCY STATUS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
OCCUPANCY STATUS OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
Total..............................................
</TABLE>
The occupancy status of a Mortgaged Property is as represented by the
mortgagor in its loan application.
<TABLE>
<CAPTION>
LOAN PURPOSE OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PURPOSE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
LOAN PROGRAMS OF THE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
LOAN PROGRAM OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ------------ -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE FIXED RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
RISK CATEGORIES OF THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
RISK CATEGORIES OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
........................................................
........................................................
Total..............................................
</TABLE>
<TABLE>
<CAPTION>
NEXT ADJUSTMENT DATES FOR THE ADJUSTABLE RATE MORTGAGE LOANS
AGGREGATE % OF AGGREGATE
PRINCIPAL BALANCE PRINCIPAL BALANCE
NUMBER OUTSTANDING AS OF OUTSTANDING AS OF
MONTH OF NEXT ADJUSTMENT DATE OF LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------------------------- -------- ---------------- ----------------
<S> <C> <C> <C>
........................................................
........................................................
........................................................
........................................................
Total...................................................
</TABLE>
S-25
<PAGE>
THE INDEX APPLICABLE TO THE ADJUSTABLE RATE MORTGAGE LOANS
As of any adjustment date, the index applicable to the determination of the
mortgage rate on each adjustable rate mortgage loan will be the average of the
interbank offered rates for six-month United States dollar deposits in the
London market as published in THE WALL STREET JOURNAL and as of a date as
specified in the related mortgage note. In the event that this index becomes
unavailable or otherwise unpublished, each servicer will select a comparable
alternative index over which it has no direct control and which is readily
verifiable.
The table immediately following this paragraph sets forth historical
average rates of six-month LIBOR for the months indicated as made available from
Fannie Mae, which rates may differ from the rates of the index applicable to the
determination of the mortgage rate on each adjustable rate mortgage loan, which
is six-month LIBOR as published in THE WALL STREET JOURNAL as described in the
preceding paragraph. The table does not purport to be representative of the
subsequent rates of the index which will be used to determine the Mortgage Rate
on each adjustable rate mortgage loan.
Year
----------------------------------------------
Month
- ----- ----- ----- ----- ----- ----- -----
UNDERWRITING STANDARDS OF __________ AND REPRESENTATIONS CONCERNING THE MORTGAGE
LOANS
The mortgage loans will be acquired by the depositor from the mortgage loan
seller. All of the mortgage loans were originated or acquired by the originator,
generally in accordance with the underwriting criteria described below.
The information set forth below with regard to the originator's
underwriting standards has been provided to the depositor by the originator.
None of the depositor, the trustee, the underwriter or any of their respective
affiliates has made any independent investigation of such information or has
made or will make any representation as to the accuracy or completeness of such
information.
The mortgage loans were originated generally in accordance with
underwriting guidelines established by the originator under the "Full
Documentation", "Fast Trac Documentation" or "Stated Income" residential loan
programs. The underwriting guidelines are primarily intended to evaluate the
value and adequacy of the mortgaged property as collateral and are also intended
to consider the
S-26
<PAGE>
applicant's credit standing and repayment ability. On a case-by-case basis, the
originator may determine that, based upon compensating factors, a prospective
applicant not strictly qualifying under the underwriting risk category
guidelines described below warrants an underwriting exception. Compensating
factors may include, but are not limited to, low loan-to-value ratio, low
debt-to-income ratio, good credit history, stable employment and time in
residence at the applicant's current address. It is expected that a substantial
number of the mortgage loans to be included in the mortgage pool will represent
such underwriting exceptions.
All of the mortgage loans originated in the underwriting programs are based
on loan application packages submitted through the originator's branches. Each
prospective applicant completes an application which includes information with
respect to the applicant's liabilities, income, credit history and employment
history, as well as certain other personal information. The originator obtains a
credit report on each applicant from a credit reporting company. The report
typically contains information relating to such matters as credit history with
local and national merchants and lenders, installment debt payment and any
record of default, bankruptcy, repossession, suits or judgments. The applicant
must generally provide to the originator a letter explaining all late payments
on mortgage debt and, generally, consumer (I.E. non-mortgage) debt.
Under the underwriting programs, during the underwriting process, the
Originator reviews and verifies the loan applicant's sources of income (except
under the Stated Income and Fast Trac Documentation residential loan programs)
and calculates the amount of income from all such sources indicated on the loan
application, reviews the credit history of the applicant and calculates the
debt-to-income ratio to determine the applicant's ability to repay the loan, and
reviews the mortgaged property for compliance with the underwriting guidelines.
The underwriting guidelines are applied in accordance with a procedure which
complies with applicable federal and state laws and regulations and requires (i)
an appraisal of the mortgaged property which conforms to Uniform Standards of
Professional Appraisal Practice standards and (ii) a review of such appraisal,
which review may be conducted by a representative of the originator or a fee
appraiser and, depending upon the original principal balance and loan-to-value
ratio of the mortgaged property, may include a desk review of the original
appraisal or a drive-by review appraisal of the mortgaged property. The
underwriting guidelines permit loans with loan-to-value ratios at origination of
up to 90%. The maximum allowable loan-to-value ratio varies based upon the
income documentation, property type, creditworthiness, debt service-to-income
ratio of the applicant and the overall risks associated with the loan decision.
Under the underwriting programs, the maximum combined loan-to-value ratio,
including any second deeds of trust subordinate to the originator's first deed
of trust, is 100%.
UNDERWRITING PROGRAMS (INCOME DOCUMENTATION TYPES)
FULL DOCUMENTATION. The Full Documentation residential loan program is
generally based upon current year to date income documentation as well as
previous years' income documentation (I.E. tax returns and/or W-2 forms). The
documentation required is specific to the applicant's sources of income. The
applicant's employment and/or business licenses are generally verified.
FAST TRAC DOCUMENTATION. The Fast Trac Documentation residential loan
program is generally based on bank statements from the past twelve months
supported by additional documentation
S-27
<PAGE>
provided by the applicant or current year to date documentation. The applicant's
employment and/or business licenses are generally verified.
STATED INCOME. The Stated Income residential loan program requires the
applicant's employment and income sources to be stated on the application. The
applicant's income as stated must be reasonable for the related occupation in
the loan underwriter's discretion. However, the applicant's income as stated on
the application is not independently verified. Verbal verification of employment
is generally obtained for salaried applicants.
PROPERTY REQUIREMENTS
Properties that are to secure mortgage loans are appraised by qualified
independent appraisers who are approved by the originator's senior appraisers.
In most cases, properties below average standards in condition and repair
(including properties requiring major deferred maintenance) are not acceptable
as security for mortgage loans in the underwriting programs. Each appraisal
includes a market data analysis based on recent sales of comparable homes in the
area and, where deemed appropriate, replacement cost analysis based on the
current cost of constructing a similar home. Every independent appraisal is
reviewed by a representative of the originator or a fee appraiser before the
loan is funded.
The originator requires that all mortgage loans have title insurance. The
originator also requires that fire and extended coverage casualty insurance be
maintained on the secured property in an amount equal to the lesser of the
principal balance of the mortgage loan or the replacement cost of the property.
UNDERWRITING GUIDELINES
The underwriting guidelines are less stringent than the standards generally
acceptable to Fannie Mae and Freddie Mac with regard to the property offered as
collateral and the applicant's credit standing and repayment ability. Applicants
who qualify under the underwriting programs generally have payment histories and
debt ratios which would not satisfy Fannie Mae and Freddie Mac underwriting
guidelines and may have a record of major derogatory credit items such as
outstanding judgments or prior bankruptcies. The underwriting guidelines
establish the maximum permitted loan-to-value ratio for each loan type based
upon these and other risk factors.
RISK CATEGORIES
Under the underwriting programs, various risk categories are used to grade
the likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These risk categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor's credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in categories which permit higher debt
ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the underwriting programs
establish lower maximum loan-to-value ratios and lower maximum loan amounts for
loans graded in such categories.
S-28
<PAGE>
The underwriting guidelines have the following categories and criteria for
grading the potential likelihood that an applicant will satisfy the repayment
obligations of a mortgage loan:
CREDIT GRADE: "AAA". Under the "AAA" credit grade, the applicant generally
must have a minimum FICO score of 670 and no late payments within the last 12
months are permitted on any existing mortgage loan. No bankruptcy, discharge, or
notice of default filings may have occurred during the preceding thirty-six
months. Generally, the debt service-to-income ratios must be equal to or less
than 40%. A maximum loan-to-value ratio of 90% in a variable loan product is
permitted on any purchase money and/or refinance transaction.
CREDIT GRADE: "AA". Under the "AA" credit grade, the applicant generally
must have a minimum FICO score of 620 and no late payments within the last 12
months are permitted on an existing mortgage loan. No bankruptcy, discharge, or
notice of default filings may have occurred during the preceding two years.
Generally, the debt service-to-income ratio must be equal to or less than 42%. A
maximum loan-to-value ratio of 85% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "A". Under the "A" credit grade, the applicant generally must
have a minimum FICO score of 550 and a maximum of three 30-day late payments
within the last 12 months are permitted on an existing mortgage loan. No
bankruptcy, discharge, or notice of default filings may have occurred during the
preceding two years. Generally, the debt service-to-income ratio must be equal
to or less than 50%. A maximum loan-to-value ratio of 80% is permitted for
purchase money and/or refinance transactions.
CREDIT GRADE: "B". Under the "B" credit grade, the applicant generally must
have a minimum FICO score of 520 and a maximum of one 60-day late payment within
the last 12 months is permitted on an existing mortgage loan. No bankruptcy,
discharge, or notice of default filings may have occurred during the preceding
year. Generally, the debt service-to-income ratio must be equal to or less than
55%. A maximum loan-to-value ratio of 75% is permitted for purchase money and/or
refinance transactions.
CREDIT GRADE: "C". Under the "C" credit grade, a maximum of one 90-day late
payment within the last 12 months is permitted on an existing mortgage loan. The
applicant must not currently be in bankruptcy or foreclosure. Generally, the
debt service-to-income ratio must be equal to or less than 55%. A maximum
loan-to-value ratio of 70% is permitted for purchase money and/or refinance
transactions.
CREDIT GRADE: "D". Under the "D" credit grade, the applicant's derogatory
consumer and mortgage credit history may be waived if a reasonable explanation
for the problem is provided. The problem that caused the derogatory items to
occur must no longer exist or must be resolved through the loan transaction.
Generally, the debt-to-service income ratio must be equal to or less than 60%. A
maximum loan-to-value ratio of 60% is permitted for purchase money and/or
refinance transactions.
The originator will make representations and warranties as of the closing
date with respect to the mortgage loans, and will be obligated to replace, cure
or repurchase any such Mortgage Loan in
S-29
<PAGE>
respect of which a material breach of the representations and warranties it has
made has occurred (other than those breaches which have been cured). For a
discussion of the representations and warranties made and the repurchase
obligation, see "The Depositor's Mortgage Loan Purchase Program--Representations
by or on behalf of the Mortgage Loan Sellers; Remedies for Breach of
Representation" in the prospectus.
ADDITIONAL INFORMATION CONCERNING THE MORTGAGE LOANS
The description in this prospectus supplement of the mortgage pool and the
mortgaged properties is based upon the mortgage pool as constituted as of the
close of business on the cut-off date, as adjusted for the scheduled principal
payments due on or before that date. Prior to the issuance of the notes,
mortgage loans may be removed from the mortgage pool as a result of incomplete
documentation or otherwise if the depositor deems the removal necessary or
desirable, and may be prepaid at any time. A limited number of other mortgage
loans may be included in the mortgage pool prior to the issuance of the notes
unless including these mortgage loans would materially alter the characteristics
of the mortgage pool. The depositor believes that the information set forth
throughout this prospectus supplement will be representative of the
characteristics of the mortgage pool as it will be constituted at the time the
notes are issued, although the range of mortgage rates and maturities and other
characteristics of the mortgage loans may vary.
YIELD ON THE NOTES
GENERAL PREPAYMENT CONSIDERATIONS
The rate of principal payments on the notes, the aggregate amount of
payments on the notes and the yield to maturity of the notes will be related to
the rate and timing of payments of principal on the mortgage loans. The rate of
principal payments on the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans and by the rate of principal
prepayments on the mortgage loans, including for this purpose, payments
resulting from refinancings, liquidations of the mortgage loans due to defaults,
casualties, condemnations and repurchases, whether optional or required, by the
depositor, the seller or the majority holder of the equity certificates. The
mortgage loans may be prepaid by the mortgagors at any time; however, as
described under "The Mortgage Pool" in this prospectus supplement, with respect
to approximately _____% of the mortgage loans, by aggregate principal balance as
of the cut-off date, a prepayment may subject the related mortgagor to a
prepayment charge. In most cases, prepayment charge obligations expire by their
terms after a limited period specified in the related mortgage note. The
weighted average month of origination of the mortgage loans with prepayment
charges is ________ ____.
Prepayments, liquidations and repurchases of the mortgage loans will result
in payments in respect of principal to the holders of the class or classes of
notes then entitled to receive these payments that otherwise would be
distributed over the remaining terms of the mortgage loans. Since the rates of
payment of principal on the mortgage loans will depend on future events and a
variety of factors, no assurance can be given as to that rate or the rate of
principal prepayments. The extent to which the yield to maturity of any class of
notes may vary from the anticipated yield will depend
S-30
<PAGE>
upon the degree to which the notes are purchased at a discount or premium and
the degree to which the timing of payments on the notes is sensitive to
prepayments on the mortgage loans. Further, an investor should consider, in the
case of any note purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the mortgage loans could result in an
actual yield to that investor that is lower than the anticipated yield. In the
case of any note purchased at a premium, the risk that a faster than anticipated
rate of principal payments could result in an actual yield to that investor that
is lower than the anticipated yield. In most cases, the earlier a prepayment of
principal is made on the mortgage loans, the greater the effect on the yield to
maturity of the notes. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher, or lower, than the rate
anticipated by the investor during the period immediately following the issuance
of the notes would not be fully offset by a subsequent like reduction, or
increase, in the rate of principal payments. See "Maturity and Prepayment
Considerations" in the prospectus.
It is highly unlikely that the mortgage loans will prepay at any constant
rate until maturity or that all of the mortgage loans will prepay at the same
rate. Moreover, the timing of prepayments on the mortgage loans may
significantly affect the actual yield to maturity on the notes, even if the
average rate of principal payments experienced over time is consistent with an
investor's expectation. The rate of payments, including prepayments, on pools of
mortgage loans is influenced by a variety of economic, geographic, social and
other factors. If prevailing mortgage rates fall significantly below the
mortgage rates on the mortgage loans, the rate of prepayment and refinancing
would be expected to increase. Conversely, if prevailing mortgage rates rise
significantly above the mortgage rates on the mortgage loans, the rate of
prepayment on the mortgage loans would be expected to decrease. Other factors
affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. In addition, in the case of the adjustable
rate mortgage loans in the mortgage pool, the existence of the applicable
periodic rate cap, maximum mortgage rate and minimum mortgage rate may affect
the likelihood of prepayments resulting from refinancings. There can be no
certainty as to the rate of prepayments on the mortgage loans during any period
or over the life of the notes. See "Yield Considerations" and "Maturity and
Prepayment Considerations" in the prospectus.
Because principal payments are paid to senior classes of notes before other
classes, holders of classes of notes having a later priority of payment bear a
greater risk of losses, because these notes will represent an increasing
percentage of the trust estate during the period prior to the commencement of
payments of principal on these notes, than holders of classes having earlier
priorities for payment of principal. As described in this prospectus supplement
under "Description of the Notes--Principal Payments on the Notes," prior to the
Stepdown Date, all principal payments on the mortgage loans will be allocated to
the Class A Notes. After that date, subject to delinquency triggers described in
this prospectus supplement, all principal payments on the mortgage loans will be
allocated among all classes of the notes then outstanding as described under
"Description of the Notes--Principal Payments on the Notes" in this prospectus
supplement.
Defaults on mortgage loans are expected to occur with greater frequency in
their early years. In addition, default rates may be higher for mortgage loans
used to refinance an existing mortgage loan. In the event of a mortgagor's
default on a mortgage loan, there can be no assurance that recourse will be
available beyond the specific mortgaged property pledged as security for
repayment. See "The
S-31
<PAGE>
Mortgage Pool--Underwriting Standards of ___________ and Representations
Concerning the Mortgage Loans" in this prospectus supplement.
SPECIAL YIELD CONSIDERATIONS
The note interest rate for each class of notes adjusts monthly based on
one-month LIBOR as described under "Description of the Notes--Calculation of
One-Month LIBOR" in this prospectus supplement, subject to the maximum Note
Interest Rate and the Available Interest Rate. However, the mortgage rates on
the fixed rate mortgage loans are fixed and will not vary with any index. The
mortgage rates on the adjustable rate mortgage loans adjust semi-annually, after
an initial fixed rate period in the case of delayed first adjustment mortgage
loans, based on the index applicable to the adjustable rate mortgage loans,
which may not move in tandem with one-month LIBOR, subject to periodic and
lifetime limitations. Investors should note that approximately _____% of the
mortgage loans are ____ year delayed first adjustment mortgage loans,
approximately ____% of the mortgage loans are _____ year delayed first
adjustment loans and approximately _____% of the mortgage loans are fixed rate
mortgage loans, in each case by aggregate principal balance as of the cut-off
date. The weighted average month of origination of the ____ year delayed first
adjustment mortgage loans is _____ ____, and the weighted average month of
origination of the ______ year delayed first adjustment mortgage loans is ______
____.
Because of the application of the maximum Note Interest Rate and the
Available Interest Rate, increases in the Note Interest Rate on the notes may be
limited for extended periods or indefinitely in a rising interest rate
environment. The interest due on the mortgage loans during any due period may
not equal the amount of interest that would accrue at one-month LIBOR plus the
applicable spread on the notes during the related Interest Accrual Period. In
addition, the index applicable to the adjustable rate mortgage loans and
one-month LIBOR may respond differently to economic and market factors. Thus, it
is possible, for example, that if both one-month LIBOR and the index applicable
to the adjustable rate mortgage loans rise during the same period, one-month
LIBOR may rise more rapidly than the index applicable to the adjustable rate
mortgage loans or may rise higher than the index applicable to the adjustable
rate mortgage loans. This could potentially result in Interest Carry Forward
Amounts with respect to one or more classes of notes. As a result of the
foregoing as well as other factors such as the prepayment behavior of the
mortgage pool, relative increases in one-month LIBOR or relative decreases in
the weighted average of the mortgage rates on the mortgage loans could:
o cause the Current Interest Payment Amount generated by the mortgage
pool to be less than the aggregate of the Interest Payment Amounts that
would otherwise be payable on the notes, leading one or more classes of
notes to incur Interest Carry Forward Amounts, or
o could cause the maximum Note Interest Rate to apply to one or more
classes of notes.
Because the mortgage rate for each adjustable rate mortgage loan will be
adjusted, subject to periodic and lifetime limitations, to equal the sum of the
index applicable to the adjustable rate mortgage loans and the related gross
margin, the mortgage rates could be higher than prevailing market interest
rates, possibly resulting in an increase in the rate of prepayments on the
adjustable rate mortgage loans after their adjustments.
S-32
<PAGE>
As described under "Description of the Notes--Allocation of Losses;
Subordination," amounts otherwise distributable to holders of the subordinate
notes may be made available to protect the holders of the Class A Notes against
interruptions in payments due to mortgagor delinquencies, to the extent not
covered by P&I Advances. These delinquencies may affect the yield to investors
on classes of subordinate notes and, even if subsequently cured, will affect the
timing of the receipt of payments by the holders of classes of subordinate
notes. In addition, a larger than expected rate of delinquencies or losses will
affect the rate of principal payments on each class of subordinate notes. See
"Description of the Notes--Principal Payments on the Notes" in this prospectus
supplement.
WEIGHTED AVERAGE LIVES
Weighted average life refers to the amount of time that will elapse from
the date of issuance of a security until each dollar of principal of that
security will be repaid to the investor. The weighted average life of each class
of notes will be influenced by the rate at which principal on the mortgage loans
is paid, which may be in the form of scheduled payments or prepayments,
including repurchases and prepayments of principal by the borrower as well as
amounts received by virtue of condemnation, insurance or foreclosure with
respect to the mortgage loans, and the timing of these payments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement
assumes a prepayment rate for the mortgage loans of __% CPR. CPR assumes that
the outstanding principal balance of a pool of mortgage loans prepays at a
specified constant annual rate or CPR. In generating monthly cash flows, this
rate is converted to an equivalent constant monthly rate. To assume __% CPR or
any other CPR percentage is to assume that the stated percentage of the
outstanding principal balance of the pool is prepaid over the course of a year.
No representation is made that the mortgage loans will prepay at __% CPR or any
other rate.
The tables following the next paragraph indicate the percentage of the
initial Note Balance of the notes that would be outstanding after each of the
dates shown at various percentages of the prepayment assumption and the
corresponding weighted average lives of the notes. The tables are based on the
following assumptions:
o the mortgage pool consists of __ mortgage loans with the
characteristics set forth in the table in this prospectus supplement
entitled "Assumed Mortgage Loan Characteristics,"
o payments on the notes are received, in cash, on the 25th day of each
month, commencing in _______ ____,
o the mortgage loans prepay at the percentages of the prepayment
assumption indicated,
o no defaults or delinquencies occur in the payment by mortgagors of
principal and interest on the mortgage loans,
o none of the majority holder of the equity certificates, the seller,
the master servicer, the servicers or any other person purchases from
the trust estate any mortgage loan or redeems
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<PAGE>
the notes under any obligation or option under the indenture, the
servicing agreements or any other agreement except as otherwise
indicated in the second sentence following the table entitled "Percent
of initial Note Balance outstanding at the specified percentages of the
prepayment assumption," and no partial early redemption of the notes
occurs with respect to the mortgage loans,
o scheduled monthly payments on the mortgage loans are received on the
first day of each month commencing in _______ ____, and are computed
prior to giving effect to any prepayments received in the prior month,
o prepayments representing payment in full of individual mortgage loans
are received on the last day of each month commencing in ________ ____,
and include 30 days' interest on the mortgage loan,
o the scheduled monthly payment for each mortgage loan is calculated
based on its principal balance, mortgage rate, original term to stated
maturity and remaining term to stated maturity so that the mortgage
loan will amortize in amounts sufficient to repay the remaining
principal balance of the mortgage loan by its remaining term to stated
maturity,
o the notes are purchased on ________ __, ____,
o the index applicable to the adjustable rate mortgage loans remains
constant at _____% per annum and the mortgage rate on each adjustable
rate mortgage loan is adjusted on the next adjustment date, and on
subsequent adjustment dates, if necessary, to equal the index
applicable to the adjustable rate mortgage loans plus the applicable
gross margin, subject to the applicable periodic rate cap,
o one-month LIBOR remains constant at _____% per annum,
o the monthly payment on each adjustable rate mortgage loan is adjusted
on the due date immediately following the next adjustment date, and on
subsequent adjustment dates, if necessary, to equal a fully amortizing
monthly payment and
o the master servicing fee rate is as set forth in the table entitled
"Assumed Mortgage Loan Characteristics" and the master servicing fee is
payable monthly, the servicing fee rate for each servicer is equal to
____% per annum and the servicing fees are payable monthly, and the
indenture trustee fee rate is equal to ______% per annum and the
indenture trustee fee is paid monthly.
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<PAGE>
<TABLE>
<CAPTION>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
REMAINING
PRINCIPAL ORIGINAL TERM MAXIMUM MINIMUM PERIODIC MASTER
BALANCE RATE TERM TO TO NEXT MORTGAGE MORTGAGE RATE SERVICING PREPAY
AS OF THE MORTGAGE MATURITY MATURITY ADJUSTMENT GROSS RATE RATE CAP FEE RATE PENALTY
CUT-OFF DATE RATE(%) (MONTHS) (MONTHS) DATE MARGIN(%) (%) (%) (%) (%) (YES/NO)
- ------------ ------- -------- -------- ---- --------- --- --- --- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
There will be discrepancies between the characteristics of the actual
mortgage loans and the characteristics assumed in preparing the tables in this
prospectus supplement. Any discrepancy of this kind may have an effect upon the
percentages of the initial Note Balance outstanding and the weighted average
lives of the notes set forth in the tables in this prospectus supplement. In
addition, since the actual mortgage loans included in the mortgage pool will
have characteristics that differ from those assumed in preparing the tables set
forth immediately following the next paragraph and since it is not likely the
level of the index applicable to the adjustable rate mortgage loans or one-month
LIBOR will remain constant as assumed, the notes may mature earlier or later
than indicated by the tables. In addition, as described under "Description of
the Notes--Principal Payments on the Notes" in this prospectus supplement, the
occurrence of the Stepdown Date or a Trigger Event will have the effect of
accelerating or decelerating the amortization of the notes, affecting the
weighted average lives of the notes.
Based on the foregoing assumptions, the tables following this paragraph
indicate the weighted average lives of the notes and set forth the percentages
of the initial Note Balance of the notes that would be outstanding after each of
the payment dates shown, at various percentages of the prepayment assumption.
Neither the prepayment model used in this prospectus supplement nor any other
prepayment model or assumption purports to be an historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the mortgage loans included in the
mortgage pool. Variations in the prepayment experience and the balance of the
mortgage loans that prepay may increase or decrease the percentages of initial
Note Balances and weighted average lives shown in the following tables. These
variations may occur even if the average prepayment experience of all the
mortgage loans equals any of the specified percentages of the prepayment
assumption.
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<PAGE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL NOTE BALANCE OUTSTANDING AT THE
SPECIFIED PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A NOTES CLASS M-1 NOTES
---------------------------------- ----------------------------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life in Years........
Weighted Average
Life in Years........
</TABLE>
<TABLE>
<CAPTION>
CLASS M-2 NOTES CLASS M-3 NOTES
------------------------------------- ---------------------------------
PAYMENT DATE 0% 15% 28% 35% 45% 0% 15% 28% 35% 45%
- ------------ -- --- --- --- --- -- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..........
......................
......................
......................
......................
Weighted Average
Life in Years........
Weighted Average
Life in Years........
</TABLE>
The weighted average life of a note is determined by (a) multiplying the
amount of each payment of principal by the number of years from the date of
issuance of the note to the related payment date, (b) adding the results and (c)
dividing the sum by the initial Note Balance of the notes. The weighted average
lives set forth in the bottom row of the table are calculated according to the
previous sentence but assumes the majority holder of the equity certificates
exercises its option to redeem the notes when the aggregate Note Balance has
been reduced to less than 20% of the initial aggregate Note Balance. See "The
Indenture and Owner Trust Agreement--Redemption" in this prospectus supplement.
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<PAGE>
There is no assurance that prepayments of the mortgage loans will conform
to any of the levels of the prepayment assumption indicated in the immediately
preceding tables, or to any other level, or that the actual weighted average
lives of the notes will conform to any of the weighted average lives set forth
in the immediately preceding tables. Furthermore, the information contained in
the tables with respect to the weighted average lives of the notes is not
necessarily indicative of the weighted average lives that might be calculated or
projected under different or varying prepayment or index level assumptions.
The characteristics of the mortgage loans will differ from those assumed in
preparing the immediately preceding tables. In addition, it is unlikely that any
mortgage loan will prepay at any constant percentage until maturity, that all of
the mortgage loans will prepay at the same rate or that the level of the index
applicable to the adjustable rate mortgage loans will remain constant or at any
level for any period of time. The timing of changes in the rate of prepayments
may significantly affect the actual yield to maturity to investors, even if the
average rate of principal prepayments and the level of the index applicable to
the adjustable rate mortgage loans is consistent with the expectations of
investors.
YIELD SENSITIVITY OF THE SUBORDINATE NOTES
If on any payment date, the Overcollateralized Amount and the Note Balances
of the Class M-3 Notes and the Class M-2 Notes have been reduced to zero, the
yield to maturity on the Class M-1 Notes will become extremely sensitive to
losses on the mortgage loans and the timing of losses, that are covered by
subordination, because the entire amount of any Realized Losses, to the extent
not covered by Net Monthly Excess Cashflow, will be allocated to the Class M-1
Notes. If on any payment date, the Overcollateralized Amount and the Note
Balance of the Class M-3 Notes have been reduced to zero, the yield to maturity
on the Class M-2 Notes will become extremely sensitive to losses on the mortgage
loans and the timing of losses that are covered by subordination, because the
entire amount of any Realized Losses, to the extent not covered by Net Monthly
Excess Cashflow, will be allocated to the Class M-2 Notes. If on any payment
date, the Overcollateralized Amount has been reduced to zero, the yield to
maturity on the Class M-3 Notes will become extremely sensitive to losses on the
mortgage loans and the timing of losses that are covered by subordination,
because the entire amount of any Realized Losses, to the extent not covered by
Net Monthly Excess Cashflow, will be allocated to the Class M-3 Notes. Once
Realized Losses have been allocated to the subordinate notes, Realized Losses
will not be reinstated thereafter. However, Allocated Realized Loss Amounts may
be paid to the holders of the subordinate notes, after distributions to the
holders of the Class A Notes and subordinate notes with lower numerical class
designations, but before the equity certificates are entitled to any
distributions. See "Description of the Notes--Overcollateralization Provisions"
in this prospectus supplement.
Investors in the subordinate notes should fully consider the risk that
Realized Losses on the mortgage loans could result in the failure of these
investors to fully recover their investments. For additional considerations
relating to the yield on the subordinate notes, see "Yield Considerations" and
"Maturity and Prepayment Considerations" in the prospectus.
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<PAGE>
DESCRIPTION OF THE NOTES
GENERAL DESCRIPTION OF THE NOTES
Ameriquest Trust Series ____-__, AQ Asset-Backed Floating Rate Notes,
Series ____-__ will consist of ____ classes of notes, designated as:
o the Class A Notes and
o the Class M-1 Notes, the Class M-2 Notes and the Class M-3 Notes
which will collectively be referred to in this prospectus supplement as the
subordinate notes.
The notes will be issued by Ameriquest Trust Series ____-__, the
issuer, under the terms of an indenture, dated as of ________ __, ____, between
the issuer and the indenture trustee. Only the notes are offered by this
prospectus supplement. Trust certificates, Series ____-__, or the equity
certificates, will be issued under the terms of an owner trust agreement, dated
as of ________ __, ____, between the depositor and the owner trustee, and will
represent the beneficial ownership interest in the issuer. The equity
certificates are not being offered by this prospectus supplement and will be
delivered on the closing date to the ____________, as partial consideration for
the conveyance of the mortgage loans by ____________ to the depositor.
Distributions on the offered notes will be made on the 25th day of each
month, or, if that day is not a business day, on the next succeeding business
day, beginning in _______ ____.
The notes represent non-recourse debt obligations of the issuer secured by
a trust estate, which consists primarily of a segregated pool of conventional,
one- to four-family, adjustable-rate and fixed-rate first lien mortgage loans
having an aggregate principal balance as of the cut-off date of approximately
$___________, subject to a permitted variance as described in this prospectus
supplement under "The Mortgage Pool." Proceeds of the trust estate will be the
sole source of payments on the notes. The issuer is not expected to have any
significant assets other than the trust estate pledged as collateral to secure
the notes.
The Class A Notes, the Class M-1 Notes, the Class M-2 Notes and the Class
M-3 Notes will have an aggregate initial note balance of approximately
$___________, approximately $_________, approximately $__________ and
approximately $__________, respectively, in each case subject to a permitted
variance of plus or minus [5]%. The Note Interest Rates on the notes are
adjustable, subject to the maximum Note Interest Rate and the Available Interest
Rate, and will be calculated for each payment date as described under "--Note
Interest Rate" in this prospectus supplement. The final maturity date of the
notes is the payment date occurring in _______ ____.
The notes will be issued, maintained and transferred on the book-entry
records of DTC and its participants in minimum denominations of $[10,000] and
integral multiples of $[1.00] in excess of the minimum denominations.
The notes will initially be represented by one or more global notes
registered in the name of the nominee of DTC as clearing agency, except as
provided under "Definitive Notes" in this prospectus
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<PAGE>
supplement. The depositor has been informed by DTC that DTC's nominee will be
CEDE & Co. No person acquiring an interest in any class of the notes will be
entitled to receive a note representing that person's interest, except as set
forth in this prospectus supplement under "Definitive Notes". Unless and until
definitive notes are issued under the limited circumstances described in this
prospectus supplement, all references to actions by noteholders with respect to
the notes shall refer to actions taken by DTC upon instructions from its
participants, and all references in this prospectus supplement to payments,
notices, reports and statements to noteholders with respect to the notes shall
refer to payments, notices, reports and statements to DTC or CEDE & Co., as the
registered holder of the notes, for payment to note owners in accordance with
DTC procedures. See "--Registration of the Notes" and "--Definitive Notes" in
this prospectus supplement.
Any definitive notes will be transferable and exchangeable at the offices
of the indenture trustee. No service charge will be imposed for any registration
of transfer or exchange, but the indenture trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with the registration of transfer or exchange.
All payments to holders of the notes, other than the final payment on any
class of notes, will be made by or on behalf of the indenture trustee to the
persons in whose names the notes are registered at the close of business on each
record date. The record date for each payment date is:
o with respect to the notes, other than any definitive notes, the close
of business on the business day immediately preceding the payment date or
o with respect to the definitive notes will be the close of business on
the last business day of the month preceding the month in which the payment date
occurs.
Payments will be made either by check mailed to the address of each
noteholder as it appears in the note register or upon written request to the
indenture trustee at least five business days prior to the relevant record date
by any holder of notes having an aggregate initial Note Balance that is in
excess of the lesser of:
o $5,000,000 or
o two-thirds of the initial aggregate Note Balance of that class of
notes, by wire transfer in immediately available funds to the account
of the noteholder specified in the request.
The final payment on any class of notes will be made in like manner, but
only upon presentment and surrender of the notes at the corporate trust office
of the indenture trustee or other location specified in the notice to
noteholders of the final payment.
REGISTRATION OF THE NOTES
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A
S-39
<PAGE>
of the Securities Exchange Act of 1934, as amended. DTC was created to hold
securities for its participating organizations and to facilitate the clearance
and settlement of securities transactions between its participants through
electronic book entries, thereby eliminating the need for physical movement of
notes. Participants include securities brokers and dealers, including the
underwriter of the notes offered by this prospectus supplement, banks, trust
companies and clearing corporations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Note owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in, the
book-entry notes may do so only through participants and indirect participants.
In addition, note owners will receive all distributions of principal of and
interest on the book-entry notes from the indenture trustee through DTC and DTC
participants. The indenture trustee will forward payments to DTC in same day
funds and DTC will forward these payments to participants in next day funds
settled through the New York Clearing House. Each participant will be
responsible for disbursing these payments to indirect participants or to note
owners. Unless and until definitive notes are issued, it is anticipated that the
only noteholder of the book-entry notes will be CEDE & Co., as nominee of DTC.
Note owners will not be recognized by the indenture trustee as noteholders, as
the term is used in the indenture and note owners will be permitted to exercise
the rights of noteholders only indirectly through DTC and its participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers of the book-entry
notes among participants and to receive and transmit distributions of principal
of, and interest on, the book-entry notes. Participants and indirect
participants with which note owners have accounts with respect to the book-entry
notes similarly are required to make book-entry transfers and receive and
transmit payments on behalf of their respective note owners. Accordingly,
although note owners will not possess definitive notes, the rules, regulations
and procedures creating and affecting DTC and its operations provide a mechanism
by which note owners through their participants and indirect participants will
receive payments and will be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and on behalf of banks, the ability of a note
owner to pledge book-entry notes to persons or entities that do not participate
in the DTC system, or to otherwise act with respect to these notes, may be
limited due to the absence of physical notes for the book-entry notes. In
addition, under a book-entry format, note owners may experience delays in their
receipt of payments since distributions will be made by the indenture trustee to
CEDE & Co., as nominee for DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations , DTC will take action permitted to be taken by a noteholder
under the indenture only at the direction of one or more participants to whose
DTC account the book-entry notes are credited. Additionally, under the rules,
regulations and procedures creating and affecting DTC and its operations, DTC
will take actions with respect to specified voting rights only at the direction
of and on behalf of participants whose holdings of book-entry notes evidence
these specified voting rights. DTC may take
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<PAGE>
conflicting actions with respect to voting rights, to the extent that
participants whose holdings of book-entry notes evidencing these voting rights,
authorize divergent action.
DTC management is aware that computer applications, systems and similar
items 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 computer
applications, systems and similar items for processing data, as the same relate
to the timely payment of distributions, including principal and income payments,
to securityholders, book-entry deliveries and settlement of trades within DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to, issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on which DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial community that it is contacting and will continue to contact third
party vendors from whom DTC acquires services to impress upon them the
importance of their services being Year 2000 compliant and determine the extent
of their efforts for Year 2000 remediation and, as appropriate, testing of their
services. In addition, DTC is in the process of developing contingency plans as
it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
The issuer, the originators, the depositor, the master servicer, the
seller, the [SPE], the owner trustee, the indenture trustee and their respective
affiliates will have no liability for any actions taken by DTC or its nominee or
Cedel or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the notes held by CEDE & Co., as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to beneficial
ownership interests.
DEFINITIVE NOTES
Definitive notes will be issued to note owners or their nominees, rather
than to DTC or its nominee, only if:
o the depositor advises the indenture trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
clearing agency with respect to the notes and the
depositor is unable to locate a qualified successor,
o the depositor, at its option, advises the indenture trustee in
writing that it elects to terminate the book-entry system through DTC,
or
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<PAGE>
o after the occurrence of an event of default, note owners representing
in the aggregate not less than 51% of the voting rights of the notes
advise the indenture trustee and DTC through participants, in writing,
that the continuation of a book-entry system through DTC, or a
successor to DTC, is no longer in the note owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the indenture trustee is required to notify all note owners through
participants of the availability of definitive notes. Upon surrender by DTC of
the definitive notes representing the notes and receipt of instructions for
re-registration, the indenture trustee will reissue the notes as definitive
notes issued in the respective principal amounts owned by individual note
owners, and thereafter the indenture trustee will recognize the holders of the
definitive notes as noteholders under the indenture. The definitive notes will
be issued in minimum denominations of $10,000, except that any beneficial
ownership represented by a note in an amount less than $10,000 immediately prior
to the issuance of a definitive note shall be issued in a minimum denomination
equal to the amount represented by that note.
BOOK-ENTRY FACILITIES
Note owners may elect to hold their interests in the notes through DTC in
the United States or through Cedel or Euroclear in Europe, if they are
participants of these systems, or indirectly through organizations which are
participants in these systems. The notes of each class will be issued in one or
more notes which equal the aggregate Note Balance of the class and will
initially be registered in the name of Cede & Co., the nominee of DTC. Cedel and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositories which in turn will hold these positions in
customers' securities accounts in the depositories' names on the books of DTC.
Citibank will act as depositary for Cedel and Chase will act as depositary for
Euroclear.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. These credits or any transactions in these securities
settled during this processing will be reported to the relevant Euroclear
participants or Cedel participants on that business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
participant or Euroclear participant to a participant of DTC will be received
with value on the DTC settlement date but will be available in the relevant
Cedel or Euroclear cash account only as of the business day following settlement
in DTC.
Transfers between participants will occur in accordance with DTC rules.
Transfers between Cedel participants and Euroclear participants will occur in
accordance with their respective 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 in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by Citibank or Chase, as applicable; however, these cross market
transactions will require delivery of instructions to the relevant European
international clearing
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<PAGE>
system by the counterparty in that system in accordance with its rules and
procedures and within its established deadlines based on European time. The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to Citibank or Chase, as
applicable, to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel participants and Euroclear participants may not deliver instructions
directly to the European depositories.
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, eliminating the need for physical movement of notes. Transactions
may be settled in Cedel in any of 28 currencies, including United States
dollars. Cedel provides to its Cedel participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedel interfaces with
domestic markets in several countries. As a professional depository, Cedel is
subject to regulation by the Luxembourg Monetary Institute. Cedel participants
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and other organizations. Indirect access to Cedel is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment, eliminating
the need for physical movement of notes and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York, or
Morgan, under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation. All operations are conducted by Morgan, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with Morgan, not Euroclear Clearance Systems, S.C.. Euroclear Clearance Systems,
S.C. establishes policy for Euroclear on behalf of Euroclear participants.
Euroclear participants include banks, including central banks, securities
brokers and dealers and other professional financial intermediaries. Indirect
access to Euroclear is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is a
member bank of the Federal Reserve System. It is regulated and examined by the
Board of Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with Morgan are governed by
the Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear
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<PAGE>
System and applicable Belgian law. These terms and conditions govern transfers
of securities and cash within Euroclear, withdrawals of securities and cash from
Euroclear, and receipts of payments with respect to securities in Euroclear. All
securities in Euroclear are held on a fungible basis without attribution of
specific notes to specific securities clearance accounts. Morgan 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.
Payments with respect to notes held through Cedel or Euroclear will be
credited to the cash accounts of Cedel participants or Euroclear participants in
accordance with the relevant system's rules and procedures, to the extent
received by Citibank or Chase, as applicable. These payments will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform these
procedures and these procedures may be discontinued at any time. See Annex I to
this prospectus supplement.
GLOSSARY OF TERMS
The following terms are given the meanings shown below to help describe the
cash flows on the notes:
ALLOCATED REALIZED LOSS AMOUNT: The Allocated Loss Amount with respect to
any class of subordinate notes and any payment date is the sum of:
o any Realized Loss allocated to that class of subordinate notes on the
payment date and
o any Allocated Realized Loss Amount for that class remaining unpaid
from previous payment dates plus accrued interest thereon at the Note
Accrual Rate for that class.
AVAILABLE INTEREST RATE: The Available Interest Rate for any payment date
is a rate per annum equal to the fraction, expressed as a percentage, the
numerator of which is:
o the Current Interest Payment Amount for the payment date,
and the denominator of which is
o the aggregate Note Balance of the notes immediately prior to the
payment date multiplied by the actual number of days elapsed in the
related Interest Accrual Period and divided by
360.
AVAILABLE PAYMENT AMOUNT: The Available Payment Amount for any payment date
is equal to the sum, net of amounts reimbursable therefrom to the master
servicer, the servicers, the indenture trustee or the owner trustee, of:
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o the aggregate amount of scheduled monthly payments on the mortgage
loans due on the related due date and received on or prior to the
related determination date, after deduction of the master servicing
fee, the servicing fees and the indenture trustee fee,
o unscheduled payments in respect of the mortgage loans, including
prepayments, insurance proceeds, liquidation proceeds and proceeds from
repurchases of and substitutions for the mortgage loans occurring
during the preceding calendar month and
o all P&I Advances with respect to the mortgage loans received for the
payment date.
BANKRUPTCY LOSS: A Bankruptcy Loss is a Deficient Valuation or a Debt
Service Reduction.
CLASS A PRINCIPAL PAYMENT AMOUNT: The Class A Principal Payment Amount for
any payment date on or after the Stepdown Date and on which a Trigger Event is
not in effect, is an amount equal to the excess of:
o the Note Balance of the Class A Notes immediately prior to the
payment date OVEr
o the lesser of:
o the product of _____% and the aggregate principal balance of
the mortgage loans as of the last day of the related due
period and
o the aggregate principal balance of the mortgage loans as of
the last day of the related due period minus $_________.
CLASS M-1 PRINCIPAL PAYMENT AMOUNT: The Class M-1 Principal Payment Amount
for any payment date on or after the Stepdown Date and on which a Trigger Event
is not in effect, is an amount equal to the excess of:
o the sum of:
o the Note Balance of the Class A Notes, after taking into
account the payment of the Class A Principal Payment Amount on
the payment date and
o the Note Balance of the Class M-1 Notes immediately prior to
the payment date OVER
o the lesser of:
o the product of _____% and the aggregate principal balance of
the mortgage loans as of the last day of the related due
period and
o the aggregate principal balance of the mortgage loans as of
the last day of the related due period minus $_________.
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CLASS M-2 PRINCIPAL PAYMENT AMOUNT: The Class M-2 Principal Payment Amount
for any payment date on or after the Stepdown Date and on which a Trigger Event
is not in effect, is an amount equal to the excess of:
o the sum of:
o the Note Balance of the Class A Notes, after taking into
account the payment of the Class A Principal Payment Amount on
the payment date,
o the Note Balance of the Class M-1 Notes, after taking into
account the payment of the Class M-1 Principal Payment Amount
on the payment date and
o the Note Balance of the Class M-2 Notes immediately prior to
the payment date OVER
o the lesser of:
o the product of _____% and the aggregate principal balance of
the mortgage loans as of the last day of the related due
period and
o the aggregate principal balance of the mortgage loans as of
the last day of the related due period minus $__________.
CLASS M-3 PRINCIPAL PAYMENT AMOUNT: The Class M-3 Principal Payment Amount
for any payment date on or after the Stepdown Date and on which a Trigger Event
is not in effect, is an amount equal to the excess of:
o the sum of:
o the Note Balance of the Class A Notes, after taking into
account the payment of the Class A Principal Payment Amount on
the payment date,
o the Note Balance of the Class M-1 Notes, after taking into
account the payment of the Class M-1 Principal Payment Amount
on the payment date,
o the Note Balance of the Class M-2 Notes, after taking into
account the payment of the Class M-2 Principal Payment Amount
on the payment date and (d) the Note Balance of the Class M-3
Notes immediately prior to the payment date OVER
o the lesser of:
o the product of _____% and the aggregate principal balance of
the mortgage loans as of the last day of the related due
period and
o the aggregate principal balance of the mortgage loans as of
the last day of the related due period minus $__________.
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COMPENSATING INTEREST: With respect to any principal prepayments, any
payments made by the master servicer from its own funds to cover Prepayment
Interest Shortfalls.
CREDIT ENHANCEMENT PERCENTAGE: The Credit Enhancement Percentage for any
payment date is the percentage obtained by dividing:
o the sum of the Overcollateralized Amount and the aggregate Note
Balance of the subordinate notes by
o the aggregate principal balance of the mortgage loans, calculated
after taking into account payments of principal on the mortgage loans
and payment of the Principal Payment Amount
to the notes on the payment date.
CURRENT INTEREST PAYMENT AMOUNT: The Current Interest Payment Amount for
any payment date is an amount equal to interest collections or advances on the
mortgage loans during the related due period, net of the master servicing fee,
the servicing fees and the indenture trustee fee.
DEFICIENT VALUATION: With respect to any mortgage loan, a Deficient
Valuation is a valuation by a court of competent jurisdiction of the mortgaged
property in an amount less than the then outstanding indebtedness under the
mortgage loan, which valuation results from a proceeding initiated under the
United States Bankruptcy Code.
DEBT SERVICE REDUCTION: A Debt Service Reduction is any reduction in the
amount which a mortgagor is obligated to pay on a monthly basis with respect to
a mortgage loan as a result of any proceeding initiated under the United States
Bankruptcy Code, other than a reduction attributable to a Deficient Valuation.
INTEREST ACCRUAL PERIOD: The Interest Accrual Period for any payment date
is the period commencing on the payment date of the month immediately preceding
the month in which the payment date occurs, or, in the case of the first period,
commencing on the closing date, and ending on the day preceding the payment
date. All payments of interest on the notes will be based on a 360- day year and
the actual number of days in the applicable Interest Accrual Period.
INTEREST CARRY FORWARD AMOUNT: The Interest Carry Forward Amount with
respect to any class of notes and any payment date, is any shortfall in payment
of interest represented by the excess, if any, of the Interest Payment Amount
that would be payable on that class at the applicable Note Accrual Rate over the
Interest Payment Amount actually paid on the class at the Available Interest
Rate, together with any shortfall in payment of interest remaining unpaid from
previous payment dates plus interest accrued on those classes at the related
Note Accrual Rate.
INTEREST PAYMENT AMOUNT: The Interest Payment Amount for the notes of any
class on any payment date is equal to interest accrued during the related
Interest Accrual Period on the Note Balance of the notes immediately prior to
the payment date at the then-applicable Note Interest Rate for the class.
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NET MONTHLY EXCESS CASHFLOW: The Net Monthly Excess Cashflow for any
payment date is equal to the sum of:
o any Overcollateralization Reduction Amount and
o the excess of:
o the Available Payment Amount for the payment date OVEr
o the sum for the payment date of the aggregate of the Interest
Payment Amounts payable to the holders of the notes and the sum of
the amounts described in clauses (b)(i) through (iii) of the
definition of Principal Payment Amount.
NOTE ACCRUAL RATE: The Note Accrual Rate with respect to any class of notes
and any payment date is the lesser of the rate described for that class in the
first bullet point under the definition of Note Interest Rate and the maximum
Note Interest Rate.
NOTE BALANCE: The Note Balance of a note outstanding at any time represents
the then maximum amount that the holder of that note is entitled to receive as
payments allocable to principal from the cash flow on the mortgage loans and the
other assets in the trust estate. The Note Balance of any class of notes as of
any date of determination is equal to the initial Note Balance of that class
reduced by the aggregate of:
o all amounts allocable to principal previously distributed with
respect to the note and
o any reductions in the Note Balance deemed to have occurred in
connection with allocations of Realized Losses.
NOTE INTEREST RATE:
o The Note Interest Rate on the Class A Notes will be a rate per annum
equal to the lesser of:
o one-month LIBOR plus ____%, in the case of each payment date
through and including the payment date on which the aggregate
Note Balance is reduced to less than __% of the aggregate
initial Note Balance, or one-month LIBOR plus _____%, in the
case of any payment date thereafter,
o the Available Interest Rate for the payment date and
o _____% per annum, which is also referred to as the maximum
Note Interest Rate.
o The Note Interest Rate on the Class M-1 Notes will be a rate per
annum equal to the lesser of:
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o one-month LIBOR plus ____%, in the case of each payment date
through and including the payment date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note
Balance, or one-month LIBOR plus ____%, in the case of any payment
date thereafter,
o the Available Interest Rate for the payment date and
o the maximum Note Interest Rate.
o The Note Interest Rate on the Class M-2 Notes will be a rate per
annum equal to the lesser of:
o one-month LIBOR plus ____%, in the case of each payment date
through and including the payment date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note
Balance, or one-month LIBOR plus ____%, in the case of any payment
date thereafter,
o the Available Interest Rate for the payment date and
o the maximum Note Interest Rate.
o The Note Interest Rate on the Class M-3 Notes will be a rate per
annum equal to the lesser of:
o one-month LIBOR plus ____%, in the case of each payment date
through and including the payment date on which the aggregate Note
Balance is reduced to less than __% of the aggregate initial Note
Balance, or one-month LIBOR plus _____%, in the case of any
payment date thereafter,
o the Available Interest Rate for the payment date and
o the maximum Note Interest Rate.
OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount with respect to
any payment date is the excess, if any, of the aggregate principal balance of
the mortgage loans immediately following the payment date OVER the Note Balance
of the notes, after taking into account the payment of the amounts described in
clauses (b)(i) through (iv) of the definition of Principal Payment Amount on the
payment date.
OVERCOLLATERALIZATION INCREASE AMOUNT: With respect to the notes and any
payment date, any amount of Net Monthly Excess Cashflow actually applied as an
accelerated payment of principal to the extent the Required Overcollateralized
Amount exceeds the Overcollateralized Amount as of the Payment Date.
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OVERCOLLATERALIZATION REDUCTION AMOUNT: The Overcollateralization Reduction
Amount is the amount by which the Overcollateralized Amount exceeds the Required
Overcollateralized Amount.
PREPAYMENT INTEREST SHORTFALL: With respect to any principal prepayments on
the mortgage loans, any resulting shortfall.
PRINCIPAL PAYMENT AMOUNT: The Principal Payment Amount for any payment
date, other than the final maturity date and the payment date immediately
following the acceleration of the notes due to an event of default, will be the
lesser of:
(a) the excess of the Available Payment Amount over the aggregate of
the Interest Payment Amounts for the notes; and
(b) THE SUM OF:
(i) the principal portion of all scheduled monthly payments on
the mortgage loans due during the related due period, whether or
not received on or prior to the related determination date;
(ii) the principal portion of all proceeds received during the
related prepayment period in respect of the repurchase of a
mortgage loan, or, in the case of a substitution, amounts
representing a principal adjustment, as contemplated in the
servicing agreements;
(iii) the principal portion of all other unscheduled
collections, including insurance proceeds, liquidation proceeds
and all full and partial principal prepayments, received during
the related prepayment period, to the extent applied as recoveries
of principal on the mortgage loans;
(iv) the principal portion of any Realized Losses incurred or
deemed to have been incurred on any mortgage loans in the calendar
month preceding the payment date to the extent covered by Net
Monthly Excess Cashflow for the payment date; and
(v) the amount of any Overcollateralization Increase Amount
for the payment date;
MINUS
(vi) the amount of any Overcollateralization Reduction Amount
for the payment date.
REALIZED LOSS: A Realized Loss is any Bankruptcy Loss and any amount of
loss realized with respect to any defaulted mortgage loan that is finally
liquidated through foreclosure sale, disposition of the related mortgaged
property if acquired on behalf of the noteholders by deed in lieu of foreclosure
or otherwise. The amount of loss realized, if any, will equal the portion of the
unpaid principal balance remaining, if any, plus interest on the remaining
unpaid principal balance through the last day of the month in which the mortgage
loan was finally liquidated, after application of all
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amounts recovered, net of amounts reimbursable to the servicers for P&I
Advances, servicing advances and other related expenses, including attorney's
fees, towards interest and principal owing on the mortgage loan.
REQUIRED OVERCOLLATERALIZED AMOUNT: The Overcollateralized Amount required
to be
SCHEDULED PRINCIPAL BALANCE: The Scheduled Principal Balance of any
mortgage loan as of any date of determination is equal to the principal balance
of the mortgage loan as of the cut-off date, after application of all scheduled
principal payments due on or before the cut-off date, whether or not received,
reduced by:
o the principal portion of all monthly payments due on or before the date
of determination, whether or not received,
o all amounts allocable to unscheduled principal that were received prior
to the calendar month in which the date of determination occurs, and
o any Bankruptcy Loss occurring out of a Deficient Valuation that was
incurred prior to the calendar month in which the date of determination occurs.
STEPDOWN DATE: The Stepdown Date for any payment date is the later to occur
of:
o the payment date occurring in _______ ____ and
o the first payment date on which the Credit Enhancement Percentage,
calculated for this purpose only after taking into account payments of
principal on the mortgage loans, but prior to any payment of the
Principal Payment Amount to the notes then entitled to payments of
principal on the payment date, is greater than or equal to _____%.
TRIGGER EVENT: With respect to any payment date, a Trigger Event is in
effect if the percentage obtained by dividing:
o the principal amount of mortgage loans delinquent 60 days or more by
o the aggregate principal balance of the mortgage loans, in each case,
as of the last day of the previous calendar month,
exceeds the lesser of:
o _____% of the Credit Enhancement Percentage and
o ______%.
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INTEREST PAYMENTS ON THE NOTES
The Note Interest Rate and the Note Accrual Rate for the notes for the
current related Interest Accrual Period, to the extent it has been determined,
and for the immediately preceding Interest Accrual Period may be obtained by
telephoning the indenture trustee at __________.
To the extent of the Current Interest Payment Amount, in the priorities set
forth immediately following this paragraph, the holders of each class of notes
will be entitled to receive on each payment date interest payments in an amount
equal to the Interest Payment Amount for that class. On each payment date, the
Current Interest Payment Amount will be distributed in the following order of
priority:
first, to the holders of the Class A Notes, the Interest Payment Amount for
the Class A Notes;
second, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amount for the Class A Notes, to the
holders of the Class M-1 Notes, the Interest Payment Amount for the Class
M-1 Notes;
third, to the extent of the Current Interest Payment Amount remaining after
payment of the Interest Payment Amounts for the Class A Notes and the Class
M-1 Notes, to the holders of the Class M-2 Notes, the Interest Payment
Amount for the Class M-2 Notes; and
fourth, to the extent of the Current Interest Payment Amount remaining
after payment of the Interest Payment Amounts for the Class A Notes, the
Class M-1 Notes and the Class M-2 Notes, to the holders of the Class M-3
Notes, the Interest Payment Amount for the Class M-3 Notes.
With respect to any payment date, to the extent that the aggregate of the
Interest Payment Amounts for the notes is limited by the Current Interest
Payment Amount for the related due period, the holders of some classes of notes
may receive an Interest Payment Amount calculated at the Available Interest Rate
rather than at the applicable Note Accrual Rate for those classes and the
payment date. The Interest Carry Forward Amount, if any, for any class of the
notes for any payment date is payable to the extent of available funds remaining
after other payments on the notes on the payment date, but before any payments
on the equity certificates on the payment date. See "--Overcollateralization
Provisions" in this prospectus supplement.
CALCULATION OF ONE-MONTH LIBOR
With respect to each Interest Accrual Period, on the second business
day preceding the Interest Accrual Period, or the interest determination date,
the indenture trustee will determine one-month LIBOR for the next Interest
Accrual Period. One-month LIBOR means, as of any interest determination date,
the London interbank offered rate for one-month U.S. dollar deposits which
appears on Telerate page 3750 as of 11:00 a.m. London time on that date. If the
rate does not appear on telerate page 3750, the rate for that day will be
determined on the basis of the offered rates of the reference banks for
one-month U.S. dollar deposits, as of 11:00 a.m., London time, on the interest
determination date. The indenture trustee will request the principal London
office of each of the
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reference banks to provide a quotation of its rate. If on the interest
determination date two or more reference banks provide offered quotations,
one-month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of the offered quotations, rounded upwards if necessary to the nearest
whole multiple of 0.0625%. If on the interest determination date fewer than two
reference banks provide offered quotations, one-month LIBOR for the related
Interest Accrual Period shall be the higher of:
o one-month LIBOR as determined on the previous interest determination
date and
o the reserve interest rate.
As used in this section, business day means a day on which banks are open
for dealing in foreign currency and exchange in London and New York City;
telerate page 3750 means the display page currently so designated on the Dow
Jones Telerate Capital Markets Report, or other page as may replace that page on
that service for the purpose of displaying comparable rates or prices);
reference banks means leading banks selected by the indenture trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market:
o with an established place of business in London,
o which have been designated by the indenture trustee and
o not controlling, controlled by, or under common control with, the
depositor or the issuer; and
Reserve interest rate shall be the rate per annum that the indenture
trustee determines to be either:
o the arithmetic mean, rounded upwards if necessary to the nearest
whole multiple of 0.0625%, of the one-month U.S. dollar lending rates
which New York City banks selected by the indenture trustee are quoting
on the relevant interest determination date to the principal London
offices of leading banks in the London interbank market or,
o in the event that the indenture trustee can determine no arithmetic
mean, the lowest one-month U.S. dollar lending rate which New York City
banks selected by the indenture trustee are quoting on the interest
determination date to leading European banks.
The establishment of one-month LIBOR on each interest determination date by
the indenture trustee and the indenture trustee's calculation of the rate of
interest applicable to the notes for the related Interest Accrual Period shall,
in the absence of manifest error, be final and binding.
PRINCIPAL PAYMENTS ON THE NOTES
On each payment date, the Principal Payment Amount will be distributed to
the holders of the notes then entitled to payments of principal.
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The Principal Payment Amount for the final maturity date or the payment
date immediately following the acceleration of the notes due to an event of
default will equal the amount necessary to reduce the Note Balance of any notes
outstanding to zero. In no event will the Principal Payment
Amount with respect to any Payment Date be:
o less than zero or
o greater than the then-outstanding aggregate Note Balance of the
notes.
The Principal Payment Amount for the first payment date will include
approximately $_________ collected by the servicers in respect of prepayments on
the mortgage loans during the
_________ ____ prepayment period.
On each Payment Date prior to the Stepdown Date or on which a Trigger Event
is in effect, the Principal Payment Amount shall be distributed:
o first, to the Class A Notes, until the Note Balance of the Class A
Notes has been reduced to zero;
o second, to the Class M-1 Notes, until the Note Balance of the Class
M-1 Notes has been reduced to zero;
o third, to the Class M-2 Notes, until the Note Balance of the Class
M-2 Notes has been reduced to zero; and
o fourth, to the Class M-3 Notes, until the Note Balance of the Class
M-3 Notes has been reduced to zero.
On each payment date on or after the Stepdown Date and on which a Trigger
Event is not in effect, the holders of the Class A Notes and the subordinate
notes shall be entitled to receive payments in respect of principal to the
extent of the Principal Payment Amount in the following amounts and order of
priority:
o FIRST, the lesser of:
o the Principal Payment Amount and
o the Class A Principal Payment Amount, shall be distributed to
the holders of the Class A Notes, until the Note Balance of the
Class A Notes has been reduced to zero;
o SECOND, the lesser of the excess of
o the Principal Payment Amount over
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o the amount distributed to the holders of the Class A Notes under
clause first above and the Class M-1 Principal Payment Amount,
shall be distributed to the holders of the Class M-1 Notes, until
the Note Balance of the Class M-1 Notes has been reduced to zero;
o THIRD, the lesser of the excess of
o the Principal Payment Amount over
o the sum of the amounts distributed to the holders of the Class A
Notes under clause first above and to the holders of the Class M-1
Notes under clause second above and the Class M-2 Principal
Payment Amount, shall be distributed to the holders of the Class
M-2 Notes, until the Note Balance Class M-2 Notes has been reduced
to zero; and
o FOURTH, the lesser of the excess of
o the Principal Payment Amount over
o the sum of the amounts distributed to the holders of the Class A
Notes under clause first above, to the holders of the Class M-1
Notes under clause second above and to the holders of the Class
M-2 Notes under clause third above and the Class M-3 Principal
Payment Amount, shall be distributed to the holders of the Class
M-3 Notes, until the Note Balance of the Class M-3 Notes has been
reduced to zero.
On the final maturity date or the payment date immediately following the
acceleration of the notes due to any event of default principal will be payable
on each class of notes in an amount equal to the Note Balance of that class on
the payment date. On the final maturity date or the payment date immediately
following the acceleration of the notes due to any event of default, amounts in
respect of accrued interest, Interest Carry Forward Amounts and Allocated
Realized Loss Amounts will also be payable on each class of notes in the
priorities set forth in the indenture. There can be no assurance, however, that
sufficient funds will be available on any date to retire the Note Balances and
pay any other amounts.
The allocation of payments in respect of principal to the Class A Notes on
each payment date prior to the Stepdown Date or on which a Trigger Event has
occurred, will have the effect of accelerating the amortization of the Class A
Notes while, in the absence of Realized Losses, increasing the respective
percentage interest in the principal balance of the mortgage loans evidenced by
the subordinate notes and the Overcollateralized Amount. Increasing the
respective percentage interest in the trust estate of the subordinate notes and
the Overcollateralized Amount relative to that of the Class A Notes is intended
to preserve the availability of the subordination provided by the subordinate
notes and the Overcollateralized Amount.
The holders of the equity certificates will be entitled to all prepayment
charges received on the mortgage loans and these amounts will not be available
for distribution on the notes.
CREDIT ENHANCEMENT
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The credit enhancement provided for the benefit of the holders of the notes
consists of subordination in this section, and overcollateralization, as
described under "--Overcollateralization Provisions" in the next section.
The rights of the holders of the subordinate notes and the equity
certificates to receive payments will be subordinated, to the extent described
in this prospectus supplement, to the rights of the holders of the Class A
Notes. This subordination is intended to enhance the likelihood of regular
receipt by the holders of the Class A Notes of the full amount of interest and
principal to which they are entitled and to afford these holders protection
against Realized Losses.
The protection afforded to the holders of the Class A Notes by means of the
subordination of the subordinate notes and the equity certificates will be
accomplished by:
o the preferential right of the holders of the Class A Notes to receive on
any payment date, prior to payment on the subordinate notes and the equity
certificates, payments in respect of interest and principal, subject to
available funds, and
o if necessary, the right of the holders of the Class A Notes to receive
future payments of amounts that would otherwise be payable to the holders of the
subordinate notes and the equity certificates.
In addition, the rights of the holders of subordinate notes with lower
numerical class designations will be senior to the rights of holders of
subordinate notes with higher numerical class designations, and the rights of
the holders of all of the subordinate notes to receive payments in respect of
the mortgage loans will be senior to the rights of the holders of the equity
certificates, in each case to the extent described in this prospectus
supplement. This subordination is intended to enhance the likelihood of regular
receipt by the holders of subordinate notes with lower numerical class
designations relative to the holders of subordinate notes with higher numerical
class designations, and by the holders of all of the subordinate notes relative
to the holders of the equity certificates, of the full amount of interest and
principal to which they are entitled and to afford these holders protection
against Realized Losses, as described under "--Allocation of Realized Losses" in
this prospectus supplement.
OVERCOLLATERALIZATION PROVISIONS
The weighted average mortgage rate for the mortgage loans, adjusted to
reflect the master servicing fee, the servicing fees and the indenture trustee
fee payable from interest received or advanced on the mortgage loans, is
expected to be higher than the weighted average of the Note Interest Rates on
the notes, thus generating excess interest collections which, in the absence of
Realized Losses, will not be necessary to fund interest payments on the notes.
The indenture requires that, on each payment date, the Net Monthly Excess
Cashflow, if any, be applied on each payment date as an accelerated payment of
principal on class or classes of notes then entitled to receive payments in
respect of principal, but only to the limited extent hereafter described.
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With respect to any payment date, any Net Monthly Excess Cashflow, or, in
the case of clause first below, the Net Monthly Excess Cashflow exclusive of any
Overcollateralization Reduction Amount, shall be paid as follows:
o FIRST, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
principal portion of any Realized Losses incurred or deemed to have been
incurred on the mortgage loans;
o SECOND, to the holders of the class or classes of notes then entitled to
receive payments in respect of principal, in an amount equal to the
Overcollateralization Increase Amount;
o THIRD, to the holders of the Class A Notes, in an amount equal to the
Interest Carry Forward Amount for the Class A Notes;
o FOURTH, to the holders of the Class M-1 Notes, in an amount equal to the
Interest Carry Forward Amount for the Class M-1 Notes;
o FIFTH, to the holders of the Class M-1 Notes, in an amount equal to the
Allocated Realized Loss Amount for the Class M-1 Notes;
o SIXTH, to the holders of the Class M-2 Notes, in an amount equal to the
Interest Carry Forward Amount for the Class M-2 Notes;
o SEVENTH, to the holders of the Class M-2 Notes, in an amount equal to the
Allocated Realized Loss Amount for the Class M-2 Notes;
o EIGHTH, to the holders of the Class M-3 Notes, in an amount equal to the
Interest Carry Forward Amount for the Class M-3 Notes;
o NINTH, to the holders of the Class M-3 Notes, in an amount equal to the
Allocated Realized Loss Amount for the Class M-3 Notes; and
o TENTH, to the holders of the equity certificates as provided in the
indenture.
As of the closing date, the aggregate principal balance of the mortgage
loans as of the cut-off date will exceed the aggregate Note Balance of the notes
by an amount equal to approximately $_________. This amount represents
approximately ____% of the aggregate principal balance of the mortgage loans as
of the cut-off date, which is the initial amount of overcollateralization
required to be provided by the mortgage pool under the indenture. Under the
indenture, the Overcollateralized Amount is required to be maintained at the
Required Overcollateralized Amount. In the event that Realized Losses are
incurred on the mortgage loans, these Realized Losses may result in an
overcollateralization deficiency since these Realized Losses will reduce the
principal balance of the mortgage loans without a corresponding reduction to the
aggregate Note Balance of the notes. In the event of an occurrence of this kind,
the indenture requires the payment from Net Monthly Excess Cashflow, subject to
available funds, of an amount equal to any
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overcollateralization deficiency, which shall constitute a principal payment on
the notes in reduction of the Note Balances of those notes. This has the effect
of accelerating the amortization of the notes relative to the amortization of
the mortgage loans, and of increasing the Overcollateralized
Amount.
On and after the Stepdown Date and provided that a Trigger Event is not in
effect, the Required Overcollateralized Amount may be permitted to decrease, or
step down, below the initial $_________ level to a level equal to approximately
____% of the then current aggregate outstanding principal balance of the
mortgage loans, after giving effect to principal payments to be distributed on
the payment date, subject to a floor of $_________. In the event that the
Required Overcollateralized Amount is permitted to step down on any payment
date, the indenture provides that a portion of the principal which would
otherwise be distributed to the holders of the notes on the payment date shall
be distributed to the holders of the equity certificates, subject to the
priorities set forth in this section. With respect to each of these payment
dates, the Principal Payment Amount will be reduced by the Overcollateralization
Reduction Amount after taking into account all other payments to be made on the
payment date, which amount shall be distributed as Net Monthly Excess Cashflow
according to the priorities set forth in this section. This has the effect of
decelerating the amortization of the notes relative to the amortization of the
mortgage loans, and of reducing the Overcollateralized Amount. However, if on
any payment date a Trigger Event is in effect, the Required Overcollateralized
Amount will not be permitted to step down on the payment date.
ALLOCATION OF LOSSES; SUBORDINATION
Any Realized Loss on the mortgage loans will be allocated on any payment
date:
o first, to Net Monthly Excess Cashflow,
o second, to the Overcollateralized Amount,
o third, to the Class M-3 Notes,
o fourth, to the Class M-2 Notes, and
o fifth, to the Class M-1 Notes.
The indenture does not permit the allocation of Realized Losses to the
Class A Notes. Investors in the Class A Notes should note that although Realized
Losses cannot be allocated to the these notes, under certain loss scenarios
there will not be enough principal and interest collected on the mortgage loans
to pay the Class A Notes all interest and principal amounts to which they are
then entitled.
Once Realized Losses have been allocated to the subordinate notes, these
Realized Losses will not be reinstated thereafter. However, Allocated Realized
Loss Amounts may be paid to the holders of these classes of notes, after
distributions to the holders of the Class A Notes and subordinate notes with
lower numerical class designations, but before the equity certificates are
entitled to any distributions.
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Any allocation of a Realized Loss to a note will be made by reducing the
Note Balance of that note by the amount so allocated on the payment date in the
month following the calendar month in which the Realized Loss was incurred.
Notwithstanding anything to the contrary described in this prospectus
supplement, in no event will the Note Balance of any note be reduced more than
once in respect of any particular amount both:
o allocable to the notes in respect of Realized Losses and
o payable as principal to the holder of the notes from Net Monthly Excess
Cashflow.
P&I ADVANCES
Subject to the limitations described in the following paragraph, the master
servicer will be obligated to advance or cause to be advanced on or before each
payment date its own funds, or funds in the note account that are not included
in the Available Payment Amount for the payment date. The amount of the master
servicer's advance will be equal to the aggregate of all payments of principal
and interest, net of the servicing fee, that were due during the related due
period on the mortgage loans and that were delinquent on the related
determination date, plus amounts representing assumed payments not covered by
any current net income on the mortgaged properties acquired by foreclosure or
deed in lieu of foreclosure.
P&I Advances are required to be made only to the extent they are deemed by
the master servicer to be recoverable from related late collections, insurance
proceeds or liquidation proceeds. The purpose of making P&I Advances is to
maintain a regular cash flow to the noteholders, rather than to guarantee or
insure against losses. The master servicer will not be required to make any P&I
Advances with respect to reductions in the amount of the monthly payments on the
mortgage loans due to bankruptcy proceedings or the application of the Relief
Act.
All P&I Advances will be reimbursable to the master servicer from late
collections, insurance proceeds and liquidation proceeds from the mortgage loan
as to which the unreimbursed P&I Advance was made. In addition, any P&I Advances
previously made in respect of any mortgage loan that are deemed by the master
servicer to be nonrecoverable from related late collections, insurance proceeds
or liquidation proceeds may be reimbursed to the master servicer out of any
funds in the note account prior to the payments on the notes. In the event that
the master servicer fails in its obligation to make this advance, the indenture
trustee will be obligated to make the advance, in each case to the extent
required in the servicing agreement.
THE ISSUER
Ameriquest Trust Series ____-__ is a business trust formed under the laws
of the State of Delaware under an owner trust agreement, dated as of ________
__, ____, between the depositor and the owner trustee for the transactions
described in this prospectus supplement. The owner trust
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agreement constitutes the governing instrument under the laws of the State of
Delaware relating to business trusts. After its formation, the issuer will not
engage in any activity other than:
o acquiring and holding the mortgage loans and the proceeds from the
mortgage loans,
o issuing the notes and the equity certificates,
o making payments on the notes and the equity certificates and
o engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or
connected therewith.
The issuer is not expected to have any significant assets other than the
trust estate pledged as collateral to secure the notes. The assets of the issuer
will consist of the mortgage loans pledged to secure the notes. The issuer's
principal offices are in __________, ________, in care of ________________, as
owner trustee.
THE SELLER
__________________, or the seller, in its capacity as mortgage loan seller,
will sell the mortgage loans to the ___________ under a mortgage loan purchase
agreement, dated as of _________ __, ____, between the seller and the [SPE].
THE [SPE]
_______________, the [SPE], a special purpose entity that is an affiliate
of the issuer and the seller, will convey the mortgage loans to the depositor
under an ownership transfer agreement, dated as of ________ __, ____, between
the [SPE] and the depositor.
THE OWNER TRUSTEE
_________________ is the owner trustee under the owner trust agreement. The
owner trustee is a _________ banking corporation and its principal offices are
located in _____________.
Neither the owner trustee nor any director, officer or employee of the
owner trustee will be under any liability to the issuer or the noteholders under
the owner trust agreement under any circumstances, except for the owner
trustee's own misconduct, gross negligence, bad faith or grossly negligent
failure to act or in the case of the inaccuracy of the representations made by
the owner trustee in the owner trust agreement. All persons into which the owner
trustee may be merged or
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with which it may be consolidated or any person resulting from a merger or
consolidation shall be the successor of the owner trustee under the owner trust
agreement.
The principal compensation to be paid to the owner trustee in respect of
its obligations under the owner trust agreement will have been paid by or on
behalf of the issuer on or prior to the closing date.
THE INDENTURE TRUSTEE
____________________, a ____________ banking association, will act as
indenture trustee for the notes under the indenture. The indenture trustee's
offices for notices under the indenture are located at
______________________________ and its telephone number is ______________.
The principal compensation to be paid to the indenture trustee in respect
of its obligations under the indenture, or the indenture trustee fee, will be
equal to:
o accrued interest at ________% per annum, or the indenture trustee fee
rate, on the Scheduled Principal Balance of each mortgage loan, payable
monthly, and
o any interest or other income earned on funds held in the note
account, to the extent not payable as compensation to the related
servicer, as provided in the indenture.
The indenture will provide that the indenture trustee may withdraw funds
from the note account:
o to reimburse itself for all reasonable out-of-pocket expenses incurred or
made by it, including costs of collection and including reasonable compensation
and expenses, disbursements and advances of its agents, counsel, accountants and
experts and
o to reimburse the owner trustee for all reasonable out-of pocket expenses
incurred or made by the owner trustee for all services rendered by the owner
trustee it in the owner trustee's execution of the trust created under the owner
trust agreement and in the exercise and performance of any of the owner
trustee's powers and duties under the owner trust agreement.
Under the indenture, the issuer, from the assets of the trust estate, shall
indemnify the indenture trustee against any and all loss, liability or expense,
including reasonable attorneys' fees, incurred by the indenture trustee in
connection with the administration of the trust estate and the performance of
the indenture trustee's duties hereunder. The issuer is not required, however,
to reimburse any expense or indemnify against any loss, liability or expense
incurred by the indenture trustee through the indenture trustee's own willful
misconduct, negligence or bad faith.
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THE SERVICING AGREEMENT
The following summary describes the basic terms of the servicing
agreements, dated as of __________ __, ____, among the issuer, the indenture
trustee and the master servicer. The summary does not purport to be complete and
is subject to, and qualified in its entirety by reference to, the provisions of
the servicing agreement. Whenever particular sections or defined terms of the
servicing agreement are referred to, these sections or defined terms are
incorporated in this prospectus supplement by reference. The depositor will
provide to a prospective or actual noteholder without charge, on written
request, a copy, without exhibits, of the servicing agreements. Requests should
be addressed to the Secretary, [Ameriquest Entity], 1100 Town & Country Road,
Orange, California 92868.
THE MASTER SERVICER
The information set forth in the following paragraphs has been provided by
[name of master servicer]. None of the depositor, the trustee, the underwriter
or any of their respective affiliates has made or will make any representation
as to the accuracy or completeness of such information.
[Name of master servicer], a __________ [corporation], is engaged in the
business of [originating, purchasing and selling sub-prime mortgage loans
secured by one-to four-family residences. [Name of master servicer]'s business
was begun in ___________.
Pursuant to the pooling and servicing agreement, [name of master servicer]
will serve as the master servicer for the mortgage loans sold indirectly by it
to the depositor. The master servicer is approved as a seller/servicer for
Fannie Mae and Freddie Mac and as a non-supervised mortgagee by the U.S.
Department of Housing and Urban Development. As of __________________, the
master servicer had ___ offices, consisting of __ loan origination centers
located in __________ and ___ loan origination centers located throughout the
rest of the United States.
LENDING ACTIVITIES AND LOAN SALES. The master servicer currently originates
real estate loans through its network of retail offices and loan origination
centers. The master servicer also participates in secondary market activities by
originating and selling mortgage loans while continuing to service the majority
of the loans sold. In other cases the master servicer's whole loan
sale agreements provide for the transfer of servicing rights.
The master servicer's primary lending activity is funding loans to enable
mortgagors to purchase or refinance residential real property, which loans are
secured by first or second liens on the related real property. The master
servicer's single-family real estate loans are predominantly "conventional"
mortgage loans, meaning that they are not insured by the Federal Housing
Administration or partially guaranteed by the U.S. Department of Veterans
Affairs.
The following table summarizes the master servicer's retail originated one-
to four-family residential mortgage loan origination and sales activity for the
periods shown below. Sales activity may include sales of mortgage loans
purchased by the master servicer from other loan
originators.
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<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Originations...... $ $ $ $ $
Sales............. $ $ $ $ $
</TABLE>
LOAN SERVICING. The master servicer services all of the mortgage loans it
originates which are retained in its portfolio and continues to service at least
a majority of the loans that have been sold to investors. Servicing includes
collecting and remitting loan payments, accounting for principal and interest,
contacting delinquent mortgagors, and supervising foreclosure in the event of
unremedied defaults. The master servicer's servicing activities are audited
periodically by applicable regulatory authorities. Certain financial records of
the master servicer relating to its loan servicing activities are reviewed
annually as part of the audit of the master servicer's financial statements
conducted by its independent accountants.
COLLECTION PROCEDURES; DELINQUENCY AND LOSS EXPERIENCE. When a mortgagor
fails to make a required payment on a residential mortgage loan, the master
servicer attempts to cause the deficiency to be cured by corresponding or making
telephone contact with the mortgagor. Pursuant to the master servicer's
customary procedures for residential mortgage loans serviced by it for its own
account, the master servicer generally mails a notice of intent to foreclose to
the mortgagor within ten days after the loan has become 31 days past due (two
payments due but not received) and upon expiration of the notice of intent to
foreclose, generally one month thereafter, if the loan remains delinquent,
typically institutes appropriate legal action to foreclose on the property
securing the loan. If foreclosed, the property is sold at a public or private
sale. The master servicer typically enters a bid based upon an analysis of the
property value, estimated marketing and carrying costs and presence of junior
liens, which may be equal to or less than the full amount owed. In the event the
property is acquired at the foreclosure sale by the master servicer it is placed
on the market for sale through local real estate brokers experienced in the sale
of similar properties. When the foreclosure of a property results in a loss, the
master servicer may (but it is not required), if practical and permitted by
applicable laws, pursue legal action against the borrowers for recovery of such
deficiency.
THE MASTER SERVICER'S RESIDENTIAL LOAN SERVICING PORTFOLIO
The following table sets forth the delinquency and loss experience at the
dates indicated for residential (one- to four-family and multifamily) retail
first lien loans serviced by the master servicer that were originated or
purchased by the master servicer:
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<TABLE>
<CAPTION>
SEPTEMBER
AT DECEMBER 31, 30,
199_ 199_ 199_ 199_ 199_
------------- --------------- -------------- -------------- ---------------
(Dollars in Thousands)
------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Total Outstanding Principal
Balance.................................. $ $ $ $ $
Number of Loans............................
DELINQUENCY
Period of Delinquency:
31-60 Days
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding Principal
Balance.......................... % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
61-90 Days
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
91 Days or More
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
Total Delinquencies:
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Delinquency as a Percentage
of Total Outstanding
Principal Balance................ % % % % %
Delinquency as a Percentage
of Number of Loans............... % % % % %
FORECLOSURES PENDING(1)
Principal Balance.................. $ $ $ $ $
Number of Loans....................
Foreclosures Pending as a
Percentage of Total
Outstanding Principal
Balance.......................... % % % % %
Foreclosures Pending as
a Percentage of Number of
Loans.............................. % % % % %
NET LOAN LOSSES for the
Period(2)................................ $ $ $ $ $
NET LOAN LOSSES as a
Percentage of Total Outstanding
Principal Balance........................ % % % % %
</TABLE>
- ----------------------
(1) Includes mortgage loans which are in foreclosure but as to which title to
the mortgaged property has not been acquired, at the end of the period
indicated. Foreclosures pending are included in the delinquencies set forth
above.
(2) Net Loan Losses is calculated for loans conveyed to REMIC trust funds as
the aggregate of the net loan loss for all such loans liquidated during the
period indicated. The net loan loss for any such loan is equal to the
difference between (a) the principal balance plus accrued interest through
the date of liquidation plus all liquidation expenses related to such loan
and (b) all amounts received in connection with the liquidation of such
loan. The majority of residential loans serviced by the master servicer
have been conveyed to REMIC trust funds.
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As of September 30, 199_, ___ one- to four-family residential properties
relating to loans in the master servicer's retail servicing portfolio had been
acquired through foreclosure or deed in lieu of
foreclosure and were not liquidated.
There can be no assurance that the delinquency and loss experience of the
mortgage loans will correspond to the loss experience of the master servicer's
mortgage portfolio set forth in the foregoing table. The statistics shown above
represent the delinquency and loss experience for the master servicer's total
servicing portfolio only for the years presented, whereas the aggregate
delinquency and loss experience on the mortgage loans will depend on the results
obtained over the life of the trust fund. The master servicer's portfolio
includes mortgage loans with payment and other characteristics which are not
representative of the payment and other characteristics of the mortgage loans. A
substantial number of the mortgage loans may also have been originated based on
the master servicer guidelines that are less stringent than those generally
applicable to the servicing portfolio reflected in the foregoing table. If the
residential real estate market should experience an overall decline in property
values, the actual rates of delinquencies, foreclosures and losses could be
higher than those previously experienced by the master servicer. In addition,
adverse economic conditions (which may or may not affect real property values)
may affect the timely payment by mortgagors of scheduled payments of principal
and interest on the mortgage loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to the mortgage loans.
The delinquency and loss experience percentages set forth above in the
immediately preceding table are calculated on the basis of the total mortgage
loans serviced as of the end of the periods indicated. However, because the
total outstanding principal balance of residential loans serviced by the master
servicer has increased from $___________ at December 31, 199_ to $_____________
at September 30, 199_, the total outstanding principal balance of retail
originated loans serviced as of the end of any indicated period includes many
loans that will not have been outstanding long enough to give rise to some or
all of the indicated periods of delinquency. In the absence of such substantial
and continual additions of newly originated loans to the total amount of loans
serviced, the percentages indicated above would be higher and could be
substantially higher. The actual delinquency percentages with respect to the
mortgage loans may be expected to be substantially higher than the delinquency
percentages indicated above because the composition of the mortgage loans will
not change.
If the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the master servicer.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation, or servicing fee, to be paid to the master
servicer in respect of its servicing activities for the notes will be equal to
accrued interest at the servicing fee rate of ____% per annum with respect to
each mortgage loan serviced by it for each calendar month on the same principal
balance on which interest on the mortgage loan accrues for the calendar month.
As additional servicing compensation, to the master servicer is entitled to
retain all assumption fees and late payment charges in respect of mortgage loans
serviced by it, to the extent collected from mortgagors, together with any
interest or other income earned on funds held in the note account, to the extent
not payable as compensation to the indenture trustee, and any escrow accounts in
respect of mortgage loans serviced by it.
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When a principal prepayment in full is made on a mortgage loan, the
mortgagor is charged interest only for the period from the due date of the
preceding monthly payment up to the date of the prepayment, instead of for a
full month. When a partial principal prepayment is made on a mortgage loan, the
mortgagor is not charged interest on the amount of the prepayment for the month
in which the prepayment is made. The master servicer is obligated to pay from
its own funds Compensating Interest for any Prepayment Interest Shortfall, but
only to the extent of its aggregate servicing fee for the related due period.
The master servicer is obligated to pay insurance premiums and other ongoing
expenses associated with the mortgage pool in respect of mortgage loans serviced
by it and incurred by the master servicer in connection with its
responsibilities under the servicing agreement and is entitled to reimbursement
therefor as provided in the servicing agreement. See "Description of the
Securities--Retained Interest; Servicing Compensation and Payment of Expenses"
in the prospectus for information regarding expenses payable by the master
servicer.
THE INDENTURE AND OWNER TRUST AGREEMENT
The following summary describes basic terms of the indenture. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the owner trust agreement and indenture.
Whenever particular defined terms of the indenture are referred to, these
defined terms are incorporated in this prospectus supplement by reference. The
depositor will provide to a prospective or actual noteholder without charge, on
written request, a copy, without exhibits, of the indenture and the owner trust
agreement. Requests should be addressed to the Secretary, [Ameriquest Entity],
1100 Town & Country Road, Orange, California 92868.
GENERAL DESCRIPTION OF THE INDENTURE
The notes will be issued under the Indenture, a form of which is filed as
an exhibit to the registration statement. A Current Report on Form 8-K relating
to the notes containing a copy of the indenture and the owner trust agreement as
executed will be filed by the depositor with the Securities and Exchange
Commission within fifteen days of the initial issuance of the notes. Reference
is made to the prospectus for important information in addition to that set
forth in this prospectus supplement regarding the trust estate, the terms and
conditions of the indenture and the owner trust agreement and the notes. The
notes will be transferable and exchangeable at the corporate trust offices of
the indenture trustee, located in _______________.
ASSIGNMENT OF MORTGAGE LOANS
On or prior to the date the notes are issued, the seller will convey each
mortgage loan to the [SPE], who in turn will convey each mortgage loan to the
depositor, who in turn will convey each
mortgage loan to the issuer.
At the time of issuance of the notes, the issuer will pledge all of its
right, title and interest in and to the mortgage loans, including all principal
and interest due on each mortgage loan after the cut-off dates, without
recourse, to the indenture trustee under the indenture as collateral for the
notes; provided, however, that the seller will reserve and retain all its right,
title and interest in and to principal and interest due on the mortgage loan on
or prior to the cut-off date, whether or not received on or prior to the cut-off
date, and to prepayments received prior to the cut-off date. The
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indenture trustee, concurrently with this assignment, will authenticate and
deliver the notes at the direction of the issuer in exchange for, among other
things, the mortgage loans.
The indenture will require the issuer to deliver to the indenture trustee
or to a custodian with respect to each mortgage loan:
o the mortgage note endorsed without recourse to the indenture trustee,
o the original mortgage with evidence of recording indicated on the
mortgage and
o an assignment of the mortgage in recordable form to the indenture
trustee. These assignments of mortgage loans are required to be
recorded by or on behalf of the seller, at the expense of the seller,
in the appropriate offices for real property records except for
mortgages held under the MERS(R) System and except in the State of
California or in other states where, in the opinion of counsel
acceptable to the trustee, recording of the assignment is not required
to protect the trustee's interest in the mortgage loan against the
claim of any subsequent transferee or any successor to or creditor of
the depositor, the master servicer, the mortgage loan seller or the
originator. If the depositor uses the MERS(R) System with respect to
any mortgage loan, it will deliver evidence that the mortgage is held
for the trustee through the MERS(R) System instead of an assignment of
the mortgage in recordable form.
EVENTS OF DEFAULT
Notwithstanding the prospectus, an event of default under the indenture
with respect to the notes is as follows:
o the failure of the issuer to pay the Interest Payment Amount, the
Principal Payment Amount or any Overcollateralization Increase Amount
on any payment date, in each case to the extent that funds are
available on the payment date to make these payments, which continues
unremedied for a period of five days;
o the failure by the issuer on the final maturity date to reduce the
Note Balances of any notes then outstanding to zero;
o a default in the observance or performance of any covenant or
agreement of the issuer in the indenture and the continuation of any
default of this kind for a period of thirty days after notice to the
issuer by the indenture trustee or by the holders of at least 25% of
the voting rights of the notes;
o any representation or warranty made by the issuer in the indenture or
in any certificate or other writing delivered under the indenture
having been incorrect in any material respect as of the time made, and
the circumstance in respect of which the representation or warranty
being incorrect not having been cured within thirty days after notice
is given to the issuer by the indenture trustee or by the holders of at
least 25% of the voting rights of the notes; or
o events of bankruptcy, insolvency, receivership or reorganization of
the issuer.
Notwithstanding the prospectus if an event of default occurs and is
continuing, the indenture trustee or the holders of a majority of the voting
rights may declare the note balance of all the Notes to be due and payable
immediately. This declaration may be rescinded and annulled by the holders of a
majority in aggregate outstanding Voting Rights.
If, following an event of default, the notes have been declared to be due
and payable, the indenture trustee may, in its discretion, notwithstanding this
acceleration, elect to maintain
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possession of the collateral securing the notes and to continue to apply
payments on the collateral as if there had been no declaration of acceleration
if the collateral continues to provide sufficient funds for the payment of
principal of and interest on the notes as they would have become due if there
had not been a declaration of acceleration. In addition, the indenture trustee
may not sell or otherwise liquidate the collateral securing the notes following
an event of default, unless:
o the holders of 100% of the then aggregate outstanding voting rights
consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid at their
respective Note Accrual Rates, on the outstanding
notes at the date of the sale or
o the indenture trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the notes as the
payments would have become due if the notes had not been declared due
and payable, and the indenture trustee obtains the consent of the
holders of 66 2/3% of the then aggregate outstanding voting rights.
In the event that the indenture trustee liquidates the collateral in
connection with an event of default, the indenture provides that the indenture
trustee will have a prior lien on the proceeds of any liquidation for unpaid
fees and expenses. As a result, upon the occurrence of an event of default, the
amount available for payments to the noteholders would be less than would
otherwise be the case. However, the indenture trustee may not institute a
proceeding for the enforcement of its lien except in connection with a
proceeding for the enforcement of the lien of the indenture for the benefit of
the noteholders after the occurrence of an event of default.
In the event the principal of the notes is declared due and payable, the
holders of any notes issued at a discount from par may be entitled to receive no
more than an amount equal to the unpaid principal amount of the note less the
amount of the discount that is unamortized.
No noteholder will have any right under the indenture to institute any
proceeding with respect to the indenture unless:
o the holder previously has given to the indenture trustee written
notice of default and the continuance of this default,
o the holders of notes of any class evidencing not less than 25% of the
aggregate outstanding Note Balance constituting that class have made
written request upon the indenture trustee to institute a proceeding in
its own name as indenture trustee thereunder and have offered to the
indenture trustee reasonable indemnity,
o the indenture trustee has neglected or refused to institute any
proceeding for 60 days after receipt of a request and indemnity and
o no direction inconsistent with the written request has been given to
the indenture trustee during the 60 day period by the holders of a
majority of the Note Balance of that class.
However, the indenture trustee will be under no obligation to exercise any
of the trusts or powers vested in it by the indenture or to institute, conduct
or defend any litigation under the indenture or in relation to the indenture at
the request, order or direction of any of the holders of notes covered by the
indenture, unless those holders have offered to the indenture trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
VOTING RIGHTS
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At all times, 100% of all voting rights will be allocated among the holders
of the Class A Notes, or, after the Class A Notes have been paid in full, the
class of subordinate notes then outstanding with the lowest numerical class
designation, in proportion to the then outstanding Note Balances of
their respective notes.
OPTIONAL REDEMPTION
The circumstances under which the obligations created by the indenture will
terminate in respect of the notes are described in "Description of the
Securities--Termination" in the prospectus.
At its option, the majority holder of the equity certificates may redeem
the notes, in whole but not in part, on any payment date on or after the payment
date on which the aggregate Note Balance is reduced to less than 20% of the
aggregate initial Note Balance. Any redemption of this kind will be paid in cash
at a price equal to the sum of:
o 100% of the aggregate Note Balance then outstanding,
o the aggregate of any Allocated Realized Loss Amounts on the notes
remaining unpaid immediately prior to the payment date,
o the aggregate of the Interest Payment Amounts on the notes for the
payment date and
o the aggregate of any Interest Carry Forward Amounts for the payment
date.
Upon any redemption of this kind, the remaining assets in the trust estate
shall be released from the lien of the indenture.
In no event will the trust created by the indenture continue beyond the
expiration of 21 years from the death of the survivor of the persons named in
the indenture. See "Description of the Securities--Termination" in the
Prospectus.
FEDERAL INCOME TAX CONSEQUENCES
Prior to the sale of the certificates, Thacher Proffitt & Wood, counsel to
the depositor, will deliver its opinion to the effect that based on the
application of existing law and assuming compliance with the owner trust
agreement, for federal income tax purposes:
o the notes will be characterized as indebtedness and not as
representing an ownership interest in the trust estate or an equity
interest in the issuer or the depositor and
o the issuer will not be classified as an association taxable as a
corporation for federal income tax purposes or a publicly traded
partnership as defined in Treasury Regulation Section
1.7704.
The notes will not be treated as having been issued with original issue
discount, as defined in the prospectus. The prepayment assumption that will be
used in determining the rate of amortization of market discount and premium, if
any, for federal income tax purposes will be based on the assumption that the
mortgage loans will prepay at a rate equal to __% CPR. No representation is made
that the mortgage loans will prepay at that rate or at any other rate. See
"Federal Income Tax Consequences" in the prospectus.
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Taxable mortgage pool, or TMP, rules enacted as part of the Tax Reform Act
of 1986 treat certain arrangements in which debt obligations are secured or
backed by real estate mortgage loans as taxable corporations. An entity, or a
portion of an entity, will be characterized as a TMP if:
o substantially all of its assets are debt obligations and more than
50% of these debt obligations consist of real estate mortgage
loans or interests in real estate mortgage loans,
o the entity is the obligor under debt obligations with two or more
maturities, and
o payments on the debt obligations referred to in clause (ii) bear a
relationship to payments on the debt obligations referred to in
clause (i).
Furthermore, a group of assets held by an entity can be treated as a
separate TMP if the assets are expected to produce significant cashflow that
will support one or more of the entity's issues of debt obligation.
It is anticipated that the issuer will be characterized as a TMP for
federal income tax purposes. In most cases, a TMP is treated as a separate
corporation not includible with any other corporation in a consolidated income
tax return, and is subject to corporate income taxation.
The notes will not be treated as assets described in Section 7701(a)(19)(C)
of the Code or real estate assets under Section 856(c)(4)(A) of the Code. In
addition, interest on the notes will not be treated as interest on obligations
secured by mortgages on real property under Section 856(c)(3)(B) of the Code.
The notes will also not be treated as qualified mortgages under Section
860G(a)(3)(C) of the Code.
Prospective investors in the notes should see "Federal Income Tax
Consequences" and "State and Other Tax Consequences" in the prospectus for a
discussion of the application of federal income and state and local tax laws to
the issuer and purchasers of the notes.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting
agreement, dated __________, ____, the depositor has agreed to sell, and
________________, as underwriter, has agreed to purchase the notes. The
underwriter is obligated to purchase all notes of the respective classes offered
by this prospectus supplement if it purchases any.
The notes will be purchased from the depositor by the underwriter and will
be offered by the underwriter to the public from time to time in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. Proceeds to the depositor from the sale of the notes, before deducting
expenses payable by the depositor, will be approximately ___% of the aggregate
initial Note Balance of the notes. In connection with the purchase and sale of
the notes, the underwriter may be deemed to have received compensation from the
depositor in the form of underwriting discounts.
The offered notes are offered subject to receipt and acceptance by the
underwriter, to prior sale and to the underwriter's right to reject any order in
whole or in part and to withdraw, cancel or modify the offer without notice. It
is expected that delivery of the offered notes will be made through the
facilities of DTC on or about the closing date.
The underwriting agreement provides that the depositor will indemnify the
underwriter against those civil liabilities set forth in the underwriting
agreement, including liabilities under the Securities
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Act of 1933, as amended, or will contribute to payments the underwriter may be
required to make in respect of these liabilities.
SECONDARY MARKET
There can be no assurance that a secondary market for the notes will
develop or, if it does develop, that it will continue. The primary source of
information available to investors concerning the notes will be the monthly
statements discussed in the prospectus under "Description of the
Securities--Reports to Securityholders", which will include information as to
the outstanding Note Balance of the notes and the status of the applicable form
of credit enhancement. There can be no assurance that any additional information
regarding the notes will be available through any other source. In addition, the
depositor is not aware of any source through which price information about the
notes will be available on an ongoing basis. The limited nature of the
information regarding the notes may adversely affect the liquidity of the notes,
even if a secondary market for the notes becomes available.
LEGAL OPINIONS
Legal matters relating to the notes will be passed upon for the depositor
by Thacher Proffitt & Wood, New York, New York and for the underwriter by
________________.
RATINGS
It is a condition of the issuance of the notes that the Class A Notes be
rated "AAA" by _____________ and "AAA" by _______________, that the Class M-1
Notes be rated at least "AA" by ____ and at least "AA" by ____, that the Class
M-2 Notes be rated at least "A" by ____ and at least "A" by _____ and that the
Class M-3 Notes be rated at least "BBB" by _____.
The ratings of _____ and _____ assigned to the notes address the likelihood
of the receipt by noteholders of all payments to which the noteholders are
entitled, other than payments of interest to the extent of any Interest Carry
Forward Amounts. The rating process addresses structural and legal aspects
associated with the notes, including the nature of the underlying mortgage
loans. The ratings assigned to the notes do not represent any assessment of the
likelihood that principal prepayments will be made by the mortgagors or the
degree to which the rate of these prepayments will differ from that originally
anticipated. The ratings do not address the possibility that noteholders might
suffer a lower than anticipated yield due to non-credit events.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to the
notes are subsequently lowered for any reason, no person or entity is obligated
to provide any additional credit support or credit enhancement with respect to
the notes.
The depositor has not requested that any rating agency rate the notes other
than as stated in the first paragraph of this section. However, there can be no
assurance as to whether any other rating agency will rate the notes, or, if it
does, what rating would be assigned by any other rating agency.
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A rating on the notes by another rating agency, if assigned at all, may be lower
than the ratings assigned to the notes as stated in the first paragraph of this
section.
LEGAL INVESTMENT
The Class A Notes and the Class M-1 Notes will constitute mortgage related
securities for purposes of SMMEA for so long as they are rated not lower than
the second highest rating category by a rating agency, as defined in the
prospectus, and will be legal investments for entities to the extent provided in
SMMEA. SMMEA, however, provides for state limitation on the authority of these
entities to invest in mortgage related securities, provided that the restricting
legislation was enacted prior to October 3, 1991. Ten states have enacted
legislation which overrides the preemption provisions of SMMEA. The Class M-2
Notes and the Class M-3 Notes will not constitute mortgage related securities
for purposes of SMMEA.
The depositor makes no representations as to the proper characterization of
the notes for legal investment or other purposes, or as to the ability of
particular investors to purchase the notes under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of the
notes. Accordingly, all institutions whose investment activities are subject to
legal investment laws and regulations, regulatory capital requirements or review
by regulatory authorities should consult with their legal advisors in
determining whether and to what extent the notes constitute a legal investment
or are subject to investment, capital or other restrictions.
See "Legal Investment" in the prospectus.
ERISA CONSIDERATIONS
ERISA and the Code impose requirements on employee benefit plans and other
retirement plans and arrangements, including, but not limited to, individual
retirement accounts and annuities, as well as on collective investment funds and
certain separate and general accounts of insurance companies in which these
plans or arrangements are invested, all of which are referred to as a Plan, and
on persons who are fiduciaries with respect to these Plans. ERISA and the Code
prohibit certain transactions involving the assets of a Plan and disqualified
persons and parties in interest who have certain specified relationships to the
Plan. Accordingly, prior to making an investment in the notes, investing Plans
should determine whether the issuer, the depositor, the seller, the trust
estate, the underwriter, any other underwriter, the owner trustee, the indenture
trustee, the master servicer, the servicers, any other servicer, any
administrator, any provider of credit support, or any insurer or any of their
affiliates is a party in interest or disqualified person with respect to a Plan
and, if so, whether this transaction is subject to one or more statutory or
administrative exemptions. Additionally, an investment of the assets of a Plan
in securities may cause the assets included in the trust estate to be deemed
plan assets of the Plan, and any person with certain specified relationships to
the trust estate to be deemed a party in interest or disqualified person. The
U.S. Department of Labor, or DOL, has promulgated regulations at 29 C.F.R.
Section 2510.3-101 defining the term plan assets for purposes of applying the
general fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code. Under these
regulations, when a Plan acquires an equity interest in another entity, such as
the trust estate, the underlying assets of that entity may be considered to be
plan assets. These regulations provide that the term equity interest means any
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interest in an entity other than an instrument which is treated as indebtedness
under applicable local law and which has no substantial equity features.
Although not entirely free from doubt, it is believed that, as of the date of
this prospectus supplement, the notes will be treated as debt obligations
without significant equity features for the purposes of the regulations. Because
of the factual nature of certain of the above-described provisions of ERISA, the
Code and the regulations, Plans or persons investing plan assets should
carefully consider whether an investment of this kind might constitute or give
rise to a prohibited transaction under ERISA or the Code. Any Plan fiduciary
which proposes to cause a Plan to acquire any of the notes should consult with
its counsel with respect to the potential consequences under ERISA and the Code
of the Plan's acquisition and ownership of the notes.
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$___________ (APPROXIMATE)
AMERIQUEST MORTGAGE SECURITIES INC.
DEPOSITOR
AQ ASSET-BACKED FLOATING RATE NOTES, SERIES ____-___
PROSPECTUS SUPPLEMENT
DATED _______ __, ____
MASTER SERVICER
UNDERWRITER
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
WE ARE NOT OFFERING THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT IN ANY STATE
WHERE THE OFFER IS NOT PERMITTED.
Dealers will be required to deliver a prospectus supplement and prospectus when
acting as underwriters of the notes offered by this prospectus supplement and
with respect to their unsold allotments or subscriptions. In addition, all
dealers selling the offered notes, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus
until _______ __, ____.
<PAGE>
ANNEX I
GLOBAL CLEARANCE AND SETTLEMENT AND DOCUMENTATION PROCEDURES
Except in limited circumstances described in this prospectus supplement
under "Description of the Notes--Definitive Notes", the globally offered
Ameriquest Mortgage Securities, Ameriquest Trust Series ____-__, AQ Asset-Backed
Floating Rate Notes, Series ____-__, Class A, Class M-1, Class M-2 and Class M-3
Notes will be available only in book-entry form. Investors in the global
securities may hold the global securities through any of DTC, Cedel or
Euroclear. The global securities will be traceable 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 through Cedel and Euroclear will
be conducted in the ordinary way in accordance with the normal rules and
operating procedures of Cedel and Euroclear and in accordance with conventional
eurobond practice, that is seven calendar day settlement.
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear, in such capacity,
and as DTC participants.
Non-U.S. holders of Global Securities will be subject to U.S. withholding
taxes unless those holders meet specific requirements and deliver appropriate
U.S. tax documents to the securities clearing organizations or their
participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
CEDE as nominee of DTC. Investors' interests in the Global Securities 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 relevant depositary
which in turn will hold those positions in their accounts as DTC participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practices. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities 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 Securities 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 prior mortgage
loan asset-backed notes issues in same-day funds.
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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 PARTICIPANTS. When
Global Securities 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 prior to settlement. Cedel or
Euroclear will instruct the relevant depositary, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in the
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
relevant depositary to the DTC participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel participant's or Euroclear
participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date, which would be the preceding day
when settlement occurred in New York. If settlement is not completed on the
intended value date--the trade fails--the Cedel or Euroclear cash debt will be
valued instead as of 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 preposition 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
Securities are credited to their account 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 preposition funds and allow that credit
line to be drawn upon to finance settlement. Under this procedure, Cedel
participants or Euroclear participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of overdraft charges, although the
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 crediting
Global Securities to the respective European 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 participants 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
Securities 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 prior to settlement. In these cases Cedel or Euroclear
will instruct the respective depositary, as appropriate, to credit the Global
Securities to the DTC participant's account against payment. Payment will
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include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in the accrual period and a year assumed to consist to 360 days.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. The
payment will then be reflected in the account of Cedel participant or Euroclear
participant the following day, and receipt of the cash proceeds in the Cedel
participant's or Euroclear participant's account would be back-valued to the
value date, which would be the preceding day, when 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 debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date--the trade fails--receipt of the
cash proceeds in the Cedel participant's or Euroclear participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities 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 is taken. At least three techniques should be
readily available to eliminate this potential problem:
o borrowing through Cedel or Euroclear for one day, until the purchase
side of the trade is reflected in their Cedel or Euroclear accounts, in
accordance with the clearing system's customary procedures
o borrowing the Global Securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
o 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 prior to the value date for the sale to
the Cedel participant or Euroclear participant.
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear, or through DTC if the holder has an address outside the U.S., will be
subject to the 30% U.S. withholding tax that applies to payments of interest,
including original issue discount, on registered debt issued by United States
Persons, unless
o 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 the beneficial owner and the
U.S. entity required to withhold tax complies with applicable
certification requirements and
o the beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
o EXEMPTION FOR NON-UNITED STATES PERSONS (FORM W-8). Beneficial
holders of Global Securities that are non-United States Persons
can obtain a complete exemption from the withholding tax by filing
a signed Form W-8 (Certificate of Foreign Status). If the
information shown on Form W-8 changes, a new Form W-8 must be
filed within 30 days of the change.
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o EXEMPTION FOR NON-UNITED STATES PERSONS WITH EFFECTIVELY CONNECTED
INCOME (FORM 4224). A non-United States 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).
o EXEMPTION OR REDUCED RATE FOR NON-UNITED STATES PERSONS RESIDENT
IN TREATY COUNTRIES (FORM 1001). Non-United States Persons
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 (Holdership, Exemption or
Reduced Rate Certificate). 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. Form 1001 may be filed by
noteholders or their agent.
o EXEMPTION FOR UNITED STATES PERSONS (FORM W-9). United States
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 holder of a Global
Security 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
security--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. This summary
does not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the Global Securities.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Preliminary Prospectus Dated January 11, 2000
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
(ISSUABLE IN SERIES)
AMERIQUEST MORTGAGE SECURITIES INC.
Depositor
- --------------------------------------------------------------------------------
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS
PROSPECTUS AND IN THE PROSPECTUS SUPPLEMENT.
THE PROSPECTUS TOGETHER WITH THE ACCOMPANYING PROSPECTUS SUPPLEMENT WILL
CONSTITUTE THE FULL PROSPECTUS.
- --------------------------------------------------------------------------------
THE SECURITIES:
Ameriquest Mortgage Securities Inc., as depositor, will sell the securities,
which may be in the form of mortgage pass-through certificates or
mortgage-backed notes. Each issue of securities will have its own series
designation and will evidence either:
o the ownership of trust fund assets, or
o debt obligations secured by trust fund assets.
THE TRUST FUND AND ITS ASSETS
The assets of a trust fund will primarily include any combination of various
types of one- to four-family residential first and junior lien mortgage loans,
multifamily first and junior mortgage loans, commercial first and junior
mortgage loans, mixed-use residential and commercial first and junior mortgage
loans, home equity lines of credit, cooperative apartment loans, manufactured
housing conditional sales contracts and installment loan agreements or home
improvement installment sales contracts and installment loan agreements.
CREDIT ENHANCEMENT
The assets of the trust fund for a series of securities may also include a
financial guaranty insurance policy, pool insurance policies, letters of credit,
reserve funds or currency or interest rate exchange agreements or any
combination of credit support. Credit enhancement may also be provided by means
of subordination of one or more classes of securities, cross-collateralization
or by overcollateralization.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION 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.
Offers of the securities may be made through one or more different methods,
including through underwriters as described in "Methods of Distribution" in this
prospectus and in the related prospectus supplement.
The date of this Prospectus is
<PAGE>
TABLE OF CONTENTS
Page
----
Risk Factors...................................................................4
Description of the Trust Funds................................................11
Description of the Mortgage Assets to be
Included in a Trust Fund........................................12
Description of the Pre-Funding Account for
the Purchase of Additional Mortgage
Loans...........................................................18
The Depositor.................................................................18
Use of Proceeds...............................................................19
Yield and Maturity Considerations.............................................19
Maturity and Weighted Average Life...................................22
Foreclosures and Payment Plans.......................................24
The Depositor's Mortgage Loan Purchase
Program..............................................................25
Underwriting Standards...............................................25
Qualifications of Originators and Mortgage
Loan Sellers....................................................27
Representations by or on behalf of Mortgage
Loan Sellers; Remedies for Breach of
Representation..................................................28
Description of The Securities.................................................30
Assignment of Trust Fund Assets; Review of
Files by Trustee................................................32
Representations and Warranties;
Repurchases.....................................................33
Establishment of Collection Account;
Deposits to Collection Account In
Respect of Trust Fund Assets....................................36
Deposits to Distribution Account.....................................40
Distributions on the Securities......................................40
Advances by Master Servicer in Respect of
Delinquencies on the Trust Fund
Assets..........................................................43
Form of Reports to Securityholders...................................44
Collection and Other Servicing Procedures
Employed by the Master Servicer.................................45
Description of Sub-Servicing.........................................47
Procedures for Realization Upon Defaulted
Mortgage Assets.................................................48
Retained Interest; Servicing or
Administration Compensation and
Payment of Expenses.............................................51
Annual Evidence as to the Compliance of
the Master Servicer.............................................51
Matters Regarding the Master Servicer and
the Depositor...................................................52
Events of Default under the Governing
Agreement and Rights Upon Events of
Default.........................................................53
Amendment of the Governing Agreements................................57
Termination of the Trust Fund and
Disposition of Trust Fund Assets................................58
Optional Purchase by the Master Servicer of
Defaulted Mortgage Loans........................................60
Duties of the Trustee................................................60
Description of the Trustee...........................................60
Description of Credit Support.................................................60
Subordination........................................................61
Letter of Credit.....................................................63
Mortgage Pool Insurance Policy.......................................64
Special Hazard Insurance Policy......................................66
Bankruptcy Bond......................................................68
Financial Guarantee Insurance........................................69
Reserve Fund.........................................................69
Overcollateralization................................................69
Cross-Support Features...............................................70
Other Financial Obligations Related to the
Securities...........................................................70
Swaps and Yield Supplement
Agreements......................................................70
Purchase Obligations.................................................71
Description of Primary Insurance Policies.....................................71
Primary Mortgage Insurance Policies..................................71
Primary Hazard Insurance Policies....................................72
FHA Insurance........................................................73
VA Guarantees........................................................77
Legal Aspects of Mortgage Assets..............................................78
Mortgage Loans.......................................................78
Cooperative Loans....................................................79
Manufactured Housing Contracts.......................................80
Foreclosure on Mortgages.............................................83
Foreclosure on Mortgaged Properties
Located in the
Commonwealth of Puerto
Rico............................................................85
Foreclosure on Cooperative Shares....................................86
Repossession with respect to
Manufactured Housing
Contracts.......................................................87
Rights of Redemption with respect to
Mortgage Loans..................................................88
Notice of Sale; Redemption Rights
with respect to Manufactured
Housing Contracts...............................................88
Anti-Deficiency Legislation and Other
Limitations on Lenders..........................................88
Junior Mortgages.....................................................91
Home Equity Line of Credit Loans.....................................91
Consumer Protection Laws with respect
to Manufactured Housing
Contracts and Home
Improvement Contracts...........................................92
Other Limitations....................................................93
Enforceability of Provisions.........................................93
Leases and Rents.....................................................94
Subordinate Financing................................................94
Applicability of Usury Laws..........................................95
Alternative Mortgage Instruments.....................................96
Formaldehyde Litigation with respect
to Manufactured Homes...........................................97
Soldiers' and Sailors' Civil Relief Act
of 1940.........................................................97
Environmental Legislation............................................98
Forfeitures in Drug and RICO
Proceedings.....................................................99
Negative Amortization Loans..........................................99
Installment Contracts................................................99
Federal Income Tax Consequences..............................................100
General.............................................................100
REMICs..............................................................102
Notes...............................................................121
Grantor Trust Funds.................................................122
Partnership Trust Funds.............................................132
FASIT securities....................................................138
State And Other Tax Consequences.............................................139
Considerations For Benefit Plan Investors....................................140
Investors Affected..................................................140
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Fiduciary Standards for ERISA Plans and
Related Investment Vehicles....................................140
Prohibited Transaction Issues for ERISA
Plans, Keogh Plans, IRAs and Related
Investment Vehicles............................................140
Possible Exemptive Relief...........................................141
Consultation with Counsel...........................................147
Government Plans....................................................147
Required Deemed Representations of
Investors......................................................147
Legal Investment.............................................................148
Methods of Distribution......................................................149
Legal Matters................................................................150
Financial Information........................................................151
Rating ....................................................................151
Available Information........................................................151
Incorporation of Certain Information by
Reference...........................................................152
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RISK FACTORS
The offered securities are not suitable investments for all investors. In
particular, you should not purchase the offered securities unless you understand
and are able to bear the prepayment, credit, liquidity and market risks
associated with the securities.
You should carefully consider the following factors in connection with the
purchase of the securities offered hereby as well as any additional risk factors
that are set forth in the prospectus supplement related to your security:
THE SECURITIES WILL HAVE LIMITED LIQUIDITY SO INVESTORS MAY BE UNABLE TO SELL
THEIR SECURITIES OR MAY BE FORCED TO SELL THEM AT A DISCOUNT FROM THEIR INITIAL
OFFERING PRICE
There can be no assurance that a resale market for the securities of any
series will develop following the issuance and sale of any series of securities.
Even if a resale market does develop, it may not provide securityholders with
liquidity of investment or continue for the life of the securities of any
series. The prospectus supplement for any series of securities may indicate that
an underwriter specified in the prospectus supplement intends to establish a
secondary market in the securities, however no underwriter will be obligated to
do so. As a result, any resale prices that may be available for any offered
security in any market that may develop may be at a discount from the initial
offering price. The securities offered hereby will not be listed on any
securities exchange.
CREDIT SUPPORT MAY BE LIMITED; THE FAILURE OF CREDIT SUPPORT TO COVER LOSSES ON
THE TRUST FUND ASSETS WILL RESULT IN LOSSES ALLOCATED TO THE RELATED SECURITIES
Credit support is intended to reduce the effect of delinquent payments or
losses on the underlying trust fund assets on those classes of securities that
have the benefit of the credit support. With respect to each series of
securities, credit support will be provided in one or more of the forms referred
to in this prospectus and the related prospectus supplement. Regardless of the
form of credit support provided, the amount of coverage will usually be limited
in amount and in most cases will be subject to periodic reduction in accordance
with a schedule or formula. Furthermore, credit support may provide only very
limited coverage as to particular types of losses or risks, and may provide no
coverage as to other types of losses or risks. If losses on the trust fund
assets exceed the amount of coverage provided by any credit support or the
losses are of a type not covered by any credit support, these losses will be
borne by the holders of the related securities or specific classes of the
related securities. SEE "DESCRIPTION OF CREDIT SUPPORT".
THE TYPES OF MORTGAGE LOANS INCLUDED IN THE TRUST FUND RELATED TO YOUR
SECURITIES MAY BE ESPECIALLY PRONE TO DEFAULTS WHICH MAY EXPOSE YOUR SECURITIES
TO GREATER LOSSES
The securities will be directly or indirectly backed by mortgage loans,
manufactured housing conditional sales contracts and installment loan
agreements. The types of mortgage loans included in the trust fund may have a
greater likelihood of delinquency and foreclosure, and a greater likelihood of
loss in the event of delinquency and foreclosure. You should be aware that if
the mortgaged properties fail to provide adequate security for the mortgage
loans included in a trust
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fund, any resulting losses, to the extent not covered by credit support, will be
allocated to the related securities in the manner described in the related
prospectus supplement and consequently would adversely affect the yield to
maturity on those securities. The depositor cannot assure you that the values of
the mortgaged properties have remained or will remain at the appraised values on
the dates of origination of the related mortgage loans. The prospectus
supplement for each series of securities will describe the mortgage loans which
are to be included in the trust fund related to your security and risks
associated with those mortgage loans which you should carefully consider in
connection with the purchase of your security.
NONPERFECTION OF SECURITY INTERESTS IN MANUFACTURED HOMES MAY RESULT IN LOSSES
ON THE RELATED MANUFACTURED HOUSING CONTRACTS AND THE SECURITIES BACKED BY THE
MANUFACTURED HOUSING CONTRACTS
Any conditional sales contracts and installment loan agreements with
respect to manufactured homes included in a trust fund will be secured by a
security interest in a manufactured home. Perfection of security interests in
manufactured homes and enforcement of rights to realize upon the value of the
manufactured homes as collateral for the manufactured housing contracts are
subject to a number of federal and state laws, including the Uniform Commercial
Code as adopted in each state and each state's certificate of title statutes.
The steps necessary to perfect the security interest in a manufactured home will
vary from state to state. If the master servicer fails, due to clerical errors
or otherwise, to take the appropriate steps to perfect the security interest,
the trustee may not have a first priority security interest in the manufactured
home securing a manufactured housing contract. Additionally, courts in many
states have held that manufactured homes may become subject to real estate title
and recording laws. As a result, a security interest in a manufactured home
could be rendered subordinate to the interests of other parties claiming an
interest in the home under applicable state real estate law. The failure to
properly perfect a valid, first priority security interest in a manufactured
home securing a manufactured housing contract could lead to losses that, to the
extent not covered by credit support, may adversely affect the yield to maturity
of the related securities.
FORECLOSURE OF MORTGAGE LOANS MAY RESULT IN LIMITATIONS OR DELAYS IN RECOVERY
AND LOSSES ALLOCATED TO THE RELATED SECURITIES
Even assuming that the mortgaged properties provide adequate security for
the mortgage loans, substantial delays can be encountered in connection with the
liquidation of defaulted mortgage loans and corresponding delays in the receipt
of related proceeds by the securityholders could occur. An action to foreclose
on a mortgaged property securing a mortgage loan is regulated by state statutes,
rules and judicial decisions and is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. In several states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a mortgaged
property. In the event of a default by a mortgagor, these restrictions may
impede the ability of the master servicer to foreclose on or sell the mortgaged
property or to obtain liquidation proceeds sufficient to repay all amounts due
on the related mortgage loan. The master servicer will be entitled to deduct
from liquidation proceeds all expenses incurred in attempting to recover amounts
due on the related liquidated mortgage loan and not yet repaid, including
payments to prior
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lienholders, accrued servicing fees, ancillary fees, legal fees and costs of
legal action, real estate taxes, maintenance and preservation expenses, monthly
advances and servicing advances. If any mortgaged properties fail to provide
adequate security for the mortgage loans in the trust fund related to your
security and insufficient funds are available from any applicable credit
support, you could experience a loss on your investment.
Liquidation expenses with respect to defaulted mortgage loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer takes the same steps in realizing
upon a defaulted mortgage loan having a small remaining principal balance as it
would in the case of a defaulted mortgage loan having a larger principal
balance, the amount realized after expenses of liquidation would be less as a
percentage of the outstanding principal balance of the smaller principal balance
mortgage loan than would be the case with a larger principal balance loan.
MORTGAGED PROPERTIES ARE SUBJECT TO ENVIRONMENTAL RISKS AND THE COST OF
ENVIRONMENTAL CLEAN-UP MAY INCREASE LOSSES ON THE RELATED MORTGAGE LOANS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on, under or in
the property. These laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. A lender also risks liability on foreclosure of the mortgage on the
property. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate the property, may adversely affect the owner's or
operator's ability to sell the property. Although the incidence of environmental
contamination of residential properties is less common than that for commercial
properties, mortgage loans contained in a trust fund may be secured by mortgaged
properties in violation of environmental laws, ordinances or regulations. The
master servicer is generally prohibited from foreclosing on a mortgaged property
unless it has taken adequate steps to ensure environmental compliance with
respect to the mortgaged property. However, to the extent the master servicer
errs and forecloses on mortgaged property that is subject to environmental law
violations, and to the extent a mortgage loan seller does not provide adequate
representations and warranties against environmental law violations, or is
unable to honor its obligations, including the obligation to repurchase a
mortgage loan upon the breach of a representation or warranty, a trust fund
could experience losses which, to the extent not covered by credit support,
could adversely affect the yield to maturity on the related securities.
THE RATINGS OF YOUR SECURITIES MAY BE LOWERED OR WITHDRAWN WHICH MAY ADVERSELY
AFFECT THE LIQUIDITY OR MARKET VALUE OF YOUR SECURITY
It is a condition to the issuance of the securities that each series of
securities be rated in one of the four highest rating categories by a nationally
recognized statistical rating agency. A security rating is not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at
any time. No person is obligated to maintain the rating on any security, and
accordingly, there can be no assurance to you that the ratings assigned to any
security on the date on which the security is originally issued will not be
lowered or withdrawn by a rating agency at any
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time thereafter. The rating(s) of any series of securities by any applicable
rating agency may be lowered following the initial issuance of the securities as
a result of the downgrading of the obligations of any applicable credit support
provider, or as a result of losses on the related mortgage loans in excess of
the levels contemplated by the rating agency at the time of its initial rating
analysis. Neither the depositor, the master servicer nor any of their respective
affiliates will have any obligation to replace or supplement any credit support,
or to take any other action to maintain any rating(s) of any series of
securities. If any rating is revised or withdrawn, the liquidity or the market
value of your security may be adversely affected.
FAILURE OF THE MORTGAGE LOAN SELLER TO REPURCHASE OR REPLACE A MORTGAGE LOAN MAY
RESULT IN LOSSES ALLOCATED TO THE RELATED SECURITIES
Each mortgage loan seller will have made representations and warranties in
respect of the mortgage loans sold by the mortgage loan seller and evidenced by
a series of securities. In the event of a breach of a mortgage loan seller's
representation or warranty that materially adversely affects the interests of
the securityholders in a mortgage loan, the related mortgage loan seller will be
obligated to cure the breach or repurchase or, if permitted, replace the
mortgage loan as described under "Mortgage Loan Program-Representations as to
Mortgage Loans to be made by or on Behalf of Mortgage Loan Sellers; Remedies for
Breach of Representation". However, there can be no assurance that a mortgage
loan seller will honor its obligation to cure, repurchase or, if permitted,
replace any mortgage loan as to which a breach of a representation or warranty
arises. A mortgage loan seller's failure or refusal to honor its repurchase
obligation could lead to losses that, to the extent not covered by credit
support, may adversely affect the yield to maturity of the related securities.
In instances where a mortgage loan seller is unable, or disputes its
obligation, to repurchase affected mortgage loans, the master servicer may
negotiate and enter into one or more settlement agreements with the mortgage
loan seller that could provide for the purchase of only a portion of the
affected mortgage loans. Any settlement could lead to losses on the mortgage
loans which would be borne by the related securities. Neither the depositor nor
the master servicer will be obligated to purchase a mortgage loan if a mortgage
loan seller defaults on its obligation to do so, and no assurance can be given
that the mortgage loan sellers will carry out their repurchase obligations. A
default by a mortgage loan seller is not a default by the depositor or by the
master servicer. Any mortgage loan not so repurchased or substituted for shall
remain in the related trust fund and any related losses shall be allocated to
the related credit support, to the extent available, and otherwise to one or
more classes of the related series of securities.
All of the representations and warranties of a mortgage loan seller in
respect of a mortgage loan will have been made as of the date on which the
mortgage loan was purchased from the mortgage loan seller by or on behalf of the
depositor which will be a date prior to the date of initial issuance of the
related series of securities. A substantial period of time may have elapsed
between the date as of which the representations and warranties were made and
the later date of initial issuance of the related series of securities.
Accordingly, the mortgage loan seller's repurchase obligation, or, if specified
in the related prospectus supplement, limited replacement option, will not arise
if, during the period after the date of sale by the mortgage loan seller, an
event occurs that would have given
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rise to a repurchase obligation had the event occurred prior to sale of the
affected mortgage loan. The occurrence of events during this period that are not
covered by a mortgage loan seller's repurchase obligation could lead to losses
that, to the extent not covered by credit support, may adversely affect the
yield to maturity of the related securities.
THE YIELD TO MATURITY ON YOUR SECURITIES WILL DEPEND ON A VARIETY OF FACTORS
INCLUDING PREPAYMENTS
The timing of principal payments on the securities of a series will be
affected by a number of factors, including the following:
o the extent of prepayments on the underlying assets in the trust fund
or;
o how payments of principal are allocated among the classes of
securities of that series as specified in the related prospectus
supplement;
o if any party has an option to terminate the related trust fund early,
the effect of the exercise of the option;
o the rate and timing of defaults and losses on the assets in the
related trust fund; and
o repurchases of assets in the related trust fund as a result of
material breaches of representations and warranties made by the
depositor, master servicer or mortgage loan seller.
Prepayments on mortgage loans are influenced by a number of factors,
including prevailing mortgage market interest rates, local and regional economic
conditions and homeowner mobility. The rate of prepayment of the mortgage loans
included in or underlying the assets in each trust fund may affect the yield to
maturity of the securities. In general, if you purchase a class of offered
securities at a price higher than its outstanding principal balance and
principal distributions on your class occur faster than you anticipate at the
time of purchase, the yield will be lower than you anticipate. Conversely, if
you purchase a class of offered securities at a price lower than its outstanding
principal balance and principal distributions on that class occur more slowly
than you anticipate at the time of purchase, the yield will be lower than you
anticipate.
To the extent amounts in any pre-funding account have not been used to
purchase additional mortgage loans, holders of the related securities may
receive an additional prepayment.
The yield to maturity on the types of classes of securities, including
securities that are entitled to principal distributions only or interest
distributions only, securities as to which accrued interest or a portion thereof
will not be distributed but rather added to the principal balance of the
security, and securities with an interest rate which fluctuates inversely with
an index, may be relatively more sensitive to the rate of prepayment on the
related mortgage loans than other classes of securities and, if applicable, to
the occurrence of an early retirement of the securities. The prospectus
supplement
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for a series will set forth the related classes of securities that may be more
sensitive to prepayment rates.
SEE "YIELD CONSIDERATIONS" AND "MATURITY AND PREPAYMENT CONSIDERATIONS" IN
THIS PROSPECTUS.
THE EXERCISE OF AN OPTIONAL TERMINATION RIGHT WILL AFFECT THE YIELD TO MATURITY
ON THE RELATED SECURITIES
The prospectus supplement for each series of securities will set forth the
party that may, at its option, purchase the assets of the related trust fund if
the aggregate principal balance of the mortgage loans and other trust fund
assets in the trust fund for that series is less than the percentage specified
in the related prospectus supplement of the aggregate principal balance of the
outstanding mortgage loans and other trust fund assets at the cut-off date for
that series. The percentage will be between 25% and 0%. The exercise of the
termination right will effect the early retirement of the securities of that
series. The prospectus supplement for each series of securities will set forth
the price to be paid by the terminating party and the amounts that the holders
of the securities will be entitled to receive upon early retirement.
In addition to the repurchase of the assets in the related trust fund as
described in the paragraph above, the related prospectus supplement may permit
that, a holder of a non-offered class of securities will have the right, solely
at its discretion, to terminate the related trust fund on any distribution date
after the 12th distribution date following the date of initial issuance of the
related series of securities and until the date as the option to terminate as
described in the paragraph above becomes exercisable and thereby effect early
retirement of the securities of the series. Any call of this type will be of the
entire trust fund at one time; multiple calls with respect to any series of
securities will not be permitted. In this case, the call class must remit to the
trustee for distribution to the holders of the related securities offered hereby
a price equal to 100% of the principal balance of their securities offered
hereby as of the day of the purchase plus accrued interest thereon at the
applicable interest rate during the related period on which interest accrues on
their securities. If funds equal to the call price are not deposited with the
related trustee, the securities will remain outstanding. There will not be any
additional remedies available to securityholders. In addition, in the case of a
trust fund for which a REMIC election or elections have been made, the
termination will constitute a "qualified liquidation" under Section 860F of the
Internal Revenue Code. In connection with a call by the call class, the final
payment to the securityholders will be made upon surrender of the related
securities to the trustee. Once the securities have been surrendered and paid in
full, there will not be any continuing liability from the securityholders or
from the trust fund to securityholders.
A trust fund may also be terminated and the certificates retired upon the
master servicer's determination, if applicable and based upon an opinion of
counsel, that the REMIC status of the trust fund has been lost or that a
substantial risk exists that the REMIC status will be lost for the then current
taxable year.
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The termination of a trust fund and the early retirement of securities by
any party would decrease the average life of the securities and may adversely
affect the yield to holders of some or all classes of the related securities.
VIOLATIONS OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES ON THE MORTGAGE
LOANS AND THE SECURITIES BACKED BY THOSE MORTGAGE LOANS
Federal and state laws, public policy and general principles of equity
relating to the protection of consumers, unfair and deceptive practices and debt
collection practices:
o regulate interest rates and other charges on mortgage loans;
o require specific disclosures to borrowers;
o require licensing of originators; and
o regulate generally the origination, servicing and collection process
for the mortgage loans.
Depending on the specific facts and circumstances involved, violations may
limit the ability of a trust fund to collect all or a part of the principal of
or interest on the mortgage loans, may entitle the borrower to a refund of
amounts previously paid and could result in liability for damages and
administrative enforcement against the originator or an assignee of the
originator, like a trust fund, or the initial servicer or a subsequent servicer,
as the case may be. In particular, it is possible that mortgage loans included
in a trust fund will be subject to the Home Ownership and Equity Protection Act
of 1994. The Homeownership Act adds additional provisions to Regulation Z, the
implementing regulation of the Federal Truth-In-Lending Act. These provisions
impose additional disclosure and other requirements on creditors with respect to
non-purchase money mortgage loans with interest rates or origination costs in
excess of prescribed levels. The provisions of the Homeownership Act apply on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors who
fail to comply with their provisions and may affect the enforceability of the
related loans. In addition, any assignee of the creditor, like a trust fund,
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including the right to rescind the mortgage loan.
Recently, class action lawsuits under the Homeownership Act have been brought
naming as a defendant securitization trusts like the trust funds described in
this prospectus with respect to the mortgage loans.
In addition, amendments to the federal bankruptcy laws have been proposed
that could result in (1) the treatment of a claim secured by a junior lien in a
borrower's principal residence as protected only to the extent that the claim
was secured when the security interest was made and (2) the disallowance of
claims based on secured debt if the creditor failed to comply with specific
provisions of the Truth in Lending Act (15 U.S.C. ss.1639). These amendments
could apply retroactively to secured debt incurred by the debtor prior to the
date of effectiveness of the amendments.
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The depositor will represent that all applicable federal and state laws
were complied with in connection with the origination of the mortgage loans. If
there is a material and adverse breach of a representation, the depositor will
be obligated to repurchase any affected mortgage loan or to substitute a new
mortgage loan into the related trust fund. If the depositor fails to repurchase
or substitute, a trust fund could experience losses which, to the extent not
covered by credit support, could adversely affect the yield to maturity on the
related securities. SEE "LEGAL ASPECTS OF MORTGAGE LOANS".
Several capitalized terms are used in this prospectus to assist you in
understanding the terms of the securities. All of the capitalized terms used in
this prospectus are defined in the glossary beginning on page ___ in this
prospectus.
DESCRIPTION OF THE TRUST FUNDS
The trust fund for each series will be held by the trustee for the benefit
of the related securityholders. Each trust fund will consist of:
o a segregated pool of various types of first and junior lien mortgage
loans, cooperative apartment loans, manufactured housing conditional
sales contracts and installment loan agreements or home improvement
installment sales contracts and installment loan agreements as are
subject to the related agreement governing the trust fund;
o amounts on deposit in the distribution account, pre-funding account,
if applicable, or any other account maintained for the benefit of the
securityholders;
o property acquired on behalf of securityholders by foreclosure, deed in
lieu of foreclosure or repossession and any revenues received on the
property;
o the rights of the depositor under any hazard insurance policies, FHA
insurance policies, VA guarantees and primary mortgage insurance
policies to be included in the trust fund, each as described under
"Description of Primary Insurance Policies";
o the rights of the depositor under the agreement or agreements under
which it acquired the mortgage loans to be included in the trust fund;
o the rights of the trustee in any cash advance reserve fund or surety
bond to be included in the trust fund, each as described under
"Advances by Master Servicer in Respect of Delinquencies on the Trust
Fund Assets"; and
o any letter of credit, mortgage pool insurance policy, special hazard
insurance policy, bankruptcy bond, financial guarantee insurance
policy, reserve fund, currency or interest rate exchange agreement or
guarantee, each as described under "Description of Credit Support".
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To the extent specified in the related prospectus supplement, a portion of
the interest received on a mortgage loan may not be included in the trust for
that series. Instead, the retained interest will be retained by or payable to
the originator, servicer or seller (or a designee of one of the foregoing) of
the loan, free and clear of the interest of securityholders under the related
agreement.
DESCRIPTION OF THE MORTGAGE ASSETS TO BE INCLUDED IN A TRUST FUND
Each mortgage asset will be originated by a person other than the
depositor. Each mortgage asset will be selected by the depositor for inclusion
in a trust fund from among those purchased by the depositor, either directly or
through its affiliates, from Ameriquest Mortgage Company, the indirect parent of
the depositor, and its affiliates or from banks, savings and loan associations,
mortgage bankers, mortgage brokers, investment banking firms, the Federal
Deposit Insurance Corporation and other mortgage loan originators or sellers not
affiliated with the depositor. Each seller of mortgage assets will be referred
to in this prospectus and the related prospectus supplement as a mortgage loan
seller. The mortgage assets acquired by the depositor will have been originated
in accordance with the underlying criteria described in this prospectus under
"The Depositor's Mortgage Loan Purchase Program-Underwriting Standards" and in
the prospectus supplement. All mortgage assets to be included in a trust fund as
of the closing date will have been purchased by the depositor on or before the
date of initial issuance of the related securities.
The mortgage assets included in a trust fund will be evidenced by a
promissory note or contract, referred to in this prospectus as a mortgage note,
and may be secured by any of the following:
o first or junior liens on one- to four-family residential properties
including detached and attached dwellings, townhouses, rowhouses,
individual condominium units, individual units in planned-unit
developments and individual units in de minimis planned-unit
developments. Loans secured by this type of property are referred to
in this prospectus as single-family loans and may be conventional
loans, FHA-insured loans or VA-guaranteed loans as specified in the
related prospectus supplement;
o first or junior liens secured by shares in a private cooperative
housing corporation that give the owner of the shares the right to
occupy a particular dwelling unit in the cooperative;
o rental apartments or projects, including apartment buildings owned by
cooperative housing corporations, containing five or more dwelling
units. The multifamily properties may include high-rise, mid-rise or
garden apartments. Loans secured by this type of property may be
conventional loans or FHA-insured loans as specified in the related
prospectus supplement;
o commercial properties including office buildings, retail buildings and
a variety of other commercial properties as may be described in the
related prospectus supplement;
o properties consisting of mixed residential and commercial structures;
o leasehold interests in residential properties, the title of which is
held by third party lessors;
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o manufactured homes that, in the case of mortgage loans, are
permanently affixed to their site or, in the case of manufactured home
conditional sales contracts and installment loan agreements, may be
relocated; or
o real property acquired upon foreclosure or comparable conversion of
the mortgage loans included in a trust fund.
No more than 10% of the assets of a trust fund, by original principal
balance of the pool, will be secured by commercial properties. The term of any
leasehold will exceed the term of the mortgage note by at least five years.
The manufactured homes securing the mortgage loans or manufactured housing
contracts will consist of manufactured homes within the meaning of 42 United
States Code, Section 5402(6), which defines a manufactured home as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis and designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of this paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under this chapter."
The home improvement contracts will be secured primarily by mortgages on
single family properties that are generally subordinate to other mortgages on
the same mortgaged property or by purchase money security interests in the home
improvements financed thereby.
The mortgaged properties may be located in any one of the fifty states, the
District of Columbia, Guam, Puerto Rico or any other territory of the United
States. The mortgaged properties may include vacation, second and non-owner
occupied homes.
The mortgage assets to be included in a trust fund will be any one of the
following types of mortgage assets:
o Fully amortizing mortgage assets with a fixed rate of interest and
level monthly payments to maturity;
o Fully amortizing mortgage assets with an interest rate that adjusts
periodically, with corresponding adjustments in the amount of monthly
payments, to equal the sum, which may be rounded, of a fixed
percentage amount and an index;
o ARM Loans that provide for an election, at the borrower's option, to
convert the adjustable interest rate to a fixed interest rate, which
will be described in the related prospectus supplement;
o ARM Loans that provide for negative amortization or accelerated
amortization resulting from delays in or limitations on the payment
adjustments necessary to amortize fully the
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outstanding principal balance of the loan at its then applicable
interest rate over its remaining term;
o Fully amortizing mortgage assets with a fixed interest rate and level
monthly payments, or payments of interest only, during the early years
of the term, followed by periodically increasing monthly payments of
principal and interest for the duration of the term or for a specified
number of years, which will be described in the related prospectus
supplement;
o Fixed interest rate mortgage assets providing for level payment of
principal and interest on the basis of an assumed amortization
schedule and a balloon payment at the end of a specified term;
o Mortgage assets that provide for a line of credit under which amounts
may be advanced to the borrower from time to time;
o Fixed interest rate mortgage assets that provide that the interest may
increase upon default, which increased rate may be subject to
adjustment and may or may not convert back to the original fixed
interest rate upon cure of the default;
o Fixed interest rate mortgage assets that provide for reductions in the
interest rate, and corresponding monthly payment due thereon during
the first 36 months of the term thereof; and
o Another type of mortgage loan described in the related prospectus
supplement.
Each single-family loan having a loan-to-value ratio at origination in
excess of 80%, may be required to be covered by a primary mortgage guaranty
insurance policy insuring against default on the mortgage loan as to at least
the principal amount thereof exceeding 75% of the value of the mortgaged
property at origination of the mortgage loan. This type of insurance will remain
in force at least until the mortgage loan amortizes to a level that would
produce a loan-to-value ratio lower than 80%. SEE "DESCRIPTION OF PRIMARY
INSURANCE POLICIES--PRIMARY MORTGAGE INSURANCe POLICIES".
A mortgaged property may have been subject to secondary financing at
origination of the mortgage loan, but, unless otherwise specified in the related
prospectus supplement, the total amount of primary and secondary financing at
the time of origination of the mortgage loan did not, to the mortgage loan
seller's knowledge, produce a combined loan-to-value ratio in excess of 150%.
The trust fund may contain mortgage loans secured by junior liens, and the
related senior lien may not be included in the trust fund. The primary risk to
holders of mortgage loans secured by junior liens is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior liens to satisfy fully both the senior liens and the junior
mortgage loan. In addition, some or all of the single family loans secured by
junior liens may be High LTV Loans. SEE "LEGAL ASPECTS OF THE MORTGAGE
LOANS-FORECLOSURE ON MORTGAGES".
The loan-to-value ratio of a mortgage loan at any given time is the ratio,
expressed as a percentage, of the then outstanding principal balance of the
mortgage loan, or, in the case of a home equity line of credit loan, the maximum
principal amount which may be advanced over the term of
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the loan, plus, in the case of a mortgage loan secured by a junior lien, the
outstanding principal balance of the related senior liens, to the value of the
related mortgaged property. The value of a single-family property or cooperative
unit, is the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of the loan and (b) if the mortgaged
property is being purchased in conjunction with the origination of the mortgage
loan the sales price for the property. For purposes of calculating the
loan-to-value ratio of a manufactured housing contract relating to a new
manufactured home, the value is no greater than the sum of a fixed percentage of
the list price of the unit actually billed by the manufacturer to the dealer,
exclusive of freight to the dealer site, including accessories identified in the
invoice, plus the actual cost of any accessories purchased from the dealer, a
delivery and set-up allowance, depending on the size of the unit, and the cost
of state and local taxes, filing fees and up to three years prepaid hazard
insurance premiums. With respect to a used manufactured home, the value is
generally the least of the sale price, the appraised value, and the National
Automobile Dealer's Association book value plus prepaid taxes and hazard
insurance premiums. The appraised value of a manufactured home is based upon the
age and condition of the manufactured housing unit and the quality and condition
of the mobile home park in which it is situated, if applicable. Manufactured
homes are less likely than other types of housing to experience appreciation in
value and are more likely to experience depreciation in value.
The underwriting standards of the mortgage loan originator or mortgage loan
seller may require an internal review of the appraisal (a "review appraisal")
used to determine the loan-to-value of a mortgage loan which may be performed by
underwriters rather than a licensed appraiser. Where the review appraisal
results in a valuation of the mortgaged property that is less than a specified
percentage of the original appraisal, the loan-to-value ratio of the related
mortgage loan will be based on the review appraisal. The prospectus supplement
of each series will describe the percentage variance used by the related
mortgage loan originator or mortgage loan seller in determining whether the
review appraisal will apply.
As of the cut-off date specified in the related prospectus supplement, the
aggregate principal balance of mortgage loans secured by condominium units will
not exceed 30% of the aggregate principal balance of the mortgage loans in the
related mortgage pool. A mortgage loan secured by a condominium unit will not be
included in a mortgage pool unless, at the time of sale of the mortgage loan by
the mortgage loan seller, representations and warranties as to the condominium
project are made by the mortgage loan seller or an affiliate of the mortgage
loan seller or by another person acceptable to the depositor having knowledge
regarding the subject matter of those representations and warranties. The
mortgage loan seller, or another party on its behalf, will have made the
following representations and warranties:
o If a condominium project is subject to developer control or to
incomplete phasing or add-ons, at least 50% of the units have been
sold to bona fide purchasers to be occupied as primary residences or
vacation or second homes.
o If a condominium project has been controlled by the unit owners, other
than the developer, and is not subject to incomplete phasing or
add-ons, at least 50% of the units been are occupied as primary
residences or vacation or second homes.
SEE "THE DEPOSITOR'S MORTGAGE LOAN PURCHASE PROGRAM--REPRESENTATIONS BY OR
ON BEHALF Of MORTGAGE LOAN SELLERS; REMEDIES FOR BREACH OF REPRESENTATION" IN
THIS PROSPECTUS FOR A DESCRIPTION
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OF OTHER REPRESENTATIONS MADE BY OR ON BEHALF OF MORTGAGE LOAN SELLERS AT THE
TIME MORTGAGE LOANS ARE SOLD.
The trust fund may include mortgage loans subject to temporary buydown
plans which provide that the monthly payments made by the borrower in the early
years of the mortgage loan will be less than the scheduled monthly payments on
the mortgage loan, the resulting difference to be made up from (a) an amount
contributed by the borrower, the seller of the mortgaged property, or another
source and placed in a custodial account and (b) unless otherwise specified in
the prospectus supplement, investment earnings on the buydown funds. The
borrower under a buydown mortgage loan is usually qualified at the lower monthly
payment taking into account the funds on deposit in the custodial account.
Accordingly, the repayment of a buydown mortgage loan is dependent on the
ability of the borrower to make larger level monthly payments after the funds in
the custodial account have been depleted. SEE "THE DEPOSITOR'S MORTGAGE LOAN
PURCHASE PROGRAM--UNDERWRITING STANDARDS" FOR A DISCUSSION OF LOSS AND
DELINQUENCY CONSIDERATIONS RELATING TO BUYDOWN MORTGAGE LOANS.
The trust fund may include mortgage loans that provide for a line of credit
under which amounts may be advanced to the borrower from time to time. Interest
on each home equity line of credit loan, excluding introductory rates offered
from time to time during promotional periods, is computed and payable monthly on
the average daily outstanding balance of the mortgage loan. Principal on a home
equity line of credit loan may be drawn down, up to a maximum amount as set
forth in the related prospectus supplement, or repaid under each mortgage loan
from time to time, but may be subject to a minimum periodic payment. Each home
equity line of credit loan included in a trust fund will be secured by a lien on
a one-to-four family property or a manufactured home. A trust fund will not
include any amounts borrowed under a home equity line of credit loan after the
cut-off date specified in the related prospectus supplement.
The trust fund may include mortgage loans with respect to which a portion
of the loan proceeds are held back from the mortgagor until required repairs or
improvements on the mortgaged property are completed, in accordance with the
mortgage loan seller's underwriting standards.
The trust fund may include mortgage loans that are delinquent as of the
date the related series of securities is issued. In that case, the related
prospectus supplement will set forth, as to each mortgage loan, available
information as to the period of delinquency and any other information relevant
for a prospective purchaser to make an investment decision. No mortgage loan in
a trust fund will be 90 or more days delinquent and no trust fund will include a
concentration of mortgage loans which are more than 30 and less than 90 days
delinquent of greater than 20%.
If so specified in the related prospectus supplement, a mortgage loan may
contain a prohibition on prepayment or a Lockout Period or require payment of a
prepayment penalty. A multifamily, commercial or mixed-use loan may also contain
a provision that entitles the lender to a share of profits realized from the
operation or disposition of the related mortgaged property. If the holders of
any class or classes of offered securities of a series will be entitled to all
or a portion of this type of equity participation, the related prospectus
supplement will describe the equity participation and the method or methods by
which distributions in respect thereof will be made to such holders.
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MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENT. Each prospectus
supplement will contain specific information with respect to the mortgage assets
contained in the related trust fund, as of the cut-off date specified in the
prospectus supplement, which will usually be close of business on the first day
of the month of formation of the related trust fund, to the extent specifically
known to the depositor as of the date of the prospectus supplement, including
the following:
o the aggregate outstanding principal balance, the largest, smallest and
average outstanding principal balance of the mortgage assets,
o the type of property securing the mortgage assets and the percentage
of mortgage assets in the related mortgage pool which are secured by
that type of property,
o the original terms to maturity of the mortgage assets,
o the earliest origination date and latest maturity date,
o the aggregate principal balance of mortgage loans having loan-to-value
ratios at origination exceeding 80%, or, with respect to mortgage
loans secured by a junior lien, the aggregate principal balance of
mortgage loans having combined loan-to-value ratios exceeding 80%,
o the interest rates or range of interest rates borne by the mortgage
loans,
o the geographical distribution of the mortgaged properties on a
state-by-state basis,
o the number and aggregate principal balance of buydown mortgage loans,
if any,
o a description of the retained interest, if any,
o with respect to ARM Loans, the index, the adjustment dates, the
highest, lowest and weighted average gross margin, and the maximum
interest rate variation at the time of any adjustment and over the
life of the ARM Loan,
o the range of debt service coverage ratios for mortgage loans secured
by multifamily properties or commercial properties, and
o whether the mortgage loans provide for payments of interest only for
any period and the frequency and amount by which, and the term during
which, monthly payments adjust.
If specific information respecting the trust fund assets is not known to
the depositor at the time securities are initially offered, more general
information of the nature described in the bullet points above will be provided
in the prospectus supplement, and specific information as to the trust fund
assets to be included in the trust fund on the date of issuance of the
securities will be set forth in a report which will be available to purchasers
of the related securities at or before the initial issuance of the securities
and will be filed, together with the related pooling and servicing agreement,
with respect to each series of certificates, or the related servicing agreement,
trust agreement and indenture, with respect to each series of notes, as part of
a report on Form 8-K with the Securities and Exchange Commission within fifteen
days after the initial issuance. If mortgage loans are
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added to or deleted from the trust fund after the date of the related prospectus
supplement, the addition or deletion will be noted on the Current Report or Form
8-K. In no event, however, will more than 5%, by principal balance at the
cut-off date, of the mortgage loans deviate from the characteristics of the
mortgage loans set forth in the related prospectus supplement. In addition, a
report on Form 8-K will be filed within 15 days after the end of any pre-funding
period containing information respecting the trust fund assets transferred to a
trust fund after the date of issuance of the related securities as described in
the following paragraph.
DESCRIPTION OF THE PRE-FUNDING ACCOUNT FOR THE PURCHASE OF ADDITIONAL MORTGAGE
LOANS
The agreement governing the trust fund may provide for the transfer by the
mortgage loan seller of additional mortgage assets to the related trust fund
after the date of initial issuance of the securities. In that case, the trust
fund will include a pre-funding account, into which all or a portion of the
proceeds of the sale of one or more classes of securities of the related series
will be deposited to be released as additional mortgage assets are transferred.
Additional mortgage assets will be required to conform to the requirements set
forth in the related agreement or other agreement providing for the transfer,
and will be underwritten to the same standards as the mortgage assets initially
included in the trust fund. A pre-funding account will be required to be
maintained as an eligible account under the related agreement and the amount
held in the pre-funding account shall at no time exceed 50% of the aggregate
outstanding principal balance of the securities. The related agreement providing
for the transfer of additional mortgage assets will provide that all transfers
must be made within 3 months, if a REMIC election has been made with respect to
the trust, or within 6 months after the date on which the related securities
were issued, and that amounts set aside to fund the transfers, whether in a
pre-funding account or otherwise, and not so applied within the required period
of time will be deemed to be principal prepayments and applied in the manner set
forth in the related prospectus supplement.
The depositor will be required to provide data regarding the additional
mortgage assets to the rating agencies and the security insurer, if any,
sufficiently in advance of the scheduled transfer to permit review by the rating
agencies and the security insurer. Transfer of the additional mortgage assets
will be further conditioned upon confirmation by the rating agencies that the
addition of mortgage assets to the trust fund will not result in the downgrading
of the securities or, in the case of a series guaranteed or supported by a
security insurer, will not adversely affect the capital requirements of the
security insurer. Finally, a legal opinion to the effect that the conditions to
the transfer of the additional mortgage assets have been satisfied will be
required.
THE DEPOSITOR
Ameriquest Mortgage Securities Inc., the depositor, is a Delaware
corporation incorporated on December 23, 1999 as an indirect wholly-owned
subsidiary of Ameriquest Mortgage Company. The depositor was organized for the
purpose of serving as a private secondary mortgage market conduit. The depositor
maintains its principal office at 1100 Town & Country Road, Orange, California
92868. Its telephone number is (714) 541-9960.
The depositor does not have, nor is it expected in the future to have, any
significant assets. The prospectus supplement for each series of securities will
disclose if the depositor is a party to any
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legal proceedings that could have a material impact on the related trust fund
and the interests of the potential investors.
USE OF PROCEEDS
The net proceeds to be received from the sale of the securities will be
applied by the depositor to the purchase of trust fund assets or will be used by
the depositor for general corporate purposes. The depositor expects that it will
make additional sales of securities similar to the securities from time to time,
but the timing and amount of offerings of securities will depend on a number of
factors, including the volume of mortgage assets acquired by the depositor,
prevailing interest rates, availability of funds and general market conditions.
YIELD AND MATURITY CONSIDERATIONS
The yield on any offered security will depend on the following:
o the price paid by the securityholder,
o the rate at which interest accrued on the security,
o the receipt and timing of receipt of distributions on the security,
o the weighted average life of the mortgage assets in the related trust
fund,
o liquidations of mortgage assets following mortgagor defaults,
o purchases of mortgage assets in the event of optional termination of
the trust fund or breaches of representations made in respect of such
mortgage assets by the depositor, the master servicer and others, and
o in the case of securities evidencing interests in ARM Loans, by
changes in the interest rates or the conversions of ARM Loans to a
fixed interest rate.
SECURITY INTEREST RATE. Securities of any class within a series may have
fixed, variable or adjustable security interest rates, which may or may not be
based upon the interest rates borne by the mortgage assets in the related trust
fund. The prospectus supplement with respect to any series of securities will
specify the security interest rate for each class of securities or, in the case
of a variable or adjustable security interest rate, the method of determining
the security interest rate. Holders of Stripped Interest Securities or a class
of securities having a security interest rate that varies based on the weighted
average interest rate of the underlying mortgage assets will be affected by
disproportionate prepayments and repurchases of mortgage assets having higher
interest rates than the average interest rate.
TIMING OF PAYMENT OF INTEREST AND PRINCIPAL. The effective yield to
securityholders entitled to payments of interest will be slightly lower than the
yield otherwise produced by the applicable security interest rate because, while
interest on the mortgage assets may accrue from the first day of each month, the
distributions of such interest will not be made until the distribution date
which may
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be as late as the 25th day of the month following the month in which interest
accrues on the mortgage assets. On each distribution date, a payment of interest
on the securities, or addition to the principal balance of a class of Accrual
Securities, will include interest accrued during the interest accrual period
described in the related prospectus supplement for that remittance date. If the
interest accrual period ends on a date other than a remittance date for the
related series, the yield realized by the holders of the securities may be lower
than the yield that would result if the interest accrual period ended on the
remittance date. In addition, if so specified in the related prospectus
supplement, interest accrued for an interest accrual period for one or more
classes of securities may be calculated on the assumption that distributions of
principal, and additions to the principal balance of Accrual Securities, and
allocations of losses on the mortgage assets may be made on the first day of the
interest accrual period for a remittance date and not on the remittance date.
This method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
interest accrual period.
When a principal prepayment in full is made on a mortgage loan, the
borrower is charged interest only for the period from the due date of the
preceding monthly payment up to the date of the prepayment, instead of for a
full month. When a partial prepayment is made on a mortgage loan, the mortgagor
is not charged interest on the amount of the prepayment for the month in which
the prepayment is made. Accordingly, the effect of principal prepayments in full
during any month will be to reduce the aggregate amount of interest collected
that is available for distribution to securityholders. The mortgage loans in a
trust fund may contain provisions limiting prepayments or requiring the payment
of a prepayment penalty upon prepayment in full or in part. If so specified in
the related prospectus supplement, a prepayment penalty collected may be applied
to offset the above-described shortfalls in interest collections on the related
distribution date. Otherwise, prepayment penalties collected may be available
for distribution only to a specific class of securities or may not be a part of
the related trust at all, and, therefore not available for distribution to any
class of securities. Full and partial principal prepayments collected during the
prepayment period set forth in a prospectus supplement will be available for
distribution to securityholders on the related distribution date. Neither the
trustee nor the depositor will be obligated to fund shortfalls in interest
collections resulting from prepayments. The prospectus supplement for a series
of securities may specify that the master servicer will be obligated to pay from
its own funds, without reimbursement, those interest shortfalls attributable to
full and partial prepayments by mortgagors but only up to an amount equal to its
servicing fee for the related due period. SEE "DESCRIPTION OF THE SECURITIES".
In addition, if so specified in the related prospectus supplement, a holder
of a non-offered class of securities will have the right, solely at its
discretion, to terminate the related trust fund on any distribution date after
the 12th distribution date following the date of initial issuance of the related
series of securities and until the date as the Clean-up Call becomes exercisable
and thereby effect early retirement of the securities of the series. Any call of
this type will be of the entire trust fund at one time; multiple calls with
respect to any series of securities will not be permitted. Early termination
would result in the concurrent retirement of all outstanding securities of the
related series and would decrease the average lives of the terminated
securities, perhaps significantly. The earlier after the date of the initial
issuance of the securities that the termination occurs, the greater would be the
effect.
PRINCIPAL PREPAYMENTS. The yield to maturity on the securities will be
affected by the rate of principal payments on the mortgage assets, including
principal prepayments, curtailments, defaults
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and liquidations. The rate at which principal prepayments occur on the mortgage
assets will be affected by a variety of factors, including, without limitation,
the following:
o the terms of the mortgage assets,
o the level of prevailing interest rates,
o the availability of mortgage credit,
o in the case of multifamily loans and commercial loans, the quality of
management of the mortgaged properties, and
o economic, demographic, geographic, tax, legal and other factors.
In general, however, if prevailing interest rates fall significantly below
the interest rates on the mortgage assets included in a particular trust fund,
those mortgage assets are likely to be the subject of higher principal
prepayments than if prevailing rates remain at the rates borne by those mortgage
assets. Conversely, if prevailing interest rates rise significantly above the
interest rates on the mortgage assets included in a particular trust fund, those
mortgage assets are likely to be the subject of lower principal prepayments than
if prevailing rates remain at the rates borne by those mortgage assets. The rate
of principal payments on some or all of the classes of securities of a series
will correspond to the rate of principal payments on the mortgage assets
included in the related trust fund and is likely to be affected by the existence
of prepayment premium provisions of the mortgage assets in a mortgage pool, and
by the extent to which the servicer of any such mortgage asset is able to
enforce such provisions. There can be no certainty as to the rate of prepayments
on the mortgage assets during any period or over the life of the related
securities.
If the purchaser of a security offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the mortgage assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a security offered at a premium calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal that is
slower than that actually experienced on the mortgage assets, the actual yield
to maturity will be lower than that so calculated. In either case, the effect on
yield of prepayments on one or more classes of securities of a series may be
mitigated or exacerbated by the priority of distributions of principal to those
classes as provided in the related prospectus supplement.
The timing of changes in the rate of principal payments on the mortgage
assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
mortgage assets and distributed in respect of a security, the greater the effect
on such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher or lower than the rate anticipated
by the investor during a given period may not be offset by a subsequent like
decrease or increase in the rate of principal payments.
DEFAULTS. The rate of defaults on the mortgage assets will also affect the
rate and timing of principal payments on the mortgage assets and thus the yield
on the securities. In general, defaults on
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single family loans are expected to occur with greater frequency in their early
years. However, mortgage assets that require balloon payments, including
multifamily loans, risk default at maturity, or that the maturity of the balloon
loan may be extended in connection with a workout. The rate of default on
mortgage loans which are refinance or limited documentation mortgage loans,
mortgage assets with high loan-to-value ratios, and ARM Loans may be higher than
for other types of mortgage assets. Furthermore, the rate and timing of defaults
and liquidations on the mortgage assets will be affected by the general economic
condition of the region of the country in which the related mortgaged properties
are located. The risk of delinquencies and loss is greater and prepayments are
less likely in regions where a weak or deteriorating economy exists, as may be
evidenced by, among other factors, increasing unemployment or falling property
values.
MATURITY AND WEIGHTED AVERAGE LIFE
PREPAYMENTS. The rates at which principal payments are received on the
mortgage assets included in a trust fund and the rate at which payments are made
from any credit support for the related series of securities may affect the
ultimate maturity and the weighted average life of each class of the series.
Weighted average life refers to the average amount of time that will elapse from
the date of issue of a security until each dollar of principal of that security
will be repaid to the investor. The weighted average life of a class of
securities of a series will be influenced by, among other factors, the rate at
which principal on the related mortgage assets is paid to that class, which may
be in the form of scheduled amortization or prepayments. For this purpose, the
term prepayment includes prepayments, in whole or in part, and liquidations due
to default. Prepayments on the mortgage assets in a trust fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the securities of the related series.
If so provided in the prospectus supplement for a series of securities, one
or more classes of securities may have a final scheduled remittance date, which
is the date on or prior to which the principal balance thereof is scheduled to
be reduced to zero, calculated on the basis of the assumptions applicable to
such series set forth therein.
In addition, the weighted average life of the securities may be affected by
the varying maturities of the related mortgage assets. If any mortgage assets in
a trust fund have actual terms to maturity of less than those assumed in
calculating the final scheduled remittance dates for the classes of securities
of the related series, one or more classes of the securities may be fully paid
prior to their respective final scheduled remittance dates, even in the absence
of prepayments. Accordingly, the prepayment experience of the mortgage pool
will, to some extent, be a function of the mix of interest rates and maturities
of the mortgage assets in that mortgage pool. SEE "DESCRIPTION OF THE TRUST
FUNDS".
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate prepayment model or the
Standard Prepayment Assumption prepayment model, each as described below. CPR
represents a constant assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of loans for the life of those loans.
SPA represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of loans. A prepayment assumption of
100% of SPA assumes prepayment rates of 0.2% per annum of the then outstanding
principal balance of the loans in the first month of the life of the loans and
an additional 0.2% per annum in each month thereafter until the thirtieth
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month. Beginning in the thirtieth month and in each month thereafter during the
life of the loans, 100% of SPA assumes a constant prepayment rate of 6% per
annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption purports
to be an historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans. Moreover, CPR and SPA were
developed based upon historical prepayment experience for single family loans.
Thus, it is likely that prepayment of any mortgage assets will not conform to
any particular level of CPR or SPA.
The prospectus supplement with respect to each series of securities may
contain tables, if applicable, setting forth the projected weighted average life
of one or more classes of offered securities of the series and the percentage of
the initial principal balance of each class that would be outstanding on
specified remittance dates based on the assumptions stated in that prospectus
supplement, including assumptions that prepayments on the related mortgage
assets are made at rates corresponding to various percentages of CPR, SPA or at
other rates specified in the prospectus supplement. Tables and assumptions are
intended to illustrate the sensitivity of the weighted average life of the
securities to various prepayment rates and are not intended to predict or to
provide information that will enable investors to predict the actual weighted
average life of the securities. It is unlikely that prepayment of any mortgage
assets for any series will conform to any particular level of CPR, SPA or any
other rate specified in the related prospectus supplement.
There can be no assurance as to the rate of prepayment of the mortgage
loans underlying or comprising the trust fund assets in any trust fund. The
depositor is not aware of any publicly available statistics relating to the
principal prepayment experience of diverse portfolios of mortgage loans over an
extended period of time. All statistics known to the depositor that have been
compiled with respect to prepayment experience on mortgage loans indicates that
while some mortgage loans may remain outstanding until their stated maturities,
a substantial number will be paid prior to their respective stated maturities.
The depositor is not aware of any historical prepayment experience with respect
to mortgage loans secured by properties located in Puerto Rico or Guam and,
accordingly, prepayments on loans secured by properties in Puerto Rico or Guam
may not occur at the same rate or be affected by the same factors as other
mortgage loans.
TYPE OF MORTGAGE ASSET. The type of mortgage assets included in a trust
fund may affect the weighted average life of the related securities. A number of
mortgage assets may have balloon payments due at maturity, and because the
ability of a mortgagor to make a balloon payment typically will depend upon its
ability either to refinance the loan or to sell the related mortgaged property,
there is a risk that mortgage assets having balloon payments may default at
maturity, or that the servicer may extend the maturity of the mortgage asset in
connection with a workout. In addition, a number of mortgage assets may be
junior mortgage loans. The rate of default on junior mortgage loans may be
greater than that of mortgage loans secured by first liens on comparable
properties. In the case of defaults, recovery of proceeds may be delayed by,
among other things, bankruptcy of the mortgagor or adverse conditions in the
market where the property is located. In order to minimize losses on defaulted
mortgage assets, the servicer may, to the extent and under the circumstances set
forth in this prospectus and in the related servicing agreement, be permitted to
modify mortgage assets that are in default or as to which a payment default
appears imminent. Any defaulted balloon payment or modification that extends the
maturity of a mortgage asset will tend to extend the
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weighted average life of the securities, thereby lengthening the period of time
elapsed from the date of issuance of a security until it is retired.
Although the interest rates on ARM Loans will be subject to periodic
adjustments, adjustments generally will, unless otherwise specified in the
related prospectus supplement, (1) not increase or decrease the interest rate by
more than a fixed percentage amount on each adjustment date, (2) not increase
the interest rate over a fixed percentage amount during the life of any ARM Loan
and (3) be based on an index, which may not rise and fall consistently with the
mortgage interest rate, plus the related fixed percentage set forth in the
related mortgage note, which may be different from margins being used at the
time for newly originated adjustable rate mortgage loans. As a result, the
interest rates on the ARM Loans in a mortgage pool at any time may not equal the
prevailing rates for similar, newly originated adjustable rate mortgage loans.
In certain rate environments, the prevailing rates on fixed rate mortgage loans
may be sufficiently low in relation to the then-current mortgage rates on ARM
Loans with the result that the rate of prepayments may increase as a result of
refinancings. There can be no certainty as to the rate of prepayments on the
mortgage assets during any period or over the life of any series of securities.
The interest rates on ARM Loans subject to negative amortization generally
adjust monthly and their amortization schedules adjust less frequently. During a
period of rising interest rates, as well as immediately after origination when
initial interest rates are generally lower than the sum of the indices
applicable at origination and the related margins, the amount of interest
accruing on the principal balance of these types of mortgage assets may exceed
the amount of the minimum scheduled monthly payment thereon. As a result, a
portion of the accrued interest on negatively amortizing mortgage assets may
become deferred interest which will be added to the principal balance thereof
and will bear interest at the applicable interest rate. The addition of any
deferred interest to the principal balance of any related class or classes of
securities of a series will lengthen the weighted average life thereof and may
adversely affect yield to holders thereof, depending upon the price at which the
securities were purchased. In addition, with respect to certain ARM Loans
subject to negative amortization, during a period of declining interest rates,
it might be expected that each minimum scheduled monthly payment on the ARM Loan
would exceed the amount of scheduled principal and accrued interest on the
principal balance thereof, and since such excess will be applied to reduce the
principal balance of the related class or classes of securities, the weighted
average life of the securities will be reduced which may adversely affect yield
to holders thereof, depending upon the price at which such securities were
purchased.
FORECLOSURES AND PAYMENT PLANS. The number of foreclosures and the
principal amount of the mortgage assets that are foreclosed in relation to the
number of mortgage assets that are repaid in accordance with their terms will
affect the weighted average life of those mortgage assets and that of the
related series of securities. Servicing decisions made with respect to the
mortgage assets, including the use of payment plans prior to a demand for
acceleration and the restructuring of mortgage assets in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular mortgage assets
and thus the weighted average life of the securities.
DUE-ON-SALE CLAUSES. Acceleration of mortgage payments as a result of
certain transfers of or the creation of encumbrances upon underlying mortgaged
property is another factor affecting prepayment rates that may not be reflected
in the prepayment standards or models used in the relevant prospectus
supplement. In most cases the mortgage assets will include "due-on-sale" clauses
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that permit the lender in certain instances to accelerate the maturity of the
loan if the borrower sells, transfers or conveys the property. The master
servicer, on behalf of the trust fund, will employ its usual practices in
determining whether to exercise any right that the trustee may have as mortgagee
to accelerate payment of the mortgage asset. An ARM Loan may be assumable under
some conditions if the proposed transferee of the related mortgaged property
establishes its ability to repay the mortgage asset and, in the reasonable
judgment of the servicer or the related sub-servicer, the security for the ARM
Loan would not be impaired by the assumption. The extent to which ARM Loans are
assumed by purchasers of the mortgaged properties rather than prepaid by the
related mortgagors in connection with the sales of the mortgaged properties will
affect the weighted average life of the related series of securities. SEE "LEGAL
ASPECTS OF MORTGAGE ASSETS--ENFORCEABILITY Of CERTAIN PROVISIONS".
THE DEPOSITOR'S MORTGAGE LOAN PURCHASE PROGRAM
The mortgage loans to be included in a trust fund will be purchased by the
depositor, either directly or indirectly, from the mortgage loan sellers.
UNDERWRITING STANDARDS
All mortgage loans to be included in a trust fund will have been subject to
underwriting standards acceptable to the depositor and applied as described in
the following paragraph. Each mortgage loan seller, or another party on its
behalf, will represent and warrant that mortgage loans purchased by or on behalf
of the depositor from it have been originated by the related originators in
accordance with these underwriting guidelines.
The underwriting standards are applied by the originators to evaluate the
value of the mortgaged property and to evaluate the adequacy of the mortgaged
property as collateral for the mortgage loan. While the originator's primary
consideration in underwriting a mortgage loan is the value of the mortgaged
property, the originator also considers the borrower's credit history and
repayment ability as well as the type and use of the mortgaged property. As a
result of this underwriting criteria, changes in the values of mortgage
properties may have a greater effect on the delinquency, foreclosure and loss
experience on the mortgage loans in a trust fund than these changes would be
expected to have on mortgage loans that are originated in a more traditional
manner. No assurance can be given by the depositor that the values of the
related mortgaged properties have remained or will remain at the levels in
effect on the dates of origination of the related mortgage loans.
High LTV Loans are underwritten with an emphasis on the creditworthiness of
the related mortgagor. High LTV are underwritten with a limited expectation of
recovering any amounts from the foreclosure of the related property.
In the case of the multifamily loans, commercial loans or mixed-use loans,
lenders typically look to the debt service coverage ratio of a loan as an
important measure of the risk of default on that loan. Unless otherwise defined
in the related prospectus supplement, the debt service coverage ratio of a
multifamily loan or commercial loan at any given time is the ratio of (1) the
net operating income of the related mortgaged property for a twelve-month period
to (2) the annualized scheduled payments on the mortgage loan and on any other
loan that is secured by a lien on the mortgaged
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property prior to the lien of the related mortgage. Net operating incomes is:
the total operating revenues derived from a multifamily, commercial or mixed-use
property, as applicable, during that period, minus the total operating expenses
incurred in respect of that property during that period other than (a) non-cash
items such as depreciation and amortization, (b) capital expenditures and (c)
debt service on loans (including the related mortgage loan) secured by liens on
that property. The net operating income of a multifamily, commercial or
mixed-use property, as applicable, will fluctuate over time and may or may not
be sufficient to cover debt service on the related mortgage loan at any given
time. As the primary source of the operating revenues of a multifamily,
commercial or mixed-use property, as applicable, rental income (and maintenance
payments from tenant-stockholders of a cooperatively owned multifamily property)
may be affected by the condition of the applicable real estate market and/or
area economy. Increases in operating expenses due to the general economic
climate or economic conditions in a locality or industry segment, such as
increases in interest rates, real estate tax rates, energy costs, labor costs
and other operating expenses, and/or to changes in governmental rules,
regulations and fiscal policies, may also affect the risk of default on a
multifamily, commercial or mixed-use loan. Lenders also look to the
loan-to-value ratio of a multifamily, commercial or mixed-use loan as a measure
of risk of loss if a property must be liquidated following a default.
Typically, the underwriting process used by an originator is as described
in this and the next two following paragraphs. The prospectus supplement for a
series will describe any variations to this process as it applies to the related
mortgage assets. Initially, a prospective borrower is required to complete an
application with respect to the applicant's liabilities, income and credit
history and personal information, as well as an authorization to apply for a
credit report that summarizes the borrower's reported credit history with local
merchants and lenders and any record of bankruptcy. In addition, an employment
verification is obtained that reports the borrower's current salary and may
contain information regarding length of employment. If a prospective borrower is
self-employed, the borrower is required to submit copies of signed tax returns
or other proof of business income. The borrower may also be required to
authorize verification of deposits at financial institutions where the borrower
has demand or savings accounts. In the case of a multifamily loan, commercial
loan or mixed-use loan, the mortgagor will also be required to provide certain
information regarding the related mortgaged property, including a current rent
roll and operating income statements which may be pro forma and unaudited. In
addition, the originator will generally also consider the location of the
mortgaged property, the availability of competitive lease space and rental
income of comparable properties in the relevant market area, the overall economy
and demographic features of the geographic area and the mortgagor's prior
experience in owning and operating properties similar to the multifamily
properties or commercial properties, as the case may be.
In determining the adequacy of the property as collateral, an appraisal is
made of each property considered for financing, except in the case of new
manufactured homes whose appraised value is determined using the list price of
the unit and accessories as described above under "Description of the Trust
Funds". Each appraiser is selected in accordance with predetermined guidelines
established for appraisers. The appraiser is required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. The appraisal is based on the market value of comparable homes, the
estimated rental income, if considered applicable by the appraiser, and, when
deemed appropriate, the cost of replacing the home. With respect to multifamily
properties, commercial properties and mixed-use properties, the appraisal must
specify
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whether an income analysis, a market analysis or a cost analysis was used. An
appraisal employing the income approach to value analyzes a property's projected
net cash flow, capitalization and other operational information in determining
the property's value. The market approach to value analyzes the prices paid for
the purchase of similar properties in the property's area, with adjustments made
for variations between those other properties and the property being appraised.
The cost approach to value requires the appraiser to make an estimate of land
value and then determine the current cost of reproducing the improvements less
any accrued depreciation. The value of the property being financed, as indicated
by the appraisal, must be high enough so that it currently supports, and is
anticipated to support in the future, the outstanding loan balance.
In the case of single family loans and contracts, once all applicable
employment, credit and property information is received, the originator reviews
the applicant's source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews the credit
history of the applicant, calculates the debt service-to-income ratio to
determine the applicant's ability to repay the loan, reviews the type of
property being financed and reviews the property. In evaluating the credit
quality of borrowers, the originator may utilize the FICO score supplied by the
credit bureau with the credit report (a statistical ranking of likely future
credit performance developed by Fair, Isaac & Company and three national credit
data repositories - Equifax, TransUnion and Experian).
In the case of a mortgage loan secured by a leasehold interest in a
residential property, the title to which is held by a third party lessor, the
mortgage loan seller, or another party on its behalf, will be required to
warrant, among other things, that the remaining term of the lease and any
sublease be at least five years longer than the remaining term of the mortgage
loan.
With respect to any loan insured by the FHA, the mortgage loan seller is
required to represent that the FHA loan complies with the applicable
underwriting policies of the FHA. SEE "DESCRIPTION OF PRIMARY INSURANCE
POLICIES--FHA INSURANCE".
With respect to any loan guaranteed by the VA, the mortgage loan seller
will be required to represent that the VA loan complies with the applicable
underwriting policies of the VA. SEE "DESCRIPTION OF PRIMARY INSURANCE
POLICIES-VA GUARANTEE".
The recent foreclosure or repossession and delinquency experience with
respect to loans serviced by the master servicer or, if applicable, a
significant sub-servicer will be provided in the related prospectus supplement.
QUALIFICATIONS OF ORIGINATORS AND MORTGAGE LOAN SELLERS
Each originator will be required to satisfy the qualifications set forth in
this paragraph. Each originator must be an institution experienced in
originating conventional mortgage loans in accordance with customary and
reasonable practices and the mortgage loan seller's or the depositor's
guidelines, and must maintain satisfactory facilities to originate those loans.
Each originator must be a HUD-approved mortgagee or an institution the deposit
accounts in which are insured by the Bank Insurance Fund or Savings Association
Insurance Fund of the FDIC. In addition, with respect to FHA loans or VA loans,
each originator must be approved to originate the mortgage loans by the
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FHA or VA, as applicable. Each originator and mortgage loan seller must also
satisfy criteria as to financial stability evaluated on a case by case basis by
the depositor.
REPRESENTATIONS BY OR ON BEHALF OF MORTGAGE LOAN SELLERS; REMEDIES FOR BREACH OF
REPRESENTATION
Each mortgage loan seller, or a party on its behalf, will have made
representations and warranties in respect of the mortgage loans sold by that
mortgage loan seller. The following material representations and warranties as
to the mortgage loans will be made by or on behalf of each mortgage loan seller:
o that any required hazard insurance was effective at the origination of
each mortgage loan, and that each required policy remained in effect
on the date of purchase of the mortgage loan from the mortgage loan
seller by or on behalf of the depositor;
o that either (A) title insurance insuring, subject only to permissible
title insurance exceptions, the lien status of the Mortgage was
effective at the origination of each mortgage loan and the policy
remained in effect on the date of purchase of the mortgage loan from
the mortgage loan seller by or on behalf of the depositor or (B) if
the mortgaged property securing any mortgage loan is located in an
area where title insurance policies are generally not available, there
is in the related mortgage file an attorney's certificate of title
indicating, subject to permissible exceptions set forth therein, the
lien status of the mortgage;
o that the mortgage loan seller had good title to each mortgage loan and
each mortgage loan was subject to no valid offsets, defenses,
counterclaims or rights of rescission except to the extent that any
buydown agreement described herein may forgive some indebtedness of a
borrower;
o that each Mortgage constituted a valid lien on, or security interest
in, the mortgaged property, subject only to permissible title
insurance exceptions and senior liens, if any, and that the mortgaged
property was free from material damage and was in good repair;
o that there were no delinquent tax or assessment liens against the
mortgaged property;
o that each mortgage loan was not currently more than 90 days delinquent
as to required monthly payments of principal and interest; and
o that each mortgage loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws and
regulations in all material respects.
If a person other than a mortgage loan seller makes any of the foregoing
representations and warranties on behalf of the mortgage loan seller, the
identity of the person will be specified in the related prospectus supplement.
Any person making representations and warranties on behalf of a mortgage loan
seller shall be an affiliate of the mortgage loan seller or a person acceptable
to the depositor having knowledge regarding the subject matter of those
representations and warranties.
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All of the representations and warranties made by or on behalf of a
mortgage loan seller in respect of a mortgage loan will have been made as of the
date on which the mortgage loan seller sold the mortgage loan to or on behalf of
the depositor. A substantial period of time may have elapsed between the date
the representation or warranty was made to or on behalf of the depositor and the
date of initial issuance of the series of securities evidencing an interest in
the related mortgage loan. In the event of a breach of any representation or
warranty made by a mortgage loan seller, the mortgage loan seller will be
obligated to cure the breach or repurchase or replace the affected mortgage loan
as described in the second following paragraph. Since the representations and
warranties made by or on behalf of a mortgage loan seller do not address events
that may occur following the sale of a mortgage loan by that mortgage loan
seller, it will have a cure, repurchase or substitution obligation in connection
with a breach of a representation and warranty only if the relevant event that
causes the breach occurs prior to the date of the sale to or on behalf of the
depositor. A mortgage loan seller would have no repurchase or substitution
obligations if the relevant event that causes the breach occurs after the date
of the sale to or on behalf of the depositor. However, the depositor will not
include any mortgage loan in the trust fund for any series of securities if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties made in respect of a mortgage loan will
not be accurate and complete in all material respects as of the date of initial
issuance of the related series of securities.
The only representations and warranties to be made for the benefit of
holders of securities in respect of any mortgage loan relating to the period
commencing on the date of sale of a mortgage loan by the mortgage loan seller to
or on behalf of the depositor will be the limited representations of the
depositor and of the master servicer described below under "Description of the
Securities-- Assignment of Trust Fund Assets; Review of Files by Trustee". If
the master servicer is also a mortgage loan seller with respect to a particular
series, the representations will be in addition to the representations and
warranties made by the master servicer in its capacity as a mortgage loan
seller.
The master servicer and the trustee, or the trustee, will promptly notify
the relevant mortgage loan seller of any breach of any representation or
warranty made by or on behalf of it in respect of a mortgage loan that
materially and adversely affects the value of that mortgage loan or the
interests in the mortgage loan of the securityholders. If the mortgage loan
seller cannot cure a breach within a specified time period from the date on
which the mortgage loan seller was notified of the breach, then the mortgage
loan seller will be obligated to repurchase the affected mortgage loan from the
trustee within a specified time period from the date on which the mortgage loan
seller was notified of the breach, at the purchase price therefor. A mortgage
loan seller, rather than repurchase a mortgage loan as to which a breach has
occurred, may have the option, within a specified period after initial issuance
of the related series of securities, to cause the removal of the mortgage loan
from the trust fund and substitute in its place one or more other mortgage
loans, in accordance with the standards described below under "Description of
the Securities--Assignment of the Mortgage Loans". The master servicer will be
required under the applicable servicing agreement to use its best efforts to
enforce the repurchase or substitution obligations of the mortgage loan seller
for the benefit of the trustee and the holders of the securities, following the
practices it would employ in its good faith business judgment were it the owner
of the mortgage loan. This repurchase or substitution obligation will constitute
the sole remedy available to holders of securities or the trustee for a breach
of representation by a mortgage loan seller. SEE "DESCRIPTION OF THE
SECURITIES".
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Neither the depositor nor the master servicer will be obligated to purchase
or substitute for a mortgage loan if a mortgage loan seller defaults on its
obligation to do so, and no assurance can be given that mortgage loan sellers
will carry out their repurchase or substitution obligations with respect to
mortgage loans. To the extent that a breach of the representations and
warranties of a mortgage loan seller may also constitute a breach of a
representation made by the depositor, the depositor may have a repurchase or
substitution obligation as described below under "Description of the
Securities--Assignment of Trust Fund Assets; Review of Files by Trustee".
DESCRIPTION OF THE SECURITIES
The securities will be issued in series. Each series of certificates
evidencing interests in a trust fund consisting of mortgage loans will be issued
in accordance with a pooling and servicing agreement among the depositor, the
master servicer and the trustee named in the prospectus supplement. Each series
of notes evidencing indebtedness of a trust fund consisting of mortgage loans
will be issued in accordance with an indenture between the related issuer and
the trustee named in the prospectus supplement. The issuer of notes will be the
depositor or an owner trust established under an owner trust agreement between
the depositor and the owner trustee for the purpose of issuing a series of
notes. Where the issuer is an owner trust, the ownership of the trust fund will
be evidenced by equity certificates issued under the owner trust agreement. The
provisions of each agreement will vary depending upon the nature of the
securities to be issued thereunder and the nature of the related trust fund.
Various forms of pooling and servicing agreement, servicing agreement, owner
trust agreement, trust agreement and indenture have been filed as exhibits to
the registration statement of which this prospectus is a part. The following
summaries describe specific provisions which will appear in each agreement. The
prospectus supplement for a series of securities will describe additional
provisions of the agreement relating to a series. This prospectus together with
the prospectus supplement will describe the material terms of the agreement
governing the trust fund related to a series of securities. As used in this
prospectus supplement with respect to any series, the term certificate or the
term note refers to all of the certificates or notes of that series, whether or
not offered by this prospectus and by the related prospectus supplement, unless
the context otherwise requires.
The certificates of each series, including any class of certificates not
offered hereby, will be issued in fully registered form only and will represent
the entire beneficial ownership interest in the trust fund created by the
related pooling and servicing agreement. The notes of each series, including any
class of notes not offered hereby, will be issued in fully registered form only
and will represent indebtedness of the trust fund created by the related
indenture. If so provided in the prospectus supplement, any class of securities
of any series may be represented by a certificate or note registered in the name
of a nominee of The Depository Trust Company. The interests of beneficial owners
of securities registered in the name of DTC will be represented by entries on
the records of participating members of DTC. Definitive certificates or notes
will be available for securities registered in the name of DTC only under the
limited circumstances provided in the related prospectus supplement. The
securities will be transferable and exchangeable for like securities of the same
class and series in authorized denominations at the corporate trust office of
the trustee as specified in the related prospectus supplement. The prospectus
supplement for each series of securities will describe any limitations on
transferability. No service charge will be made for any registration of exchange
or transfer of securities, but the depositor or the trustee or any agent of the
trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
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Each series of securities may consist of either:
o a single class of securities evidencing the entire beneficial
ownership of or indebtedness of the related trust fund;
o two or more classes of securities evidencing the entire beneficial
ownership of or indebtedness of the related trust fund, one or more
classes of which will be senior in right of payment to one or more of
the other classes;
o two or more classes of securities, one or more classes of which are
entitled to (a) principal distributions, with disproportionate,
nominal or no interest distributions or (b) interest distributions,
with disproportionate, nominal or no principal distributions;
o two or more classes of securities which differ as to timing,
sequential order, priority of payment, security interest rate or
amount of distributions of principal or interest or both, or as to
which distributions of principal or interest or both on any class may
be made upon the occurrence of specified events, in accordance with a
schedule or formula, or on the basis of collections from designated
portions of the mortgage pool, which series may include one or more
classes of securities, as to which accrued interest or a portion
thereof will not be distributed but rather will be added to the
principal balance of the security on each distribution date in the
manner described in the related prospectus supplement; and
o other types of classes of securities, as described in the related
prospectus supplement.
With respect to any series of notes, the equity certificates, insofar as
they represent the beneficial ownership interest in the issuer, will be
subordinate to the related notes.
Each class of securities, other than interest only Strip Securities, will
have a stated principal amount and, unless otherwise provided in the related
prospectus supplement, will be entitled to payments of interest on the stated
principal amount based on a fixed, variable or adjustable interest rate. The
security interest rate of each security offered hereby will be stated in the
related prospectus supplement as the pass-through rate with respect to a
certificate and the note interest rate with respect to a note. SEE
"-DISTRIBUTION OF INTEREST ON THE SECURITIES" AND "-DISTRIBUTION OF PRINCIPAL OF
THE SECURITIES" BELOW.
The specific percentage ownership interest of each class of securities and
the minimum denomination for each security will be set forth in the related
prospectus supplement.
As to each series of certificates with respect to which a REMIC election is
to be made, the master servicer or the trustee will be obligated to take all
actions required in order to comply with applicable laws and regulations, and
will be obligated to pay any Prohibited Transaction Taxes or Contribution Taxes
arising out of a breach of its obligations with respect to its compliance
without any right of reimbursement therefor from the trust fund or from any
securityholder. A Prohibited Transaction Tax or Contribution Tax resulting from
any other cause will be charged against the related trust fund, resulting in a
reduction in amounts otherwise distributable to securityholders. SEE "FEDERAL
INCOME TAX CONSEQUENCES."
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ASSIGNMENT OF TRUST FUND ASSETS; REVIEW OF FILES BY TRUSTEE
At the time of issuance of any series of securities, the depositor will
cause the pool of mortgage assets to be included in the related trust fund to be
assigned to the trustee, together with all principal and interest received by or
on behalf of the depositor on or with respect to the mortgage assets after the
related cut-off date, other than principal and interest due on or before the
cut-off date and other than any retained interest. The trustee will,
concurrently with the assignment of mortgage assets, deliver the securities to
the depositor in exchange for the trust fund assets. Each mortgage asset will be
identified in a schedule appearing as an exhibit to the related agreement. The
schedule of mortgage assets will include detailed information as to the mortgage
asset included in the related trust fund, including the outstanding principal
balance of each mortgage asset after application of payments due on the cut-off
date, information regarding the interest rate on the mortgage asset, the
interest rate net of the sum of the rates at which the servicing fees and the
retained interest, if any, are calculated, the retained interest, if any, the
current scheduled monthly payment of principal and interest, the maturity of the
mortgage note, the value of the mortgaged property, the loan-to-value ratio at
origination and other information with respect to the mortgage assets.
If so specified in the related prospectus supplement, and in accordance
with the rules of membership of Merscorp, Inc. and/or Mortgage Electronic
Registration Systems, Inc. or, MERS, assignments of the mortgages for the
mortgage loans in the related trust will be registered electronically through
Mortgage Electronic Registration Systems, Inc., or MERS(R) System. With respect
to mortgage loans registered through the MERS(R) System, MERS shall serve as
mortgagee of record solely as a nominee in an administrative capacity on behalf
of the trustee and shall not have any interest in any of those mortgage loans.
The depositor will, with respect to each mortgage asset, deliver or cause
to be delivered to the trustee, or to the custodian hereinafter referred to:
o With respect to each mortgage loan, (1) the mortgage note endorsed,
without recourse, to the order of the trustee or in blank, (2) the
original Mortgage with evidence of recording indicated thereon and an
assignment of the Mortgage to the trustee or in blank, in recordable
form. If, however, a mortgage loan has not yet been returned from the
public recording office, the depositor will deliver or cause to be
delivered a copy of the Mortgage together with its certificate that
the original of the Mortgage was delivered to the recording office.
The depositor will promptly cause the assignment of each related
mortgage loan to be recorded in the appropriate public office for real
property records, except for Mortgages held under the MERS(R)System
and except in the State of California or in other states where, in the
opinion of counsel acceptable to the trustee, recording of the
assignment is not required to protect the trustee's interest in the
mortgage loan against the claim of any subsequent transferee or any
successor to or creditor of the depositor, the master servicer, the
relevant mortgage loan seller or any other prior holder of the
mortgage loan. If the depositor uses the MERS(R)System, it will
deliver evidence that the Mortgage is held for the trustee through the
MERS(R)System instead of an assignment of the Mortgage in recordable
form.
o With respect to each cooperative loan, (1) the cooperative note, (2)
the original security agreement, (3) the proprietary lease or
occupancy agreement, (4) the related stock certificate and related
stock powers endorsed in blank, and (5) a copy of the original filed
financing
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statement together with an assignment thereof to the trustee in a form
sufficient for filing. The depositor will promptly cause the
assignment and financing statement of each related cooperative loan to
be filed in the appropriate public office, except in states where in
the opinion of counsel acceptable to the trustee, filing of the
assignment and financing statement is not required to protect the
trustee's interest in the cooperative loan against the claim of any
subsequent transferee or any successor to or creditor of the
depositor, the master servicer, the relevant mortgage loan seller or
any prior holder of the cooperative loan.
o With respect to each manufactured housing contract or home improvement
contract, (1) the original contract endorsed, without recourse, to the
order of the trustee and copies of documents and (2) instruments
related to the contract and the security interest in the property
securing the contract, and (3) a blanket assignment to the trustee of
all contracts in the related trust fund and the documents and
instruments. In order to give notice of the right, title and interest
of the securityholders to the contracts, the depositor will cause to
be executed and delivered to the trustee a UCC-1 financing statement
identifying the trustee as the secured party and identifying all
contracts as collateral.
With respect to any mortgage loan secured by a mortgaged property located
in Puerto Rico, the Mortgages with respect to these mortgage loans either (a)
secure a specific obligation for the benefit of a specified person or (b) secure
an instrument transferable by endorsement. Endorsable Puerto Rico Mortgages do
not require an assignment to transfer the related lien. Rather, transfer of
endorsable mortgages follows an effective endorsement of the related mortgage
note and, therefore, delivery of the assignment referred to in the first bullet
point above would be inapplicable. Puerto Rico Mortgages that secure a specific
obligation for the benefit of a specified person, however, require an assignment
to be recorded with respect to any transfer of the related lien and the
assignment for that purpose would be delivered to the trustee.
The trustee, or the custodian, will review the mortgage loan documents
within a specified period after receipt, and the trustee, or the custodian, will
hold the mortgage loan documents in trust for the benefit of the
securityholders. If any mortgage loan document is found to be missing or
defective in any material respect, the trustee, or the custodian, shall notify
the master servicer and the depositor, and the master servicer shall immediately
notify the relevant mortgage loan seller. If the mortgage loan seller cannot
cure the omission or defect within a specified number of days after receipt of
notice, the mortgage loan seller will be obligated to repurchase the related
mortgage asset from the trustee at the repurchase price or substitute for the
mortgage asset. There can be no assurance that a mortgage loan seller will
fulfill this repurchase or substitution obligation. Although the master servicer
is obligated to use its best efforts to enforce the repurchase or substitution
obligation to the extent described above under "The Depositor's Mortgage Loan
Purchase Program-Representations by or on behalf of Mortgage Loan Sellers;
Remedies for Breach of Representation", neither the master servicer nor the
depositor will be obligated to repurchase or substitute for that mortgage asset
if the mortgage loan seller defaults on its obligation. The assignment of the
mortgage assets to the trustee will be without recourse to the depositor and
this repurchase or substitution obligation constitutes the sole remedy available
to the securityholders or the trustee for omission of, or a material defect in,
a constituent document.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
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With respect to the mortgage assets included in a trust fund, the depositor
will make representations and warranties as of a specified date, covering by way
of example, the following matters:
o the type of mortgaged property;
o the geographical concentration of the mortgage assets;
o the original loan-to-value ratio;
o the principal balance as of the cut-off date;
o the interest rate and maturity; and
o the payment status of the mortgage asset; and the accuracy of the
information set forth for each mortgage asset on the related mortgage
loan schedule.
Upon a breach of any representation of the depositor that materially and
adversely affects the value of a mortgage asset or the interests of the
securityholders in the mortgage asset, the depositor will be obligated either to
cure the breach in all material respects, repurchase the mortgage asset at the
repurchase price or substitute for that mortgage asset as described in the
paragraph below.
If the depositor discovers or receives notice of any breach of its
representations or warranties with respect to a mortgage asset, the depositor
may be permitted under the agreement governing the trust fund to remove the
mortgage asset from the trust fund, rather than repurchase the mortgage asset,
and substitute in its place one or more mortgage assets, but only if (a) with
respect to a trust fund for which a REMIC election is to be made, the
substitution is effected within two years of the date of initial issuance of the
certificates, plus permissible extensions, or (b) with respect to a trust fund
for which no REMIC election is to be made, the substitution is effected within
180 days of the date of initial issuance of the securities. Each substitute
mortgage asset will, on the date of substitution, comply with the following
requirements:
(1) have an outstanding principal balance, after deduction of all
scheduled payments due in the month of substitution, not in excess of,
and not more than $10,000 less than, the outstanding principal
balance, after deduction of all unpaid scheduled payments due as of
the date of substitution, of the deleted mortgage asset,
(2) have an interest rate not less than, and not more than 1% greater
than, the interest rate of the deleted mortgage asset,
(3) have a remaining term to maturity not greater than, and not more than
one year less than, that of the deleted mortgage asset,
(4) have a Lockout Date, if applicable, not earlier than the Lockout Date
on the deleted mortgage loan, and
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(5) comply with all of the representations and warranties set forth in the
pooling and servicing agreement or indenture as of the date of
substitution.
In connection with any substitution, an amount equal to the difference
between the purchase price of the deleted mortgage asset and the outstanding
principal balance of the substitute mortgage asset, after deduction of all
scheduled payments due in the month of substitution, together with one month's
interest at the applicable rate at which interest accrued on the deleted
mortgage loan, less the servicing fee rate and the retained interest, if any, on
the difference, will be deposited in the distribution account and distributed to
securityholders on the first distribution date following the prepayment period
in which the substitution occurred. In the event that one mortgage asset is
substituted for more than one deleted mortgage asset, or more than one mortgage
asset is substituted for one or more deleted mortgage assets, then the amount
described in (1) above will be determined on the basis of aggregate principal
balances, the rate described in (2) above with respect to deleted mortgage
assets will be determined on the basis of weighted average interest rates, and
the terms described in (3) above will be determined on the basis of weighted
average remaining terms to maturity and the Lockout Dates described in (4) above
will be determined on the basis of weighted average Lockout Dates.
With respect to any series as to which credit support is provided by means
of a mortgage pool insurance policy, in addition to making the representations
and warranties described above, the depositor or the related mortgage loan
seller, or another party on behalf of the related mortgage loan seller, as
specified in the related prospectus supplement, will represent and warrant to
the trustee that no action has been taken or failed to be taken, no event has
occurred and no state of facts exists or has existed on or prior to the date of
the initial issuance of the securities which has resulted or will result in the
exclusion from, denial of or defense to coverage under any applicable primary
mortgage insurance policy, FHA insurance policy, mortgage pool insurance policy,
special hazard insurance policy or bankruptcy bond, irrespective of the cause of
the failure of coverage but excluding any failure of an insurer to pay by reason
of the insurer's own breach of its insurance policy or its financial inability
to pay. This representation is referred to in this prospectus and the related
prospectus supplement as the insurability representation. Upon a breach of the
insurability representation which materially and adversely affects the interests
of the securityholders in a mortgage loan, the depositor or the mortgage loan
seller, as the case may be, will be obligated either to cure the breach in all
material respects or to purchase the affected mortgage asset at the purchase
price. The related prospectus supplement may provide that the performance of an
obligation to repurchase mortgage assets following a breach of an insurability
representation will be ensured in the manner specified in the prospectus
supplement. SEE "DESCRIPTION OF PRIMARY INSURANCE POLICIES" AND "DESCRIPTION OF
CREDIT SUPPORT" IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT FOR
INFORMATION REGARDING THE EXTENT OF COVERAGE UNDER THE AFOREMENTIONED INSURANCE
POLICIES.
The obligation to repurchase or, other than with respect to the
insurability representation if applicable, to substitute mortgage loans
constitutes the sole remedy available to the securityholders or the trustee for
any breach of the representations.
The master servicer will make representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
servicing agreement. Upon a breach of any representation of the master servicer
which materially and adversely affects the interests of the securityholders, the
master servicer will be obligated to cure the breach in all material respects.
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ESTABLISHMENT OF COLLECTION ACCOUNT; DEPOSITS TO COLLECTION ACCOUNT IN RESPECT
OF TRUST FUND ASSETS
The master servicer or the trustee will, as to each trust fund, establish
and maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on the related trust fund assets. These
accounts are collectively referred to in this prospectus and the related
prospectus supplement as the collection account. The collection account must be
either
o maintained with a bank or trust company, and in a manner,
satisfactory to the rating agency or agencies rating any class of
securities of the series or
o an account or accounts the deposits in which are insured by the
BIF or the SAIF, to the limits established by the FDIC, and the
uninsured deposits in which are otherwise secured so that the
securityholders have a claim with respect to the funds in the
collection account or a perfected first priority security
interest against any collateral securing the funds that is
superior to the claims of any other depositors or general
creditors of the institution with which the collection account is
maintained.
The collateral eligible to secure amounts in the collection account is
limited to United States government securities and other high-quality
investments specified in the related servicing agreement as permitted
investments. A collection account may be maintained as an interest bearing or a
non-interest bearing account, or the funds held in the collection account may be
invested pending each succeeding distribution date in permitted investments. Any
interest or other income earned on funds in the collection account will be paid
to the master servicer or the trustee or their designee as additional
compensation. The collection account may be maintained with an institution that
is an affiliate of the master servicer or the trustee, provided that the
institution meets the standards set forth in the bullet points above. If
permitted by the rating agency or agencies and so specified in the related
prospectus supplement, a collection account may contain funds relating to more
than one series of pass-through certificates and may, if applicable, contain
other funds respecting payments on mortgage loans belonging to the master
servicer or serviced or master serviced by it on behalf of others.
Each sub-servicer servicing a trust fund asset under a sub-servicing
agreement will establish and maintain one or more separate accounts which may be
interest bearing and which will comply with the standards with respect to
collection accounts or other standards as may be acceptable to the master
servicer. The sub-servicer is required to credit to the related sub-servicing
account on a daily basis the amount of all proceeds of mortgage assets received
by the sub-servicer, less its servicing compensation. The sub-servicer will
remit to the master servicer by wire transfer of immediately available funds all
funds held in the sub-servicing account with respect to each mortgage asset on
the monthly remittance date or dates specified in the related servicing
agreement.
The master servicer will deposit or cause to be deposited in the collection
account for each trust fund including mortgage loans, the following payments and
collections received, or advances made, by the master servicer or on its behalf
subsequent to the cut-off date, other than payments due on or before the cut-off
date and exclusive of any retained interest, unless otherwise specified in the
related prospectus supplement:
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(1) all payments on account of principal, including principal
prepayments, on the mortgage assets;
(2) all payments on account of interest on the mortgage assets, net of
any portion retained by the master servicer or by a sub-servicer as its
servicing compensation and net of any retained interest;
(3) all proceeds of the hazard insurance policies and any special
hazard insurance policy, other than amounts to be not applied to the
restoration or repair of the property or released to the mortgagor in
accordance with the normal servicing procedures of the master servicer or
the related sub-servicer, subject to the terms and conditions of the
related Mortgage and mortgage note, any primary mortgage insurance policy,
any FHA insurance policy, any VA guarantee, any bankruptcy bond and any
mortgage pool insurance policy and all other amounts received and retained
in connection with the liquidation of defaulted mortgage loans, by
foreclosure or otherwise, together with the net proceeds on a monthly basis
with respect to any mortgaged properties acquired for the benefit of
securityholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(4) any amounts required to be paid under any letter of credit, as
described below under "Description of Credit Support--Letter of Credit";
(5) any advances made as described below under "Advances by the Master
Servicer in respect of Delinquencies on the Trust Funds Assets";
(6) if applicable, all amounts required to be transferred to the
collection account from a reserve fund, as described below under
"Description of Credit Support--Reserve Funds";
(7) any buydown funds, and, if applicable, investment earnings
thereon, required to be deposited in the collection account as described in
the first paragraph below;
(8) all proceeds of any mortgage loan or property in respect of the
mortgage asset purchased by the master servicer, the depositor, any
sub-servicer or any mortgage loan seller as described under "The
Depositor's Mortgage Loan Purchase Program-Representations by or on behalf
of Mortgage Loan Sellers; Remedies for Breach of Representations" or
"--Assignment of Trust Fund Assets; Review of Files by Trustee" above,
exclusive of the retained interest, if any, in respect of the mortgage
asset;
(9) all proceeds of any mortgage loan repurchased as described under
"--Termination" below;
(10) all payments required to be deposited in the collection account
with respect to any deductible clause in any blanket insurance policy
described under "Description of Primary Insurance Policies--Primary Hazard
Insurance Policies"; and
(11) any amount required to be deposited by the master servicer in
connection with net losses realized on investments for the benefit of the
master servicer of funds held in the collection account.
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With respect to each buydown mortgage loan, the master servicer, or a
sub-servicer, will deposit related buydown funds in a custodial account, which
may be interest bearing, and that otherwise meets the standards for collection
accounts. This account is referred to in this prospectus and the related
prospectus supplement as a buydown account. The terms of all buydown mortgage
loans provide for the contribution of buydown funds in an amount not less than
either (a) the total payments to be made from the buydown funds under the
related buydown plan or (b) if the buydown funds are present valued, that amount
that, together with investment earnings thereon at a specified rate, compounded
monthly, will support the scheduled level of payments due under the buydown
mortgage loan. Neither the master servicer, the sub-servicer nor the depositor
will be obligated to add to the buydown funds any of its own funds should
investment earnings prove insufficient to maintain the scheduled level of
payments. To the extent that any insufficiency in buydown funds is not
recoverable from the borrower, distributions to securityholders will be
affected. With respect to each buydown mortgage loan, the master servicer will
deposit in the collection account the amount, if any, of the buydown funds, and,
if applicable, investment earnings thereon, for each buydown mortgage loan that,
when added to the amount due from the borrower on the buydown mortgage loan,
equals the full monthly payment which would be due on the buydown mortgage loan
if it were not subject to the buydown plan.
If a buydown mortgage loan is prepaid in full or liquidated, the related
buydown funds will be applied as follows. If the mortgagor on a buydown mortgage
loan prepays the loan in its entirety during the buydown period, the master
servicer will withdraw from the buydown account and remit to the mortgagor in
accordance with the related buydown plan any buydown funds remaining in the
buydown account. If a prepayment by a mortgagor during the buydown period
together with buydown funds will result in a prepayment in full, the master
servicer will withdraw from the buydown account for deposit in the collection
account the buydown funds and investment earnings thereon, if any, which
together with the prepayment will result in a prepayment in full. If the
mortgagor defaults during the buydown period with respect to a buydown mortgage
loan and the mortgaged property is sold in liquidation, either by the master
servicer or the insurer under any related insurance policy, the master servicer
will withdraw from the buydown account the buydown funds and all investment
earnings thereon, if any, for deposit in the collection account or remit the
same to the insurer if the mortgaged property is transferred to the insurer and
the insurer pays all of the loss incurred in respect of the default. In the case
of any prepaid or defaulted buydown mortgage loan the buydown funds in respect
of which were supplemented by investment earnings, the master servicer will
withdraw from the buydown account and either deposit in the collection account
or remit to the borrower, depending upon the terms of the buydown plan, any
investment earnings remaining in the related buydown account.
Any buydown funds, and any investment earnings thereon, deposited in the
collection account in connection with a full prepayment of the related buydown
mortgage loan will be deemed to reduce the amount that would be required to be
paid by the borrower to repay fully the related mortgage loan if the mortgage
loan were not subject to the buydown plan.
WITHDRAWALS. With respect to each series of securities, the master
servicer, trustee or special servicer may make withdrawals from the collection
account for the related trust fund for any of the following purposes, unless
otherwise provided in the related agreement and described in the related
prospectus supplement:
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(1) to make distributions to the related securityholders on each
distribution date;
(2) to reimburse the master servicer or any other specified person for
unreimbursed amounts advanced by it in respect of mortgage loans in
the trust fund as described under "Advances by Master Servicer in
Respect of Delinquencies on the Trust Fund Assets" above, these
reimbursement to be made out of amounts received which were identified
and applied by the master servicer as late collections of interest
(net of related servicing fees) on and principal of the particular
mortgage assets with respect to which the advances were made or out of
amounts drawn under any form of credit enhancement with respect to the
mortgage assets;
(3) to reimburse the master servicer or a special servicer for unpaid
servicing fees earned by it and some unreimbursed servicing expenses
incurred by it with respect to mortgage assets in the trust fund and
properties acquired in respect thereof, these reimbursement to be made
out of amounts that represent Liquidation Proceeds and Insurance
Proceeds collected on the particular mortgage assets and properties,
and net income collected on the particular properties, with respect to
which the fees were earned or the expenses were incurred or out of
amounts drawn under any form of credit enhancement with respect to the
mortgage assets and properties;
(4) to reimburse the master servicer or any other specified person for any
advances described in clause (2) above made by it and any servicing
expenses referred to in clause (3) above incurred by it which, in the
good faith judgment of the master servicer or the other person, will
not be recoverable from the amounts described in clauses (2) and (3),
respectively, the reimbursement to be made from amounts collected on
other mortgage assets in the trust fund or, if and to the extent so
provided by the related servicing agreement or indenture and described
in the related prospectus supplement, only from that portion of
amounts collected on the other mortgage assets that is otherwise
distributable on one or more classes of subordinate securities of the
related series;
(5) if and to the extent described in the related prospectus supplement,
to pay the master servicer, a special servicer or another specified
entity (including a provider of credit enhancement) interest accrued
on the advances described in clause (2) above made by it and the
servicing expenses described in clause (3) above incurred by it while
these remain outstanding and unreimbursed;
(6) to reimburse the master servicer, the company, or any of their
respective directors, officers, employees and agents, as the case may
be, for expenses, costs and liabilities incurred thereby, as and to
the extent described under "Matters Regarding the Master Servicer and
the Depositor";
(7) if and to the extent described in the related prospectus supplement,
to pay the fees of the trustee;
(8) to reimburse the trustee or any of its directors, officers, employees
and agents, as the case may be, for expenses, costs and liabilities
incurred thereby, as and to the extent described under "Description of
the Trustee";
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(9) to pay the master servicer or the trustee, as additional compensation,
interest and investment income earned in respect of amounts held in
the collection account;
(10) to pay, generally from related income, the master servicer or a
special servicer for costs incurred in connection with the operation,
management and maintenance of any mortgaged property acquired by the
trust fund by foreclosure or by deed in lieu of foreclosure;
(11) if one or more elections have been made to treat the trust fund or
designated portions thereof as a REMIC, to pay any federal, state or
local taxes imposed on the trust fund or its assets or transactions,
as and to the extent described under "Federal Income Tax
Consequences--REMICS--Prohibited Transactions and Other Possible REMIC
Taxes";
(12) to pay for the cost of an independent appraiser or other expert in
real estate matters retained to determine a fair sale price for a
defaulted mortgage loan or a property acquired in respect thereof in
connection with the liquidation of the mortgage loan or property;
(13) to pay for the cost of various opinions of counsel obtained pursuant
to the related servicing agreement or indenture for the benefit of the
related securityholders;
(14) to pay to itself, the depositor, a mortgage loan seller or any other
appropriate person all amounts received with respect to each mortgage
loan purchased, repurchased or removed from the trust fund pursuant to
the terms of the related servicing agreement and not required to be
distributed as of the date on which the related purchase price is
determined;
(15) to make any other withdrawals permitted by the related pooling and
servicing agreement or the related servicing agreement and indenture
and described in the related prospectus supplement;
(16) to pay for costs and expenses incurred by the trust fund for
environmental site assessments performed with respect to multifamily
or commercial properties that constitute security for defaulted
mortgage loans, and for any containment, clean-up or remediation of
hazardous wastes and materials present on that mortgaged properties,
as described under "Procedures for Realization Upon Defaulted Mortgage
Loans"; and
(17) to clear and terminate the collection account upon the termination of
the trust fund.
DEPOSITS TO DISTRIBUTION ACCOUNT
The trustee will, as to each trust fund, establish and maintain a
distribution account which must be an eligible account. The trustee will deposit
or cause to be deposited in the distribution account for each trust fund amounts
received from the master servicer or otherwise in respect of the related
securities.
DISTRIBUTIONS ON THE SECURITIES
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Distributions allocable to principal and interest on the securities of each
series will be made by or on behalf of the trustee each month on each date as
specified in the related prospectus supplement and referred to as a distribution
date, commencing with the month following the month in which the applicable
cut-off date occurs. Distributions will be made to the persons in whose names
the securities are registered at the close of business on the Record Date, and
the amount of each distribution will be determined as of the close of business
on the date specified in the related prospectus supplement and referred to as
the determination date. All distributions with respect to each class of
securities on each distribution date will be allocated pro rata among the
outstanding securities in that class. Payments to the holders of securities of
any class on each distribution date will be made to the securityholders of the
respective class of record on the next preceding Record Date, other than in
respect of the final distribution, based on the aggregate fractional undivided
interests in that class represented by their respective securities. Payments
will be made by wire transfer in immediately available funds to the account of a
securityholder, if the securityholder holds securities in the requisite amount
specified in the related prospectus supplement and if the securityholder has so
notified the depositor or its designee no later than the date specified in the
related prospectus supplement. Otherwise, payments will be made by check mailed
to the address of the person entitled to payment as it appears on the security
register maintained by the depositor or its agent. The final distribution in
retirement of the securities will be made only upon presentation and surrender
of the securities at the office or agency of the depositor or its agent
specified in the notice to securityholders of the final distribution. With
respect to each series of certificates or notes, the security register will be
referred to as the certificate register or note register, respectively.
All distributions on the securities of each series on each distribution
date will be made from the available distribution amount described in the next
sentence, in accordance with the terms described in the related prospectus
supplement. The available distribution amount for each series of securities will
be described in the related prospectus supplement and will generally include the
following amounts for each distribution date:
(1) the total amount of all cash on deposit in the related
distribution account as of the corresponding determination date, exclusive
of:
(a) all scheduled payments of principal and interest collected
but due on a date subsequent to the related Due Period,
(b) all prepayments, together with related payments of the
interest thereon, Liquidation Proceeds, Insurance Proceeds and other
unscheduled recoveries received subsequent to the related Prepayment
Period, and
(c) all amounts in the distribution account that are due or
reimbursable to the depositor, the trustee, a mortgage loan seller, a
sub-servicer or the master servicer or that are payable in respect of
specified expenses of the related trust fund;
(2) if the related prospectus supplement so provides, interest or
investment income on amounts on deposit in the distribution account;
(3) all advances with respect to the distribution date;
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(4) if the related prospectus supplement so provides, amounts paid
with respect to interest shortfalls resulting from prepayments during the
related Prepayment Period;
(5) to the extent not on deposit in the related distribution account
as of the corresponding determination date, any amounts collected under,
from or in respect of any credit support with respect to the distribution
date; and
(6) any other amounts described in the related prospectus supplement.
The entire available distribution amount will be distributed among the
related securities, including any securities not offered hereby, on each
distribution date, and accordingly will be released from the trust fund and will
not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE SECURITIES. Each class of securities may
earn interest at a different rate, which may be a fixed, variable or adjustable
security interest rate. The related prospectus supplement will specify the
security interest rate for each class, or, in the case of a variable or
adjustable security interest rate, the method for determining the security
interest rate. Unless otherwise specified in the related prospectus supplement,
interest on the securities will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
With respect to each series of securities and each distribution date, the
distribution in respect of interest on each security, other than principal only
Strip Securities, will be equal to one month's interest on the outstanding
principal balance of the security immediately prior to the distribution date, at
the applicable security interest rate, subject to the following. As to each
Strip Security with no or a nominal principal balance, the distributions in
respect of interest on any distribution date will be on the basis of a notional
amount and equal one month's Stripped Interest. Prior to the time interest is
distributable on any class of Accrual Securities, interest accrued on that class
will be added to the principal balance thereof on each distribution date.
Interest distributions on each security of a series will be reduced in the event
of shortfalls in collections of interest resulting from prepayments on mortgage
loans, with that shortfall allocated among all of the securities of that series
if specified in the related prospectus supplement unless the master servicer is
obligated to cover the shortfalls from its own funds up to its servicing fee for
the related due period. With respect to each series of certificates or notes,
the interest distributions payable will be referred to in the applicable
prospectus supplement as the accrued certificate interest or accrued note
interest, respectively. SEE "YIELD CONSIDERATIONS".
DISTRIBUTIONS OF PRINCIPAL OF THE SECURITIES. The principal balance of a
security, at any time, will equal the maximum amount that the holder will be
entitled to receive in respect of principal out of the future cash flow on the
mortgage assets and other assets included in the related trust fund. The
principal balance of each security offered hereby will be stated in the related
prospectus supplement as the certificate principal balance with respect to a
certificate and the note balance with respect to a note. With respect to each
security, distributions generally will be applied to undistributed accrued
interest thereon, and thereafter to principal. The outstanding principal balance
of a security will be reduced to the extent of distributions of principal on
that security, and, if and to the extent so provided on the related prospectus
supplement, by the amount of any realized losses, allocated to that security.
The outstanding principal balance of a security may be increased by any deferred
interest if so specified in the related prospectus supplement. The initial
aggregate principal balance
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of a series and each class of securities related to a series will be specified
in the related prospectus supplement. Distributions of principal will be made on
each distribution date to the class or classes of securities entitled to
principal until the principal balance of that class has been reduced to zero.
With respect to a Senior/Subordinate Series, distributions allocable to
principal of a class of securities will be based on the percentage interest in
the related trust fund evidenced by the class, which in turn will be based on
the principal balance of that class as compared to the principal balance of all
classes of securities of the series. Distributions of principal of any class of
securities will be made on a pro rata basis among all of the securities of the
class. Strip Securities with no principal balance will not receive distributions
of principal.
ALLOCATION TO SECURITYHOLDERS OF LOSSES ON THE TRUST FUND ASSETS. With
respect to any defaulted mortgage loan that is finally liquidated, through
foreclosure sale or otherwise, the amount of the realized loss incurred in
connection with liquidation will equal the excess, if any, of the unpaid
principal balance of the liquidated loan immediately prior to liquidation, over
the aggregate amount of Liquidation Proceeds derived from liquidation remaining
after application of the proceeds to unpaid accrued interest on the liquidated
loan and to reimburse the master servicer or any sub-servicer for related
unreimbursed servicing expenses. With respect to mortgage loans the principal
balances of which have been reduced in connection with bankruptcy proceedings,
the amount of that reduction also will be treated as a realized loss. As to any
series of securities, other than a Senior/Subordinate Series, any realized loss
not covered as described under "Description of Credit Support" will be allocated
among all of the securities on a pro rata basis. As to any Senior/Subordinate
Series, realizes losses will be allocated first to the most subordinate class of
securities as described below under "Description of Credit
Support--Subordination".
ADVANCES BY MASTER SERVICER IN RESPECT OF DELINQUENCIES ON THE TRUST FUND ASSETS
With respect to any series of securities, the master servicer will advance
on or before each distribution date its own funds or funds held in the
distribution account that are not included in the available distribution amount
for that distribution date unless the master servicer, in good faith, determines
that any advances made will not be reimbursable from proceeds subsequently
recovered on the mortgage asset related to the advance. The amount of each
advance will be equal to the aggregate of payments of interest, net of related
servicing fees and retained interest, that were due during the related Due
Period and were delinquent on the related determination date. The prospectus
supplement for a series may also provide that the master servicer will advance,
together with delinquent interest, the aggregate amount of principal payments
that were due during the related Due Period and delinquent as of the
determination date, subject to the same reimbursement determination, except
that, with respect to balloon loans, the master servicer will not have to
advance a delinquent balloon payment.
Advances are intended to maintain a regular flow of scheduled interest
payments to holders of the class or classes of securities entitled to payments,
rather than to guarantee or insure against losses. Advances of the master
servicer's funds will be reimbursable only out of related recoveries on the
mortgage assets respecting which advances were made, including amounts received
under any form of credit support; provided, however, that any advance will be
reimbursable from any amounts in the distribution account to the extent that the
master servicer shall determine that the advance is not ultimately recoverable
from Related Proceeds. If advances have been made by the master servicer from
excess funds in the distribution account, the master servicer will replace those
funds in
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the distribution account on any future distribution date to the extent that
funds in the distribution account on that distribution date are less than
payments required to be made to securityholders on that date. If so specified in
the related prospectus supplement, the obligations of the master servicer to
make advances may be secured by a cash advance reserve fund or a surety bond. If
applicable, information regarding the characteristics of, and the identity of
any obligor on, any surety bond, will be set forth in the related prospectus
supplement.
FORM OF REPORTS TO SECURITYHOLDERS
With each distribution to holders of any class of securities of a series,
the master servicer or the trustee, will forward or cause to be forwarded to
each securityholder, to the depositor and to those other parties as may be
specified in the related servicing agreement, a statement setting forth the
following as of the distribution date:
(1) the amount of the distribution to holders of securities of that
class applied to reduce the principal balance of the securities;
(2) the amount of the distribution to holders of securities of that
class allocable to interest;
(3) the amount of related administration or servicing compensation
received by the trustee or the master servicer and any sub-servicer and any
other customary information as the master servicer deems necessary or
desirable, or that a securityholder reasonably requests, to enable
securityholders to prepare their tax returns;
(4) if applicable, the aggregate amount of advances included in the
distribution, and the aggregate amount of unreimbursed advances at the
close of business on that distribution date;
(5) the aggregate principal balance of the mortgage loans at the close
of business on that distribution date;
(6) the number and aggregate principal balance of mortgage loans (a)
delinquent one month, (b) delinquent two or more months, and (c) as to
which foreclosure proceedings have been commenced;
(7) with respect to any mortgaged property acquired on behalf of
securityholders through foreclosure or deed in lieu of foreclosure during
the preceding calendar month, the principal balance of the related mortgage
loan as of the close of business on the distribution date in that month;
(8) the aggregate principal balance of each class of securities
(including any class of securities not offered hereby) at the close of
business on that distribution date, separately identifying any reduction in
the principal balance due to the allocation of any realized loss;
(9) the amount of any special hazard realized losses allocated to the
subordinate securities, if any, at the close of business on that
distribution date;
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(10) the aggregate amount of principal prepayments made and realized
losses incurred during the related Prepayment Period;
(11) the amount deposited in the reserve fund, if any, on that
distribution date;
(12) the amount remaining in the reserve fund, if any, as of the close
of business on that distribution date;
(13) the aggregate unpaid accrued interest, if any, on each class of
securities at the close of business on that distribution date;
(14) in the case of securities that accrue interest at the variable
rate, the security interest rate applicable to that distribution date, as
calculated in accordance with the method specified in the related
prospectus supplement; and
(15) as to any series which includes credit support, the amount of
coverage of each instrument of credit support included in the trust fund as
of the close of business on that distribution date.
In the case of information furnished under subclauses (1)-(3) above, the
amounts shall be expressed as a dollar amount per minimum denomination of
securities or for other specified portion thereof. With respect to each series
of certificates or notes, securityholders will be referred to as the
certificateholders or the noteholders, respectively.
Within a reasonable period of time after the end of each calendar year, the
master servicer or the trustee, as provided in the related prospectus
supplement, shall furnish to each person who at any time during the calendar
year was a holder of a security a statement containing the information set forth
in subclauses (1)-(3) above, aggregated for that calendar year or the applicable
portion thereof during which that person was a securityholder. The obligation of
the master servicer or the trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be provided by the master
servicer or the trustee in accordance with any requirements of the Code as are
from time to time in force.
COLLECTION AND OTHER SERVICING PROCEDURES EMPLOYED BY THE MASTER SERVICER
The master servicer, directly or through sub-servicers, will make
reasonable efforts to collect all scheduled payments under the mortgage loans
and will follow or cause to be followed the collection procedures as it would
follow with respect to mortgage assets that are comparable to the mortgage
assets and held for its own account, provided these procedures are consistent
with the related servicing agreement and any related insurance policy,
bankruptcy bond, letter of credit or other insurance instrument described under
"Description of Primary Insurance Policies" or "Description of Credit Support".
Consistent with this servicing standard, the master servicer may, in its
discretion, waive any late payment charge in respect of a late mortgage loan
payment and, only upon determining that the coverage under any related insurance
instrument will not be affected, extend or cause to be extended the due dates
for payments due on a mortgage note for a period not greater than 180 days.
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In instances in which a mortgage asset is in default, or if default is
reasonably foreseeable, and if determined by the master servicer to be in the
best interests of the related securityholders, the master servicer may permit
modifications of the mortgage asset rather than proceeding with foreclosure. In
making that determination, the estimated realized loss that might result if the
mortgage asset were liquidated would be taken into account. Modifications may
have the effect of reducing the interest rate on the mortgage asset, forgiving
the payment of principal or interest or extending the final maturity date of the
mortgage asset. Any modified mortgage asset may remain in the related trust
fund, and the reduction in collections resulting from the modification may
result in reduced distributions of interest, or other amounts, on, or may extend
the final maturity of, one or more classes of the related securities.
In connection with any significant partial prepayment of a mortgage asset,
the master servicer, to the extent not inconsistent with the terms of the
mortgage note and local law and practice, may permit the mortgage asset to be
reamortized so that the monthly payment is recalculated as an amount that will
fully amortize the remaining principal amount of the mortgage asset by the
original maturity date based on the original interest rate. Reamortization will
not be permitted if it would constitute a modification of the mortgage asset for
federal income tax purposes.
In any case in which property securing a mortgage asset, other than an ARM
Loan, multifamily loan or commercial loan, has been, or is about to be, conveyed
by the borrower, or in any case in which property securing a multifamily loan or
commercial loan has been, or is about to be, encumbered by the borrower, the
master servicer will exercise or cause to be exercised on behalf of the related
trust fund the lender's rights to accelerate the maturity of the mortgage asset
under any due-on-sale or due-on-encumbrance clause applicable to that mortgage
asset. The master servicer will only exercise these rights only if the exercise
of any these rights is permitted by applicable law and will not impair or
threaten to impair any recovery under any related insurance instrument. If these
conditions are not met or if the master servicer reasonably believes it is
unable under applicable law to enforce a due-on-sale or due-on-encumbrance
clause, the master servicer will enter into or cause to be entered into an
assumption and modification agreement with the person to whom the property has
been or is about to be conveyed or encumbered, under which that person becomes
liable under the mortgage note, cooperative note, manufactured housing contract
or home improvement contract and, to the extent permitted by applicable law, the
borrower remains liable thereon. The original mortgagor may be released from
liability on a mortgage asset if the master servicer shall have determined in
good faith that a release will not adversely affect the collectability of the
mortgage asset. An ARM Loan may be assumed if the ARM Loan is by its terms
assumable and if, in the reasonable judgment of the master servicer, the
proposed transferee of the related mortgaged property establishes its ability to
repay the loan and the security for the ARM Loan would not be impaired by the
assumption. If a mortgagor transfers the mortgaged property subject to an ARM
Loan without consent, that ARM Loan may be declared due and payable. Any fee
collected by or on behalf of the master servicer for entering into an assumption
agreement will be retained by or on behalf of the master servicer as additional
servicing compensation. In connection with any assumption, the terms of the
related mortgage asset may not be changed except in the instance where an
assumption is related to a defaulted cure. SEE "LEGAL ASPECTS OF MORTGAGE
LOANS--ENFORCEABILITy OF PROVISIONS".
In the case of multifamily loans, commercial loans or mixed-use loans, a
mortgagor's failure to make scheduled payments may mean that operating income is
insufficient to service the mortgage
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debt, or may reflect the diversion of that income from the servicing of the
mortgage debt. In addition, a mortgagor under a multifamily loan, commercial
loan or mixed-use loan that is unable to make scheduled payments may also be
unable to make timely payment of all required taxes and otherwise to maintain
and insure the related mortgaged property. In general, the master servicer will
be required to monitor any multifamily loan, commercial loan or mixed-use loan
that is in default, evaluate whether the causes of the default can be corrected
over a reasonable period without significant impairment of the value of the
related mortgaged property, initiate corrective action in cooperation with the
mortgagor if cure is likely, inspect the related mortgaged property and take
such other actions as are consistent with the related servicing agreement. A
significant period of time may elapse before the servicer is able to assess the
success of any such corrective action or the need for additional initiatives.
The time within which the master servicer can make the initial determination of
appropriate action, evaluate the success of corrective action, develop
additional initiatives, institute foreclosure proceedings and actually foreclose
(or accept a deed to a mortgaged property in lieu of foreclosure) on behalf of
the securityholders of the related series may vary considerably depending on the
particular multifamily loan, commercial loan or mixed-use loan, the mortgaged
property, the mortgagor, the presence of an acceptable party to assume the
multifamily loan, commercial loan or mixed-use loan and the laws of the
jurisdiction in which the mortgaged property is located.
If a mortgagor files a bankruptcy petition, the servicer may not be
permitted to accelerate the maturity of the related mortgage asset or to
foreclose on the mortgaged property for a considerable period of time. SEE
"LEGAL ASPECTS OF MORTGAGE ASSETS."
DESCRIPTION OF SUB-SERVICING
Any master servicer may delegate its servicing obligations in respect of
the mortgage assets to third-party servicers, but the master servicer will
remain obligated under the related servicing agreement. Each sub-servicer will
be required to perform the customary functions of a servicer of comparable
assets, including:
o collecting payments from borrowers and remitting the collections to
the master servicer,
o maintaining primary hazard insurance as described in this prospectus
and in any related prospectus supplement,
o filing and settling claims under primary hazard insurance policies,
which may be subject to the right of the master servicer to approve in
advance any settlement,
o maintaining escrow or impoundment accounts of borrowers for payment of
taxes, insurance and other items required to be paid by any borrower
in accordance with the mortgage asset,
o processing assumptions or substitutions where a due-on-sale clause is
not exercised,
o attempting to cure delinquencies,
o supervising foreclosures or repossessions,
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o inspecting and managing mortgaged properties, if applicable, and
o maintaining accounting records relating to the mortgage assets.
The master servicer will be responsible for filing and settling claims in
respect of mortgage assets in a particular mortgage pool under any applicable
mortgage pool insurance policy, bankruptcy bond, special hazard insurance policy
or letter of credit. SEE "DESCRIPTION OF CREDIT SUPPORT".
The sub-servicing agreement between any master servicer and a sub-servicer
will be consistent with the terms of the related servicing agreement and will
not result in a withdrawal or downgrading of any class of securities issued in
accordance with the related agreement. With respect to those mortgage assets
serviced by the master servicer through a sub-servicer, the master servicer will
remain liable for its servicing obligations under the related policy and
servicing agreement or servicing agreement as if the master servicer alone were
servicing those mortgage assets. Although each sub-servicing agreement will be a
contract solely between the master servicer and the sub-servicer, the agreement
under which a series of securities is issued will provide that, if for any
reason the master servicer for the series of securities is no longer acting in a
servicing capacity, the trustee or any successor master servicer must recognize
the sub-servicer's rights and obligations under the sub-servicing agreement.
The master servicer will be solely liable for all fees owed by it to any
sub-servicer, irrespective of whether the master servicer's compensation under
the related agreement is sufficient to pay the fees. However, a sub-servicer may
be entitled to a retained interest in mortgage assets. Each sub-servicer will be
reimbursed by the master servicer for expenditures which it makes, generally to
the same extent the master servicer would be reimbursed under the related
servicing agreement. SEE "DESCRIPTION OF THE SECURITIES--RETAINED INTEREST,
SERVICING OR ADMINISTRATION COMPENSATION AND PAYMENT OF EXPENSES".
The master servicer may require any sub-servicer to agree to indemnify the
master servicer for any liability or obligation sustained by the master servicer
in connection with any act or failure to act by the sub-servicer in its
servicing capacity. Each sub-servicer is required to maintain a fidelity bond
and an errors and omissions policy with respect to its officers, employees and
other persons acting on its behalf or on behalf of the master servicer.
PROCEDURES FOR REALIZATION UPON DEFAULTED MORTGAGE ASSETS
The master servicer will be required to foreclose upon or otherwise take
title in the name of the trustee, on behalf of the securityholders, of mortgaged
properties relating to defaulted mortgage assets to which no satisfactory
arrangements can be made for collection of delinquent payments, but the master
servicer will not be required to foreclose if it determines that foreclosure
would not be in the best interests of the securityholders or the provider of
credit support, if any.
In addition, unless otherwise specified in the related prospectus
supplement, the master servicer may not acquire title to any multifamily
property or commercial property securing a mortgage loan or take any other
action that would cause the related trustee, for the benefit of securityholders
of the
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related series, or any other specified person to be considered to hold title to,
to be a "mortgagee-in- possession" of, or to be an "owner" or an "operator" of
such mortgaged property within the meaning of federal environmental laws, unless
the master servicer has previously determined, based on a report prepared by a
person who regularly conducts environmental audits (which report will be an
expense of the trust fund), that either:
(1) the mortgaged property is in compliance with applicable
environmental laws and regulations or, if not, that taking actions as are
necessary to bring the mortgaged property into compliance with these laws
is reasonably likely to produce a greater recovery on a present value basis
than not taking those actions; and
(2) there are no circumstances or conditions present at the mortgaged
property that have resulted in any contamination for which investigation,
testing, monitoring, containment, clean-up or remediation could be required
under any applicable environmental laws and regulations or, if those
circumstances or conditions are present for which any such action could be
required, taking those actions with respect to the mortgaged property is
reasonably likely to produce a greater recovery on a present value basis
than not taking those actions. See "Certain Legal Aspects of Mortgage
Loans--Environmental Legislation."
As servicer of the mortgage loans, the master servicer, on behalf of
itself, the trustee and the securityholders, will present claims to the insurer
under each insurance instrument, and will take reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
mortgage assets. As set forth above under "-Collection and Other Servicing
Procedures Employed by the Master Servicer", all collections by or on behalf of
the master servicer under any insurance instrument, other than amounts to be
applied to the restoration of a mortgaged property or released to the mortgagor,
are to be deposited in the distribution account for the related trust fund,
subject to withdrawal as previously described. The master servicer or its
designee will not receive payment under any letter of credit included as an
insurance instrument with respect to a defaulted mortgage asset unless all
Liquidation Proceeds and Insurance Proceeds which it deems to be finally
recoverable have been realized; however, the master servicer will be entitled to
reimbursement for any unreimbursed advances and reimbursable expenses
thereunder.
If any property securing a defaulted mortgage asset is damaged and
proceeds, if any, from the related hazard insurance policy or special hazard
insurance policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the related credit insurance instrument, if
any, the master servicer is not required to expend its own funds to restore the
damaged property unless it determines (a) that the restoration will increase the
proceeds to securityholders on liquidation of the mortgage loan after
reimbursement of the master servicer for its expenses and (b) that its expenses
will be recoverable by it from related Insurance Proceeds or Liquidation
Proceeds.
If recovery on a defaulted mortgage asset under any related credit
insurance instrument is not available for the reasons set forth in the preceding
paragraph, the master servicer nevertheless will be obligated to follow or cause
to be followed the normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted mortgage asset. If the proceeds of any
liquidation of the property securing the defaulted mortgage loan are less than
the outstanding principal balance of the defaulted mortgage loan plus interest
accrued thereon at the interest rate plus the aggregate amount of expenses
incurred by the master servicer in connection with those
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proceedings and which are reimbursable under the servicing agreement, the trust
fund will realize a loss in the amount of the difference. The master servicer
will be entitled to withdraw or cause to be withdrawn from the collection or
distribution account out of the Liquidation Proceeds recovered on any defaulted
mortgage asset, prior to the distribution of any Liquidation Proceeds to
securityholders, amounts representing its normal servicing compensation on the
mortgage loan, unreimbursed servicing expenses incurred with respect to the
mortgage asset and any unreimbursed advances of delinquent monthly payments made
with respect to the mortgage loan.
If the master servicer or its designee recovers Insurance Proceeds with
respect to any defaulted mortgage loan, the master servicer will be entitled to
withdraw or cause to be withdrawn from the collection account or distribution
account out of Insurance Proceeds, prior to distribution of that amount to
securityholders, amounts representing its normal servicing compensation on that
mortgage loan, unreimbursed servicing expenses incurred with respect to the
mortgage loan and any unreimbursed advances of delinquent monthly payments made
with respect to the mortgage loan. In the event that the master servicer has
expended its own funds to restore damaged property and those funds have not been
reimbursed under any insurance instrument, it will be entitled to withdraw from
the collection account out of related Liquidation Proceeds or Insurance Proceeds
an amount equal to the expenses incurred by it, in which event the trust fund
may realize a loss up to the amount so charged. Because Insurance Proceeds
cannot exceed deficiency claims and expenses incurred by the master servicer, no
payment or recovery will result in a recovery to the trust fund which exceeds
the principal balance of the defaulted mortgage asset together with accrued
interest thereon at the interest rate net of servicing fees and the retained
interest, if any. In addition, when property securing a defaulted mortgage asset
can be resold for an amount exceeding the outstanding principal balance of the
related mortgage asset together with accrued interest and expenses, it may be
expected that, if retention of any amount is legally permissible, the insurer
will exercise its right under any related mortgage pool insurance policy to
purchase the property and realize for itself any excess proceeds. SEE
"DESCRIPTION OF PRIMARY INSURANCE POLICIES" AND "DESCRIPTION OF CREDIT SUPPORT".
With respect to collateral securing a cooperative loan, any prospective
purchaser will generally have to obtain the approval of the board of directors
of the relevant cooperative before purchasing the shares and acquiring rights
under the proprietary lease or occupancy agreement securing the cooperative
loan. This approval is usually based on the purchaser's income and net worth and
numerous other factors. The necessity of acquiring board approval could limit
the number of potential purchasers for those shares and otherwise limit the
master servicer's ability to sell, and realize the value of, those shares. SEE
"LEGAL ASPECTS OF MORTGAGE LOANS-FORECLOSURE ON COOPERATIVES".
Realization on defaulted contracts may be accomplished through repossession
and subsequent resale of the underlying manufactured home or home improvement.
With respect to a defaulted home improvement contract, the master servicer will
decide whether to foreclose upon the mortgaged property or write off the
principal balance of such home improvement contract as a bad debt or take an
unsecured note. In doing so, the master servicer will estimate the expected
proceeds and expenses to determine whether a foreclosure proceeding or a
repossession and resale is appropriate. If a home improvement contract secured
by a lien on a mortgaged property is junior to another lien on the related
mortgaged property, following any default thereon, unless foreclosure proceeds
for such home improvement contract are expected to at least satisfy the related
senior mortgage loan in
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full and to pay foreclosure costs, it is likely that such home improvement
contract will be written off as bad debt with no foreclosure proceeding.
RETAINED INTEREST; SERVICING OR ADMINISTRATION COMPENSATION AND PAYMENT OF
EXPENSES
The prospectus supplement for a series of securities will specify whether
there will be any retained interest from the trust fund assets, and, if so, the
owner of the retained interest. If so, the retained interest will be established
on a loan-by-loan basis and will be specified on an exhibit to the related
agreement. A retained interest in a trust fund asset represents a specified
portion of the interest payable thereon. The retained interest will be deducted
from borrower payments as received and will not be part of the related trust
fund. Any partial recovery of interest on a mortgage asset, after deduction of
all applicable servicing fees, will be allocated between retained interest, if
any, and interest at the interest rate on the mortgage loan, net of the rates at
which the servicing fees and the retained interest are calculated, on a pari
passu basis.
The master servicer's primary compensation with respect to a series of
securities will come from the monthly payment to it, with respect to each
interest payment on a trust fund asset, of an amount equal to one-twelfth of the
servicing fee rate specified in the related prospectus supplement times the
scheduled principal balance of the trust fund asset. Since any retained interest
and the master servicer's primary compensation are percentages of the scheduled
principal balance of each trust fund asset, these amounts will decrease in
accordance with the amortization schedule of the trust fund assets. As
additional compensation in connection with a series of securities relating to
mortgage loans, the master servicer or the sub-servicers will retain all
assumption fees, late payment charges and , unless otherwise stated in the
prospectus supplement, prepayment penalties, to the extent collected from
mortgagors. Any interest or other income which may be earned on funds held in
the collection account, distribution account, sub-servicing account or any other
account created under the related servicing agreement may be paid as additional
compensation to the master servicer or the sub-servicers, as the case may be.
Any sub-servicer will receive a portion of the master servicer's primary
compensation as its sub-servicing compensation.
In addition to amounts payable to any sub-servicer, the master servicer may
pay from its servicing compensation expenses incurred in connection with its
servicing of the mortgage loans, including, without limitation, payment of the
fees and disbursements of the trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
securityholders, and other expenses, as described in the related prospectus
supplement.
The master servicer is entitled to reimbursement for expenses incurred by
it in connection with the liquidation of defaulted mortgage assets, including
expenditures incurred by it in connection with the restoration of mortgaged
properties, the right of reimbursement being prior to the rights of
securityholders to receive any related Liquidation Proceeds. The master servicer
is also entitled to reimbursement from the collection account for advances.
ANNUAL EVIDENCE AS TO THE COMPLIANCE OF THE MASTER SERVICER
Each servicing agreement with respect to a series of securities will
provide that, on or before a specified date in each year, the first date being
at least six months after the related cut-off date, a firm of independent public
accountants will furnish a statement to the trustee to the effect that, on the
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basis of the examination by the firm conducted substantially in compliance with
either the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for Freddie Mac, the servicing by or on behalf of
the master servicer of mortgage assets under servicing agreements substantially
similar to each other, including the related servicing agreement, was conducted
in compliance with the terms of those agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, either the
Audit Program for Mortgages serviced for Freddie Mac, or paragraph 4 of the
Uniform Single Attestation Program for Mortgage Bankers, requires it to report.
In rendering its statement the accounting firm may rely, as to matters relating
to the direct servicing of mortgage assets by sub-servicers, upon comparable
statements for examinations conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for Freddie Mac, rendered within one year of the statement,
of firms of independent public accountants with respect to the related
sub-servicer.
Each servicing agreement will also provide for delivery to the trustee, on
or before a specified date in each year, of an annual statement signed by an
officer of the master servicer to the effect that the master servicer has
fulfilled its obligations under the related agreement throughout the preceding
year.
Copies of the annual accountants' statement and the officer's statement of
the master servicer may be obtained by securityholders without charge upon
written request to the master servicer at the address set forth in the related
prospectus supplement.
MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The master servicer under each servicing agreement will be named in the
related prospectus supplement. The entity serving as master servicer may be an
affiliate of the depositor and may have other normal business relationships with
the depositor or the depositor's affiliates.
Each servicing agreement will provide that the master servicer may resign
from its obligations and duties under the related agreement only if its
resignation, and the appointment of a successor, will not result in a
downgrading of any class of securities or upon a determination that its duties
under the related agreement are no longer permissible under applicable law. No
resignation will become effective until the trustee or a successor servicer has
assumed the master servicer's obligations and duties under the related
agreement.
Each servicing agreement will further provide that neither the master
servicer, the depositor nor any director, officer, employee, or agent of the
master servicer or the depositor will be under any liability to the related
trust fund or securityholders for any action taken, or for refraining from the
taking of any action, in good faith under the related agreement, or for errors
in judgment; provided, however, that neither the master servicer, the depositor
nor any such person will be protected against any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. Each servicing agreement will
further provide that the master servicer, the depositor and any director,
officer, employee or agent of the master servicer or the depositor will be
entitled to indemnification by the related trust fund and will be held harmless
against any loss, liability or expense incurred in connection with any legal
action relating to the related agreement or
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the securities, other than any loss, liability or expense that is related to any
specific mortgage loan or mortgage loans, unless that loss, liability or expense
is otherwise reimbursable under the related agreement, and other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
gross negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. In addition, each
servicing agreement will provide that neither the master servicer nor the
depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the related agreement and which in its opinion may involve it in any expense or
liability. The master servicer or the depositor may, however, in its discretion
undertake any action which it may deem necessary or desirable with respect to
the related agreement and the rights and duties of the parties and the interests
of the securityholders. In that event, the legal expenses and costs of the
action and any resulting liability will be expenses, costs and liabilities of
the securityholders, and the master servicer or the depositor, as the case may
be, will be entitled to be reimbursed and to charge the trust fund for the
reimbursement. Distributions to securityholders will be reduced to pay for the
reimbursement as set forth in the related prospectus supplement and servicing
agreement.
Any person into which the master servicer may be merged or consolidated, or
any person resulting from any merger or consolidation to which the master
servicer is a party, or any person succeeding to the business of the master
servicer, will be the successor of the master servicer under each agreement, so
long as that person is qualified to sell mortgage loans to, and service mortgage
loans on behalf of, Fannie Mae or Freddie Mac.
EVENTS OF DEFAULT UNDER THE GOVERNING AGREEMENT AND RIGHTS UPON EVENTS OF
DEFAULT
POOLING AND SERVICING AGREEMENT
Events of default under each pooling and servicing agreement will include
each of the following unless otherwise stated in the related prospectus
supplement:
o any failure by the master servicer to distribute or cause to be
distributed to securityholders, or to remit to the trustee for
distribution to securityholders, any required payment that
continues unremedied for a specified number of business days
after the giving of written notice of the failure to the master
servicer by the trustee or the depositor, or to the master
servicer, the depositor and the trustee by the holders of
certificates evidencing not less than 25% of the voting rights;
o any failure by the master servicer duly to observe or perform in
any material respect any of its other covenants or obligations
under the agreement which continues unremedied for a specified
number of days after the giving of written notice of the failure
to the master servicer by the trustee or the depositor, or to the
master servicer, the depositor and the trustee by the holders of
certificates evidencing not less than 25% of the voting rights;
and
o events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings and actions by or on
behalf of the master servicer indicating its insolvency or
inability to pay its obligations.
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So long as an event of default under a pooling and servicing agreement
remains unremedied, the depositor or the trustee may, unless otherwise provided
in the related prospectus supplement, and at the direction of holders of
certificates evidencing not less than 51% of the voting rights, the trustee
shall, terminate all of the rights and obligations of the master servicer under
the pooling and servicing agreement relating to the trust fund and in and to the
mortgage assets, other than any retained interest of the master servicer,
whereupon the trustee will succeed to all of the responsibilities, duties and
liabilities of the master servicer under the agreement and will be entitled to
similar compensation arrangements. If the trustee is prohibited by law from
obligating itself to make advances regarding delinquent mortgage assets, then
the trustee will not be so obligated.
If the trustee is unwilling or unable so to act, it may or, at the written
request of the holders of certificates entitled to at least 51% of the voting
rights, it shall appoint, or petition a court of competent jurisdiction for the
appointment of, a loan servicing institution acceptable to the rating agency
with a net worth at the time of the appointment of at least $1,000,000 to act as
successor to the master servicer under the agreement. Pending the appointment of
a successor, the trustee is obligated to act in the capacity of master servicer.
The trustee and any successor master servicer may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the master servicer under the related agreement.
No certificateholder will have the right under any pooling and servicing
agreement to institute any proceeding under the agreement unless:
o the certificateholder previously has given to the trustee written
notice of default,
o the holders of certificates evidencing not less than 25% of the voting
rights have made written request upon the trustee to institute the
proceeding in its own name as trustee thereunder,
o have offered to the trustee reasonable indemnity, and
o the trustee for fifteen days has neglected or refused to institute a
proceeding. The trustee, however, is under no obligation to exercise
any of the trusts or powers vested in it by any pooling and servicing
agreement or to make any investigation of matters arising thereunder
or to institute, conduct or defend any litigation at the request,
order or direction of any of the holders of certificates covered by
the agreement, unless the certificateholders have offered to the
trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred.
SERVICING AGREEMENT
A servicing default under the related servicing agreement will include each
of the following unless otherwise provided in the related prospectus supplement:
o any failure by the master servicer to make a required deposit to
the collection account or, if the master servicer is so required,
to distribute to the holders of any class of notes or equity
certificates of the series any required payment which
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continues unremedied for a specified number of business days
after the giving of written notice of the failure to the master
servicer by the trustee or the issuer;
o any failure by the master servicer duly to observe or perform in
any material respect any other of its covenants or agreements in
the servicing agreement with respect to the series of notes which
continues unremedied for a specified number of days after the
giving of written notice of the failure to the master servicer by
the trustee or the issuer;
o events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings regarding the master
servicer and actions by the master servicer indicating its
insolvency or inability to pay its obligations and
o any other servicing default as set forth in the servicing
agreement.
So long as a servicing default remains unremedied, either the depositor or
the trustee may, by written notification to the master servicer and to the
issuer or the trustee or trust fund, as applicable, terminate all of the rights
and obligations of the master servicer under the servicing agreement, other than
any right of the master servicer as noteholder or as holder of the equity
certificates and other than the right to receive servicing compensation and
expenses for servicing the mortgage loans during any period prior to the date of
the termination. Upon termination of the master servicer the trustee will
succeed to all responsibilities, duties and liabilities of the master servicer
under the servicing agreement, other than the obligation to repurchase mortgage
loans, and will be entitled to similar compensation arrangements. If the trustee
would be obligated to succeed the master servicer but is unwilling to so act, it
may appoint, or if it is unable to so act, it shall appoint, or petition a court
of competent jurisdiction for the appointment of an approved mortgage servicing
institution with a net worth of at least $1,000,000 to act as successor to the
master servicer under the servicing agreement. Pending the appointment of a
successor, the trustee is obligated to act in the capacity of master servicer.
The trustee and the successor may agree upon the servicing compensation to be
paid, which in no event may be greater than the compensation to the initial
master servicer under the servicing agreement.
INDENTURE
An event of default under the indenture will include each of the following
unless otherwise provided in the related prospectus supplement:
o a default for a specified number of days or more in the payment of any
principal of or interest on any note of the series;
o failure to perform any other covenant of the depositor or the trust
fund in the indenture which continues for a specified number of days
after notice of failure is given in accordance with the procedures
described in the related prospectus supplement;
o any representation or warranty made by the depositor or the trust fund
in the indenture or in any related certificate or other writing having
been incorrect in a material respect as of the time made, and the
breach is not cured within a specified number of days after notice
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of breach is given in accordance with the procedures described in the
related prospectus supplement;
o events of bankruptcy, insolvency, receivership or liquidation of the
depositor or the issuer; or
o any other event of default provided with respect to notes of that
series.
If an event of default with respect to the notes of any series occurs and
is continuing, the trustee or the holders of a majority of the then aggregate
outstanding amount of the notes of the series may declare the principal amount,
or, if the notes of that series are Accrual Securities, the portion of the
principal amount as may be specified in the terms of that series, as provided in
the related prospectus supplement, of all the notes of the series to be due and
payable immediately. That declaration may, under the circumstances set forth in
the indenture, be rescinded and annulled by the holders of a majority in
aggregate outstanding amount of the related notes.
If following an event of default with respect to any series of notes, the
notes of the series have been declared to be due and payable, the trustee may,
in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of the series and to continue to
apply payments on the collateral as if there had been no declaration of
acceleration if the collateral continues to provide sufficient funds for the
payment of principal of and interest on the notes of the series as they would
have become due if there had not been a declaration. In addition, the trustee
may not sell or otherwise liquidate the collateral securing the notes of a
series following an event of default, unless
o the holders of 100% of the then aggregate outstanding amount of the
notes of the series consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay in full
the principal of and accrued interest, due and unpaid, on the
outstanding notes of the series at the date of the sale, or
o the trustee determines that the collateral would not be sufficient on
an ongoing basis to make all payments on the notes as the payments
would have become due if the notes had not been declared due and
payable, and the trustee obtains the consent of the holders of 66 2/3%
of the then aggregate outstanding amount of the notes of the series.
If the trustee liquidates the collateral in connection with an event of
default, the indenture may provide that the trustee will have a prior lien on
the proceeds of any liquidation for unpaid fees and expenses. As a result, upon
the occurrence of an event of default, the amount available for payments to the
noteholders would be less than would otherwise be the case. However, the trustee
may not institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the indenture
for the benefit of the noteholders after the occurrence of an event of default.
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If the principal of the notes of a series is declared due and payable, the
holders of those notes issued at a discount from par may be entitled to receive
no more than an amount equal to the unpaid principal amount of the note less the
amount of the discount that is unamortized.
No noteholder or holder of an equity certificate generally will have any
right under an owner trust agreement or indenture to institute any proceeding
with respect to the agreement unless:
o the holder previously has given to the trustee written notice of
default and the default is continuing,
o the holders of notes or equity certificates of any class evidencing
not less than 25% of the aggregate percentage interests constituting
the class (1) have made written request upon the trustee to institute
a proceeding in its own name as trustee thereunder and (2) have
offered to the trustee reasonable indemnity,
o the trustee has neglected or refused to institute a proceeding for 60
days after receipt of the request and indemnity, and
o no direction inconsistent with the written request has been given to
the trustee during the 60 day period by the holders of a majority of
the note balances of the class. However, the trustee will be under no
obligation to exercise any of the trusts or powers vested in it by the
applicable agreement or to institute, conduct or defend any litigation
at the request, order or direction of any of the holders of notes or
equity certificates covered by the agreement, unless the holders have
offered to the trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby.
AMENDMENT OF THE GOVERNING AGREEMENTS
With respect to each series of certificates, each related pooling and
servicing agreement or trust agreement may be amended by the depositor, the
master servicer, and the trustee, upon consent of any credit support provider,
without the consent of any of the holders of certificates covered by the
agreement, to cure any ambiguity, to correct, modify or supplement any provision
in the agreement, or to make any other provisions with respect to matters or
questions arising under the agreement which are not inconsistent with the
provisions of the agreement, provided that the action will not adversely affect
in any material respect the interests of any holder of certificates covered by
the agreement. Each agreement may also be amended by the depositor, the master
servicer, if any, and the trustee, with the consent of the holders of
certificates evidencing not less than 66% of the voting rights, for any purpose,
but that no amendment may
o reduce in any manner the amount of or delay the timing of, payments
received on trust fund assets which are required to be distributed on
any certificate without the consent of the holder of the certificate,
o adversely affect in any material respect the interests of the holders
of any class of certificates in a manner other than as described in
the preceding bullet point, without the consent of the holders of
certificates of that class evidencing not less than 66% of the
aggregate voting rights of that class, or
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o reduce the percentage of voting rights required by the preceding
bullet point for the consent to any amendment without the consent of
the holders of all certificates covered by the agreement then
outstanding.
However, with respect to any series of certificates as to which a REMIC
election is to be made, the trustee will not consent to any amendment of the
agreement unless it shall first have received an opinion of counsel to the
effect that the amendment will not cause the trust fund to fail to qualify as a
REMIC at any time that the related certificates are outstanding. The voting
rights evidenced by any certificate will be the portion of the voting rights of
all of the certificates in the related series allocated in the manner described
in the related prospectus supplement.
With respect to each series of notes, each related servicing agreement or
indenture may be amended by the parties to the agreement without the consent of
any of the holders of the notes covered by the agreement, to cure any ambiguity,
to correct, modify or supplement any provision in the agreement, or to make any
other provisions with respect to matters or questions arising under the
agreement which are not inconsistent with the provisions of the agreement,
provided that the action will not adversely affect in any material respect the
interests of any holder of notes covered by the agreement. Each agreement may
also be amended by the parties to the agreement with the consent of the holders
of notes evidencing not less than 66% of the voting rights, for any purpose, but
that no amendment may
o reduce in any manner the amount of or delay the timing of, payments
received on trust fund assets which are required to be distributed on
any note without the consent of the holder of that note,
o adversely affect in any material respect the interests of the holders
of any class of notes in a manner other than as described in the
preceding bullet point, without the consent of the holders of notes of
that class evidencing not less than 66% of the aggregate voting rights
of that class, or
o reduce the percentage of voting rights required by the preceding
bullet point for the consent to any amendment without the consent of
the holders of all notes covered by the agreement then outstanding.
The voting rights evidenced by any note will be the portion of the
voting rights of all of the notes in the related series allocated in
the manner described in the related prospectus supplement.
TERMINATION OF THE TRUST FUND AND DISPOSITION OF TRUST FUND ASSETS
The obligations created by the related agreements for each series of
securities will terminate upon the payment to securityholders of that series of
all amounts held in the distribution account or by the master servicer and
required to be paid to them under the agreements following the earlier of
o the final payment or other liquidation of the last asset included in
the related trust fund or the disposition of all underlying property
subject to the trust fund assets acquired upon foreclosure of the
trust fund assets, and
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o the purchase of all of the assets of the trust fund by the party
entitled to effect the termination, under the circumstances and in the
manner set forth in the related prospectus supplement.
In no event, however, will the trust created by the related agreements
continue beyond the date specified in the related agreement. Written notice of
termination of the related agreements will be given to each securityholder, and
the final distribution will be made only upon surrender and cancellation of the
securities at an office or agency appointed by the trustee which will be
specified in the notice of termination.
Any purchase of assets of the trust fund in connection with a termination,
shall be made at the price set forth in the related prospectus supplement which
in most cases will be equal to the greater of:
o the sum of (a) 100% of the stated principal balance of each mortgage
asset as of the day of the purchase plus accrued interest thereon at
the applicable interest rate net of the rates at which the servicing
fees and the retained interest, if any, are calculated to the first
day of the month following the purchase plus (b) the appraised value
of any underlying property subject to the mortgage assets acquired for
the benefit of securityholders, and
o the aggregate fair market value of all of the assets in the trust
fund, as determined by the trustee, the master servicer, and, if
different than both such persons, the person entitled to effect the
termination, in each case taking into account accrued interest at the
applicable interest rate net of the rates at which the servicing fees
and the retained interest, if any, are calculated to the first day of
the month following the purchase.
The exercise of an optimal termination right will effect early retirement
of the securities of that series, but the right of the person entitled to effect
the termination is subject to the aggregate principal balance of the outstanding
trust fund assets for the series at the time of purchase being less than the
percentage of the aggregate principal balance of the trust fund assets at the
cut-off date for that series specified in the related prospectus supplement,
which percentage will be between 25% and 0%.
In addition to the repurchase of the assets in the related trust fund at
the Clean-up Call, if so specified in the related prospectus supplement, a
holder of a non-offered class of securities described in the preceding paragraph
will have the right, solely at its discretion, to terminate the related trust
fund on any distribution date after the 12th distribution date following the
date of initial issuance of the related series of securities and until the date
as the Clean-up Call becomes exercisable and thereby effect early retirement of
the securities of the series. Any call of this type will be of the entire trust
fund at one time; multiple calls with respect to any series of securities will
not be permitted. If the call option is exercised, the Call Class must remit to
the trustee a price equal to 100% of the principal balance of the securities
offered hereby as of the day of the purchase plus accrued interest thereon at
the applicable security interest rate during the related period on which
interest accrues on the securities which the trustee will distribute to
securityholders. If funds to terminate are not deposited with the related
trustee, the securities will remain outstanding. There will not be any
additional remedies available to securityholders. In addition, in the case of a
trust fund for which a REMIC election or elections have been made, an early
termination will constitute a
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"qualified liquidation" under Section 860F of the Code. In connection with a
call by the Call Class, the final payment to the securityholders will be made
upon surrender of the related securities to the trustee. Once the securities
have been surrendered and paid in full, there will not be any continuing
liability from the securityholders or from the trust fund to securityholders.
OPTIONAL PURCHASE BY THE MASTER SERVICER OF DEFAULTED MORTGAGE LOANS
The master servicer under the related servicing agreement will have the
option to purchase from the trust fund any mortgage asset 90 days or more
delinquent at a purchase price generally equal to the outstanding principal
balance of the delinquent mortgage asset as of the date of purchase, plus all
accrued and unpaid interest on that principal balance.
DUTIES OF THE TRUSTEE
The trustee makes no representations as to the validity or sufficiency of
any agreement, the securities or any mortgage loan or related document and is
not accountable for the use or application by or on behalf of the master
servicer of any funds paid to the master servicer or its designee in respect of
the securities or the mortgage loans, or deposited into or withdrawn from the
collection account or any other account by or on behalf of the master servicer.
If no event of default has occurred and is continuing, the trustee is required
to perform only those duties specifically required under the related agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the trustee is required to examine the documents
and to determine whether they conform to the requirements of the related
agreement.
DESCRIPTION OF THE TRUSTEE
The trustee or indenture trustee, each referred to as the trustee, under
each pooling and servicing agreement, trust agreement or indenture will be named
in the related prospectus supplement. The owner trustee for each series of notes
will be named in the related prospectus supplement. The commercial bank,
national banking association or trust company serving as trustee or owner
trustee may have normal banking relationships with the depositor and its
affiliates and with the master servicer and its affiliates.
DESCRIPTION OF CREDIT SUPPORT
For any series of securities, credit support may be provided with respect
to one or more classes thereof or the related mortgage assets. Credit support
may be in the form of the subordination of one or more classes to other classes
in a series of securities, letters of credit, insurance policies, surety bonds,
guarantees, the establishment of one or more reserve funds,
cross-collateralization, overcollateralization or another method of credit
support described in the related prospectus supplement, or any combination of
the foregoing. If so provided in the related prospectus supplement, any form of
credit support may be structured so as to be drawn upon by more than one series
of securities.
The credit support provided for a series of securities will in most cases
not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the securities and interest
thereon. If losses or shortfalls occur that exceed the amount covered by credit
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support or that are not covered by credit support, securityholders will bear
their allocable share of deficiencies. Also, if a form of credit support covers
more than one pool of mortgage assets in a trust fund or more than one series of
securities, holders of securities evidencing interests in any of the covered
pools or covered trusts will be subject to the risk that the credit support will
be exhausted by the claims of other covered pools or covered trusts prior to
that covered pool or covered trust receiving any of its intended share of the
coverage.
If credit support is provided with respect to one or more classes of
securities of a series, or the related mortgage assets, the related prospectus
supplement will include a description of
o the nature and amount of coverage under such credit support,
o any conditions to payment thereunder not otherwise described in this
prospectus,
o the conditions under which the amount of coverage under the credit
support may be reduced, terminated or replaced, and
o the material provisions relating to the credit support.
Additionally, the related prospectus supplement will set forth certain
information with respect to the credit support provider, including:
o a brief description of its principal business activities,
o its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business,
o if applicable, the identity of regulatory agencies that exercise
primary jurisdiction over the conduct of its business, and
o its total assets and its stockholders' or policyholders' surplus, if
applicable, as of the date specified in the prospectus supplement.
A copy of the policy or agreement, as applicable, governing the
applicable credit support will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed within 15
days of issuance of the related series.
SUBORDINATION
One or more classes of securities may be subordinate securities. In the
event of any realized losses on mortgage assets not in excess of the limitations
described in the following paragraph, the rights of the subordinate
securityholders to receive distributions with respect to the mortgage loans will
be subordinate to the rights of the senior securityholders to the extent
described in the related prospectus supplement.
All realized losses will be allocated to the subordinate securities of the
related series, or, if the series includes more than one class of subordinate
securities, to the outstanding class of
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subordinate securities having the first priority for allocation of realized
losses and then to additional outstanding classes of subordinate securities, if
any, until the principal balance of the applicable subordinate securities has
been reduced to zero. Any additional realized losses will be allocated to the
senior securities or, if the series includes more than one class of senior
securities, either on a pro rata basis among all of the senior securities in
proportion to their respective outstanding principal balances or as otherwise
provided in the related prospectus supplement. However, with respect to realized
losses that are attributable to physical damage to mortgaged properties of a
type that is not covered by standard hazard insurance policies, the amount
thereof that may be allocated to the subordinate securities of the related
series may be limited to an amount specified in the related prospectus
supplement. If so, any realized losses of this type in excess of the amount
allocable to the subordinate securities will be allocated among all outstanding
classes of securities of the related series, on a pro rata basis in proportion
to their respective outstanding principal balances, regardless of whether any
subordinate securities remain outstanding, or as otherwise provided in the
related prospectus supplement. Any allocation of a realized loss to a security
will be made by reducing the principal balance thereof as of the distribution
date following the Prepayment Period in which the realized loss was incurred.
As set forth under "Description of the Securities--Distributions of
Principal of the Securities", the rights of holders of the various classes of
securities of any series to receive distributions of principal and interest is
determined by the aggregate principal balance of each class. The principal
balance of any security will be reduced by all amounts previously distributed on
that security in respect of principal, and by any realized losses allocated to
that security. If there were no realized losses or prepayments of principal on
any of the mortgage loans, the respective rights of the holders of securities of
any series to future distributions would not change. However, to the extent so
provided in the related prospectus supplement, holders of senior securities may
be entitled to receive a disproportionately larger amount of prepayments
received, which will have the effect of accelerating the amortization of the
senior securities and increasing the respective percentage interest in future
distributions evidenced by the subordinate securities in the related trust fund,
with a corresponding decrease in the senior percentage, as well as preserving
the availability of the subordination provided by the subordinate securities. In
addition, as set forth in the paragraph above, realized losses will be first
allocated to subordinate securities by reduction of the principal balance
thereof, which will have the effect of increasing the respective interest in
future distributions evidenced by the senior securities in the related trust
fund.
If so provided in the related prospectus supplement, amounts otherwise
payable on any distribution date to holders of subordinate securities may be
deposited into a reserve fund. Amounts held in any reserve fund may be applied
as described below under "--Reserve Funds" and in the related prospectus
supplement.
With respect to any Senior/Subordinate Series, the terms and provisions of
the subordination may vary from those described in the preceding paragraphs and
any variation will be described in the related prospectus supplement.
If so provided in the related prospectus supplement, the credit support for
the senior securities of a Senior/Subordinate Series may include, in addition to
the subordination of the subordinate securities of the series and the
establishment of a reserve fund, any of the other forms of credit support
described in this prospectus supplement. If any of the other forms of credit
support
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described below is maintained solely for the benefit of the senior securities of
a Senior/Subordinate Series, then that coverage described may be limited to the
extent necessary to make required distributions on the senior securities or as
otherwise specified in the related prospectus supplement. If so provided in the
related prospectus supplement, the obligor on any other forms of credit support
maintained for the benefit of the senior securities of a Senior/Subordinate
Series may be reimbursed for amounts paid thereunder out of amounts otherwise
payable on the subordinate securities.
LETTER OF CREDIT
As to any series of securities to be covered by a letter of credit, a bank
will deliver to the trustee an irrevocable letter of credit. The master servicer
or trustee will exercise its best reasonable efforts to keep or cause to be kept
the letter of credit in full force and effect, unless coverage thereunder has
been exhausted through payment of claims. The master servicer will agree to pay
the fees for the letter of credit on a timely basis unless, as described in the
related prospectus supplement, the payment of those fees is otherwise provided
for.
The master servicer or the trustee will make or cause to be made draws on
the letter of credit bank under each letter of credit. Subject to any
differences as will be described in the related prospectus supplement, letters
of credit may cover all or any of the following amounts, in each case up to a
maximum amount set forth in the letter of credit:
(1) For any mortgage asset that became a liquidated asset during the
related Prepayment Period, other than mortgage assets as to which amounts
paid or payable under any related hazard insurance instrument, including
the letter of credit as described in (2) below, are not sufficient either
to restore the mortgaged property or to pay the outstanding principal
balance of the mortgage asset plus accrued interest, an amount which,
together with all Liquidation Proceeds, Insurance Proceeds, and other
collections on the liquidated loan, net of amounts payable or reimbursable
therefrom to the master servicer for related unpaid servicing fees and
unreimbursed servicing expenses, will equal the sum of (A) the unpaid
principal balance of the liquidated asset, plus accrued interest at the
applicable interest rate net of the rates at which the servicing fee and
retained interest are calculated, plus (B) the amount of related servicing
expenses, if any, not reimbursed to the master servicer from Liquidation
Proceeds, Insurance Proceeds and other collections on the liquidation
asset, which shall be paid to the master servicer;
(2) For each mortgage asset that is delinquent and as to which the
mortgaged property has suffered damage, other than physical damage caused
by hostile or warlike action in time of war or peace, by any weapons of
war, by any insurrection or rebellion, or by any nuclear reaction or
nuclear radiation or nuclear contamination whether controlled or
uncontrolled, or by any action taken by any governmental authority in
response to any of the foregoing, and for which any amounts paid or payable
under the related primary hazard insurance policy or any special hazard
insurance policy are not sufficient to pay either of the following amounts,
an amount which, together with all Insurance Proceeds paid or payable under
the related primary hazard insurance policy or any special hazard insurance
policy, net, if the proceeds are not to be applied to restore the mortgaged
property, of all amounts payable or reimbursable therefrom to the master
servicer for related unpaid servicing fees and unreimbursed servicing
expenses, will be equal to the lesser of (A) the
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amount required to restore the mortgaged property and (B) the sum of (1)
the unpaid principal balance of the mortgage asset plus accrued interest at
the applicable interest rate net of the rates at which the servicing fees
and retained interest, if any, are calculated, plus (2) the amount of
related servicing expenses, if any, not reimbursed to the master servicer
from Insurance Proceeds paid under the related primary hazard insurance
policy or any special hazard insurance policy; and
(3) For any mortgage asset that has been subject to bankruptcy
proceedings as described above, the amount of any debt service reduction or
the amount by which the principal balance of the mortgage asset has been
reduced by the bankruptcy court.
If the related prospectus supplement so provides, upon payment by the
letter of credit bank with respect to a liquidated asset, or a payment of the
full amount owing on a mortgage asset as to which the mortgaged property has
been damaged, as described in (2)(B) above, the liquidated asset will be removed
from the related trust fund in accordance with the terms set forth in the
related prospectus supplement and will no longer be subject to the agreement.
Unless otherwise provided in the related prospectus supplement, mortgage assets
that have been subject to bankruptcy proceedings, or as to which payment under
the letter of credit has been made for the purpose of restoring the related
mortgaged property, as described in (2)(A) above, will remain part of the
related trust fund. The maximum dollar coverages provided under any letter of
credit will each be reduced to the extent of related unreimbursed draws
thereunder.
In the event that the bank that has issued a letter of credit ceases to be
a duly organized commercial bank, or its debt obligations are rated lower than
the highest rating on any class of the securities on the date of issuance by the
rating agency or agencies, the master servicer or trustee will use its best
reasonable efforts to obtain or cause to be obtained, as to each letter of
credit, a substitute letter of credit issued by a commercial bank that meets
these requirements and providing the same coverage; provided, however, that, if
the fees charged or collateral required by the successor bank shall be more than
the fees charged or collateral required by the predecessor bank, each component
of coverage thereunder may be reduced proportionately to a level as results in
the fees and collateral being not more than the fees then charged and collateral
then required by the predecessor bank.
MORTGAGE POOL INSURANCE POLICY
As to any series of securities to be covered by a mortgage pool insurance
policy with respect to any realized losses on liquidated loans, the master
servicer will exercise its best reasonable efforts to maintain or cause to be
maintained the mortgage pool insurance policy in full force and effect, unless
coverage thereunder has been exhausted through payment of claims. The master
servicer will agree to pay the premiums for each mortgage pool insurance policy
on a timely basis unless, as described in the related prospectus supplement, the
payment of those fees is otherwise provided.
The master servicer will present or cause to be presented claims to the
insurer under each mortgage pool insurance policy. Mortgage pool insurance
policies, however, are not blanket policies against loss, since claims
thereunder may be made only upon satisfaction of certain conditions, as
described in the next paragraph and, if applicable, in the related prospectus
supplement.
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Mortgage pool insurance policies do not cover losses arising out of the
matters excluded from coverage under the primary mortgage insurance policy, or
losses due to a failure to pay or denial of a claim under a primary mortgage
insurance policy, irrespective of the reason therefor.
Mortgage pool insurance policies in general provide that no claim may
validly be presented thereunder with respect to a mortgage loan unless:
o an acceptable primary mortgage insurance policy, if the initial
loan-to-value ratio of the mortgage loan exceeded 80%, has been
kept in force until the loan-to-value ratio is reduced to 80%;
o premiums on the primary hazard insurance policy have been paid by
the insured and real estate taxes and foreclosure, protection and
preservation expenses have been advanced by or on behalf of the
insured, as approved by the insurer;
o if there has been physical loss or damage to the mortgaged
property, it has been restored to its physical condition at the
time the mortgage loan became insured under the mortgage pool
insurance policy, subject to reasonable wear and tear; and
o the insured has acquired good and merchantable title to the
mortgaged property, free and clear of all liens and encumbrances,
except permitted encumbrances, including any right of redemption
by or on behalf of the mortgagor, and if required by the insurer,
has sold the property with the approval of the insurer.
Assuming the satisfaction of these conditions, the insurer has the option
to either (a) acquire the property securing the defaulted mortgage loan for a
payment equal to the principal balance of the defaulted mortgage loan plus
accrued and unpaid interest at the interest rate on the mortgage loan to the
date of acquisition and expenses described above advanced by or on behalf of the
insured, on condition that the insurer must be provided with good and
merchantable title to the mortgaged property, unless the property has been
conveyed under the terms of the applicable primary mortgage insurance policy, or
(b) pay the amount by which the sum of the principal balance of the defaulted
mortgage loan and accrued and unpaid interest at the interest rate to the date
of the payment of the claim and the expenses exceed the proceeds received from a
sale of the mortgaged property which the insurer has approved. In both (a) and
(b), the amount of payment under a mortgage pool insurance policy will be
reduced by the amount of the loss paid under the primary mortgage insurance
policy.
Unless earlier directed by the insurer, a claim under a mortgage pool
insurance policy must be filed (a) in the case when a primary mortgage insurance
policy is in force, within a specified number of days (typically, 60 days) after
the claim for loss has been settled or paid thereunder, or after acquisition by
the insured or a sale of the property approved by the insurer, whichever is
later, or (b) in the case when a primary mortgage insurance policy is not in
force, within a specified number of days (typically, 60 days) after acquisition
by the insured or a sale of the property approved
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by the insurer. A claim must be paid within a specified period (typically, 30
days) after the claim is made by the insured.
The amount of coverage under each mortgage pool insurance policy will
generally be reduced over the life of the securities of any series by the
aggregate dollar amount of claims paid less the aggregate of the net amounts
realized by the insurer upon disposition of all acquired properties. The amount
of claims paid includes certain expenses incurred by the master servicer as well
as accrued interest on delinquent mortgage loans to the date of payment of the
claim. Accordingly, if aggregate net claims paid under a mortgage pool insurance
policy reach the applicable policy limit, coverage thereunder will be exhausted
and any further losses will be borne by securityholders of the related series.
SEE "LEGAL ASPECTS OF MORTGAGE LOANS--FORECLOSURE ON MORTGAGES" ANd
"--REPOSSESSION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS".
If an insurer under a mortgage pool insurance policy ceases to be a private
mortgage guaranty insurance company duly qualified as such under applicable laws
and approved as an insurer by Freddie Mac or Fannie Mae and having a
claims-paying ability acceptable to the rating agency or agencies, the master
servicer will use its best reasonable efforts to obtain or cause to be obtained
from another qualified insurer a replacement insurance policy comparable to the
mortgage pool insurance policy with a total coverage equal to the then
outstanding coverage of the mortgage pool insurance policy; provided, however,
that if the cost of the replacement policy is greater than the cost of the
original mortgage pool insurance policy, the coverage of the replacement policy
may be reduced to the level that its premium rate does not exceed the premium
rate on the original mortgage pool insurance policy. However, if the insurer
ceases to be a qualified insurer solely because it ceases to be approved as an
insurer by Freddie Mac or Fannie Mae, the master servicer will review, or cause
to be reviewed, the financial condition of the insurer with a view towards
determining whether recoveries under the mortgage pool insurance policy are
jeopardized for reasons related to the financial condition of the insurer. If
the master servicer determines that recoveries are so jeopardized, it will
exercise its best reasonable efforts to obtain from another qualified insurer a
replacement policy, subject to the same cost limitation.
Because each mortgage pool insurance policy will require that the property
subject to a defaulted mortgage loan be restored to its original condition prior
to claiming against the insurer, the policy will not provide coverage against
hazard losses. As set forth in the immediately following paragraph, the primary
hazard insurance policies covering the mortgage loans typically exclude from
coverage physical damage resulting from a number of causes and, even when the
damage is covered, may afford recoveries that are significantly less than the
full replacement cost of the losses. Further, a special hazard insurance policy,
or a letter of credit that covers special hazard realized losses, will not cover
all risks, and the coverage thereunder will be limited in amount. These hazard
risks will, as a result, be uninsured and will therefore be borne by
securityholders.
SPECIAL HAZARD INSURANCE POLICY
As to any series of securities to be covered by an insurance instrument
that does not cover losses that are attributable to physical damage to the
mortgaged properties of a type that is not covered by standard hazard insurance
policies, in other words, special hazard realized losses, the related prospectus
supplement may provide that the master servicer will exercise its best
reasonable efforts to maintain or cause to be maintained a special hazard
insurance policy in full force and effect
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covering the special hazard amount, unless coverage thereunder has been
exhausted through payment of claims; provided, however, that the master servicer
will be under no obligation to maintain the policy if any insurance instrument
covering the series as to any realized losses on liquidated loans is no longer
in effect. The master servicer will agree to pay the premiums on each special
hazard insurance policy on a timely basis unless, as described in the related
prospectus supplement, payment of those premiums is otherwise provided for.
Each special hazard insurance policy will, subject to the limitations
described in the next paragraph, protect holders of securities of the related
series from
o loss by reason of damage to mortgaged properties caused by certain
hazards, including earthquakes and mudflows, not insured against under
the primary hazard insurance policies or a flood insurance policy if
the property is in a designated flood area, and
o loss from partial damage caused by reason of the application of the
co-insurance clause contained in the primary hazard insurance
policies.
Special hazard insurance policies usually will not cover losses occasioned
by normal wear and tear, war, civil insurrection, governmental actions, errors
in design, nuclear or chemical reaction or contamination, faulty workmanship or
materials, flood, if the property is located in a designated flood area, and
other risks.
Subject to the foregoing limitations, each special hazard insurance policy
will provide that, when there has been damage to property securing a defaulted
mortgage asset acquired by the insured and to the extent the damage is not
covered by the related primary hazard insurance policy or flood insurance
policy, the insurer will pay the lesser of:
(1) the cost of repair to the property and
(2) upon transfer of the property to the insurer, the unpaid principal
balance of the mortgage asset at the time of acquisition of the
property by foreclosure, deed in lieu of foreclosure or repossession,
plus accrued interest to the date of claim settlement and expenses
incurred by or on behalf of the master servicer with respect to the
property.
The amount of coverage under the special hazard insurance policy will be
reduced by the sum of (a) the unpaid principal balance plus accrued interest and
certain expenses paid by the insurer, less any net proceeds realized by the
insurer from the sale of the property, plus (b) any amount paid as the cost of
repair of the property.
Restoration of the property with the proceeds described under clause (1) of
the immediately preceding paragraph will satisfy the condition under an
insurance instrument providing coverage as to credit, or other non-hazard risks,
that the property be restored before a claim thereunder may be validly presented
with respect to the defaulted mortgage asset secured by the property. The
payment described under clause (2) of the immediately preceding paragraph will
render unnecessary presentation of a claim in respect of the mortgage loan under
an insurance instrument providing coverage as to credit, or other non-hazard
risks, as to any realized losses on a liquidated loan.
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Therefore, so long as the insurance instrument providing coverage as to credit,
or other non-hazard risks, remains in effect, the payment by the insurer of
either of the above alternative amounts will not affect the total insurance
proceeds paid to securityholders, but will affect the relative amounts of
coverage remaining under any special hazard insurance policy and any credit
insurance instrument.
The sale of a mortgaged property must be approved by the insurer under any
special hazard insurance policy and funds received by the insured in excess of
the unpaid principal balance of the mortgage asset plus interest thereon to the
date of sale plus expenses incurred by or on behalf of the master servicer with
respect to the property, not to exceed the amount actually paid by the insurer,
must be refunded to the insurer and, to that extent, coverage under the special
hazard insurance policy will be restored. If aggregate claim payments under a
special hazard insurance policy reach the policy limit, coverage thereunder will
be exhausted and any further losses will be borne by securityholders.
A claim under a special hazard insurance policy generally must be filed
within a specified number of days, typically 60 days, after the insured has
acquired good and merchantable title to the property, and a claim payment is
payable within a specified number of days, typically 30 days, after a claim is
accepted by the insurer. Special hazard insurance policies provide that no claim
may be paid unless primary hazard insurance policy premiums, flood insurance
premiums, if the property is located in a federally designated flood area, and,
as approved by the insurer, real estate property taxes, property protection and
preservation expenses and foreclosure or repossession costs have been paid by or
on behalf of the insured, and unless the insured has maintained the primary
hazard insurance policy and, if the property is located in a federally
designated flood area, flood insurance, as required by the special hazard
insurance policy.
If a special hazard insurance policy is canceled or terminated for any
reason, other than the exhaustion of total policy coverage, the master servicer
will use its best reasonable efforts to obtain or cause to be obtained from
another insurer a replacement policy comparable to that special hazard insurance
policy with a total coverage that is equal to the then existing coverage of the
replaced special hazard insurance policy; provided, however, that if the cost of
the replacement policy is greater than the cost of that special hazard insurance
policy, the coverage of the replacement policy may be reduced to a level so that
its premium rate does not exceed the premium rate on that special hazard
insurance policy.
Since each special hazard insurance policy is designed to permit full
recoveries as to any realized losses on liquidated loans under a credit
insurance instrument in circumstances in which recoveries would otherwise be
unavailable because property has been damaged by a cause not insured against by
a primary hazard insurance policy and thus would not be restored, each agreement
governing the trust fund will provide that, if the related credit insurance
instrument shall have lapsed or terminated or been exhausted through payment of
claims, the master servicer will be under no further obligation to maintain the
special hazard insurance policy.
BANKRUPTCY BOND
As to any series of securities to be covered by a bankruptcy bond with
respect to actions that may be taken by a bankruptcy court in connection with a
mortgage asset, the master servicer will exercise its best reasonable efforts to
maintain or cause to be maintained the bankruptcy bond in full
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force and effect, unless coverage thereunder has been exhausted through payment
of claims. The master servicer will pay or cause to be paid the premiums for
each bankruptcy bond on a timely basis, unless, as described in the related
prospectus supplement, payment of those premiums is otherwise provided for.
Subject to the limit of the dollar amount of coverage provided, each bankruptcy
bond will cover certain losses resulting from an extension of the maturity of a
mortgage asset, or a reduction by the bankruptcy court of the principal balance
of or the interest rate on a mortgage asset, and the unpaid interest on the
amount of a principal reduction during the pendency of a proceeding under the
Bankruptcy Code. SEE "LEGAL ASPECTS OF MORTGAGE LOANS--FORECLOSURe ON MORTGAGES"
AND "--REPOSSESSION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS".
FINANCIAL GUARANTEE INSURANCE
Financial guarantee insurance, if any, with respect to a series of
securities will be provided by one or more insurance companies. The financial
guarantee insurance will guarantee, with respect to one or more classes of
securities of a series, timely distributions of interest only, timely
distributions of interest and ultimate distribution of principal or timely
distributions of interest and distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related prospectus supplement. If so specified in the related
prospectus supplement, the financial guarantee insurance will also guarantee
against any payment made to a securityholder that is subsequently recovered as a
voidable preference payment under federal bankruptcy law. A copy of the
financial guarantee insurance policy for a series, if any, will be filed with
the Commission as an exhibit to a Current Report on Form 8-K to be filed with
the Commission within 15 days of issuance of the securities of the related
series.
RESERVE FUND
If so provided in the related prospectus supplement, the depositor will
deposit or cause to be deposited in an account, a reserve fund, any combination
of cash, one or more irrevocable letters of credit or one or more permitted
investments in specified amounts, or any other instrument satisfactory to the
rating agency or agencies, which will be applied and maintained in the manner
and under the conditions specified in the prospectus supplement. In the
alternative or in addition to a deposit, the prospectus supplement for a
Senior/Subordinate Series may provide that, a reserve fund be funded through
application of all or a portion of amounts otherwise payable on the subordinate
securities. Amounts in a reserve fund may be distributed to securityholders, or
applied to reimburse the master servicer for outstanding advances, or may be
used for other purposes, in the manner specified in the related prospectus
supplement. A reserve fund will typically not be deemed to be part of the
related trust fund.
Amounts deposited in any reserve fund for a series will be invested in
permitted investments by, or at the direction of, the master servicer or any
other person named in the related prospectus supplement.
OVERCOLLATERALIZATION
If so specified in the related prospectus supplement, interest collections
on the mortgage assets may exceed interest payments on the securities for the
related distribution date. The excess interest may be deposited into a reserve
fund or applied as an additional payment of principal on one
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or more classes of the securities of the related series. If excess interest is
applied as principal payments on the securities, the effect will be to reduce
the principal balance of the securities relative to the outstanding balance of
the mortgage loans, thereby creating overcollateralization and additional
protection to the securityholders, as specified in the related prospectus
supplement. If so provided in the related prospectus supplement,
overcollateralization may also be provided on the date of issuance of the
securities by the issuance of securities in an initial aggregate principal
amount which is less than the aggregate principal amount of the mortgage assets
in the related trust fund.
CROSS-SUPPORT FEATURES
If the trust fund assets for a series are divided into separate asset
groups, the beneficial ownership of which is evidenced by a separate class or
classes of a series, credit support may be provided by a cross-support feature
which requires that distributions be made on senior securities evidencing the
beneficial ownership of one asset group prior to distributions on subordinate
securities evidencing the beneficial ownership interest in another asset group
within the trust fund. The related prospectus supplement for a series which
includes a cross-support feature will describe the manner and conditions for
applying that cross-support feature. As to any trust fund that includes a
cross-support feature, only assets of the trust fund will be used to provide
cross-support, and cross- support will be provided only to securities issued by
the trust fund. A trust fund will not provide a cross-support feature that
benefits securities issued by any other trust fund, and a trust fund will not
receive cross-support from any other trust fund.
Other Financial Obligations Related to the Securities
SWAPS AND YIELD SUPPLEMENT AGREEMENTS
The trustee on behalf of a trust fund may enter into interest rate swaps
and related caps, floors and collars to minimize the risk of securityholders
from adverse changes in interest rates, which are collectively referred to as
swaps, and other yield supplement agreements or similar yield maintenance
arrangements that do not involve swap agreements or other notional principal
contracts, which are collectively referred to as yield supplement agreements.
An interest rate swap is an agreement between two parties to exchange a
stream of interest payments on an agreed hypothetical or "notional" principal
amount. No principal amount is exchanged between the counterparties to an
interest rate swap. In the typical swap, one party agrees to pay a fixed rate on
a notional principal amount, while the counterparty pays a floating rate based
on one or more reference interest rates including the London Interbank Offered
Rate, or LIBOR, a specified bank's prime rate or U.S. Treasury Bill rates.
Interest rate swaps also permit counterparties to exchange a floating rate
obligation based upon one reference interest rate, such as LIBOR, for a floating
rate obligation based upon another referenced interest rate, such as U.S.
Treasury Bill rates.
Yield supplement agreements may be entered into to supplement the interest
rate or other rates on one or more classes of the securities of any series.
Additionally, agreements relating to other types of derivative products that are
designed to provide credit enhancement to the related series may be entered into
by a trustee and one or more counterparties. The terms of any derivative product
agreement and any counterparties will be described in the accompanying
prospectus supplement.
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There can be no assurance that the trustee will be able to enter into or
offset swaps or enter into yield supplement agreements or derivative product
agreements at any specific time or at prices or on other terms that are
advantageous. In addition, although the terms of the swaps and yield supplement
agreements may provide for termination under various circumstances, there can be
no assurance that the trustee will be able to terminate a swap or yield
supplement agreement when it would be economically advantageous to the trust
fund to do so.
PURCHASE OBLIGATIONS
Some types of trust assets and some classes of securities of any series, as
specified in the accompanying prospectus supplement, may be subject to a
purchase obligation that would become applicable on one or more specified dates,
or upon the occurrence of one or more specified events, or on demand made by or
on behalf of the applicable securityholders. A purchase obligation may be in the
form of a conditional or unconditional purchase commitment, liquidity facility,
remarketing agreement, maturity guaranty, put option or demand feature. The
terms and conditions of each purchase obligation, including the purchase price,
timing and payment procedure, will be described in the accompanying prospectus
supplement. A purchase obligation relating to trust assets may apply to those
trust assets or to the related securities. Each purchase obligation may be a
secured or unsecured obligation of the provider thereof, which may include a
bank or other financial institution or an insurance company. Each purchase
obligation will be evidenced by an instrument delivered to the trustee for the
benefit of the applicable securityholders of the related series. As specified in
the accompanying prospectus supplement, each purchase obligation relating to
trust assets will be payable solely to the trustee for the benefit of the
securityholders of the related series. Other purchase obligations may be payable
to the trustee or directly to the holders of the securities to which that
obligation relate.
DESCRIPTION OF PRIMARY INSURANCE POLICIES
Each mortgage loan will be covered by a primary hazard insurance policy
and, if so specified in the prospectus supplement, a primary mortgage insurance
policy.
PRIMARY MORTGAGE INSURANCE POLICIES
Although the terms and conditions of primary mortgage insurance policies
differ, each primary mortgage insurance policy will generally cover losses up to
an amount equal to the excess of the unpaid principal amount of a defaulted
mortgage loan, plus accrued and unpaid interest thereon and approved expenses,
over a specified percentage of the value of the related mortgaged property.
As conditions to the filing or payment of a claim under a primary mortgage
insurance policy, the insured will typically be required, in the event of
default by the borrower, to:
o advance or discharge (1) hazard insurance premiums and (2) as
necessary and approved in advance by the insurer, real estate taxes,
property protection and preservation expenses and foreclosure and
related costs,
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o in the event of any physical loss or damage to the mortgaged property,
have the mortgaged property restored to at least its condition at the
effective date of the primary mortgage insurance policy, ordinary wear
and tear excepted, and
o tender to the insurer good and merchantable title to, and possession
of, the mortgaged property.
Multifamily loans, commercial loans and mixed-use loans will not be covered
by primary mortgage insurance policies, regardless of the related loan-to-value
ratio.
PRIMARY HAZARD INSURANCE POLICIES
Each servicing agreement will require the master servicer to cause the
borrower on each mortgage loan to maintain a primary hazard insurance policy
providing for coverage of the standard form of fire insurance policy with
extended coverage customary in the state in which the mortgaged property is
located. The primary hazard coverage will be in general in an amount equal to
the lesser of the principal balance owing on the mortgage loan and the amount
necessary to fully compensate for any damage or loss to the improvements on the
mortgaged property on a replacement cost basis, but in either case not less than
the amount necessary to avoid the application of any co-insurance clause
contained in the hazard insurance policy. The ability of the master servicer to
assure that hazard insurance proceeds are appropriately applied may be dependent
upon its being named as an additional insured under any primary hazard insurance
policy and under any flood insurance policy referred to in the paragraph below,
and upon the borrower furnishing information to the master servicer in respect
of a claim. All amounts collected by the master servicer under any primary
hazard insurance policy, except for amounts to be applied to the restoration or
repair of the mortgaged property or released to the borrower in accordance with
the master servicer's normal servicing procedures, and subject to the terms and
conditions of the related Mortgage and mortgage note, will be deposited in the
collection account. The agreement will provide that the master servicer may
satisfy its obligation to cause each borrower to maintain a hazard insurance
policy by the master servicer's maintaining a blanket policy insuring against
hazard losses on the mortgage loans. If the blanket policy contains a deductible
clause, the master servicer will deposit in the collection account all sums that
would have been deposited in the collection account but for that clause. The
master servicer also is required to maintain a fidelity bond and errors and
omissions policy with respect to its officers and employees that provides
coverage against losses that may be sustained as a result of an officer's or
employee's misappropriation of funds or errors and omissions in failing to
maintain insurance, subject to limitations as to amount of coverage, deductible
amounts, conditions, exclusions and exceptions.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements of the property by fire,
lightning, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions specified in each policy.
Although the policies relating to the mortgage loans will be underwritten by
different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most hazard insurance policies typically do not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods and
other water-related causes, earth movement, including earthquakes, landslides
and mudflows, nuclear reactions, wet or dry rot,
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vermin, rodents, insects or domestic animals, theft and, in some cases,
vandalism. This list is merely indicative of the kinds of uninsured risks and is
not intended to be all-inclusive. When a mortgaged property is located at
origination in a federally designated flood area and flood insurance is
available, each agreement will require the master servicer to cause the borrower
to acquire and maintain flood insurance in an amount equal in general to the
lesser of (1) the amount necessary to fully compensate for any damage or loss to
the improvements which are part of the mortgaged property on a replacement cost
basis and (2) the maximum amount of insurance available under the federal flood
insurance program, whether or not the area is participating in the program.
The hazard insurance policies covering the mortgaged properties typically
contain a co-insurance clause that in effect requires the insured at all times
to carry insurance of a specified percentage, generally 80% to 90%, of the full
replacement value of the 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, the co-insurance clause generally provides that the
insurer's liability in the event of partial loss does not exceed the lesser of
(1) the replacement cost of the improvements less physical depreciation and (2)
the proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of the improvements.
The master servicer will not require that a hazard or flood insurance
policy be maintained for any cooperative loan. Generally, the cooperative 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. However, if a cooperative and the related
borrower on a cooperative note do not maintain hazard insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the
restoration of the damaged property, damage to the related borrower's
cooperative apartment or the cooperative's building could significantly reduce
the value of the collateral securing the cooperative note.
Since the amount of hazard insurance the master servicer will cause to be
maintained on the improvements securing the mortgage loans declines as the
principal balances owing thereon decrease, and since residential properties have
historically appreciated in value over time, hazard insurance proceeds collected
in connection with a partial loss may be insufficient to restore fully the
damaged property. The terms of the mortgage loans provide that borrowers are
required to present claims to insurers under hazard insurance policies
maintained on the mortgaged properties. The master servicer, on behalf of the
trustee and securityholders, is obligated to present or cause to be presented
claims under any blanket insurance policy insuring against hazard losses on
mortgaged properties. However, the ability of the master servicer to present or
cause to be presented these claims is dependent upon the extent to which
information in this regard is furnished to the master servicer by borrowers.
FHA INSURANCE
The Federal Housing Administration is responsible for administering various
federal programs, including mortgage insurance, authorized under The Housing Act
and the United States Housing Act of 1937, as amended. If so provided in the
related prospectus supplement, a number of the mortgage loans will be insured by
the FHA.
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There are two primary FHA insurance programs that are available for
multifamily mortgage loans. Sections 221(d)(3) and (d)(4) of the Housing Act
allow HUD to insure mortgage loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of the
Housing Act provides for co-insurance of such mortgage loans made under Sections
221 (d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of such a mortgage loan may be up to 40 years and the ratio of the loan
amount to property replacement cost can be up to 90%.
Section 223(f) of the Housing Act allows HUD to insure mortgage loans made
for the purchase or refinancing of existing apartment projects which are at
least three years old. Section 244 also provides for co-insurance of mortgage
loans made under Section 223(f). Under Section 223(f), the loan proceeds cannot
be used for substantial rehabilitation work, but repairs may be made for up to,
in general, the greater of 15% of the value of the project or a dollar amount
per apartment unit established from time to time by HUD. In general the loan
term may not exceed 35 years and a loan to value ratio of no more than 85% is
required for the purchase of a project and 70% for the refinancing of a project.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The master servicer will be obligated to purchase any
debenture issued in satisfaction of a defaulted FHA insured mortgage loan
serviced by it for an amount equal to the principal amount of that debenture.
The master servicer will be required to take steps as are reasonably
necessary to keep FHA insurance in full force and effect.
Some of the mortgage loans contained in a trust fund may be Title I loans
as described below and in the related prospectus supplement. The regulations,
rules and procedures promulgated by the FHA under Title I contain the
requirements under which lenders approved for participation in the Title I
Program may obtain insurance against a portion of losses incurred with respect
to eligible loans that have been originated and serviced in accordance with FHA
regulations, subject to the amount of insurance coverage available in such Title
I lender's FHA reserve, as described below and in the related prospectus
supplement. In general, an insurance claim against the FHA may be denied or
surcharged if the Title I loan to which it relates does not strictly satisfy the
requirements of the National Housing Act and FHA regulations but FHA regulations
permit the Secretary of the Department of Housing and Urban Development, subject
to statutory limitations, to waive a Title I Lender's noncompliance with FHA
regulations if enforcement would impose an injustice on the lender.
Unless otherwise specified in the related prospectus supplement, the master
servicer will either serve as or contract with the person specified in the
prospectus supplement to serve as the administrator for FHA claims pursuant to
an FHA claims administration agreement. The FHA claims administrator will be
responsible for administering, processing and submitting FHA claims with respect
to the Title I loans. The securityholders will be dependent on the FHA claims
administrator to (1) make claims on the Title I loans in accordance with FHA
regulations and (2) remit all FHA insurance proceeds received from the FHA in
accordance with the related
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agreement. The securityholders' rights relating to the receipt of payment from
and the administration, processing and submission of FHA claims by any FHA
claims administrator is limited and governed by the related agreement and the
FHA claims administration agreement and these functions are obligations of the
FHA claims administrator, but not the FHA.
Under Title I, the FHA maintains an FHA insurance coverage reserve account
for each Title I lender. The amount in each Title I lender's FHA reserve is a
maximum of 10% of the amounts disbursed, advanced or expended by a Title I
lender in originating or purchasing eligible loans registered with the FHA for
Title I insurance, with certain adjustments permitted or required by FHA
regulations. The balance of such FHA reserve is the maximum amount of insurance
claims the FHA is required to pay to the related Title I lender. Mortgage loans
to be insured under Title I will be registered for insurance by the FHA.
Following either the origination or transfer of loans eligible under Title I,
the Title I lender will submit such loans for FHA insurance coverage within its
FHA reserve by delivering a transfer of note report or by an electronic
submission to the FHA in the form prescribed under the FHA regulations. The
increase in the FHA insurance coverage for such loans in the Title I lender's
FHA reserve will occur on the date following the receipt and acknowledgment by
the FHA of the transfer of note report for such loans. The insurance available
to any trust fund will be subject to the availability, from time to time, of
amounts in each Title I lender's FHA reserve, which will initially be limited to
the amount specified in the related prospectus supplement.
If so provided in the related prospectus supplement the trustee or FHA
claims administrator may accept an assignment of the FHA reserve for the related
Title I loans, notify FHA of such assignment and request that the portion of the
depositor's FHA reserves allocable to the Title I loans be transferred to the
trustee or the FHA claims administrator on the closing date. Alternatively, in
the absence of such provision, the FHA reserves may be retained by the depositor
and, upon an insolvency and receivership of the depositor, the related trustee
will notify FHA and request that the portion of the depositor's FHA reserves
allocable to the Title I loans be transferred to the trustee or the FHA claims
administrator. Although each trustee will request such a transfer of reserves,
FHA is not obligated to comply with such a request, and may determine that it is
not in FHA's interest to permit a transfer of reserves. In addition, FHA has not
specified how insurance reserves would be allocated in a transfer, and there can
be no assurance that any reserve amount, if transferred to the trustee or the
FHA claims administrator, as the case may be, would not be substantially less
than 10% of the outstanding principal amount of the related Title I loans. It is
likely that the depositor, the trustee or the FHA claims administrator would be
the lender of record on other Title I loans, so that any FHA reserves that are
retained, or permitted to be transferred, would become commingled with FHA
reserves available for other Title I loans. FHA also reserves the right to
transfer reserves with "earmarking" (segregating reserves so that they will not
be commingled with the reserves of the transferee) if it is in FHA's interest to
do so.
Under Title I, the FHA will reduce the insurance coverage available in a
Title I lender's FHA reserve with respect to loans insured under that Title I
lender's contract of insurance by (1) the amount of FHA insurance claims
approved for payment related to those loans and (2) the amount of reduction of
the Title I lender's FHA reserve by reason of the sale, assignment or transfer
of loans registered under the Title I lender's contract of insurance. The FHA
insurance coverage also may be reduced for any FHA insurance claims previously
disbursed to the Title I lender that are subsequently rejected by the FHA.
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Unlike certain other government loan insurance programs, loans under Title
I (other than loans in excess of $25,000) are not subject to prior review by the
FHA. The FHA disburses insurance proceeds with respect to defaulted loans for
which insurance claims have been filed by a Title I lender prior to any review
of those loans. A Title I lender is required to repurchase a Title I loan from
the FHA that is determined to be ineligible for insurance after insurance claim
payments for such loan have been paid to the lender. Under the FHA regulations,
if the Title I lender's obligation to repurchase the Title I loan is
unsatisfied, the FHA is permitted to offset the unsatisfied obligation against
future insurance claim payments owed by the FHA to such lender. FHA regulations
permit the FHA to disallow an insurance claim with respect to any loan that does
not qualify for insurance for a period of up to two years after the claim is
made and to require the Title I lender that has submitted the insurance claim to
repurchase the loan.
The proceeds of loans under the Title I Program may be used only for
permitted purposes, including the alteration, repair or improvement of
residential property, the purchase of a manufactured home or lot (or cooperative
interest therein) on which to place the home or the purchase of both a
manufactured home and the lot (or cooperative interest therein) on which the
home is placed.
Subject to certain limitations described below, eligible Title I loans are
generally insured by the FHA for 90% of an amount equal to the sum of
o the net unpaid principal amount and the uncollected interest earned to
the date of default,
o interest on the unpaid loan obligation from the date of default to the
date of the initial submission of the insurance claim, plus 15
calendar days (the total period not to exceed nine months) at a rate
of 7% per annum,
o uncollected court costs,
o title examination costs,
o fees for required inspections by the lenders or its agents, up to $75,
and
o origination fees up to a maximum of 5% of the loan amount.
Accordingly if sufficient insurance coverage is available in such FHA
reserve, then the Title I lender bears the risk of losses on a Title I loan for
which a claim for reimbursement is paid by the FHA of at least 10% of the unpaid
principal, uncollected interest earned to the date of default, interest from the
date of default to the date of the initial claim submission and certain
expenses.
In general, the FHA will insure home improvement contracts up to $25,000
for a single family property, with a maximum term of 20 years. The FHA will
insure loans of up to $17,500 for manufactured homes which qualify as real
estate under applicable state law and loans of up to $12,000 per unit for a
$48,000 limit for four units for owner-occupied multifamily homes. If the loan
amount is $15,000 or more, the FHA requires a drive-by appraisal, the current
tax assessment value, or a full Uniform Residential Appraisal Report dated
within 12 months of the closing to
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verify the property's value. The maximum loan amount on transactions requiring
an appraisal is the amount of equity in the property shown by the market value
determination of the property.
With respect to Title I loans, the FHA regulations do not require that a
borrower obtain title or fire and casualty insurance. However, if the related
mortgaged property is located in a flood hazard area, flood insurance in an
amount at least equal to the loan amount is required. In addition, the FHA
regulations do not require that the borrower obtain insurance against physical
damage arising from earth movement (including earthquakes, landslides and
mudflows). Accordingly, if a mortgaged property that secures a Title I loan
suffers any uninsured hazard or casualty losses, holders of the related series
of securities that are secured in whole or in part by such Title I loan may bear
the risk of loss to the extent that such losses are not recovered by foreclosure
on the defaulted loans or from any FHA insurance proceeds. Such loss may be
otherwise covered by amounts available from the credit enhancement provided for
the related series of securities, if specified in the related prospectus
supplement.
Following a default on a Title I loan insured by the FHA, the master
servicer may, subject to certain conditions and mandatory loss mitigation
procedures, either commence foreclosure proceedings against the improved
property securing the loan, if applicable, or submit a claim to FHA, but may
submit a claim to FHA after proceeding against the improved property only with
the prior approval of the Secretary of HUD. The availability of FHA Insurance
following a default on a Title I loan is subject to a number of conditions,
including strict compliance with FHA regulations in originating and servicing
the Title I loan. Failure to comply with FHA regulations may result in a denial
of or surcharge on the FHA insurance claim. Prior to declaring a Title I loan in
default and submitting a claim to FHA, the master servicer must take certain
steps to attempt to cure the default, including personal contact with the
borrower either by telephone or in a meeting and providing the borrower with 30
days' written notice prior to declaration of default. FHA may deny insurance
coverage if the borrower's nonpayment is related to a valid objection to faulty
contractor performance. In such event, the master servicer or other entity as
specified in the related prospectus supplement will seek to obtain payment by or
a judgment against the borrower, and may resubmit the claim to FHA following
such a judgment.
VA GUARANTEES
The United States Department of Veterans Affairs is an Executive Branch
Department of the United States, headed by the Secretary of Veterans Affairs.
The VA currently administers a variety of federal assistance programs on behalf
of eligible veterans and their dependents and beneficiaries. The VA administers
a loan guaranty program under which the VA guarantees a portion of loans made to
eligible veterans. If so provided in the prospectus supplement, a number of the
mortgage loans will be guaranteed by the VA.
Under the VA loan guaranty program, a VA loan may be made to any eligible
veteran by an approved private sector mortgage lender. The VA guarantees payment
to the holder of that loan of a fixed percentage of the loan indebtedness, up to
a maximum dollar amount, in the event of default by the veteran borrower. When a
delinquency is reported to the VA and no realistic alternative to foreclosure is
developed by the loan holder or through the VA's supplemental servicing of the
loan, the VA determines, through an economic analysis, whether the VA will (a)
authorize the holder to convey the property securing the VA loan to the
Secretary of Veterans Affairs following termination
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or (b) pay the loan guaranty amount to the holder. The decision as to
disposition of properties securing defaulted VA loans is made on a case-by-case
basis using the procedures set forth in 38 U.S.C. Section 3732(c), as amended.
The master servicer will be required to take steps as are reasonably
necessary to keep the VA guarantees in full force and effect.
LEGAL ASPECTS OF MORTGAGE ASSETS
The following discussion contains general summaries of legal aspects of
loans secured by residential and commercial properties. Because these legal
aspects are governed in part by applicable state law, which laws may differ
substantially from state to state, the summaries do not purport to be complete
nor to reflect the laws of any particular state, nor to encompass the laws of
all states in which the security for the mortgage assets is situated. If there
is a concentration of the mortgage assets included in a trust fund in a
particular state, the prospectus supplement for the related series of securities
will discuss any laws of that state that could materially impact the interest of
the securityholders.
MORTGAGE LOANS
The single-family loans, multifamily loans, commercial loans and mixed-use
loans will be secured by either mortgages, deeds of trust, security deeds or
deeds to secure debt depending upon the type of security instrument customary to
grant a security interest according to the prevailing practice in the state in
which the property subject to that mortgage loan is located. The filing of a
mortgage or a deed of trust creates a lien upon or conveys title to the real
property encumbered by that instrument and represents the security for the
repayment of an obligation that is customarily evidenced by a promissory note.
It is not prior to the lien for real estate taxes and assessments. Priority with
respect to mortgages and deeds of trust depends on their terms and generally on
the order of recording with the applicable state, county or municipal office.
There are two parties to a mortgage, the mortgagor, who is the
borrower/homeowner or the land trustee, and the mortgagee, who is the lender.
Under the mortgage instrument, the mortgagor delivers to the mortgagee a note or
bond and the mortgage. In the case of a land trust, title to the property is
held by a land trustee under a land trust agreement, while the
borrower/homeowner is the beneficiary of the land trust; at origination of a
mortgage loan, the borrower executes a separate undertaking to make payments on
the mortgage note. Although a deed of trust is similar to a mortgage, a deed of
trust normally has three parties, the trustor, similar to a mortgagor, who may
or may not be the borrower, the beneficiary, similar to a mortgagee, who is the
lender, and the trustee, a third-party grantee. Under a deed of trust, the
trustor grants the property, irrevocably until the debt is paid, in trust,
generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys title
to, as opposed to merely creating a lien upon, the subject property to the
grantee until the time as the underlying debt is repaid. The mortgagee's
authority under a mortgage and the trustee's authority under a deed of trust,
security deed or deed to secure debt are governed by the law of the state in
which the real property is located, the express provisions of the mortgage, deed
of trust, security deed or deed to secure debt and, sometimes, the directions of
the beneficiary.
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COOPERATIVE LOANS
The cooperative owns or has a leasehold interest in all the real property
and owns in fee or leases the building and all separate dwelling units therein.
The cooperative is directly responsible for project management and, in most
cases, payment of real estate taxes, other governmental impositions and hazard
and liability insurance. If there is a blanket mortgage on the cooperative
apartment building and underlying land, or one or the other, the cooperative, as
project mortgagor, is also responsible for meeting these blanket mortgage
obligations. A blanket mortgage is ordinarily incurred by the cooperative in
connection with either the construction or purchase of the cooperative's
apartment building or the obtaining of capital by the cooperative. There may be
a lease on the underlying land and the cooperative, as lessee, is also
responsible for meeting the rental obligation. The interests of the occupants
under proprietary leases or occupancy agreements as to which the cooperative is
the landlord are generally subordinate to the interests of the holder of the
blanket mortgage and to the interest of the holder of a land lease. If the
cooperative is unable to meet the payment obligations (a) arising under its
blanket mortgage, the mortgagee holding the blanket mortgage could foreclose on
that mortgage and terminate all subordinate proprietary leases and occupancy
agreements or (b) arising under its land lease, the holder of the landlord's
interest under the land lease could terminate it and all subordinate proprietary
leases and occupancy agreements. Also, the blanket mortgage on a cooperative may
provide financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at final
maturity. The inability of the cooperative to refinance this mortgage and its
consequent inability to make the final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. In either event,
foreclosure by the holder of the blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender that financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of the trust fund, the
collateral securing the cooperative loans.
The cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing the tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of the
proprietary lease or occupancy agreement and a financing statement covering the
proprietary lease or occupancy agreement and the cooperative shares is filed in
the appropriate state and local offices to perfect the lender's interest in its
collateral. Upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares as described under "Foreclosure on Cooperative Shares" below.
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MANUFACTURED HOUSING CONTRACTS
Under the laws of most states, manufactured housing that is not permanently
affixed to its site constitutes personal property and is subject to the motor
vehicle registration laws of the state or other jurisdiction in which the unit
is located. In a few states, where certificates of title are not required for
manufactured homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC which has been adopted by all
states. Financing statements are effective for five years and must be renewed at
the end of each five years. The certificate of title laws adopted by the
majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department, or a similar entity, of the state. In the states that have
enacted certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion as to
become a fixture, is generally perfected by the recording of the interest on the
certificate of title to the unit in the appropriate motor vehicle registration
office or by delivery of the required documents and payment of a fee to such
office, depending on state law.
The master servicer will be required under the related servicing agreement
to effect the notation or delivery of the required documents and fees, and to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which any manufactured home is registered. If the master servicer
fails, due to clerical errors or otherwise, to effect the notation or delivery,
or files the security interest under the wrong law, for example, under a motor
vehicle title statute rather than under the UCC, in a few states, the trustee
may not have a first priority security interest in the manufactured home
securing a manufactured housing contract. As manufactured homes have become
larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held that
manufactured homes may become subject to real estate title and recording laws.
As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under real estate laws, the holder of the security
interest must file either a fixture filing under the provisions of the UCC or a
real estate mortgage under the real estate laws of the state where the home is
located. These filings must be made in the real estate records office of the
county where the home is located. Generally, manufactured housing contracts will
contain provisions prohibiting the obligor from permanently attaching the
manufactured home to its site. So long as the obligor does not violate this
agreement, a security interest in the manufactured home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the manufactured
home. If, however, a manufactured home is permanently attached to its site,
other parties could obtain an interest in the manufactured home that is prior to
the security interest originally retained by the seller and transferred to the
depositor.
The depositor will assign or cause to be assigned a security interest in
the manufactured homes to the trustee, on behalf of the securityholders. Neither
the depositor, the master servicer nor the trustee will amend the certificates
of title to identify the trustee, on behalf of the securityholders, as the new
secured party and, accordingly, the depositor or the mortgage loan seller will
continue to be named as the secured party on the certificates of title relating
to the manufactured homes. In most states, an assignment is an effective
conveyance of a security interest in a manufactured home without amendment of
any lien noted on the related certificate of title and the new secured party
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succeeds to the depositor's rights as the secured party. However, in several
states there exists a risk that, in the absence of an amendment to the
certificate of title, the assignment of the security interest might not be held
effective against creditors of the depositor or mortgage loan seller.
In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of the depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
a manufactured home or subsequent lenders who take a security interest in the
manufactured home. If there are any manufactured homes as to which the depositor
has failed to perfect or cause to be perfected the security interest assigned to
the trust fund, the security interest would be subordinate to subsequent
purchasers for value of manufactured homes and holders of perfected security
interests. There also exists a risk in not identifying the trustee, on behalf of
the securityholders, as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the trustee could be
released.
If the owner of a manufactured home moves it to a state other than the
state in which the manufactured home initially is registered, under the laws of
most states, the perfected security interest in the manufactured home would
continue for four months after the relocation and thereafter until the owner
re-registers the manufactured home in that state. If the owner were to relocate
a manufactured home to another state and re-register the manufactured home in
the new state, and if the depositor did not take steps to re-perfect its
security interest in the new state, the security interest in the manufactured
home would cease to be perfected. A majority of states generally require
surrender of a certificate of title to re-register a manufactured home.
Accordingly, the depositor must surrender possession if it holds the certificate
of title to the manufactured home or, in the case of manufactured homes
registered in states that provide for notation of lien, the depositor would
receive notice of surrender if the security interest in the manufactured home is
noted on the certificate of title. Accordingly, the depositor would have the
opportunity to re-perfect its security interest in the manufactured home in the
state of relocation. In states that do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
Similarly, when an obligor under a manufactured housing conditional sales
contract sells a manufactured home, the obligee must surrender possession of the
certificate of title or it will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related manufactured housing conditional sales contract before release of the
lien. Under each related servicing agreement, the master servicer will be
obligated to take those steps, at the master servicer's expense, as are
necessary to maintain perfection of security interests in the manufactured
homes.
Under the laws of most states, liens for repairs performed on a
manufactured home take priority even over a perfected security interest. The
depositor will obtain the representation of the mortgage loan seller that it has
no knowledge of any liens of that type with respect to any manufactured home
securing a manufactured home loan. However, liens could arise at any time during
the term of a manufactured home loan. No notice will be given to the trustee or
securityholders in the event a lien for repairs arises.
HOME IMPROVEMENT CONTRACTS
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The home improvement contracts, other than those home improvement contracts
that are unsecured or secured by mortgages on real estate, generally are
"chattel paper" or constitute "purchase money security interests", each as
defined in the UCC. Pursuant to the UCC, the sale of chattel paper is treated in
a manner similar to perfection of a security interest in chattel paper. Under
the related agreement, the depositor will transfer physical possession of the
contracts to the trustee or a designated custodian or may retain possession of
the contracts as custodian for the trustee. In addition, the depositor will make
an appropriate filing of a UCC-1 financing statement in the appropriate states
to give notice of the trustee's ownership of the contracts. The contracts will
not be stamped or otherwise marked to reflect their assignment from the
depositor to the trustee. Therefore, if through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the contracts
without notice of such assignment, the trustee's interest in the contracts could
be defeated.
The contracts that are secured by the home improvements financed thereby
grant to the originator of the contracts a purchase money security interest in
such home improvements to secure all or part of the purchase price of the home
improvements and related services. A financing statement generally is not
required to be filed to perfect a purchase money security interest in consumer
goods. Such purchase money security interests are assignable. In general, a
purchase money security interest grants to the holder a security interest that
has priority over a conflicting security interest in the same collateral and the
proceeds of such collateral. However, to the extent that the collateral subject
to a purchase money security interest becomes a fixture, in order for the
related purchase money security interest to take priority over a conflicting
interest in the fixture, the holder's interest in such home improvement must
generally be perfected by a timely fixture filing. In general, under the UCC, a
security interest does not exist under the UCC in ordinary building material
incorporated into an improvement on land. Home improvement contracts that
finance lumber, bricks, other types of ordinary building material or other goods
that are deemed to lose such characterization, upon incorporation of the
materials into the related property, will not be secured by a purchase money
security interest in the home improvement being financed.
So long as the home improvement has not become subject to the real estate
law, a creditor can repossess a home improvement securing a contract by
voluntary surrender, "self-help" repossession that is "peaceful", i.e., without
breach of the peace, or, in the absence of voluntary surrender and the ability
to repossess without breach of the peace, judicial process. The holder of a
contract must give the debtor a number of days' notice, which varies from 10 to
30 days or more depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states restrict
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the debtor be given notice of any sale prior to resale of the
related property so that the debtor may redeem it at or before such resale.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the property securing the debtor's loan. However, some states impose
prohibitions or limitations on deficiency judgments and in many cases the
defaulting borrower would have no assets with which to pay a judgment.
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Other statutory provisions, including federal and state bankruptcy and
insolvency laws and general equity principles, may limit or delay the ability of
a lender to repossess and resell collateral or enforce a deficiency judgment.
FORECLOSURE ON MORTGAGES
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, which authorizes
the trustee to sell the property upon any default by the borrower under the
terms of the note or deed of trust. In several 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 in several states must provide notice to any other
individual having an interest in the real property, including any junior
lienholder. The trustor, borrower, or any 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. Generally, state law controls the amount of foreclosure expenses
and costs, including attorneys' fees, that may be recovered by a lender. If the
deed of trust is not reinstated, a notice of sale must be posted in a public
place and, in most states, published for a specific period of time in one or
more newspapers. In addition, several state laws require that a copy of the
notice of sale be posted on the property, recorded and sent to all parties
having an interest in the real property.
An action to foreclose a mortgage is an action to recover the mortgage debt
by enforcing the mortgagee's rights under the mortgage and in the mortgaged
property. It is regulated by statutes and rules and subject throughout to the
court's equitable powers. A mortgagor is usually bound by the terms of the
mortgage note and the mortgage as made and cannot be relieved from its own
default. However, since a foreclosure action is equitable in nature and is
addressed to a court of equity, the court may relieve a mortgagor of a default
and deny the mortgagee foreclosure on proof that the mortgagor's default was
neither willful nor in bad faith and that the mortgagee's action established a
waiver of fraud, bad faith, oppressive or unconscionable conduct warranted a
court of equity to refuse affirmative relief to the mortgagee. A court of equity
may relieve the mortgagor from an entirely technical default where the default
was not willful.
A foreclosure action or sale in accordance with a power of sale is subject
to most of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring up to several years to
complete. Moreover, recent judicial decisions suggest that a non- collusive,
regularly conducted foreclosure sale or sale in accordance with a power of sale
may be challenged as a fraudulent conveyance, regardless of the parties' intent,
if a court determines that the sale was for less than fair consideration and the
sale occurred while the mortgagor was insolvent and within one year, or within
the state statute of limitations if the trustee in bankruptcy elects to proceed
under state fraudulent conveyance law, of the filing of bankruptcy. Similarly, a
suit against the debtor on the mortgage note may take several years.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the referee or other designated officer or by the trustee is a public sale.
However, because of the difficulty potential third party purchasers at the sale
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
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for the lender to purchase the property from the trustee or referee for an
amount equal to the principal amount of the mortgage or deed of trust plus
accrued and unpaid interest and the expenses of foreclosure. Thereafter, the
lender will assume the burdens of ownership, including obtaining casualty
insurance, paying taxes and making repairs at its own expense as are necessary
to render the property suitable for sale. 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 any
mortgage insurance proceeds.
A junior mortgagee may not foreclose on the property securing a junior
mortgage unless it forecloses subject to the senior mortgages, in which case it
must either pay the entire amount due on the senior mortgages to the senior
mortgagees prior to or at the time of the foreclosure sale or undertake the
obligation to make payments on the senior mortgages if the mortgagor is in
default thereunder. In either event the amounts expended will be added to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, if the foreclosure of a junior mortgage triggers
the enforcement of a due-on-sale clause in a senior mortgage, the junior
mortgagee may be required to pay the full amount of the senior mortgages to the
senior mortgagees. Accordingly, with respect to those mortgage loans which are
junior mortgage loans, if the lender purchases the property, the lender's title
will be subject to all senior liens and claims and some governmental liens. The
proceeds received by the referee or trustee from the sale are applied first to
the costs, fees and expenses of sale, real estate taxes and then in satisfaction
of the indebtedness secured by the mortgage or deed of trust under which the
sale was conducted. Any remaining proceeds are generally payable to the holders
of junior mortgages or deeds of trust and other liens and claims in order of
their priority, whether or not the borrower is in default. Any additional
proceeds are generally payable to the mortgagor or trustor. The payment of the
proceeds to the holders of junior mortgages may occur in the foreclosure action
of the senior mortgagee or may require the institution of separate legal
proceedings.
If the master servicer were to foreclose on any junior lien it would do so
subject to any related senior lien. In order for the debt related to the junior
mortgage loan to be paid in full at the sale, a bidder at the foreclosure sale
of the junior mortgage loan would have to bid an amount sufficient to pay off
all sums due under the junior mortgage loan and the senior lien or purchase the
mortgaged property subject to the senior lien. If proceeds from a foreclosure or
similar sale of the mortgaged property are insufficient to satisfy all senior
liens and the junior mortgage loan in the aggregate, the trust fund as the
holder of the junior lien and, accordingly, holders of one or more classes of
related securities bear (1) the risk of delay in distributions while a
deficiency judgment against the borrower is obtained and (2) the risk of loss if
the deficiency judgment is not realized upon. Moreover, deficiency judgments may
not be available in a jurisdiction. In addition, liquidation expenses with
respect to defaulted junior mortgage loans do not vary directly with the
outstanding principal balance of the loans at the time of default. Therefore,
assuming that the master servicer took the same steps in realizing upon a
defaulted junior mortgage loan having a small remaining principal balance as it
would in the case of a defaulted junior mortgage loan having a large remaining
principal balance, the amount realized after expenses of liquidation would be
smaller as a percentage of the outstanding principal balance of the small junior
mortgage loan than would be the case with the defaulted junior mortgage loan
having a large remaining principal balance.
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In foreclosure, courts have imposed general equitable principles. The
equitable principles are generally designed to relieve the borrower from the
legal effect of its defaults under the loan documents. Examples of judicial
remedies that have been fashioned include judicial requirements that the lender
undertake affirmative and expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In a few cases, courts have substituted their judgment for
the lender's judgment and have required that lenders reinstate loans or recast
payment schedules in order to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right of
a lender to foreclose if the default under the mortgage instrument is not
monetary, for example, the borrower's failure to adequately maintain the
property or the borrower's execution of a second mortgage or deed of trust
affecting the property. Finally, a few courts have been faced with the issue of
whether or not federal or state constitutional provisions reflecting due process
concerns for adequate notice require that borrowers under deeds of trust or
mortgages receive notices in addition to the statutorily-prescribed minimums.
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 protection to the borrower.
FORECLOSURE ON MORTGAGED PROPERTIES LOCATED IN THE COMMONWEALTH OF PUERTO RICO
Under the laws of the Commonwealth of Puerto Rico the foreclosure of a real
estate mortgage usually follows an ordinary civil action filed in the Superior
Court for the district where the mortgaged property is located. If the defendant
does not contest the action filed, a default judgment is rendered for the
plaintiff and the mortgaged property is sold at public auction, after
publication of the sale for two weeks, by posting written notice in three public
places in the municipality where the auction will be held, in the tax collection
office and in the public school of the municipality where the mortgagor resides,
if known. If the residence of the mortgagor is not known, publication in one of
the newspapers of general circulation in the Commonwealth of Puerto Rico must be
made at least once a week for two weeks. There may be as many as three public
sales of the mortgaged property. If the defendant contests the foreclosure, the
case may be tried and judgment rendered based on the merits of the case.
There are no redemption rights after the public sale of a foreclosed
property under the laws of the Commonwealth of Puerto Rico. Commonwealth of
Puerto Rico law provides for a summary proceeding for the foreclosure of a
mortgage, but it is very seldom used because of concerns regarding the validity
of these actions. The process may be expedited if the mortgagee can obtain the
consent of the defendant to the execution of a deed in lieu of foreclosure.
Under Commonwealth of Puerto Rico law, in the case of the public sale upon
foreclosure of a mortgaged property that (1) is subject to a mortgage loan that
was obtained for a purpose other than the financing or refinancing of the
acquisition, construction or improvement of the property and (2) is occupied by
the mortgagor as his principal residence, the mortgagor of the property has a
right to be paid the first $1,500 from the proceeds obtained on the public sale
of the property. The mortgagor can claim this sum of money from the mortgagee at
any time prior to the public sale or up to one year after the sale. This payment
would reduce the amount of sales proceeds available to satisfy the mortgage loan
and may increase the amount of the loss.
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FORECLOSURE ON COOPERATIVE SHARES
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement, and may be canceled by the cooperative for failure by the
tenant- stockholder to pay rent or other obligations or charges owed by the
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by the tenant-stockholder. Typically, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
that are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate the
lease or agreement in the event the tenant- stockholder fails to make payments
or defaults in the performance of covenants required thereunder. Typically, the
lender and the cooperative enter into a recognition agreement that, together
with any lender protection provisions contained in the proprietary lease,
establishes the rights and obligations of both parties in the event of a default
by the tenant-stockholder on its obligations under the proprietary lease or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if the
proprietary lease or occupancy agreement is terminated, the cooperative will
recognize the lender's lien against proceeds from a sale of the cooperative
apartment, subject, however, to the cooperative's right to sums due under the
proprietary lease or occupancy agreement or that have become liens on the shares
relating to the proprietary lease or occupancy agreement. The total amount owed
to the cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and unpaid
interest thereon.
Recognition agreements also provide that in the event of a foreclosure on a
cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
Under the laws applicable in most states, foreclosure on the cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to those shares. Article 9 of the
UCC requires that a sale be conducted in a "commercially reasonable" manner.
Whether a foreclosure sale has been conducted in a commercially reasonable
manner will depend on the facts in each case. In determining commercial
reasonableness, a court will look to the notice given the debtor and the method,
manner, time, place and terms of the foreclosure. Generally, a sale conducted
according to the usual practice of banks selling similar collateral will be
considered reasonably conducted.
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Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. SEE "--ANTI-DEFICIENCy LEGISLATION AND
OTHER LIMITATIONS ON LENDERS" BELOW.
REPOSSESSION WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS
Repossession of manufactured housing is governed by state law. A few states
have enacted legislation that requires that the debtor be given an opportunity
to cure its default (typically 30 days to bring the account current) before
repossession can commence. Unless as a manufactured home has not become so
attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of the manufactured
home in the event of a default by the obligor will generally be governed by the
UCC. Article 9 of the UCC provides the statutory framework for the repossession
of manufactured housing. While the UCC as adopted by the various states may vary
in minimal ways, the general repossession procedure established by the UCC is as
follows:
o Except in those states where the debtor must receive notice of
the right to cure a default, repossession can commence
immediately upon default without prior notice. Repossession may
be effected either through self- help pursuant to a peaceable
retaking without court order, voluntary repossession or through
judicial process by means of repossession under a court-issued
writ of replevin. The self-help or voluntary repossession methods
are more commonly employed, and are accomplished simply by
retaking possession of the manufactured home. In cases in which
the debtor objects or raises a defense to repossession, a court
order must be obtained from the appropriate state court, and the
manufactured home must then be repossessed in accordance with
that order. Whether the method employed is self-help, voluntary
repossession or judicial repossession, the repossession can be
accomplished either by an actual physical removal of the
manufactured home to a secure location for refurbishment and
resale or by removing the occupants and their belongings from the
manufactured home and maintaining possession of the manufactured
home on the location where the occupants were residing. Various
factors may affect whether the manufactured home is physically
removed or left on location, such as the nature and term of the
lease of the site on which it is located and the condition of the
unit. In many cases, leaving the manufactured home on location is
preferable if the home is already set up because the expenses of
retaking and redelivery will be saved. However, in those cases
where the home is left on location, expenses for site rentals
will usually be incurred.
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o Once repossession has been achieved, preparation for the
subsequent disposition of the manufactured home can commence. The
disposition may be by public or private sale provided the method,
manner, time, place and terms of the sale are commercially
reasonable.
o Sale proceeds are to be applied first to repossession expenses
like those expenses incurred in retaking, storage, preparing for
sale including refurbishing costs and selling, and then to
satisfaction of the indebtedness. While several states impose
prohibitions or limitations on deficiency judgments if the net
proceeds from resale do not cover the full amount of the
indebtedness, the remainder may be sought from the debtor in the
form of a deficiency judgment in those states that do not
prohibit or limit deficiency judgments. The deficiency judgment
is a personal judgment against the debtor for the shortfall.
Occasionally, after resale of a manufactured home and payment of
all expenses and indebtedness, there is a surplus of funds. In
that case, the UCC requires the party suing for the deficiency
judgment to remit the surplus to the debtor. Because the
defaulting owner of a manufactured home generally has very little
capital or income available following repossession, a deficiency
judgment may not be sought in many cases or, if obtained, will be
settled at a significant discount in light of the defaulting
owner's strained financial condition.
RIGHTS OF REDEMPTION WITH RESPECT TO MORTGAGE LOANS
In several states, after sale in accordance with a deed of trust or
foreclosure of a mortgage, the trustor or mortgagor and foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. The right of redemption should be distinguished from the
equity of redemption, which is a nonstatutory right that must be exercised prior
to the foreclosure sale. In several states, redemption may occur only upon
payment of the entire principal balance of the loan, accrued interest and
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. The effect of a statutory
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The right of redemption would defeat the title of any
purchaser acquired at a public sale. Consequently, the practical effect of a
right of redemption is to force the lender to retain the property and pay the
expenses of ownership and maintenance of the property until the redemption
period has expired. In several states, there is no right to redeem property
after a trustee's sale under a deed of trust.
NOTICE OF SALE; REDEMPTION RIGHTS WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS
While state laws do not usually require notice to be given to debtors prior
to repossession, many states do require delivery of a notice of default and of
the debtor's right to cure defaults before repossession of a manufactured home.
The law in most states also requires that the debtor be given notice of sale
prior to the resale of the home so that the owner may redeem at or before
resale. In addition, the sale must comply with the requirements of the UCC.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
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Several states have imposed statutory prohibitions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
several 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 net amount
realized upon the public sale of the real property and the amount due to the
lender. Other statutes require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against the
former borrower following a judicial sale to the excess of the outstanding debt
over the fair market value of the property at the time of the public sale. The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the judicial sale.
In addition to laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, the filing of a
petition acts as a stay against the enforcement of remedies of collection of a
debt. Moreover, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 13 rehabilitative plan to cure a monetary default
with respect to a mortgage loan on a debtor's residence by paying arrearages
within a reasonable time period and reinstating the original mortgage loan
payment schedule even though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court (provided no sale of the
property had yet occurred) prior to the filing of the debtor's Chapter 13
petition. Several courts with federal bankruptcy jurisdiction have approved
plans, based on the particular facts of the reorganization case, that effected
the curing of a mortgage loan default by paying arrearages over a number of
years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan secured by property of the debtor may be modified if
the borrower has filed a petition under Chapter 13. These courts have suggested
that the modifications may include reducing the amount of each monthly payment,
changing the rate of interest, altering the repayment schedule and reducing the
lender's security interest to the value of the residence, thus leaving the
lender a general unsecured creditor for the difference between the value of the
residence and the outstanding balance of the loan. Federal bankruptcy law and
limited case law indicate that the foregoing modifications could not be applied
to the terms of a loan secured by property that is the principal residence of
the debtor. In all cases, the secured creditor is entitled to the value of its
security plus post-petition interest, attorneys' fees and costs to the extent
the value of the security exceeds the debt.
The Bankruptcy Reform Act of 1994 established the National Bankruptcy
Review Commission for purposes of analyzing the nation's bankruptcy laws and
making recommendations to Congress for legislative changes to the bankruptcy
laws. A similar commission was involved in developing the Bankruptcy Code. The
NBRC delivered its report to Congress, the President of the United States and
the Chief Justice of the Supreme Court on October 20, 1997. Among other topics,
high leverage loans were addressed in the NBRC's report. Despite several
ambiguities, the NBRC's report appears to recommend that Congress amend
Bankruptcy Code section 1322(b)(2) by treating a claim secured only by a junior
security interest in a debtor's principal residence as protected only to
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the extent that the claim was secured when the security interest was made if the
value of the property securing the junior security interest is less than that
amount. However, the express language of the report implies that a claim secured
only by a junior security interest in a debtor's principal residence may not be
modified to reduce the claim below the appraised value of the property at the
time the security interest was made. A strong dissent by some members of the
NBRC recommends that the protections of Bankruptcy Code section 1322(b)(2) be
extended to creditors principally secured by the debtor's principal residence.
Additionally, the NBRC's report recommends that a creditor's secured claim in
real property should be determined by the property's fair market value, less
hypothetical costs of sale. The standard advocated by this recommendation would
not apply to mortgages on the primary residence of a Chapter 11 or 13 debtor who
retains the residence if the mortgages are protected from modification such as
those senior mortgages not subject to modification under Bankruptcy Code
Sections 1322(b)(2) and 1123(b)(5). The final NBRC report may ultimately lead to
substantive changes to the existing Bankruptcy Code, such as reducing
outstanding loan balances to the appraised value of a debtor's principal
residence at the time the security interest in the property was taken, which
could affect the mortgage loans included in a trust fund and the enforcement of
rights therein.
Several tax liens arising under the Code, may provide priority over the
lien of a mortgage or deed of trust. In addition, substantive requirements are
imposed upon mortgage lenders in connection with the origination and the
servicing of single family mortgage loans by numerous federal and state consumer
protection laws. These laws include the Federal Truth-in-Lending Act, Regulation
Z, Real Estate Settlement Procedures Act, Regulation X, Equal Credit Opportunity
Act, Regulation B, Fair Credit Billing Act, Fair Housing Act, Fair Credit
Reporting Act and related statutes. These federal laws impose specific statutory
liabilities upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. This liability may affect assignees of the
mortgage loans. In particular, the originators' failure to comply with
requirements of the Federal Truth-in-Lending Act, as implemented by Regulation
Z, could subject both originators and assignees of the obligations to monetary
penalties and could result in obligors' rescinding loans against either
originators or assignees.
In addition, the mortgage loans included in a trust fund may also be
subject to the Home Ownership and Equity Protection Act of 1994, if the mortgage
loans were originated on or after October 1, 1995, are not mortgage loans made
to finance the purchase of the mortgaged property and have interest rates or
origination costs in excess of prescribed levels. The Homeownership Act requires
additional disclosures, specifies the timing of the disclosures and limits or
prohibits inclusion of specific provisions in mortgages subject to the
Homeownership Act. Remedies available to the mortgagor include monetary
penalties, as well as recission rights if the appropriate disclosures were not
given as required or if the particular mortgage includes provisions prohibited
by law. The Homeownership Act also provides that any purchaser or assignee of a
mortgage covered by the Homeownership Act is subject to all of the claims and
defenses to loan payment, whether under the Federal Truth-in-Lending Act, as
amended by the Homeownership Act or other law, which the borrower could assert
against the original lender unless the purchaser or assignee did not know and
could not with reasonable diligence have determined that the mortgage loan was
subject to the provisions of the Homeownership Act. The maximum damages that may
be recovered under the Homeownership Act from an assignee is the remaining
amount of indebtedness plus the total amount paid by the borrower in connection
with the mortgage loan.
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FOR COOPERATIVE LOANS
Generally, Article 9 of the UCC governs foreclosure on cooperative shares
and the related proprietary lease or occupancy agreement. Several courts have
interpreted Section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral, which, in the case of a
cooperative loan, would be the shares of the cooperative and the related
proprietary lease or occupancy agreement, was conducted in a commercially
reasonable manner.
JUNIOR MORTGAGES
The mortgage loans may be secured by junior mortgages or deeds of trust,
which are junior to senior mortgages or deeds of trust which are not part of the
trust fund. The rights of the securityholders as the holders of a junior deed of
trust or a junior mortgage are subordinate in lien priority and in payment
priority to those of the holder of the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive and
apply hazard insurance and condemnation proceeds and, upon default of the
mortgagor, to cause a foreclosure on the property. Upon completion of the
foreclosure proceedings by the holder of the senior mortgage or the sale in
accordance with the deed of trust, the junior mortgagee's or junior
beneficiary's lien will be extinguished unless the junior lienholder satisfies
the defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. SEE "--FORECLOSURE ON MORTGAGES".
Furthermore, the terms of the junior mortgage or deed of trust are
subordinate to the terms of the senior mortgage or deed of trust. If there is a
conflict between the terms of the senior mortgage or deed of trust and the
junior mortgage or deed of trust, the terms of the senior mortgage or deed of
trust will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage or deed of trust, may have the right to perform
the obligation itself. Generally, all sums so expended by the mortgagee or
beneficiary become part of the indebtedness secured by the mortgage or deed of
trust. To the extent a senior mortgagee expends sums, these sums will generally
have priority over all sums due under the junior mortgage.
HOME EQUITY LINE OF CREDIT LOANS
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make home equity line of credit loans typically
contains a 'future advance' clause, which provides, in essence, that additional
amounts advanced to or on behalf of the borrower by the beneficiary or lender
are to be secured by the deed of trust or mortgage. Any amounts so advances
after the cut-off date with respect to any Mortgage will not be included in the
trust fund. The priority of the lien securing any advance made under the clause
may depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of the intervening junior trust deeds
or mortgages and other liens at the time of the advance. In most states, the
trust deed or mortgage liens securing mortgage loans of the type which includes
home equity credit lines applies retroactively to the date
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of the original recording of the trust deed or mortgage, provided that the total
amount of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
CONSUMER PROTECTION LAWS WITH RESPECT TO MANUFACTURED HOUSING CONTRACTS AND HOME
IMPROVEMENT CONTRACTS
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include the
Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity Act,
Regulation B, the Fair Credit Reporting Act, the Real Estate Settlement
Procedures Act, Regulation X, the Fair Housing Act and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to comply
with their provisions. This liability may affect an assignee's ability to
enforce a contract. In particular, the originators' failure to comply with
requirements of the Federal Truth-in-Lending Act, as implemented by Regulation
Z, could subject both originators and assignees of the obligations to monetary
penalties and could result in obligors' rescinding the contracts against either
the originators or assignees. Further, if the manufactured housing contracts or
home improvement contracts are deemed High Cost Loans within the meaning of the
Homeownership Act, they would be subject to the same provisions of the
Homeownership Act as mortgage loans as described in "--Anti- Deficiency
Legislation and Other Limitations on Lenders" above.
Manufactured housing contracts and home improvement contracts often contain
provisions obligating the obligor to pay late charges if payments are not timely
made. Federal and state law may specifically limit the amount of late charges
that may be collected. Unless the prospectus supplement indicates otherwise,
under the related servicing agreement, late charges will be retained by the
master servicer as additional servicing compensation, and any inability to
collect these amounts will not affect payments to securityholders.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided to
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. For the most part, courts have upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale by
the creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The so-called Holder-in-Due-Course Rule of the Federal Trade Commission has
the effect of subjecting a seller, and related creditors and their assignees, in
a consumer credit transaction and any assignee of the creditor to all claims and
defenses which the debtor in the transaction could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by a
debtor on the contract, and the holder of the contract may also be unable to
collect amounts still due thereunder.
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Most of the manufactured housing contracts and home improvement contracts
in a trust fund will be subject to the requirements of the FTC Rule.
Accordingly, the trustee, as holder of the manufactured housing contracts or
home improvement contracts, will be subject to any claims or defenses that the
purchaser of the related home or manufactured home may assert against the seller
of the home or manufactured home, subject to a maximum liability equal to the
amounts paid by the obligor on the manufactured housing contract or home
improvement contract. If an obligor is successful in asserting this type of
claim or defense, and if the mortgage loan seller had or should have had
knowledge of that claim or defense, the master servicer will have the right to
require the mortgage loan seller to repurchase the manufactured housing contract
or home improvement contract because of a breach of its mortgage loan seller's
representation and warranty that no claims or defenses exist that would affect
the obligor's obligation to make the required payments under the manufactured
housing contract or home improvement contract. The mortgage loan seller would
then have the right to require the originating dealer to repurchase the
manufactured housing contract from it and might also have the right to recover
from the dealer for any losses suffered by the mortgage loan seller with respect
to which the dealer would have been primarily liable to the obligor.
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions including federal bankruptcy laws and
related state laws may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender from repossessing a home, and as part of the rehabilitation plan reduce
the amount of the secured indebtedness to the market value of the home at the
time of bankruptcy, as determined by the court, leaving the party providing
financing as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
ENFORCEABILITY OF PROVISIONS
The mortgage loans in a trust fund will in most cases contain due-on-sale
clauses. These clauses permit the lender to accelerate the maturity of the loan
if the borrower sells, transfers, or conveys the property without the prior
consent of the lender. The enforceability of these clauses has been impaired in
various ways in several states by statute or decisional law. The ability of
lenders and their assignees and transferees to enforce due-on-sale clauses was
addressed by the Garn-St Germain Depository Institutions Act of 1982. This
legislation, subject to exceptions, preempts state constitutional, statutory and
case law that prohibits the enforcement of due-on-sale clauses. The Garn-St
Germain Act does encourage lenders to permit assumptions of loans at the
original rate of interest or at another rate less than the average of the
original rate and the market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act, including federal savings
and loan associations and federal savings banks, may not exercise a due-on-sale
clause, even though a transfer of the property may have occurred. These include
intra-family transfers, some transfers by operation of law, leases of fewer than
three years and the creation of a junior encumbrance. Regulations promulgated
under the Garn-St Germain Act also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan in accordance with a due-on-sale clause.
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The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the mortgage loans related to a series and the number of mortgage loans
that may be outstanding until maturity.
TRANSFER OF MANUFACTURED HOMES UNDER MANUFACTURED HOUSING CONTRACTS
Generally, manufactured housing contracts contain provisions prohibiting
the sale or transfer of the related manufactured homes without the consent of
the obligee on the contract and permitting the acceleration of the maturity of
the contracts by the obligee on the contract upon any sale or transfer that is
not consented to. The master servicer will, to the extent it has knowledge of
the conveyance or proposed conveyance, exercise or cause to be exercised its
rights to accelerate the maturity of the related manufactured housing contract
through enforcement of due-on-sale clauses, subject to applicable state law. The
transfer may be made by a delinquent obligor in order to avoid a repossession
proceeding with respect to a manufactured home.
In the case of a transfer of a manufactured home as to which the master
servicer desires to accelerate the maturity of the related manufactured housing
contract, the master servicer's ability to do so will depend on the
enforceability under state law of the due-on-sale clause. The Garn-St Germain
Act preempts, subject to exceptions and conditions, state laws prohibiting
enforcement of due-on-sale clauses applicable to the manufactured homes.
Consequently, the master servicer may be prohibited from enforcing a due-on-sale
clause in respect of those manufactured homes.
PREPAYMENT CHARGES AND PREPAYMENTS
The regulations of the Federal Home Loan Bank Board, predecessor to the
Office of Thrift Supervision, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage to a refinancing lender.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases, pursuant to which the borrower assigns to the
lender the borrower's right, title and interest as landlord under each lease and
the income derived therefrom, and, unless rents are to be paid directly to the
lender, retains a revocable license to collect the rents for so long as there is
no default. If the borrower defaults, the license terminates and the lender is
entitled to collect the rents. Local law may require that the lender take
possession of the property and/or obtain a court-appointed receiver before
becoming entitled to collect the rents. In addition, if bankruptcy or similar
proceedings are commenced by or in respect of the borrower, the lender's ability
to collect the rents may be adversely affected. In the event of borrower
default, the amount of rent the lender is able to collect from the tenants can
significantly affect the value of the lender's security interest.
SUBORDINATE FINANCING
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When the mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the mortgagor, as junior loans often do, and the
senior loan does not, a mortgagor may be more likely to repay sums due on the
junior loan than those on the senior 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
mortgagor 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 an existing junior lender is harmed or the mortgagor is
additionally burdened. Third, if the mortgagor defaults on the senior loan or
any junior loan, or both, 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 operate to stay foreclosure or similar
proceeds by the senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980 provides that state usury limitations shall not apply to certain
types of residential first mortgage loans originated by certain lenders after
March 31, 1980. A similar federal statute was in effect with respect to mortgage
loans made during the first three months of 1980. The statute authorized any
state to reimpose interest rate limits by adopting before April 1, 1983 a law or
constitutional provision that expressly rejects application of the federal law.
In addition, even where Title V is not so rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Several states have taken action to reimpose
interest rate limits or to limit discount points or other charges.
The depositor has been advised by counsel that a court interpreting Title V
would hold that mortgage loans originated on or after January 1, 1980 are
subject to federal preemption. Therefore, in a state that has not taken the
requisite action to reject application of Title V or to adopt a provision
limiting discount points or other charges prior to origination of the mortgage
loans, any such limitation under the state's usury law would not apply to the
mortgage loans.
In any state in which application of Title V has been expressly rejected or
a provision limiting discount points or other charges is adopted, no mortgage
loans originated after the date of that state action will be eligible for
inclusion in a trust fund if the mortgage loans bear interest or provide for
discount points or charges in excess of permitted levels. No mortgage loan
originated prior to January 1, 1980 will bear interest or provide for discount
points or charges in excess of permitted levels.
Title V also provides that state usury limitations do not apply to any loan
that is secured by a first lien on specific kinds of manufactured housing if
certain conditions are met, including the terms of any prepayments, late charges
and deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit. Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting
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discount points or other charges on loans covered by Title V. In any state in
which application of Title V was expressly rejected or a provision limiting
discount points or other charges has been adopted, no manufactured housing
contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the trust fund.
ALTERNATIVE MORTGAGE INSTRUMENTS
ARM Loans originated by non-federally chartered lenders have historically
been subject to a variety of restrictions. These restrictions differed from
state to state, resulting in difficulties in determining whether a particular
alternative mortgage instrument originated by a state-chartered lender complied
with applicable law. These difficulties were simplified substantially as a
result of the enactment of Title VIII of the Garn-St Germain Act. Title VIII
provides that, notwithstanding any state law to the contrary,
o state-chartered banks may originate alternative mortgage instruments,
including ARM Loans, in accordance with regulations promulgated by the
Comptroller of the Currency with respect to origination of alternative
mortgage instruments by national banks,
o state-chartered credit unions may originate alternative mortgage
instruments in accordance with regulations promulgated by the National
Credit Union Administration with respect to origination of alternative
mortgage instruments by federal credit unions, and
o all other non-federally chartered housing creditors, including,
without limitation, state-chartered savings and loan associations,
savings banks and mutual savings banks and mortgage banking companies
may originate alternative mortgage instruments in accordance with the
regulations promulgated by the Federal Home Loan Bank Board,
predecessor to the Office of Thrift Supervision, with respect to
origination of alternative mortgage instruments by federal savings and
loan associations.
Title VIII further provides that any state may reject applicability of the
provisions of Title VIII by adopting prior to October 15, 1985 a law or
constitutional provision expressly rejecting the applicability of these
provisions. Several states have taken this type of action.
The depositor has been advised by counsel that a court interpreting Title
VIII would hold that ARM Loans that were originated by state-chartered lenders
before the date of enactment of any state law or constitutional provision
rejecting applicability of Title VIII would not be subject to state laws
imposing restrictions or prohibitions on the ability of state-chartered lenders
to originate alternative mortgage instruments.
The Alternative Mortgage Transactions Parity Act permits the collection of
prepayment charges in connection with some types of eligible mortgage loans,
preempting any contrary state law prohibitions. However, some states, such as
Virginia, may not recognize the preemptive authority of the Parity Act.
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All of the ARM Loans in a trust fund that were originated by a
state-chartered lender after the enactment of a state law or constitutional
provision rejecting the applicability of Title VIII will have complied with
applicable state law. All of the ARM Loans in a trust fund that were originated
by federally chartered lenders or that were originated by state-chartered
lenders prior to enactment of a state law or constitutional provision rejecting
the applicability of Title VIII will have been originated in compliance with all
applicable federal regulations.
FORMALDEHYDE LITIGATION WITH RESPECT TO MANUFACTURED HOMES
A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials including components of manufactured housing such as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts, and related
persons in the distribution process. The depositor is aware of a limited number
of cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection
Laws", the holder of any loan or contract secured by a manufactured home with
respect to which a formaldehyde claim has been successfully asserted may be
liable to the obligor for the amount paid by the obligor on the related loan or
contract and may be unable to collect amounts still due under the loan or
contract. The successful assertion of this type of claim will constitute a
breach of a representation or warranty of the mortgage loan seller, and the
securityholders would suffer a loss only to the extent that:
o the mortgage loan seller breached its obligation to repurchase the
loan or contract in the event an obligor is successful in asserting
the claim, and
o the mortgage loan seller, the depositor or the trustee were
unsuccessful in asserting any claim of contribution or subrogation on
behalf of the securityholders against the manufacturer or other
persons who were directly liable to the plaintiff for the damages.
Typical products liability insurance policies held by manufacturers and
component suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from the
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, a borrower who enters military service after the origination of that
borrower's mortgage loan, including a borrower who was in reserve status and is
called to active duty after origination of the mortgage loan, may not be charged
interest, including fees and charges, above an annual rate of 6% during the
period of that borrower's active duty status unless a court orders otherwise
upon application of the lender. The Relief Act applies to borrowers who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard, and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to borrowers who enter military
service, including reservists who are called to active duty, after origination
of the related
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mortgage loan no information can be provided as to the number of loans that may
be affected by the Relief Act. Application of the Relief Act would adversely
affect, for an indeterminate period of time, the ability of the master servicer
to collect full amounts of interest on the applicable mortgage loans. Any
shortfalls in interest collections resulting from the application of the Relief
Act would result in a reduction of the amounts distributable to the holders of
the related series of securities, and would not be covered by advances or,
unless specified in the related prospectus supplement, any form of credit
support provided in connection with the securities. In addition, the Relief Act
imposes limitations that would impair the ability of the master servicer to
foreclose on an affected mortgage loan, cooperative loan or enforce rights under
a manufactured housing contract during the borrower's period of active duty
status, and, sometimes, during an additional three month period thereafter.
Thus, if the Relief Act applies to any mortgage asset that goes into default,
there may be delays in payment and losses incurred by the related
securityholders.
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and under several state laws, 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 for the
costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict as well as joint and several
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA. This
exemption exempts from the definition of owners and operators those who, without
participating in the management of a facility, hold indicia of ownership
primarily to protect a security interest in the facility. What constitutes
sufficient participation in the management of a property securing a loan or the
business of a borrower to render the exemption unavailable to a lender has been
a matter of interpretation by the courts. CERCLA has been interpreted to impose
liability on a secured party even absent foreclosure where the party
participated in the financial management of the borrower's business to a degree
indicating a capacity to influence waste disposal decisions. However, court
interpretations of the secured creditor exemption have been inconsistent. In
addition, when lenders foreclose and become owners of collateral property,
courts are inconsistent as to whether that ownership renders the secured
creditor exemption unavailable. Other federal and state laws may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead- based paint. Environmental cleanup costs may be
substantial. It is possible that the cleanup costs could become a liability of a
trust fund and reduce the amounts otherwise distributable to the holders of the
related series of securities. Moreover, there are federal statutes and state
statutes that impose an environmental lien for any cleanup costs incurred by the
state on the property that is the subject of the cleanup costs. All subsequent
liens on a property generally are subordinated to an environmental lien and in
some states even prior recorded liens are subordinated to environmental liens.
In the latter states, the security interest of the trust fund in a related
parcel of real property that is subject to an environmental lien could be
adversely affected.
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Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged property
prior to the origination of the mortgage loan or prior to foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, the master servicer has
not made and will not make these kinds of evaluations prior to the origination
of the mortgage loans. Neither the master servicer nor any replacement servicer
will be required by any servicing agreement to undertake any environmental
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure. The
master servicer will not make any representations or warranties or assume any
liability with respect to the absence or effect of contaminants on any related
real property or any casualty resulting from the presence or effect of
contaminants. The master servicer will not be obligated to foreclose on related
real property or accept a deed-in-lieu of foreclosure if it knows or reasonably
believes that there are material contaminated conditions on a property. A
failure so to foreclose may reduce the amounts otherwise available to
securityholders of the related series.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations statute can be seized by the government if the property
was used in or purchased with the proceeds of these crimes. Under procedures
contained in the Comprehensive Crime Control Act of 1984 the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property", including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (1) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (2) the lender was at the
time of execution of the mortgage "reasonably without cause to believe" that the
property was used in or purchased with the proceeds of illegal drug or RICO
activities.
NEGATIVE AMORTIZATION LOANS
A recent case decided by the United States Court of Appeals, First Circuit,
held that state restrictions on the compounding of interest are not preempted by
the provisions of the Depository Institutions Deregulation and Monetary Control
Act of 1980 and as a result, a mortgage loan that provided for negative
amortization violated New Hampshire's requirement that first mortgage loans
provide for computation of interest on a simple interest basis. The holding was
limited to the effect of DIDMC on state laws regarding the compounding of
interest and the court did not address the applicability of the Alternative
Mortgage Transaction Parity Act of 1982, which authorizes lender to make
residential mortgage loans that provide for negative amortization. The First
Circuit's decision is binding authority only on Federal District Courts in
Maine, New Hampshire, Massachusetts, Rhode Island and Puerto Rico.
INSTALLMENT CONTRACTS
The trust fund may also consist of installment sales contracts. Under an
installment sales contract the seller, referred to in this section as the
"lender", retains legal title to the property and
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enters into an agreement with the purchaser, referred to in this section as the
"borrower", for the payment of the purchase price, plus interest, over the term
of such contract. Only after full performance by the borrower of the installment
contract is the lender obligated to convey title to the property to the
purchaser. As with mortgage or deed of trust financing, during the effective
period of the installment contract the borrower is generally responsible for
maintaining the property in good condition and for paying real estate taxes,
assessments and hazard insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing or able pursuant to state statute to enforce the
contract strictly according to its terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated and the
buyer's equitable interest in the property is forfeited. The lender in such a
situation is not required to foreclose in order to obtain title to the property,
although in some cases a quiet title action is pursued if the borrower has filed
the installment contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under such statutes a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally the lender's procedures for obtaining possession and
clear title under an installment contract in a given state are simpler and less
time consuming and costly than are the procedures for foreclosing and obtaining
clear title to a property subject to one or more liens.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is the opinion of Thacher Proffitt & Wood, counsel
to the depositor, with respect to the material federal income tax consequences
of the purchase, ownership and disposition of the securities offered under this
prospectus and the prospectus supplement. This discussion is for securityholders
that hold the securities as capital assets within the meaning of Section 1221 of
the Code and does not purport to discuss all federal income tax consequences
that may be applicable to the individual circumstances of banks, insurance
companies, foreign investors, tax-exempt organizations, dealers in securities or
currencies, mutual funds, real estate investment trusts, S corporations, estates
and trusts, securityholders that hold the securities as part of a hedge,
straddle or, an integrated or conversion transaction, or securityholders whose
functional currency is not the United States dollar.
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The authorities on which this discussion and the opinion referred to below
are based are subject to change or differing interpretations which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS will
not take contrary positions. Taxpayers and preparers of tax returns should be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (1) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (2) is directly relevant to the determination of an
entry on a tax return. Accordingly, it is suggested that taxpayers consult their
own tax advisors and tax return preparers regarding the preparation of any item
on a tax return, even where the anticipated tax treatment has been discussed in
this prospectus. In addition to the federal income tax consequences described in
this prospectus, potential investors should consider the state and local tax
consequences, if any, of the purchase, ownership and disposition of the
securities. See "State and Other Tax Consequences."
The following discussion addresses securities of five general types:
o REMIC Certificates representing interests in a trust fund, or a
portion thereof, that the trustee will elect to have treated as a
REMIC under the REMIC Provisions of the Code,
o Notes representing indebtedness of an owner trust for federal income
tax purposes,
o Grantor Trust Certificates representing interests in a Grantor Trust
Fund as to which no REMIC or FASIT election will be made,
o Partnership Certificates representing interests in a Partnership Trust
Fund which is treated as a partnership for federal income tax
purposes, and
o Debt Certificates representing indebtedness of a Partnership Trust
Fund for federal income tax purposes.
o FASIT Securities representing interests in a trust fund, or a portion
thereof, that the trustee will elect to have treated as a FASIT under
the FASIT Provisions of the Code.
The prospectus supplement for each series of certificates will indicate whether
one or more REMIC of FASIT elections will be made for the related trust fund and
will identify all regular interests and residual interests in the REMIC or
REMICs or the "regular interests," "high yield regular interests" or "ownership
interests" in the FASIT, as the case may be. For purposes of this tax
discussion, references to a securityholder or a holder are to the beneficial
owner of a security.
The following discussion is based in part upon the OID Regulations and in
part upon REMIC Regulations. The OID Regulations do not adequately address
issues relevant to the offered securities. As described at "Taxation of Owners
of REMIC Regular Certificates--Original Issue Discount," in some instances the
OID Regulations provide that they are not applicable to securities like the
offered securities.
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REMICS
CLASSIFICATION OF REMICS. On or prior to the date of the related prospectus
supplement with respect to the issuance of each series of REMIC Certificates,
counsel to the depositor will provide its opinion that, assuming compliance with
all provisions of the related pooling and servicing agreement, for federal
income tax purposes, the related trust fund or each applicable portion of the
related trust fund will qualify as a REMIC and the offered REMIC Certificates
will be considered to evidence ownership of REMIC Regular Certificates or REMIC
Residual Certificates in that REMIC within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for status as a REMIC during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for that year and for later years. In that event, the entity may be taxable as a
corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described under "Taxation
of Owners of REMIC Regular Certificates" and "Taxation of Owners of REMIC
Residual Certificates". Although the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination of
REMIC status, these regulations have not been issued. If these regulations are
issued, relief in the event of an inadvertent termination may be accompanied by
sanctions, which may include the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for
status as a REMIC are not satisfied. The pooling and servicing agreement with
respect to each REMIC will include provisions designed to maintain the trust
fund's status as a REMIC under the REMIC Provisions. It is not anticipated that
the status of any trust fund as a REMIC will be inadvertently terminated.
CHARACTERIZATION OF INVESTMENTS IN REMIC CERTIFICATES. Except as provided
in the following sentence, the REMIC Certificates will be real estate assets
within the meaning of Section 856(c)(4)(A) of the Code and assets described in
Section 7701(a)(19)(C) of the Code in the same proportion as the assets of the
REMIC underlying the certificates. If 95% or more of the assets of the REMIC
qualify for either of the treatments described in the previous sentence at all
times during a calendar year, the REMIC Certificates will qualify for the
corresponding status in their entirety for that calendar year. Interest,
including original issue discount, on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described
in Section 856(c)(3)(B) of the Code to the extent that the certificates are
treated as real estate assets within the meaning of Section 856(c)(4)(A) of the
Code. In addition, the REMIC Regular Certificates will be qualified mortgages
within the meaning of Section 860G(a)(3) of the Code if transferred to another
REMIC on its startup day in exchange for regular or residual interests of that
REMIC. The determination as to the percentage of the REMIC's assets that
constitute assets described in these sections of the Code will be made for each
calendar quarter based on the average adjusted basis of each category of the
assets held by the REMIC during the calendar quarter. The Trustee will report
those determinations to certificateholders in the manner and at the times
required by Treasury regulations.
The assets of the REMIC will include mortgage loans, payments on mortgage
loans held prior to the distribution of these payments to the REMIC Certificates
and any property acquired by foreclosure held prior to the sale of this
property, and may include amounts in reserve accounts. It is unclear whether
property acquired by foreclosure held prior to the sale of this property and
amounts
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in reserve accounts would be considered to be part of the mortgage loans, or
whether these assets otherwise would receive the same treatment as the mortgage
loans for purposes of all of the Code sections discussed in the immediately
preceding paragraph. The related prospectus supplement will describe the
mortgage loans that may not be treated entirely as assets described in the
sections of the Code discussed in the immediately preceding paragraph. The REMIC
Regulations do provide, however, that cash received from payments on mortgage
loans held pending distribution is considered part of the mortgage loans for
purposes of Section 856(c)(4)(A) of the Code. Furthermore, foreclosure property
will qualify as real estate assets under Section 856(c)(4)(A) of the Code.
TIERED REMIC STRUCTURES. For a series of REMIC Certificates, two or more
separate elections may be made to treat designated portions of the related trust
fund as REMICs for federal income tax purposes, creating a tiered REMIC
structure. As to each series of REMIC Certificates that is a tiered REMIC
structure, in the opinion of counsel to the depositor, assuming compliance with
all provisions of the related pooling and servicing agreement, each of the
REMICs in that series will qualify as a REMIC and the REMIC Certificates issued
by these REMICs will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
real estate assets within the meaning of Section 856(c)(4)(A) of the Code, and
loans secured by an interest in real property under Section 7701(a)(19)(C) of
the Code, and whether the income on the certificates is interest described in
Section 856(c)(3)(B) of the Code, all of the REMICs in that series will be
treated as one REMIC.
TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES.
GENERAL. Except as described in "Taxation of Owners of REMIC Residual
Certificates--Possible Pass-Through of Miscellaneous Itemized Deductions," REMIC
Regular Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. Moreover, holders of REMIC Regular Certificates that ordinarily
report income under a cash method of accounting will be required to report
income for REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT. A REMIC Regular Certificate may be issued with
original issue discount within the meaning of Section 1273(a) of the Code. Any
holder of a REMIC Regular Certificate issued with original issue discount will
be required to include original issue discount in income as it accrues, in
accordance with the constant yield method, in advance of the receipt of the cash
attributable to that income if the original issue discount exceeds a DE MINIMIS
amount. In addition, Section 1272(a)(6) of the Code provides special rules
applicable to REMIC Regular Certificates and other debt instruments issued with
original issue discount. Regulations have not been issued under that section.
The Code requires that a reasonable Prepayment Assumption be used for
mortgage loans held by a REMIC in computing the accrual of original issue
discount on REMIC Regular Certificates issued by that REMIC, and that
adjustments be made in the amount and rate of accrual of that discount to
reflect differences between the actual prepayment rate and the Prepayment
Assumption.
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The Prepayment Assumption is to be determined in a manner prescribed in Treasury
regulations; as noted in the preceding paragraph, those regulations have not
been issued. The committee report indicates that the regulations will provide
that the Prepayment Assumption used for a REMIC Regular Certificate must be the
same as that used in pricing the initial offering of the REMIC Regular
Certificate. The Prepayment Assumption used in reporting original issue discount
for each series of REMIC Regular Certificates will be consistent with this
standard and will be disclosed in the related prospectus supplement. However,
none of the depositor, the master servicer or the trustee will make any
representation that the mortgage loans will in fact prepay at a rate conforming
to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be
the excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates of
that class is sold, excluding sales to bond houses, brokers and underwriters. If
less than a substantial amount of a class of REMIC Regular Certificates is sold
for cash on or prior to the closing date, the issue price for that class will be
the fair market value of that class on the closing date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is equal
to the total of all payments to be made on the certificate other than qualified
stated interest. Qualified stated interest is interest that is unconditionally
payable at least annually during the entire term of the instrument at a single
fixed rate, a qualified floating rate, an objective rate, a combination of a
single fixed rate and one or more qualified floating rates or one qualified
inverse floating rate, or a combination of qualified floating rates that does
not operate in a manner that accelerates or defers interest payments on the
REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion thereof will vary according to the characteristics of
the REMIC Regular Certificates. If the original issue discount rules apply to
the certificates in a particular series, the related prospectus supplement will
describe the manner in which these rules will be applied with respect to the
certificates in that series that bear an adjustable interest rate in preparing
information returns to the certificateholders and the IRS.
The first interest payment on a REMIC Regular Certificate may be made more
than one month after the date of issuance, which is a period longer than the
subsequent monthly intervals between interest payments. Assuming the accrual
period for original issue discount is each monthly period that ends on the day
prior to each distribution date, as a consequence of this long first accrual
period some or all interest payments may be required to be included in the
stated redemption price of the REMIC Regular Certificate and accounted for as
original issue discount. Because interest on REMIC Regular Certificates must in
any event be accounted for under an accrual method, applying this analysis would
result in only a slight difference in the timing of the inclusion in income of
the yield on the REMIC Regular Certificates.
If the accrued interest to be paid on the first distribution date is
computed for a period that begins prior to the closing date, a portion of the
purchase price paid for a REMIC Regular Certificate will reflect the accrued
interest. In these cases, information returns to the certificateholders and the
IRS will take the position that the portion of the purchase price paid for the
interest accrued for periods prior to the closing date is part of the overall
cost of the REMIC Regular Certificate, and not
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a separate asset the cost of which is recovered entirely out of interest
received on the next distribution date, and that portion of the interest paid on
the first distribution date in excess of interest accrued for a number of days
corresponding to the number of days from the closing date to the first
distribution date should be included in the stated redemption price of the REMIC
Regular Certificate. However, the OID Regulations state that all or a portion of
the accrued interest may be treated as a separate asset the cost of which is
recovered entirely out of interest paid on the first distribution date. It is
unclear how an election to do so would be made under the OID Regulations and
whether this election could be made unilaterally by a certificateholder.
Notwithstanding the general definition of original issue discount, original
issue discount on a REMIC Regular Certificate will be considered to be de
minimis if it is less than 0.25% of the stated redemption price of the REMIC
Regular Certificate multiplied by its weighted average life. For this purpose,
the weighted average life of a REMIC Regular Certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the REMIC Regular Certificate, by multiplying (1) the number of
complete years from the issue date until that payment is expected to be made,
presumably taking into account the Prepayment Assumption, by (2) a fraction, the
numerator of which is the amount of the payment, and the denominator of which is
the stated redemption price at maturity of the REMIC Regular Certificate. Under
the OID Regulations, original issue discount of only a de minimis amount, other
than de minimis original issue discount attributable to a teaser interest rate
or an initial interest holiday, will be included in income as each payment of
stated principal is made, based on the product of the total amount of the de
minimis original issue discount attributable to that certificate and a fraction,
the numerator of which is the amount of the principal payment and the
denominator of which is the outstanding stated principal amount of the REMIC
Regular Certificate. The OID Regulations also would permit a certificateholder
to elect to accrue de minimis original issue discount into income currently
based on a constant yield method. See "Taxation of Owners of REMIC Regular
Certificates--Market Discount" for a description of this election under the OID
Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a
de minimis amount, the holder of the certificate must include in ordinary gross
income the sum of the daily portions of original issue discount for each day
during its taxable year on which it held the REMIC Regular Certificate,
including the purchase date but excluding the disposition date. In the case of
an original holder of a REMIC Regular Certificate, the daily portions of
original issue discount will be determined as described in the following
paragraph.
An accrual period is a period that ends on the day prior to a distribution
date and begins on the first day following the immediately preceding accrual
period, except that the first accrual period begins on the closing date. As to
each accrual period, a calculation will be made of the portion of the original
issue discount that accrued during the accrual period. The portion of original
issue discount that accrues in any accrual period will equal the excess 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 REMIC Regular Certificate in
future periods and (b) the distributions made on the REMIC Regular Certificate
during the accrual period of amounts included in the stated redemption price,
over (2) the adjusted issue price of the REMIC Regular Certificate at the
beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated assuming
that distributions on the REMIC Regular Certificate will be received in future
periods based on the mortgage loans being prepaid at a rate equal to the
Prepayment Assumption, using a discount rate
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equal to the original yield to maturity of the certificate and taking into
account events, including actual prepayments, that have occurred before the
close of the accrual period. For these purposes, the original yield to maturity
of the certificate will be calculated based on its issue price and assuming that
distributions on the certificate will be made in all accrual periods based on
the mortgage loans being prepaid at a rate equal to the Prepayment Assumption.
The adjusted issue price of a REMIC Regular Certificate at the beginning of any
accrual period will equal the issue price of the certificate, increased by the
aggregate amount of original issue discount that accrued with respect to the
certificate in prior accrual periods, and reduced by the amount of any
distributions made on the certificate in prior accrual periods of amounts
included in the stated redemption price. The original issue discount accruing
during any accrual period will be allocated ratably to each day during the
accrual period to determine the daily portion of original issue discount for
that day.
If a REMIC Regular Certificate issued with original issue discount is
purchased at a cost, excluding any portion of the cost attributable to accrued
qualified stated interest, less than its remaining stated redemption price, the
purchaser will also be required to include in gross income the daily portions of
any original issue discount for the certificate. However, if the cost of the
certificate 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 original
issue discount remaining to be accrued on the REMIC Regular Certificate. The
adjusted issue price of a REMIC Regular Certificate on any given day equals the
sum of (1) the adjusted issue price or, in the case of the first accrual period,
the issue price, of the certificate at the beginning of the accrual period which
includes that day and (2) the daily portions of original issue discount for all
days during the accrual period prior to that day.
MARKET DISCOUNT. A certificateholder that purchases a REMIC Regular
Certificate at a market discount will recognize gain upon receipt of each
distribution representing stated redemption price. A REMIC Regular Certificate
issued without original issue discount will have market discount if purchased
for less than its remaining stated principal amount and a REMIC Regular
Certificate issued with original issue discount will have market discount if
purchased for less than its adjusted issue price. Under Section 1276 of the
Code, a certificateholder that purchases a REMIC Regular Certificate at a market
discount in excess of a DE MINIMIS amount will be required to allocate the
portion of each distribution representing stated redemption price first to
accrued market discount not previously included in income, and to recognize
ordinary income to that extent. A certificateholder may elect to include market
discount in income currently as it accrues rather than including it on a
deferred basis. If made, the election will apply to all market discount bonds
acquired by the certificateholder on or after the first day of the first taxable
year to which the election applies. In addition, the OID Regulations permit a
certificateholder to elect to accrue all interest and discount in income as
interest, and to amortize premium, based on a constant yield method. If such an
election were made with respect to a REMIC Regular Certificate with market
discount, the certificateholder would be deemed to have made an election to
include currently market discount in income with respect to all other debt
instruments having market discount that the certificateholder acquires during
the taxable year of the election or later taxable years, and possibly previously
acquired instruments. Similarly, a certificateholder that made this election for
a certificate that is acquired at a premium would be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the certificateholder owns or acquires. SEE
"Taxation of Owners of REMIC Regular Certificates--Premium" beloW. Each of these
elections to accrue interest, discount and premium with respect to a certificate
on a constant yield method or as interest would be irrevocable, except with the
approval of the IRS.
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However, market discount with respect to a REMIC Regular Certificate will
be considered to be de minimis for purposes of Section 1276 of the Code if the
market discount is less than 0.25% of the remaining stated redemption price of
the REMIC Regular Certificate multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the OID Regulations refer to the weighted average maturity of
obligations, and it is likely that the same rule will be applied with respect to
market discount, presumably taking into account the Prepayment Assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "Taxation of Owners of REMIC Regular Certificates--
Original Issue Discount" above. This treatment would result in discount being
included in income at a slower rate than discount would be required to be
included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, the rules
described in the committee report apply. The committee report indicates that in
each accrual period market discount on REMIC Regular Certificates should accrue,
at the certificateholder's option:
(1) on the basis of a constant yield method,
(2) in the case of a REMIC Regular Certificate issued without original
issue discount, in an amount that bears the same ratio to the total
remaining market discount as the stated interest paid in the accrual
period bears to the total amount of stated interest remaining to be
paid on the REMIC Regular Certificate as of the beginning of the
accrual period, or
(3) in the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount accrued in
the accrual period bears to the total original issue discount
remaining on the REMIC Regular Certificate at the beginning of the
accrual period.
Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market
discount. Because the regulations referred to in this paragraph have not been
issued, it is not possible to predict what effect these regulations might have
on the tax treatment of a REMIC Regular Certificate purchased at a discount in
the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other
periodic distributions throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which the discount would accrue if it were
original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the
sale or exchange of the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of these methods,
less any accrued market discount previously reported as ordinary income.
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Further, under Section 1277 of the Code a holder of a REMIC Regular
Certificate may be required to defer a portion of its interest deductions for
the taxable year attributable to any indebtedness incurred or continued to
purchase or carry a REMIC Regular Certificate purchased with market discount.
For these purposes, the de minimis rule applies. Any such deferred interest
expense would not exceed the market discount that accrues during the taxable
year and is, in general, allowed as a deduction not later than the year in which
the market discount is includible in income. If a holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the holder in that taxable year or later taxable years,
the interest deferral rule will not apply.
PREMIUM. A REMIC Regular Certificate purchased at a cost, excluding any
portion of the cost attributable to accrued qualified stated interest, greater
than its remaining stated redemption price will be considered to be purchased at
a premium. The holder of a REMIC Regular Certificate may elect under Section 171
of the Code to amortize the premium under the constant yield method over the
life of the certificate. If made, the election will apply to all debt
instruments having amortizable bond premium that the holder owns or subsequently
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, rather than as a separate interest deduction. The
OID Regulations also permit certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the certificateholder as having made the election to amortize premium
generally. See "Taxation of Owners of REMIC Regular Certificates--Market
Discount" above. 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 with respect to REMIC Regular
Certificates without regard to whether the certificates have original issue
discount, will also apply in amortizing bond premium under Section 171 of the
Code.
REALIZED LOSSES. Under Section 166 of the Code, both corporate holders of
the REMIC Regular Certificates and noncorporate holders of the REMIC Regular
Certificates that acquire the certificates in connection with a trade or
business should be allowed to deduct, as ordinary losses, any losses sustained
during a taxable year in which their certificates become wholly or partially
worthless as the result of one or more realized losses on the mortgage loans.
However, it appears that a noncorporate holder that does not acquire a REMIC
Regular Certificate in connection with a trade or business will not be entitled
to deduct a loss under Section 166 of the Code until the holder's certificate
becomes wholly worthless, i.e., until its outstanding principal balance has been
reduced to zero, and that the loss will be characterized as a short-term capital
loss.
Each holder of a REMIC Regular Certificate will be required to accrue
interest and original issue discount with respect to the certificate, without
giving effect to any reduction in distributions attributable to defaults or
delinquencies on the mortgage loans or the certificate underlying the REMIC
Certificates, as the case may be, until it can be established the reduction
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a REMIC Regular Certificate could exceed
the amount of economic income actually realized by that holder in the period.
Although the holder of a REMIC Regular Certificate eventually will recognize a
loss or reduction in income attributable to previously accrued and included
income that as the result of a realized loss ultimately will not be realized,
the law is unclear with respect to the timing and character of this loss or
reduction in income.
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TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
GENERAL. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not subject to entity-level taxation, except with regard to
prohibited transactions and some other transactions. See "--Prohibited
Transactions Tax and Other Taxes" below. Rather, the taxable income or net loss
of a REMIC is generally taken into account by the holder of the REMIC Residual
Certificates. Accordingly, the REMIC Residual Certificates will be subject to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the mortgage loans or as debt instruments issued by the
REMIC.
A holder of a REMIC Residual Certificate generally will be required to
report its daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the REMIC for each day during a
calendar quarter that the holder owned the REMIC Residual Certificate. For this
purpose, the taxable income or net loss of the REMIC will be allocated to each
day in the calendar quarter ratably using a 30 days per month/90 days per
quarter/360 days per year convention unless otherwise disclosed in the related
prospectus supplement. The daily amounts so allocated will then be allocated
among the REMIC Residual Certificateholders in proportion to their respective
ownership interests on that day. Any amount included in the gross income or
allowed as a loss of any REMIC Residual Certificateholder by virtue of this
paragraph will be treated as ordinary income or loss. The taxable income of the
REMIC will be determined under the rules described below in "Taxable Income of
the REMIC" and will be taxable to the REMIC Residual Certificateholders without
regard to the timing or amount of cash distributions by the REMIC. Ordinary
income derived from REMIC Residual Certificates will be portfolio income for
purposes of the taxation of taxpayers subject to limitations under Section 469
of the Code on the deductibility of passive losses.
A holder of a REMIC Residual Certificate that purchased the certificate
from a prior holder of that certificate also will be required to report on its
federal income tax return amounts representing its daily share of the taxable
income, or net loss, of the REMIC for each day that it holds the REMIC Residual
Certificate. Those daily amounts generally will equal the amounts of taxable
income or net loss. The committee report indicates that some modifications of
the general rules may be made, by regulations, legislation or otherwise to
reduce, or increase, the income of a REMIC Residual Certificateholder that
purchased the REMIC Residual Certificate from a prior holder of the certificate
at a price greater than, or less than, the adjusted basis, the REMIC Residual
Certificate would have had in the hands of an original holder of the
certificate. The REMIC Regulations, however, do not provide for any such
modifications.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of the REMIC Residual Certificate will be taken
into account in determining the income of the holder for federal income tax
purposes. Although it appears likely that any of these payments would be
includible in income immediately upon its receipt, the IRS might assert that
these payments should be included in income over time according to an
amortization schedule or according to another method. Because of the uncertainty
concerning the treatment of these payments, holders of REMIC Residual
Certificates should consult their tax advisors concerning the treatment of these
payments for income tax purposes.
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The amount of income REMIC Residual Certificateholders will be required to
report, or the tax liability associated with the income, may exceed the amount
of cash distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against which
income may be offset, subject to the rules relating to excess inclusions, and
noneconomic residual interests discussed at "-Noneconomic REMIC Residual
Certificates". The fact that the tax liability associated with the income
allocated to REMIC Residual Certificateholders may exceed the cash distributions
received by the REMIC Residual Certificateholders for the corresponding period
may significantly adversely affect the REMIC Residual Certificateholders'
after-tax rate of return. This disparity between income and distributions may
not be offset by corresponding losses or reductions of income attributable to
the REMIC Residual Certificateholder until subsequent tax years and, then, may
not be completely offset due to changes in the Code, tax rates or character of
the income or loss.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will equal the
income from the mortgage loans and other assets of the REMIC plus any
cancellation of indebtedness income due to the allocation of realized losses to
REMIC Regular Certificates, less the deductions allowed to the REMIC for
interest, including original issue discount and reduced by any premium on
issuance, on the REMIC Regular Certificates, whether or not offered by the
prospectus, amortization of any premium on the mortgage loans, bad debt losses
with respect to the mortgage loans and, except as described below, for
servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC Certificates, or if a class of REMIC Certificates is not sold
initially, their fair market values. The aggregate basis will be allocated among
the mortgage loans and the other assets of the REMIC in proportion to their
respective fair market values. The issue price of any offered REMIC Certificates
will be determined in the manner described above under "--Taxation of Owners of
REMIC Regular Certificates--Original Issue Discount." The issue price of a REMIC
Certificate received in exchange for an interest in the mortgage loans or other
property will equal the fair market value of the interests in the mortgage loans
or other property. Accordingly, if one or more classes of REMIC Certificates are
retained initially rather than sold, the Trustee may be required to estimate the
fair market value of the interests in order to determine the basis of the REMIC
in the mortgage loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by the REMIC of original issue discount income and market discount
income with respect to mortgage loans that it holds will be equivalent to the
method for accruing original issue discount income for holders of REMIC Regular
Certificates. However, a REMIC that acquires loans at a market discount must
include the market discount in income currently, as it accrues, on a constant
yield basis. See "--Taxation of Owners of REMIC Regular Certificates" above,
which describes a method for accruing discount income that is analogous to that
required to be used by a REMIC as to mortgage loans with market discount that it
holds.
A mortgage loan will be deemed to have been acquired with either discount
or premium to the extent that the REMIC's basis in the mortgage loan is either
less than or greater than its stated redemption price. Any discount will be
includible in the income of the REMIC as it accrues, in
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advance of receipt of the cash attributable to the income, under a method
similar to the method described above for accruing original issue discount on
the REMIC Regular Certificates. It is anticipated that each REMIC will elect
under Section 171 of the Code to amortize any premium on the mortgage loans.
Premium on any mortgage loan to which the election applies may be amortized
under a constant yield method, presumably taking into account a Prepayment
Assumption. This election would not apply to any mortgage loan originated on or
before September 27, 1985, premium on which should be allocated among the
principal payments on that mortgage loan and be deductible by the REMIC as those
payments become due or upon the prepayment of the mortgage loan.
A REMIC will be allowed deductions for interest, including original issue
discount, on the REMIC Regular Certificates, whether or not offered by this
prospectus, equal to the deductions that would be allowed if these REMIC Regular
Certificates were indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under "--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount," except that the
de minimis rule and the adjustments for subsequent holders of these REMIC
Regular Certificates will not apply.
Issue premium is the excess of the issue price of a REMIC Regular
Certificate over its stated redemption price. If a class of REMIC Regular
Certificates is issued with issue premium, the net amount of interest deductions
that are allowed the REMIC in each taxable year for the REMIC Regular
Certificates of that class will be reduced by an amount equal to the portion of
the issue premium that is considered to be amortized or repaid in that year.
Although the matter is not entirely clear, it is likely that issue premium would
be amortized under a constant yield method in a manner analogous to the method
of accruing original issue discount described above under "--Taxation of Owners
of REMIC Regular Certificates--Original Issue Discount."
Subject to the exceptions described in the following sentences, the taxable
income of a REMIC will be determined in the same manner as if the REMIC were an
individual having the calendar year as its taxable year and using the accrual
method of accounting. However, no item of income, gain, loss or deduction
allocable to a prohibited transaction will be taken into account. See
"--Prohibited Transactions Tax and Other Taxes" below. Further, the limitation
on miscellaneous itemized deductions imposed on individuals by Section 67 of the
Code, allowing these deductions only to the extent they exceed in the aggregate
two percent of the taxpayer's adjusted gross income, will not be applied at the
REMIC level and the REMIC will be allowed deductions for servicing,
administrative and other non-interest expenses in determining its taxable
income. These expenses will be allocated as a separate item to the holders of
REMIC Certificates, subject to the limitation of Section 67 of the Code. SEE
"--Possible Pass-Through of Miscellaneous Itemized Deductions" below. If the
deductions allowed to the REMIC exceed its gross income for a calendar quarter,
the excess will be the net loss for the REMIC for that calendar quarter.
BASIS RULES, NET LOSSES AND DISTRIBUTIONS. The adjusted basis of a REMIC
Residual Certificate will be equal to the amount paid for the REMIC Residual
Certificate, increased by amounts included in the income of the REMIC Residual
Certificateholder and decreased, but not below zero, by distributions made, and
by net losses allocated, to the REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any
net loss for any calendar quarter to the extent the net loss exceeds the REMIC
Residual Certificateholder's adjusted
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basis in its REMIC Residual Certificate as of the close of the calendar quarter,
determined without regard to the net loss. Any loss that is not currently
deductible by reason 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 REMIC Residual Certificate. The ability of REMIC
Residual Certificateholders to deduct net losses may be subject to additional
limitations under the Code, as to which REMIC Residual Certificateholders should
consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a
non-taxable return of capital to the extent it does not exceed the holder's
adjusted basis in the REMIC Residual Certificate. To the extent a distribution
on a REMIC Residual Certificate exceeds this adjusted basis, it will be treated
as gain from the sale of the REMIC Residual Certificate. Holders of REMIC
Residual Certificates may be entitled to distributions early in the term of the
related REMIC under circumstances in which their bases in the REMIC Residual
Certificates will not be sufficiently large that the distributions will be
treated as nontaxable returns of capital. Their bases in the REMIC Residual
Certificates will initially equal the amount paid for the REMIC Residual
Certificates and will be increased by the REMIC Residual Certificateholders'
allocable shares of taxable income of the REMIC. However, these bases increases
may not occur until the end of the calendar quarter, or perhaps the end of the
calendar year, with respect to which the REMIC taxable income is allocated to
the REMIC Residual Certificateholders. To the extent the REMIC Residual
Certificateholders' initial bases are less than the distributions to the REMIC
Residual Certificateholders, and increases in initial bases either occur after
the distributions or, together with their initial bases, are less than the
amount of the distributions, gain will be recognized by the REMIC Residual
Certificateholders on these distributions and will be treated as gain from the
sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may
not amortize its basis in a REMIC Residual Certificate, but may only recover its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See "--Sales of REMIC
Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual
Certificate other than an original holder in order to reflect any difference
between the cost of the REMIC Residual Certificate to the REMIC Residual
Certificateholder and the adjusted basis the REMIC Residual Certificate would
have in the hands of an original holder, see "--Taxation of Owners of REMIC
Residual Certificates--General" above.
EXCESS INCLUSIONS. Any excess inclusions with respect to a REMIC Residual
Certificate will be subject to federal income tax in all events.
In general, the excess inclusions with respect to a REMIC Residual
Certificate for any calendar quarter will be the excess, if any, of
(1) the daily portions of REMIC taxable income allocable to the REMIC
Residual Certificate over
(2) the sum of the daily accruals for each day during the quarter that the
REMIC Residual Certificate was held by the REMIC Residual
Certificateholder.
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The daily accruals of a REMIC Residual Certificateholder will be determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the adjusted issue price of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120% of the long-term Federal rate in
effect on the closing date. For this purpose, the adjusted issue price of a
REMIC Residual Certificate as of the beginning of any calendar quarter will be
equal to the issue price of the REMIC Residual Certificate, increased by the sum
of the daily accruals for all prior quarters and decreased, but not below zero,
by any distributions made with respect to the REMIC Residual Certificate before
the beginning of that quarter. The issue price of a REMIC Residual Certificate
is the initial offering price to the public, excluding bond houses and brokers,
at which a substantial amount of the REMIC Residual Certificates were sold. The
long-term Federal rate is an average of current yields on Treasury securities
with a remaining term of greater than nine years, computed and published monthly
by the IRS. Although it has not done so, the Treasury has authority to issue
regulations that would treat the entire amount of income accruing on a REMIC
Residual Certificate as an excess inclusion if the REMIC Residual Certificates
are considered to have significant value.
For REMIC Residual Certificateholders, an excess inclusion:
(1) will not be permitted to be offset by deductions, losses or loss
carryovers from other activities,
(2) will be treated as unrelated business taxable income to an otherwise
tax-exempt organization and
(3) will not be eligible for any rate reduction or exemption under any
applicable tax treaty with respect to the 30% United States
withholding tax imposed on distributions to REMIC Residual
Certificateholders that are foreign investors. See, however,
"--Foreign Investors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess inclusions
will not be permitted to be offset by the alternative tax net operating loss
deduction and alternative minimum taxable income may not be less than the
taxpayer's excess inclusions. The latter rule has the effect of preventing
nonrefundable tax credits from reducing the taxpayer's income tax to an amount
lower than the alternative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to the REMIC
Residual Certificates, as reduced, but not below zero, by the real estate
investment trust taxable income, will be allocated among the shareholders of the
trust in proportion to the dividends received by the shareholders from the
trust, and any amount so allocated will be treated as an excess inclusion with
respect to a REMIC Residual Certificate as if held directly by the shareholder.
"Real estate investment trust taxable income" is defined by Section 857(b)(2) of
the Code, and as used in the prior sentence does not include any net capital
gain. Treasury regulations yet to be issued could apply a similar rule to
regulated investment companies, common trust funds and cooperatives; the REMIC
Regulations currently do not address this subject.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. Under the REMIC Regulations,
transfers of noneconomic REMIC Residual Certificates will be disregarded for all
federal income tax purposes if
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"a significant purpose of the transfer was to enable the transferor to impede
the assessment or collection of tax." If the transfer is disregarded, the
purported transferor will continue to remain liable for any taxes due with
respect to the income on the noneconomic REMIC Residual Certificate. The REMIC
Regulations provide that a REMIC Residual Certificate is "noneconomic" unless,
based on the Prepayment Assumption and on any required or permitted clean up
calls, or required liquidation provided for in the REMIC's organizational
documents, the present value of the expected future distributions, discounted
using the applicable Federal rate for obligations whose term ends on the close
of the last quarter in which excess inclusions are expected to accrue with
respect to the REMIC Residual Certificate, on the REMIC Residual Certificate
equals at least the present value of the expected tax on the anticipated excess
inclusions, and the transferor reasonably expects that the transferee will
receive distributions with respect to the REMIC Residual Certificate at or after
the time the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. Accordingly, all transfers of REMIC
Residual Certificates that may constitute noneconomic residual interests will be
subject to restrictions under the terms of the related pooling and servicing
agreement that are intended to reduce the possibility of a transfer of REMIC
Residual Certificates being disregarded. These restrictions will require each
party to a transfer to provide an affidavit that no purpose of the transfer is
to impede the assessment or collection of tax, including representations as to
the financial condition of the prospective transferee, for which the transferor
is also required to make a reasonable investigation to determine the
transferee's historic payment of its debts and ability to continue to pay its
debts as they come due in the future. Prior to purchasing a REMIC Residual
Certificate, a prospective purchaser should consider the possibility that a
purported transfer of the REMIC Residual Certificate by that prospective
purchaser to another purchaser at a future date may be disregarded in accordance
with the rule described in the first sentence of this paragraph, which would
result in the retention of tax liability by the purchaser.
The related prospectus supplement will disclose whether offered REMIC
Residual Certificates may be considered noneconomic residual interests under the
REMIC Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will not be considered noneconomic will be based upon assumptions,
and the depositor will make no representation that a REMIC Residual Certificate
will not be considered noneconomic for purposes of the rules described in the
preceding paragraph. See "--Foreign Investors in REMIC Certificates--REMIC
Residual Certificates" below for additional restrictions applicable to transfers
of REMIC Residual Certificates to foreign persons.
MARK-TO-MARKET RULES. In general, all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held for
investment, must be marked to market in accordance with the applicable Code
provision and the related regulations. However, the IRS recently issued
regulations which provide that for purposes of this mark-to-market requirement a
REMIC Residual Certificate acquired after January 4, 1995 is not treated as a
security and thus may not be marked to market. Prospective purchasers of a REMIC
Residual Certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to REMIC Residual Certificates.
POSSIBLE PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS. Fees and
expenses of a REMIC generally will be allocated to the holders of the related
REMIC Residual Certificates. The applicable Treasury regulations indicate,
however, that in the case of a REMIC that is similar to a single class grantor
trust, all or a portion of these fees and expenses should be allocated to the
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holders of the related REMIC Regular Certificates. Except as stated in the
related prospectus supplement, these fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to
the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates
the holders of which receive an allocation of fees and expenses in accordance
with the preceding discussion, if any holder thereof is an individual, estate or
trust, or a pass-through entity beneficially owned by one or more individuals,
estates or trusts,
o an amount equal to the individual's, estate's or trust's share of the
fees and expenses will be added to the gross income of the holder, and
o the individual's, estate's or trust's share of the fees and expenses
will be treated as a miscellaneous itemized deduction allowable
subject to the limitation of Section 67 of the Code.
Section 67 of the Code permits these deductions only to the extent they
exceed in the aggregate two percent of a taxpayer's adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized deductions
otherwise allowable for an individual whose adjusted gross income exceeds a
specified amount will be reduced by the lesser of (1) 3% of the excess of the
individual's adjusted gross income over that amount or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. The amount of
additional taxable income reportable by REMIC Certificateholders that are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Furthermore, in determining the alternative minimum taxable income
of a holder of a REMIC Certificate that is an individual, estate or trust, or a
pass-through entity beneficially owned by one or more individuals, estates or
trusts, no deduction will be allowed for the holder's allocable portion of
servicing fees and other miscellaneous itemized deductions of the REMIC, even
though an amount equal to the amount of the fees and other deductions will be
included in the holder's gross income. Accordingly, these REMIC Certificates may
not be appropriate investments for individuals, estates, or trusts, or
pass-through entities beneficially owned by one or more individuals, estates or
trusts. Prospective investors should consult with their own tax advisors prior
to making an investment in the certificates.
SALES OF REMIC CERTIFICATES. If a REMIC 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 REMIC Certificate.
The adjusted basis of a REMIC Regular Certificate generally will be:
o equal the cost of the REMIC Regular Certificate to the
certificateholder,
o increased by income reported by such certificateholder with respect to
the REMIC Regular Certificate, including original issue discount and
market discount income, and
o reduced, but not below zero, by distributions on the REMIC Regular
Certificate received by the certificateholder and by any amortized
premium.
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The adjusted basis of a REMIC Residual Certificate will be determined as
described under "--Taxation of Owners of REMIC Residual Certificates--Basis
Rules, Net Losses and Distributions." Except as provided in the following four
paragraphs, gain or loss from the sale of a REMIC Certificate will be capital
gain or loss, provided the REMIC Certificate is held as a capital asset within
the meaning of Section 1221 of the Code.
Gain from the sale of a REMIC 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 with respect to the REMIC 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 REMIC Regular Certificate,
over (2) the amount of ordinary income actually includible in the seller's
income prior to the sale. In addition, gain recognized on the sale of a REMIC
Regular Certificate by a seller who purchased the REMIC Regular Certificate at a
market discount will be taxable as ordinary income in an amount not exceeding
the portion of the discount that accrued during the period the REMIC Certificate
was held by the holder, reduced by any market discount included in income under
the rules described above under "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" and "--Premium."
REMIC 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 REMIC Certificate by a bank or thrift institution to which this section
applies will be ordinary income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that the certificate is held as part of a conversion transaction within the
meaning of Section 1258 of the Code. A conversion transaction includes a
transaction in which the taxpayer has taken two or more positions in the same or
similar property that reduce or eliminate market risk, if substantially all of
the taxpayer's return is attributable to the time value of the taxpayer's net
investment in the transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate applicable Federal rate at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary
income rates rather than capital gains rates in order to include the net capital
gain in total net investment income for the taxable year, for purposes of the
rule that limits the deduction of interest on indebtedness incurred to purchase
or carry property held for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires the REMIC Residual
Certificate, or acquires any other residual interest in a REMIC or any similar
interest in a taxable mortgage pool, as defined in Section 7701(i) of the Code,
during the period beginning six months before, and ending six months after, the
date of the sale, such sale will be subject to the wash sale rules of Section
1091 of the Code. In that event, any loss realized by the REMIC Residual
Certificateholder on the sale will not be deductible, but
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instead will be added to the REMIC Residual Certificateholder's adjusted basis
in the newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER POSSIBLE REMIC TAXES. In the event a
REMIC engages in a prohibited transaction, the Code imposes a 100% tax on the
income derived by the REMIC from the prohibited transaction. A prohibited
transaction may occur upon the disposition of a mortgage loan, the receipt of
income from a source other than a mortgage loan or other permitted investments,
the receipt of compensation for services, or gain from the disposition of an
asset purchased with the payments on the mortgage loans for temporary investment
pending distribution on the REMIC Certificates. It is not anticipated that any
REMIC will engage in any prohibited transactions in which it would recognize a
material amount of net income.
In addition, a contribution to a REMIC made after the day on which the
REMIC issues all of its interests could result in the imposition on the REMIC of
a tax equal to 100% of the value of the contributed property. Each pooling and
servicing agreement will include provisions designed to prevent the acceptance
of any contributions that would be subject to this tax.
REMICs also are subject to federal income tax at the highest corporate rate
on net income from foreclosure property, determined by reference to the rules
applicable to real estate investment trusts. Net income from foreclosure
property generally means gain from the sale of a foreclosure property that is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment trust.
It is not anticipated that any REMIC will recognize net income from foreclosure
property subject to federal income tax.
To the extent permitted by then applicable laws, any tax resulting from a
prohibited transaction, tax resulting from a contribution made after the closing
date, tax on net income from foreclosure property or state or local income or
franchise tax that may be imposed on the REMIC will be borne by the related
master servicer or trustee in either case out of its own funds, provided that
the master servicer or the trustee has sufficient assets to do so, and provided
that the tax arises out of a breach of the master servicer's or the trustee's
obligations under the related pooling and servicing agreement and in respect of
compliance with applicable laws and regulations. Any of these taxes not borne by
the master servicer or the trustee will be charged against the related trust
fund resulting in a reduction in amounts payable to holders of the related REMIC
Certificates.
TAX AND RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES TO CERTAIN
Organizations. If a REMIC Residual Certificate is transferred to a disqualified
organization, a tax would be imposed in an amount equal to the product of:
o the present value, discounted using the applicable Federal rate for
obligations whose term ends on the close of the last quarter in which
excess inclusions are expected to accrue with respect to the REMIC
Residual Certificate, of the total anticipated excess inclusions with
respect to the REMIC Residual Certificate for periods after the
transfer and
o the highest marginal federal income tax rate applicable to
corporations.
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The anticipated excess inclusions must be determined as of the date that
the REMIC Residual Certificate is transferred and must be based on events that
have occurred up to the time of the transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for in the
REMIC's organizational documents. The tax would be imposed on the transferor of
the REMIC 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 REMIC Residual Certificate would in no event
be liable for the tax with respect to a transfer if the transferee furnishes to
the transferor an affidavit 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. Moreover, an entity will not
qualify as a REMIC unless there are reasonable arrangements designed to ensure
that
o residual interests in the entity are not held by disqualified
organizations and
o information necessary for the application of the tax described herein
will be made available. Restrictions on the transfer of REMIC Residual
Certificates and other provisions that are intended to meet this
requirement will be included in the pooling and servicing agreement,
and will be discussed more fully in any prospectus supplement relating
to the offering of any REMIC Residual Certificate.
In addition, if a pass-through entity includes in income excess inclusions
with respect to a REMIC Residual Certificate, and a disqualified organization is
the record holder of an interest in the entity, then a tax will be imposed on
the entity equal to the product of (1) the amount of excess inclusions on the
REMIC 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 each record holder
of an interest in the pass-through entity furnishes to the pass-through entity
o the holder's social security number and a statement under penalties of
perjury that the social security number is that of the record holder
or
o a statement under penalties of perjury that the record holder is not a
disqualified organization. Notwithstanding the preceding two
sentences, in the case of a REMIC Residual Certificate held by an
electing large partnership, as defined in Section 775 of the Code, all
interests in the partnership shall be treated as held by disqualified
organizations, without regard to whether the record holders of the
partnership furnish statements described in the preceding sentence,
and the amount that is subject to tax under the second preceding
sentence is excluded from the gross income of the partnership
allocated to the partners, in lieu of allocating to the partners a
deduction for the tax paid by the partnership.
For these purposes, a disqualified organization means:
o the United States, any State or political subdivision thereof, any
foreign government, any international organization, or any agency or
instrumentality of the foregoing, not
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including, however, instrumentalities described in Section
168(h)(2)(D) of the Code or the Federal Home Loan Mortgage
Corporation,
o any organization, other than a cooperative described in Section 521 of
the Code, that is exempt from federal income tax, unless it is subject
to the tax imposed by Section 511 of the Code or
o any organization described in Section 1381(a)(2)(C) of the Code.
For these purposes, a pass-through entity means any regulated investment
company, real estate investment trust, trust, partnership or other entity
described in Section 860E(e)(6)(B) of the Code. In addition, a person holding an
interest in a pass-through entity as a nominee for another person will, with
respect to the interest, be treated as a pass-through entity.
TERMINATION. A REMIC will terminate immediately after the distribution date
following receipt by the REMIC of the final payment in respect of the mortgage
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 REMIC Regular
Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual certificate, if the last distribution on the REMIC
Residual Certificate is less than the REMIC Residual Certificateholder's
adjusted basis in the Certificate, the REMIC Residual Certificateholder should,
but may not, be treated as realizing a loss equal to the amount of the
difference, and the loss may be treated as a capital loss.
REPORTING AND OTHER ADMINISTRATIVE MATTERS. Solely for purposes of the
administrative provisions of the Code, the REMIC will be treated as a
partnership and REMIC Residual Certificateholders will be treated as partners.
The Trustee or other party specified in the related prospectus supplement will
file REMIC federal income tax returns on behalf of the related REMIC, and under
the terms of the related Agreement, will either (1) be irrevocably appointed by
the holders of the largest percentage interest in the related REMIC Residual
Certificates as their agent to perform all of the duties of the tax matters
person with respect to the REMIC in all respects or (2) will be designated as
and will act as the tax matters person with respect to the related REMIC in all
respects and will hold at least a nominal amount of REMIC Residual Certificates.
The Trustee, as the tax matters person or as agent for the tax matters
person, subject to notice requirements and various restrictions and limitations,
generally will have the authority to act on behalf of the REMIC and the REMIC
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. REMIC Residual Certificateholders generally will be
required to report such REMIC items consistently with their treatment on the
REMIC's tax return and may be bound by a settlement agreement between the
Trustee, as either tax matters person or as agent for the tax matters person,
and the IRS concerning any REMIC item subject to that settlement agreement.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an audit
of the REMIC's tax return, or the adjustments resulting from an audit, could
result in an audit of a REMIC Residual Certificateholder's return. Any person
that holds a REMIC Residual Certificate as a nominee for another person may be
required to furnish the REMIC, in a manner to be provided in Treasury
regulations, with the name and address of the person and other information.
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Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. These information reports generally
are required to be sent to individual holders of REMIC regular interests and the
IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and some other non-individuals will be provided interest and
original issue discount income information and the information set forth in the
following paragraph upon request in accordance with the requirements of the
applicable regulations. The information must be provided by the later of 30 days
after the end of the quarter for which the information was requested, or two
weeks after the receipt of the request. The REMIC must also comply with rules
requiring a REMIC Regular Certificate issued with original issue discount to
disclose on its face the amount of original issue discount and the issue date,
and requiring the information to be reported to the IRS. Reporting with respect
to the REMIC Residual Certificates, including income, excess inclusions,
investment expenses and relevant information regarding qualification of the
REMIC's assets will be made as required under the Treasury regulations,
generally on a quarterly basis.
The REMIC Regular Certificate information reports will include a statement
of the adjusted issue price of the REMIC Regular Certificate at the beginning of
each accrual period. In addition, the reports will include information required
by regulations with respect to computing the accrual of any market discount.
Because exact computation of the accrual of market discount on a constant yield
method would require information relating to the holder's purchase price that
the REMIC may not have, Treasury regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided. See "--Taxation of Owners of REMIC Regular Certificates--Market
Discount."
The responsibility for complying with the foregoing reporting rules will be
borne by the Trustee or other party designated in the related prospectus
supplement.
BACKUP WITHHOLDING WITH RESPECT TO REMIC CERTIFICATES. Payments of interest
and principal, as well as payments of proceeds from the sale of REMIC
Certificates, may be subject to the backup withholding tax under Section 3406 of
the Code at a rate of 31% if recipients of the payments fail to furnish to the
payor information including their taxpayer identification numbers, or otherwise
fail to establish an exemption from the backup withholding tax. 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 IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner.
FOREIGN INVESTORS IN REMIC CERTIFICATES. A REMIC Regular Certificateholder
that is not a United States Person 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 REMIC Regular Certificate, will not be subject to United
States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder 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. The IRS may assert that the foregoing tax
exemption should not apply with respect to a REMIC Regular Certificate held by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including
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distributions in respect of accrued original issue discount, to the holder may
be subject to a tax rate of 30%, subject to reduction under any applicable tax
treaty.
In addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder's allocable portion of the interest income received by the
controlled foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included
in the estate of a non-resident alien individual and would not be subject to
United States estate taxes. However, it is suggested that certificateholders who
are non-resident alien individuals consult their tax advisors concerning this
question.
Except as stated in the related prospectus supplement, transfers of REMIC
Residual Certificates to investors that are not United States Persons will be
prohibited under the related pooling and servicing agreement.
NEW WITHHOLDING REGULATIONS
The IRS has issued new regulations which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The new regulations attempt to unify certification requirements and modify
reliance standards. These regulations will generally be effective for payments
made after December 31, 2000, subject to transition rules. Prospective investors
are urged to consult their tax advisors regarding these regulations.
NOTES
On or prior to the date of the related prospectus supplement with respect
to the proposed issuance of each series of notes, counsel to the depositor will
provide its opinion that, assuming compliance with all provisions of the
indenture, owner trust agreement and other related documents, for federal income
tax purposes (1) the notes will be treated as indebtedness and (2) the issuer,
as created under the owner trust agreement, will not be characterized as an
association or publicly traded partnership taxable as a corporation or as a
taxable mortgage pool. For purposes of this tax discussion, references to a
noteholder or a holder are to the beneficial owner of a note.
STATUS AS REAL PROPERTY LOANS
Notes held by a domestic building and loan association will not constitute
"loans . . . secured by an interest in real property" within the meaning of Code
section 7701(a)(19)(C)(v); and notes held by a real estate investment trust will
not constitute real estate assets within the meaning of Code section
856(c)(4)(A) and interest on notes will not be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
section 856(c)(3)(B).
TAXATION OF NOTEHOLDERS
Notes generally will be subject to the same rules of taxation as REMIC
Regular Certificates issued by a REMIC, except that (1) income reportable on the
notes is not required to be reported under the accrual method unless the holder
otherwise uses the accrual method and (2) the special
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rule treating a portion of the gain on sale or exchange of a REMIC Regular
Certificate as ordinary income is inapplicable to the notes. See "--REMICs
- --Taxation of Owners of REMIC Regular Certificates" and "-- Sales of REMIC
Certificates."
GRANTOR TRUST FUNDS
CLASSIFICATION OF GRANTOR TRUST FUNDS
On or prior to the date of the related prospectus supplement with respect
to the proposed issuance of each series of Grantor Trust Certificates, counsel
to the depositor will provide its opinion that, assuming compliance with all
provisions of the related pooling and servicing agreement, the related Grantor
Trust Fund will be classified as a grantor trust under subpart E, part I of
subchapter J of Chapter 1 of the Code and not as a partnership or an association
taxable as a corporation.
CHARACTERIZATION OF INVESTMENTS IN GRANTOR TRUST CERTIFICATES
GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES. In the case of Grantor
Trust Fractional Interest Certificates, except as disclosed in the related
prospectus supplement, counsel to the depositor will provide its opinion that
Grantor Trust Fractional Interest Certificates will represent interests in
"loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; "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
Section 860G(a)(3) of the Code; and real estate assets within the meaning of
Section 856(c)(4)(A) of the Code. In addition, counsel to the depositor will
deliver its opinion that interest on Grantor Trust Fractional Interest
Certificates will to the same extent be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code.
The assets constituting certain Grantor Trust Funds may include buydown
mortgage loans. The characterization of an investment in buydown mortgage loans
will depend upon the precise terms of the related buydown agreement, but to the
extent that the buydown mortgage loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the preceding paragraph. No directly applicable precedents exist with respect
to the federal income tax treatment or the characterization of investments in
buydown mortgage loans. Accordingly, holders of Grantor Trust Certificates
should consult their own tax advisors with respect to the characterization of
investments in Grantor Trust Certificates representing an interest in a Grantor
Trust Fund that includes buydown mortgage loans.
GRANTOR TRUST STRIP CERTIFICATES. Even if Grantor Trust Strip Certificates
evidence an interest in a Grantor Trust Fund consisting of mortgage loans that
are "loans . . . secured by an interest in real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Code, and real estate assets within the meaning
of Section 856(c)(4)(A) of the Code, and the interest on the mortgage loans is
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, it is unclear whether the Grantor
Trust Strip Certificates, and income from the Grantor Trust Certificates will be
characterized the same way. However, the policies underlying these sections, to
encourage or require investments in mortgage loans by thrift institutions and
real estate investment trusts, suggest that this characterization is
appropriate. Counsel to the depositor will not
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deliver any opinion on these questions. It is suggested that prospective
purchasers to which the characterization of an investment in Grantor Trust Strip
Certificates is material consult their tax advisors regarding whether the
Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized.
The Grantor Trust Strip Certificates will be "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
Section 860G(a)(3)(A) of the Code.
TAXATION OF OWNERS OF GRANTOR TRUST FRACTIONAL INTEREST CERTIFICATES.
Holders of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns their
shares of the entire income from the mortgage loans, including amounts used to
pay reasonable servicing fees and other expenses, and will be entitled to deduct
their shares of any reasonable servicing fees and other expenses. Because of
stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable on the same
certificate representing interest on the mortgage loans. Under Section 67 of the
Code, an individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through some pass-through entities will be allowed a
deduction for the reasonable servicing fees and expenses only to the extent that
the aggregate of the holder's miscellaneous itemized deductions exceeds two
percent of the holder's adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (1) 3% of the excess of the individual's adjusted gross
income over the amount or (2) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest Certificates who are
subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, certificateholders other than corporations subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining the holder's alternative minimum taxable income. Although it is not
entirely clear, it appears that in transactions in which multiple classes of
Grantor Trust Certificates, including Grantor Trust Strip Certificates, are
issued, the fees and expenses should be allocated among the classes of Grantor
Trust Certificates using a method that recognizes that each class benefits from
the related services. In the absence of statutory or administrative
clarification as to the method to be used, it is intended to base information
returns or reports to the IRS and certificateholders on a method that allocates
the expenses among classes of Grantor Trust Certificates with respect to each
period on the distributions made to each class during that period.
The federal income tax treatment of Grantor Trust Fractional Interest
Certificates of any series will depend on whether they are subject to the
stripped bond rules of Section 1286 of the Code. Grantor Trust Fractional
Interest Certificates may be subject to those rules if (1) a class of Grantor
Trust Strip Certificates is issued as part of the same series of certificates or
(2) the depositor or any of its affiliates retains, for its own account or for
purposes of resale, a right to receive a specified portion of the interest
payable on the mortgage loans. Further, the IRS has ruled that an unreasonably
high servicing fee retained by a seller or servicer will be treated as a
retained ownership interest in mortgages that constitutes a stripped coupon. For
purposes of determining what constitutes reasonable servicing fees for various
types of mortgages the IRS has established safe harbors. The servicing fees paid
with respect to the mortgage loans for a series of Grantor Trust
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Certificates may be higher than those safe harbors and, accordingly, may not
constitute reasonable servicing compensation. The related prospectus supplement
will include information regarding servicing fees paid to the master servicer,
any subservicer or their respective affiliates necessary to determine whether
the safe harbor rules apply.
IF STRIPPED BOND RULES APPLY. If the stripped bond rules apply, each
Grantor Trust Fractional Interest Certificate will be treated as having been
issued with original issue discount within the meaning of Section 1273(a) of the
Code, subject, however, to the discussion in the sixth following paragraph
regarding the possible treatment of stripped bonds as market discount bonds and
the discussion regarding DE MINIMIS market discount. See "--Taxation of Owners
of Grantor Trust Fractional Interest Certificates-- Discount" below. Under the
stripped bond rules, the holder of a Grantor Trust Fractional Interest
Certificate, whether a cash or accrual method taxpayer, will be required to
report interest income from its Grantor Trust Fractional Interest Certificate
for each month in an amount equal to the income that accrues on the certificate
in that month calculated under a constant yield method, in accordance with the
rules of the Code relating to original issue discount.
The original issue discount on a Grantor Trust Fractional Interest
Certificate will be the excess of the certificate's stated redemption price over
its issue price. The issue price of a Grantor Trust Fractional Interest
Certificate as to any purchaser will be equal to the price paid by the purchaser
for the Grantor Trust Fractional Interest Certificate. The stated redemption
price of a Grantor Trust Fractional Interest Certificate will be the sum of all
payments to be made on the certificate, other than qualified stated interest, if
any, as well as the certificate's share of reasonable servicing fees and other
expenses. See "--Taxation of Owners of Grantor Trust Fractional Interest
Certificates-- Stripped Bond Rules Do Not Apply" for a definition of qualified
stated interest. In general, the amount of the income that accrues in any month
would equal the product of the holder's adjusted basis in the Grantor Trust
Fractional Interest Certificate at the beginning of the month, see "Sales of
Grantor Trust Certificates", and the yield of the Grantor Trust Fractional
Interest Certificate to the holder. This yield is equal to a rate that,
compounded based on the regular interval between distribution dates and used to
discount the holder's share of future payments on the mortgage loans, causes the
present value of those future payments to equal the price at which the holder
purchased the certificate. In computing yield under the stripped bond rules, a
certificateholder's share of future payments on the mortgage loans will not
include any payments made in respect of any ownership interest in the mortgage
loans retained by the depositor, the master servicer, any subservicer or their
respective affiliates, but will include the certificateholder's share of any
reasonable servicing fees and other expenses.
To the extent the Grantor Trust Fractional Interest Certificates represent
an interest in any pool of debt instruments the yield on which may be affected
by reason of prepayments, Section 1272(a)(6) of the Code requires (1) the use of
a reasonable Prepayment Assumption in accruing original issue discount and (2)
adjustments in the accrual of original issue discount when prepayments do not
conform to the Prepayment Assumption. It is unclear whether those provisions
would be applicable to the Grantor Trust Fractional Interest Certificates that
do not represent an interest in any pool of debt instruments the yield on which
may be affected by reason of prepayments, or whether use of a reasonable
Prepayment Assumption may be required or permitted without reliance on these
rules. It is also uncertain, if a Prepayment Assumption is used, whether the
assumed prepayment rate would be determined based on conditions at the time of
the first sale of the
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Grantor Trust Fractional Interest Certificate or, for a particular holder, at
the time of purchase of the Grantor Trust Fractional Interest Certificate by
that holder. It is suggested that Certificateholders consult their own tax
advisors concerning reporting original issue discount with respect to Grantor
Trust Fractional Interest Certificates and, in particular, whether a Prepayment
Assumption should be used in reporting original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired at
a price equal to the principal amount of the mortgage loans allocable to the
certificate, the use of a Prepayment Assumption generally would not have any
significant effect on the yield used in calculating accruals of interest income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a price less than or greater than the principal amount of the
certificate, that is, at a discount or a premium, the use of a reasonable
Prepayment Assumption would increase or decrease the yield, and thus accelerate
or decelerate, respectively, the reporting of income.
If a Prepayment Assumption is not used, then when a mortgage loan prepays
in full, the holder of a Grantor Trust Fractional Interest Certificate acquired
at a discount or a premium generally will recognize ordinary income or loss
equal to the difference between the portion of the prepaid principal amount of
the mortgage loan that is allocable to the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder's
interest in the mortgage loan. If a Prepayment Assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
It is intended to base information reports or returns to the IRS and
certificateholders in transactions subject to the stripped bond rules on a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, none of the depositor,
the master servicer or the trustee will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or any other rate and certificateholders should bear in mind that the
use of a representative initial offering price will mean that the information
returns or reports, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial certificateholders of each series
who bought at that price.
Under Treasury regulation Section 1.1286-1, stripped bonds may to be
treated as market discount bonds and any purchaser of a stripped bond treated as
a market discount bond is to account for any discount on the bond as market
discount rather than original issue discount. This treatment only applies,
however, if immediately after the most recent disposition of the bond by a
person stripping one or more coupons from the bond and disposing of the bond or
coupon (1) there is no, or only a de minimis amount of, original issue discount
or (2) the annual stated rate of interest payable on the original bond is no
more than one percentage point lower than the gross interest rate payable on the
original mortgage loan, before subtracting any servicing fee or any stripped
coupon. If interest payable on a Grantor Trust Fractional Interest Certificate
is more than one percentage point lower
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than the gross interest rate payable on the mortgage loans, the related
prospectus supplement will disclose that fact. If the original issue discount or
market discount on a Grantor Trust Fractional Interest Certificate determined
under the stripped bond rules is less than 0.25% of the stated redemption price
multiplied by the weighted average maturity of the mortgage loans, then that
original issue discount or market discount will be considered to be de minimis.
Original issue discount or market discount of only a de minimis amount will be
included in income in the same manner as de minimis original issue and market
discount described in "--Characteristics of Investments in Grantor Trust
Certificates-- If Stripped Bond Rules Do Not Apply" and "--Market Discount"
below.
IF STRIPPED BOND RULES DO NOT APPLY. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a Grantor
Trust Fractional Interest Certificate, the certificateholder will be required to
report its share of the interest income on the mortgage loans in accordance with
the certificateholder's normal method of accounting. The original issue discount
rules will apply to a Grantor Trust Fractional Interest Certificate to the
extent it evidences an interest in mortgage loans issued with original issue
discount.
The original issue discount, if any, on the mortgage loans will equal the
difference between the stated redemption price of the mortgage loans and their
issue price. Under the OID Regulations, the stated redemption price is equal to
the total of all payments to be made on the mortgage loan other than qualified
stated interest. Qualified stated interest is interest that is unconditionally
payable at least annually at a single fixed rate, a qualified floating rate, an
objective rate, a combination of a single fixed rate and one or more qualified
floating rates or one qualified inverse floating rate, or a combination of
qualified floating rates that does not operate in a manner that accelerates or
defers interest payments on the mortgage loan. In general, the issue price of a
mortgage loan will be the amount received by the borrower from the lender under
the terms of the mortgage loan, less any points paid by the borrower, and the
stated redemption price of a mortgage loan will equal its principal amount,
unless the mortgage loan provides for an initial below-market rate of interest
or the acceleration or the deferral of interest payments. The determination as
to whether original issue discount will be considered to be de minimis will be
calculated using the same test described in the REMIC discussion. See
"--Taxation of Owners of REMIC Regular Certificates--Original Issue Discount"
above.
In the case of mortgage loans bearing adjustable or variable interest
rates, the related prospectus supplement will describe the manner in which the
rules will be applied with respect to those mortgage loans by the master
servicer or the trustee in preparing information returns to the
certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. Section
1272(a)(6) of the Code requires that a Prepayment Assumption be made in
computing yield with respect to any pool of debt instruments the yield on which
may be affected by reason of prepayments. Accordingly, for certificates backed
by these pools, it is intended to base information reports and returns to the
IRS and certificateholders on the use of a Prepayment Assumption. However, in
the case of certificates not backed by these pools, it currently is not intended
to base the reports and returns on the use of a Prepayment Assumption. It is
suggested that certificateholders consult their own tax advisors concerning
whether a Prepayment Assumption
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should be used in reporting original issue discount with respect to Grantor
Trust Fractional Interest Certificates. Certificateholders should refer to the
related prospectus supplement with respect to each series to determine whether
and in what manner the original issue discount rules will apply to mortgage
loans in the series.
A purchaser of a Grantor Trust Fractional Interest Certificate that
purchases the Grantor Trust Fractional Interest Certificate at a cost less than
the certificate's allocable portion of the aggregate remaining stated redemption
price of the mortgage loans held in the related trust fund will also be required
to include in gross income the certificate's daily portions of any original
issue discount with respect to the mortgage loans. However, the daily portion
will be reduced, if the cost of the Grantor Trust Fractional Interest
Certificate to the purchaser is in excess of the certificate's allocable portion
of the aggregate adjusted issue prices of the mortgage loans held in the related
trust fund, approximately in proportion to the ratio the excess bears to the
certificate's allocable portion of the aggregate original issue discount
remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of (1) the adjusted issue price,
or, in the case of the first accrual period, the issue price, of the mortgage
loan at the beginning of the accrual period that includes that day and (2) the
daily portions of original issue discount for all days during the accrual period
prior to that day. The adjusted issue price of a mortgage loan at the beginning
of any accrual period will equal the issue price of the mortgage loan, increased
by the aggregate amount of original issue discount with respect to the mortgage
loan that accrued in prior accrual periods, and reduced by the amount of any
payments made on the mortgage loan in prior accrual periods of amounts included
in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee,
except as provided in the related prospectus supplement, will provide to any
holder of a Grantor Trust Fractional Interest Certificate such information as
the holder may reasonably request from time to time with respect to original
issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
MARKET DISCOUNT. If the stripped bond rules do not apply to the Grantor
Trust Fractional Interest Certificate, a certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Code to the extent an
interest in a mortgage loan is considered to have been purchased at a market
discount, that is, in the case of a mortgage loan issued without original issue
discount, at a purchase price less than its remaining stated redemption price,
or in the case of a mortgage loan issued with original issue discount, at a
purchase price less than its adjusted issue price. If market discount is in
excess of a de minimis amount, the holder generally will be required to include
in income in each month the amount of the discount that has accrued through the
month that has not previously been included in income, but limited, in the case
of the portion of the discount that is allocable to any mortgage loan, to the
payment of stated redemption price on the mortgage loan that is received by, or,
in the case of accrual basis certificateholders, due to, the trust fund in that
month. A certificateholder may elect to include market discount in income
currently as it accrues under a constant yield method based on the yield of the
certificate to the holder rather than including it on a deferred basis under
rules similar to those described in "--Taxation of Owners of REMIC Regular
Certificates--Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is
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payable in more than one installment. Until regulations are issued by the
Treasury Department, rules described in the committee report will apply. Under
those rules, in each accrual period market discount on the mortgage loans should
accrue, at the certificateholder's option: (1) on the basis of a constant yield
method, (2) in the case of a mortgage loan issued without original issue
discount, in an amount that bears the same ratio to the total remaining market
discount as the stated interest paid in the accrual period bears to the total
stated interest remaining to be paid on the mortgage loan as of the beginning of
the accrual period, or (3) in the case of a mortgage loan issued with original
issue discount, in an amount that bears the same ratio to the total remaining
market discount as the original issue discount accrued in the accrual period
bears to the total original issue discount remaining at the beginning of the
accrual period. The Prepayment Assumption, if any, used in calculating the
accrual of original issue discount is to be used in calculating the accrual of
market discount. The effect of using a Prepayment Assumption could be to
accelerate the reporting of the discount income. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect the regulations might have on the tax treatment of a
mortgage loan purchased at a discount in the secondary market.
Because the mortgage loans will provide for periodic payments of stated
redemption price, the market discount may be required to be included in income
at a rate that is not significantly slower than the rate at which the discount
would be included in income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de
minimis and, if so, will be includible in income under de minimis rules similar
to those described above in "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" with the exception that it is less likely
that a Prepayment Assumption will be used for purposes of these rules with
respect to the mortgage loans.
Further, under the rules described in "--REMICs--Taxation of Owners of
REMIC Regular Certificates--Market Discount," above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the mortgage loans.
PREMIUM. If a certificateholder is treated as acquiring the underlying
mortgage loans at a premium, that is, at a price in excess of their remaining
stated redemption price, the certificateholder may elect under Section 171 of
the Code to amortize using a constant yield method the portion of the premium
allocable to mortgage loans originated after September 27, 1985. Amortizable
premium is treated as an offset to interest income on the related debt
instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage
loans for which an amortization election is not made, should be allocated among
the payments of stated redemption price on the mortgage loan and be allowed as a
deduction as these payments are made, or, for a certificateholder using the
accrual method of accounting, when the payments of stated redemption price are
due.
It is unclear whether a Prepayment Assumption should be used in computing
amortization of premium allowable under Section 171 of the Code. If premium is
not subject to amortization using a
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Prepayment Assumption and a mortgage loan prepays in full, the holder of a
Grantor Trust Fractional Interest Certificate acquired at a premium should
recognize a loss, equal to the difference between the portion of the prepaid
principal amount of the mortgage loan that is allocable to the certificate and
the portion of the adjusted basis of the certificate that is allocable to the
mortgage loan. If a Prepayment Assumption is used to amortize this premium, it
appears that this loss would be unavailable. Instead, if a Prepayment Assumption
is used, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account of
original issue discount on REMIC Regular Certificates. See "REMICs--Taxation of
Owners of REMIC Regular Certificates--Original Issue Discount." It is unclear
whether any other adjustments would be required to reflect differences between
the Prepayment Assumption used, and the actual rate of prepayments.
TAXATION OF OWNERS OF GRANTOR TRUST STRIP CERTIFICATES. The stripped coupon
rules of Section 1286 of the Code will apply to the Grantor Trust Strip
Certificates. Except as described above in "Characterization of Investments in
Grantor Trust Certificates--If Stripped Bond Rules Apply," no regulations or
published rulings under Section 1286 of the Code have been issued and
uncertainty exists as to how it will be applied to securities like the Grantor
Trust Strip Certificates. Accordingly, it is suggested that holders of Grantor
Trust Strip Certificates consult their own tax advisors concerning the method to
be used in reporting income or loss with respect to the certificates.
The OID Regulations do not apply to stripped coupons, although they provide
general guidance as to how the original issue discount sections of the Code will
be applied. In addition, the discussion below is subject to the discussion under
"--Application of Contingent Payment Rules" and assumes that the holder of a
Grantor Trust Strip Certificate will not own any Grantor Trust Fractional
Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount
will be required to be accrued in each month on the Grantor Trust Strip
Certificates based on a constant yield method. In effect, each holder of Grantor
Trust Strip Certificates would include as interest income in each month an
amount equal to the product of the holder's adjusted basis in the Grantor Trust
Strip Certificate at the beginning of that month and the yield of the Grantor
Trust Strip Certificate to the holder. The yield would be calculated based on
the price paid for that Grantor Trust Strip Certificate by its holder and the
payments remaining to be made thereon at the time of the purchase, plus an
allocable portion of the servicing fees and expenses to be paid with respect to
the mortgage loans. See "Characterization of Investments in Grantor Trust
Certificates--Stripped Bond Rules Apply" above.
As noted, Section 1272(a)(6) of the Code requires that a Prepayment
Assumption be used in computing the accrual of original issue discount with
respect to some categories of debt instruments, and that adjustments be made in
the amount and rate of accrual of the discount when prepayments do not conform
to the Prepayment Assumption. To the extent the Grantor Trust Strip Certificates
represent an interest in any pool of debt instruments the yield on which may be
affected by reason of prepayments, those provisions apply to Grantor Trust Strip
Certificates. It is unclear whether those provisions would be applicable to the
Grantor Trust Strip Certificates that do not represent an interest in any such
pool, or whether use of a Prepayment Assumption may be required or permitted
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in the absence of these provisions. It is also uncertain, if a Prepayment
Assumption is used, whether the assumed prepayment rate would be determined
based on conditions at the time of the first sale of the Grantor Trust Strip
Certificate or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be
significantly slower if a Prepayment Assumption is permitted to be made than if
yield is computed assuming no prepayments. It currently is intended to base
information returns or reports to the IRS and certificateholders on the
Prepayment Assumption disclosed in the related prospectus supplement and on a
constant yield computed using a representative initial offering price for each
class of certificates. However, none of the depositor, the master servicer or
the trustee will make any representation that the mortgage loans will in fact
prepay at a rate conforming to the Prepayment Assumption or at any other rate
and certificateholders should bear in mind that the use of a representative
initial offering price will mean that the information returns or reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to the initial certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a
mortgage loan will give rise to a loss to the holder of a Grantor Trust Strip
Certificate. If a Grantor Trust Strip Certificate is treated as a single
instrument rather than an interest in discrete mortgage loans and the effect of
prepayments is taken into account in computing yield with respect to the Grantor
Trust Strip Certificate, it appears that no loss may be available as a result of
any particular prepayment unless prepayments occur at a rate faster than the
Prepayment Assumption. However, if a Grantor Trust Strip Certificate is treated
as an interest in discrete mortgage loans, or if the Prepayment Assumption is
not used, then, when a mortgage loan is prepaid, the holder of a Grantor Trust
Strip Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of the Grantor Trust Strip Certificate that is allocable to
the mortgage loan.
POSSIBLE APPLICATION OF CONTINGENT PAYMENT RULES. The coupon stripping
rules' general treatment of stripped coupons is to regard them as newly issued
debt instruments in the hands of each purchaser. To the extent that payments on
the Grantor Trust Strip Certificates would cease if the mortgage loans were
prepaid in full, the Grantor Trust Strip Certificates could be considered to be
debt instruments providing for contingent payments. Under the OID Regulations,
debt instruments providing for contingent payments are not subject to the same
rules as debt instruments providing for noncontingent payments. Regulations were
promulgated on June 14, 1996, regarding contingent payment debt instruments, the
"Contingent Payment Regulations", but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code as
described above, or due to their similarity to other mortgage-backed securities,
such as REMIC regular interests and debt instruments subject to Section
1272(a)(6) of the Code, that are expressly excepted from the application of the
Contingent Payment Regulations, are or may be excepted from these regulations.
Like the OID Regulations, the Contingent Payment Regulations do not specifically
address securities, like the Grantor Trust Strip Certificates, that are subject
to the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations
were to apply, the holder of a Grantor Trust Strip Certificate would be required
to apply the noncontingent bond
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method. Under the noncontingent bond method, the issuer of a Grantor Trust Strip
Certificate determines a projected payment schedule on which interest will
accrue. Holders of Grantor Trust Strip Certificates are bound by the issuer's
projected payment schedule. The projected payment schedule consists of all
noncontingent payments and a projected amount for each contingent payment based
on the projected yield of the Grantor Trust Strip Certificate.
The projected amount of each payment is determined so that the projected
payment schedule reflects the projected yield. The projected amount of each
payment must reasonably reflect the relative expected values of the payments to
be received by the holder of a Grantor Trust Strip Certificate. The projected
yield referred to above is a reasonable rate, not less than the applicable
Federal rate that, as of the issue date, reflects general market conditions, the
credit quality of the issuer, and the terms and conditions of the mortgage
loans. The holder of a Grantor Trust Strip Certificate would be required to
include as interest income in each month the adjusted issue price of the Grantor
Trust Strip Certificate at the beginning of the period multiplied by the
projected yield, and would add to, or subtract from, the income any variation
between the payment actually received in that month and the payment originally
projected to be made in that month.
Assuming that a Prepayment Assumption were used, if the Contingent Payment
Regulations or their principles were applied to Grantor Trust Strip
Certificates, the amount of income reported with respect thereto would be
substantially similar to that described under "Taxation of Owners of Grantor
Trust Strip Certificates". Certificateholders should consult their tax advisors
concerning the possible application of the contingent payment rules to the
Grantor Trust Strip Certificates.
SALES OF GRANTOR TRUST CERTIFICATES. Any gain or loss equal to the
difference between the amount realized on the sale or exchange of a Grantor
Trust Certificate and its adjusted basis recognized on the sale or exchange of a
Grantor Trust Certificate by an investor who holds the Grantor Trust Certificate
as a capital asset will be capital gain or loss, except to the extent of accrued
and unrecognized market discount, which will be treated as ordinary income, and,
in the case of banks and other financial institutions, except as provided under
Section 582(c) of the Code. The adjusted basis of a Grantor Trust Certificate
generally will equal its cost, increased by any income reported by the seller,
including original issue discount and market discount income, and reduced, but
not below zero, by any previously reported losses, any amortized premium and by
any distributions with respect to the Grantor Trust Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be partially
or wholly ordinary and not capital in some circumstances. Gain attributable to
accrued and unrecognized market discount will be treated as ordinary income, as
will gain or loss recognized by banks and other financial institutions subject
to Section 582(c) of the Code. Furthermore, a portion of any gain that might
otherwise be capital gain may be treated as ordinary income to the extent that
the Grantor Trust Certificate is held as part of a conversion transaction within
the meaning of Section 1258 of the Code. A conversion transaction generally is
one in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in the transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate applicable Federal rate at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction for
prior inclusion of interest
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and other ordinary income items from the transaction. Finally, a taxpayer may
elect to have net capital gain taxed at ordinary income rates rather than
capital gains rates in order to include the net capital gain in total net
investment income for that taxable year, for purposes of the rule that limits
the deduction of interest on indebtedness incurred to purchase or carry property
held for investment to a taxpayer's net investment income.
GRANTOR TRUST REPORTING. The master servicer or the trustee will furnish to
each holder of a Grantor Trust Fractional Interest Certificate with each
distribution a statement setting forth the amount of the distribution allocable
to principal on the underlying mortgage loans and to interest thereon at the
related pass-through rate. In addition, the master servicer or the trustee will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Grantor Trust Certificate who was a holder at any time during that
year, information regarding the amount of any servicing compensation received by
the master servicer and subservicer and any other customary factual information
as the master servicer or the trustee deems necessary or desirable to enable
holders of Grantor Trust Certificates to prepare their tax returns and will
furnish comparable information to the IRS as and when required by law to do so.
Because the rules for accruing discount and amortizing premium with respect to
the Grantor Trust Certificates are uncertain in various respects, there is no
assurance the IRS will agree with the trust fund's information reports of these
items of income and expense. Moreover, these information reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders that bought their certificates at the
representative initial offering price used in preparing the reports.
Except as disclosed in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the master servicer or the trustee.
BACKUP WITHHOLDING. In general, the rules described in "--REMICS--Backup
Withholding with Respect to REMIC Certificates" will also apply to Grantor Trust
Certificates.
FOREIGN INVESTORS. In general, the discussion with respect to REMIC Regular
Certificates in "REMICS--Foreign Investors in REMIC Certificates" applies to
Grantor Trust Certificates except that Grantor Trust Certificates will, except
as disclosed in the related prospectus supplement, be eligible for exemption
from U.S. withholding tax, subject to the conditions described in the
discussion, only to the extent the related mortgage loans were originated after
July 18, 1984 and only to the extent such mortgage loans have not been converted
to real property.
To the extent that interest on a Grantor Trust Certificate would be exempt
under Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax, and the Grantor Trust Certificate is not held in connection with a
certificateholder's trade or business in the United States, the Grantor Trust
Certificate will not be subject to United States estate taxes in the estate of a
non-resident alien individual.
PARTNERSHIP TRUST FUNDS
CLASSIFICATION OF PARTNERSHIP TRUST FUNDS. With respect to each series of
Partnership Certificates, counsel to the depositor will provide its opinion that
the trust fund will not be a taxable mortgage pool or an association, or
publicly traded partnership, taxable as a corporation for federal income tax
purposes. This opinion will be based on the assumption that the terms of the
related
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pooling and servicing agreement and related documents will be complied with, and
on counsel's conclusions that the nature of the income of the trust fund will
exempt it from the rule that certain publicly traded partnerships are taxable as
corporations.
If the trust fund were taxable as a corporation for federal income tax
purposes, the trust fund would be subject to corporate income tax on its taxable
income. The trust fund's taxable income would include all its income on the
related mortgage loans, possibly reduced by its interest expense on any
outstanding debt securities. Any corporate income tax could materially reduce
cash available to make distributions on the Partnership Certificates and
certificateholders could be liable for any tax that is unpaid by the trust fund.
CHARACTERIZATION OF INVESTMENTS IN PARTNERSHIP CERTIFICATES. For federal
income tax purposes,
(1) Partnership Certificates held by a thrift institution taxed as a
domestic building and loan association will not constitute "loans ...
secured by an interest in real property" within the meaning of Code
Section 7701(a)(19)(C)(v);
(2) Partnership Certificates held by a real estate investment trust will
constitute real estate assets within the meaning of Code Section
856(c)(4)(A) and interest on Partnership Certificates will be treated
as "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section
856(c)(3)(B), based on the real estate investments trust's
proportionate interest in the assets of the Partnership Trust Fund
based on capital accounts; and
(3) Partnership Certificates held by a regulated investment company will
not constitute Government securities within the meaning of Code
Section 851(b)(3)(A)(i).
TAXATION OF OWNERS OF PARTNERSHIP CERTIFICATES
TREATMENT OF THE PARTNERSHIP TRUST FUND AS A PARTNERSHIP. If specified in
the prospectus supplement, the depositor will agree, and the certificateholders
will agree by their purchase of Certificates, to treat the Partnership Trust
Fund as a partnership for purposes of federal and state income tax, franchise
tax and any other tax measured in whole or in part by income, with the assets of
the partnership being the assets held by the Partnership Trust Fund, the
partners of the partnership being the certificateholders, including the
depositor. However, the proper characterization of the arrangement involving the
Partnership Trust Fund, the Partnership Certificates and the depositor is not
clear, because there is no authority on transactions closely comparable to that
contemplated in the prospectus.
A variety of alternative characterizations are possible. For example,
because one or more of the classes of Partnership Certificates have certain
features characteristic of debt, the Partnership Certificates might be
considered debt of the depositor or the Partnership Trust Fund. Any alternative
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Partnership Certificates as equity in a partnership. The following discussion
assumes that the Partnership Certificates represent equity interests in a
partnership.
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PARTNERSHIP TAXATION. As a partnership, the Partnership Trust Fund will not
be subject to federal income tax. Rather, each Certificateholder will be
required to separately take into account the holder's allocated share of income,
gains, losses, deductions and credits of the Partnership Trust Fund. It is
anticipated that the Partnership Trust Fund's income will consist primarily of
interest earned on the mortgage loans, including appropriate adjustments for
market discount, original issue discount and bond premium, as described above
under "-- Grantor Trust Funds -- Taxation of Owners of Grantor Trust Fractional
Interest Certificates - If Stripped Bond Ruled Do Not Apply--", "-- Market
Discount" and "--Premium", and any gain upon collection or disposition of
mortgage loans. The Partnership Trust Fund's deductions will consist primarily
of interest accruing with respect to any outstanding debt securities, servicing
and other fees, and losses or deductions upon collection or disposition of any
outstanding debt securities.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement, which will
include a pooling and servicing agreement and related documents. The pooling and
servicing agreement will provide, in general, that the Certificateholders will
be allocated taxable income of the Partnership Trust Fund for each due period
equal to the sum of (1) the interest that accrues on the Partnership
Certificates in accordance with their terms for the due period, including
interest accruing at the applicable pass-through rate for the due period and
interest on amounts previously due on the Partnership Certificates but not yet
distributed; (2) any Partnership Trust Fund income attributable to discount on
the mortgage loans that corresponds to any excess of the principal amount of the
Partnership Certificates over their initial issue price; and (3) any other
amounts of income payable to the certificateholders for the due period. The
allocation will be reduced by any amortization by the Partnership Trust Fund of
premium on mortgage loans that corresponds to any excess of the issue price of
Partnership Certificates over their principal amount. All remaining taxable
income of the Partnership Trust Fund will be allocated to the depositor. Based
on the economic arrangement of the parties, this approach for allocating
Partnership Trust Fund income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to certificateholders. Moreover, even
under that method of allocation, certificateholders may be allocated income
equal to the entire pass-through rate plus the other items described under that
method even though the Trust Fund might not have sufficient cash to make current
cash distributions of these amounts. Thus, cash basis holders will in effect be
required to report income from the Partnership Certificates on the accrual basis
and certificateholders may become liable for taxes on Partnership Trust Fund
income even if they have not received cash from the Partnership Trust Fund to
pay these taxes.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity,
including an individual retirement account, will constitute unrelated business
taxable income generally taxable to that holder under the Code.
A share of expenses of the Partnership Trust Fund, including fees of the
master servicer but not interest expense, allocable to an individual, estate or
trust certificateholder would be miscellaneous itemized deductions subject to
the limitations described above under "--Grantor Trust Funds -- Taxation of
Owners of Grantor Trust Fractional Interest Certificates." Accordingly,
deductions for these expenses might be disallowed to the individual in whole or
in part and might result in that holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to the holder over the life of
the Partnership Trust Fund.
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Discount income or premium amortization with respect to each mortgage loan
would be calculated in a manner similar to the description under "-- Grantor
Trust Funds -- Taxation of Owners of Grantor Trust Fractional Interest
Certificates - If Stripped Bond Rules Do Not Apply." Notwithstanding this
description, it is intended that the Partnership Trust Fund will make all tax
calculations relating to income and allocations to certificateholders on an
aggregate basis for all mortgage loans held by the Partnership Trust Fund rather
than on a mortgage loan-by-mortgage loan basis. If the IRS were to require that
these calculations be made separately for each mortgage loan, the Partnership
Trust Fund might be required to incur additional expense, but it is believed
that there would not be a material adverse effect on certificateholders.
DISCOUNT AND PREMIUM. Unless indicated otherwise in the applicable
prospectus supplement, it is not anticipated that the mortgage loans will have
been issued with original issue discount and, therefore, the Partnership Trust
Fund should not have original issue discount income. However, the purchase price
paid by the Partnership Trust Fund for the mortgage loans may be greater or less
than the remaining principal balance of the mortgage loans at the time of
purchase. If so, the mortgage loans will have been acquired at a premium or
discount, as the case may be. See "--Grantor Trust Funds -- Taxation of Owners
of Grantor Trust Fractional Interest Certificates -- Market Discount" and
"Premium." As stated in the previous paragraph, the Partnership Trust Fund
intends to make any calculation of original issue discount on an aggregate
basis, but might be required to recompute it on a mortgage loan-by-mortgage loan
basis.
If the Partnership Trust Fund acquires the mortgage loans at a market
discount or premium, the Partnership Trust Fund will elect to include any
discount in income currently as it accrues over the life of the mortgage loans
or to offset any premium against interest income on the mortgage loans. As
stated in the second preceding paragraph, a portion of the market discount
income or premium deduction may be allocated to certificateholders.
SECTION 708 TERMINATION. Under Section 708 of the Code, the Partnership
Trust Fund will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the Partnership Trust Fund are sold
or exchanged within a 12-month period. A 50% or greater transfer would cause a
deemed contribution of the assets of a Partnership Trust Fund, the old
partnership, to a new Partnership Trust Fund, the new partnership, in exchange
for interests in the new partnership. These interests would be deemed
distributed to the partners of the old partnership in liquidation thereof, which
would not constitute a sale or exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of Partnership Certificates in an amount equal to the
difference between the amount realized and the seller's tax basis in the
Partnership Certificates sold. A certificateholder's tax basis in an Partnership
Certificate will generally equal the holder's cost increased by the holder's
share of Partnership Trust Fund income includible in income and decreased by any
distributions received with respect to the Partnership Certificate. In addition,
both the tax basis in the Partnership Certificates and the amount realized on a
sale of an Partnership Certificate would include the holder's share of any
liabilities of the Partnership Trust Fund. A holder acquiring Partnership
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such Partnership Certificates, and, upon sale or other
disposition of some of the Partnership Certificates, allocate a portion of the
aggregate tax basis to the Partnership Certificates sold, rather than
maintaining a separate tax basis in each
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Partnership Certificate for purposes of computing gain or loss on a sale of that
Partnership Certificate.
Any gain on the sale of an Partnership Certificate attributable to the
holder's share of unrecognized accrued market discount on the mortgage loans
would generally be treated as ordinary income to the holder and would give rise
to special tax reporting requirements. The Partnership Trust Fund does not
expect to have any other assets that would give rise to such special reporting
considerations. Thus, to avoid those special reporting requirements, the
Partnership Trust Fund will elect to include market discount in income as it
accrues.
If a certificateholder is required to recognize an aggregate amount of
income, not including income attributable to disallowed itemized deductions,
over the life of the Partnership Certificates that exceeds the aggregate cash
distributions with respect thereto, the excess will generally give rise to a
capital loss upon the retirement of the Partnership Certificates.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES. In general, the
Partnership Trust Fund's taxable income and losses will be determined each due
period and the tax items for a particular due period will be apportioned among
the certificateholders in proportion to the principal amount of Partnership
Certificates owned by them as of the close of the last day of such due period.
As a result, a holder purchasing Partnership Certificates may be allocated tax
items which will affect its tax liability and tax basis attributable to periods
before the actual transaction.
The use of a due period convention may not be permitted by existing
regulations. If a due period convention is not allowed or only applies to
transfers of less than all of the partner's interest, taxable income or losses
of the Partnership Trust Fund might be reallocated among the certificateholders.
The depositor will be authorized to revise the Partnership Trust Fund's method
of allocation between transferors and transferees to conform to a method
permitted by future regulations.
SECTION 731 DISTRIBUTIONS. In the case of any distribution to a
certificateholder, no gain will be recognized to that certificateholder to the
extent that the amount of any money distributed with respect to the Partnership
Certificate exceeds the adjusted basis of the certificateholder's interest in
the Partnership Certificate. To the extent that the amount of money distributed
exceeds the certificateholder's adjusted basis, gain will be currently
recognized. In the case of any distribution to a certificateholder, no loss will
be recognized except upon a distribution in liquidation of a certificateholder's
interest. Any gain or loss recognized by a certificateholder will be capital
gain or loss.
SECTION 754 ELECTION. In the event that a certificateholder sells its
Partnership Certificates at a profit, the purchasing certificateholder will have
a higher basis in the Partnership Certificates than the selling
certificateholder had. An opposite result will follow if the Partnership
Certificate is sold at a loss. The tax basis of the Partnership Trust Fund's
assets would not be adjusted to reflect that higher or lower basis unless the
Partnership Trust Fund were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous information
reporting requirements, the Partnership Trust Fund will not make such election.
As a result, a certificateholder might be
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allocated a greater or lesser amount of Partnership Trust Fund income than would
be appropriate based on their own purchase price for Partnership Certificates.
ADMINISTRATIVE MATTERS. The trustee is required to keep or have kept
complete and accurate books of the Partnership Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and the
fiscal year of the Partnership Trust Fund will be the calendar year. The trustee
will file a partnership information return, IRS Form 1065, with the IRS for each
taxable year of the Partnership Trust Fund and will report each
certificateholder's allocable share of items of Partnership Trust Fund income
and expense to holders and the IRS on Schedule K-1. The trustee will provide the
Schedule K-1 information to nominees that fail to provide the Partnership Trust
Fund with the information statement described below and the nominees will be
required to forward this information to the beneficial owners of the Partnership
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Partnership Trust Fund or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Partnership
Certificates as a nominee at any time during a calendar year is required to
furnish the Partnership Trust Fund with a statement containing information on
the nominee, the beneficial owners and the Partnership Certificates so held.
Such information includes (1) the name, address and taxpayer identification
number of the nominee and (2) as to each beneficial owner (x) the name, address
and identification number of that person, (y) whether that person is a United
States Person, a tax-exempt entity or a foreign government, an international
organization, or any wholly-owned agency or instrumentality of either of the
foregoing, and (z) information relating to Partnership Certificates that were
held, bought or sold on behalf of that person throughout the year. In addition,
brokers and financial institutions that hold Partnership Certificates through a
nominee are required to furnish directly to the trustee information as to
themselves and their ownership of Partnership Certificates. A clearing agency
registered under Section 17A of the Exchange Act is not required to furnish any
information statement to the Partnership Trust Fund. The information referred to
above for any calendar year must be furnished to the Partnership Trust Fund on
or before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Partnership Trust Fund with the information described
above may be subject to penalties.
The depositor will be designated as the tax matters partner in the pooling
and servicing agreement and will be responsible for representing the
certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Partnership Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
certificateholders, and a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Partnership Trust Fund. An
adjustment could also result in an audit of a certificateholder's returns and
adjustments of items not related to the income and losses of the Partnership
Trust Fund.
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. It is not clear whether the
Partnership Trust Fund would be considered to be engaged in a trade or business
in the United States for purposes of federal withholding taxes with respect to
non-United States Persons, because there is no
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clear authority dealing with that issue under facts substantially similar to
those in this case. Although it is not expected that the Partnership Trust Fund
would be engaged in a trade or business in the United States for these purposes,
the Partnership Trust Fund will withhold as if it were so engaged in order to
protect the Partnership Trust Fund from possible adverse consequences of a
failure to withhold. The Partnership Trust Fund expects to withhold on the
portion of its taxable income that is allocable to foreign certificateholders
pursuant to Section 1446 of the Code as if this income were effectively
connected to a U.S. trade or business, at a rate of 35% for foreign holders that
are taxable as corporations and 39.6% for all other foreign holders. Amounts
withheld will be deemed distributed to the foreign certificateholders.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Partnership Trust Fund to change
its withholding procedures. In determining a holder's withholding status, the
Partnership Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the branch
profits tax, on its share of the Partnership Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Partnership Trust Fund on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled to
file with the IRS a claim for refund with respect to taxes withheld by the
Partnership Trust Fund, taking the position that no taxes were due because the
Partnership Trust Fund was not engaged in a U.S. trade or business. However,
interest payments made or accrued to a certificateholder who is a foreign person
generally will be considered guaranteed payments to the extent such payments are
determined without regard to the income of the Partnership Trust Fund. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered portfolio interest. As a result,
certificateholders who are foreign persons will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that event, a foreign holder
would only be entitled to claim a refund for that portion of the taxes in excess
of the taxes that should be withheld with respect to the guaranteed payments.
BACKUP WITHHOLDING. Distributions made on the Partnership Certificates and
proceeds from the sale of the Partnership Certificates will be subject to a
backup withholding tax of 31% if the certificateholder fails to comply with
certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
It is suggested that prospective purchasers consult their tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of REMIC Certificates, Notes, Grantor Trust Certificates and
Partnership Certificates, including the tax consequences under state, local,
foreign and other tax laws and the possible effects of changes in federal or
other tax laws.
FASIT SECURITIES
GENERAL. The FASIT Provisions were enacted by the Small Business Job
Protection Act of 1996 and create a new elective statutory vehicle for the
issuance of mortgage-backed and asset- backed securities. Although the FASIT
Provisions became effective on September 1, 1997, no Treasury regulations or
other administrative guidance has been issued with respect to the FASIT
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Provisions. Accordingly, definitive guidance cannot be provided with respect to
many aspects of the tax treatment of holders of FASIT securities. With respect
to each series of FASIT securities, the related prospectus supplement will
provide a detailed discussion regarding the federal income tax consequences
associated with the particular transaction.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences", potential investors should consider the state and
local tax consequences of the acquisition, ownership, and disposition of the
securities offered hereunder. State tax law may differ substantially from the
corresponding federal tax law, and the discussion described under "Federal
Income Tax Consequences" does not purport to describe any aspect of the tax laws
of any state or other jurisdiction. Therefore, prospective investors should
consult their own tax advisors with respect to the various tax consequences of
investments in the securities offered hereunder.
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CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
INVESTORS AFFECTED
A federal law called the Employee Retirement Income Security Act of 1974,
as amended, the Code and a variety of state laws may affect your decision
whether to invest in the securities if you are investing for:
o a pension or other employee benefit plan of employers in the private
sector that are regulated under ERISA, referred to as an ERISA plan,
o an individual retirement account or annuity, called an IRA, or a
pension or other benefit plan for self-employed individuals, called a
Keogh plan,
o a pension and other benefit plan for the employees of state and local
governments, called a government plan, or
o an insurance company general or separate account, a bank collective
investment fund or other pooled investment vehicle which includes the
assets of ERISA plans, IRAs, Keogh plans, and/or government plans.
A summary of the effects of those laws follows.
FIDUCIARY STANDARDS FOR ERISA PLANS AND RELATED INVESTMENT VEHICLES
ERISA imposes standards of fiduciary conduct on those who are responsible
for operating ERISA plans or investing their assets. These standards include
requirements that fiduciaries act prudently in making investment decisions and
diversify investments so as to avoid large losses unless under the circumstances
it is clearly prudent not to do so. If you are a fiduciary of an ERISA plan, you
are subject to these standards in deciding whether to invest the plan's assets
in securities. You may find the full text of the applicable standards of
fiduciary conduct in section 404 of ERISA. If you are a fiduciary of an ERISA
Plan, you should consult with your advisors concerning your investment decision
in the context of section 404 of ERISA.
PROHIBITED TRANSACTION ISSUES FOR ERISA PLANS, KEOGH PLANS, IRAS AND RELATED
INVESTMENT VEHICLES
GENERAL. Transactions involving the assets of an ERISA plan, a Keogh plan
or an IRA, called prohibited transactions, may result in the imposition of
excise taxes and, in the case of an ERISA plan, civil money penalties and
certain other extraordinary remedies. A prohibited transaction occurs when a
person with a pre-existing relationship to an ERISA plan, a Keogh plan or IRA,
known as a party in interest or a disqualified person, engages in a transaction
involving the assets of the plan or IRA. You may find the laws applicable to
prohibited transactions in section 406 of ERISA and section 4975 of the Code.
There are statutory and regulatory prohibited transaction exemptions, as well as
administrative exemptions granted by the United States Department of Labor.
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Prohibited transactions exemptions waive the excise taxes, civil money penalties
and other remedies for certain prohibited transactions which are structured to
satisfy prescribed conditions.
PURCHASE AND SALE OF SECURITIES. If an ERISA plan, a Keogh plan, an IRA or
a related investment vehicle acquires securities from, or sells securities to, a
party in interest or a disqualified person, a prohibited transaction may occur.
In such a case, the party in interest or disqualified person might be liable for
excise taxes unless a prohibited transaction exemption is available. Where a
prohibited transaction involves an ERISA plan or related investment vehicle, the
fiduciary who causes or permits the prohibited transaction may also be liable
for civil money penalties.
TRANSACTIONS INCIDENTAL TO THE OPERATION OF THE TRUST. Transactions
involving the assets of the trust may also give rise to prohibited transactions
to the extent that an investment in securities causes the assets of a trust to
be considered assets, commonly known as plan assets, of an ERISA plan, a Keogh
plan, an IRA or a related investment vehicle. Whether an investment in
securities will cause a trust's assets to be treated as plan assets depends on
whether the securities are debt or equity investments for purposes of ERISA. The
United States Department of Labor has issued regulations, commonly known as the
plan asset regulations, which define debt and equity investments. The plan asset
regulations appear at 29 C.F.R. ss.2510.3-101.
Under the plan asset regulations, a trust's assets will not be plan assets
of an ERISA plan, Keogh plan, IRA or related investment vehicle that purchases
securities if the securities are considered debt. For this purpose, the
securities will be debt only if they are treated as indebtedness under
applicable local law and do not have any substantial equity features. The term
substantial equity features has no definition under the plan asset regulations.
In the absence of such a definition, we cannot assure you that the securities,
either when they are issued or at any later date, will have no substantial
equity features. The prospectus supplement for a particular offering of
securities may tell you whether we believe the securities should be treated as
debt for ERISA purposes.
To the extent that the securities do not constitute debt for purposes of
ERISA, they will constitute equity investments. In this case, an ERISA plan,
Keogh plan, IRA or related investment vehicle that acquires securities would
also acquire an undivided interest in each asset of the trust unless (1) the
trust is an operating company or a venture capital operating company as defined
in the plan asset regulations, (2) the securities are publicly offered
securities as defined in the plan asset regulations or (3) benefit plan
investors as defined in the plan asset regulations do not own 25% or more of the
securities or any other class of equity security issued by the trust. If the
securities may be treated as an equity investment under the plan asset
regulations, the prospectus supplement may tell you whether we believe any of
these exceptions will apply.
POSSIBLE EXEMPTIVE RELIEF
The United States Department of Labor has issued prohibited transaction
exemptions, which conditionally waive excise taxes and civil money penalties
that might otherwise apply to a type of transactions.
CLASS EXEMPTIONS. The United States Department of Labor has issued
Prohibited Transaction Class Exemptions, or PTCEs, which provide exemptive
relief to parties to any transaction which satisfies the conditions of the
exemption. A partial listing of the PTCEs which may be available for
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investments in securities follows. Each of these exemptions is available only if
specified conditions are satisfied and may provide relief for some, but not all,
of the prohibited transactions that a particular transaction may cause. The
prospectus supplement for a particular offering of securities may tell you
whether the securities themselves satisfy the conditions of these exemptions.
You should consult with your advisors regarding the specific scope, terms and
conditions of an exemption as it applies to you, as an investor, before relying
on that exemption's availability.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF SECURITIES. The following
exemptions may apply to a purchase or sale of securities between an ERISA plan,
a Keogh plan, an IRA or related investment vehicle, on the one hand, and a party
in interest or disqualified person, on the other hand:
o PTCE 84-14, which exempts certain transactions approved on behalf of
the plan by a qualified professional asset manager, or QPAM.
o PTCE 86-128, which exempts certain transactions between a plan and
certain broker-dealers.
o PTCE 90-1, which exempts certain transactions entered into by
insurance company pooled separate accounts in which plans have made
investments.
o PTCE 91-38, which exempts certain transactions entered into by bank
collective investment funds in which plans have made investments.
o PTCE 96-23, which exempts certain transaction approved on behalf of a
plan by an in-house investment manager, or INHAM.
These exemptions do not expressly address prohibited transactions that might
result from transactions incidental to the operation of a trust. We cannot
assure you that a purchase or sale of securities in reliance on one of these
exemptions will not give rise to indirect, non-exempt prohibited transactions.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF SECURITIES AND TRANSACTIONS
INCIDENTAL TO THE OPERATION OF THE TRUST. The following exemptions may apply to
a purchase or sale of securities between an ERISA plan, a Keogh plan, an IRA or
related investment vehicle, on the one hand, and a party in interest or
disqualified person, on the other hand, and may also apply to prohibited
transactions that may result from transactions incident to the operation of the
trust:
o PTCE 95-60, which exempts certain transactions involving insurance
company general accounts.
o PTCE 83-1, which exempts certain transactions involving the purchase
of pass-through certificates in mortgage pool investment trusts from,
and the sale of such certificates to, the pool sponsor, as well as
transactions in connection with the servicing and operation of the
pool.
ADMINISTRATIVE EXEMPTION FOR OFFERINGS MANAGED BY CERTAIN UNDERWRITERS. The
DOL has also issued exemptions to several underwriters of securities, for
specific offerings in which that
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underwriter or any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with that
underwriter is an underwriter, placement agent or a manager or co-manager of the
underwriting syndicate or selling group where the trust and the offered
certificates meet specified conditions. This is called the Underwriters'
Exemption. An amendment to the Underwriters' Exemptions may be found at 62 Fed.
Reg. 39021 (July 21, 1997). The Underwriters' Exemptions, as amended, provides a
partial exemption for transactions involving certificates representing a
beneficial interest in a trust and entitling the holder to pass-through payments
of principal, interest and/or other payments with respect to the trust's assets.
When applicable, the Underwriters' Exemptions applies to the initial purchase,
holding and subsequent resale of certificates, and certain transactions
incidental to the servicing and operation of the assets of such a trust.
In order for the Underwriters' Exemptions to be available to a purchase of
securities, the trust's assets must consist solely of certain types of assets,
including obligations that bear interest or are purchased at a discount and
which are secured by single-family residential, multi-family residential and
commercial property (including certain obligations secured by leasehold
interests on commercial property); fractional undivided interests in any of
these obligations; property which had secured any of these obligations;
undistributed cash; rights under any insurance policies, third-party guarantees,
contracts of suretyship or other credit support arrangements with respect to any
of the these obligations; and a pre-funding account.
CONDITIONS FOR PRE-FUNDING ACCOUNTS. If the trust includes a pre-funding
account, the following conditions also apply:
o The ratio of the amount allocated to the pre-funding account to the
total principal amount of the securities being offered must be less
than or equal to 25%.
o All additional obligations transferred to the trust after the closing
date of the offering of securities must meet the same terms and
conditions of eligibility for inclusion in the trust as the
obligations placed in the trust at or prior to the closing date, and
these terms and conditions must have been approved by Standard &
Poor's Structured Rating Group, Moody's Investors Service, Inc., Duff
& Phelps Credit Rating Co. or Fitch IBCA, Inc., called the Exemption
Rating Agencies. These terms and conditions may be changed if the
changes receive prior approval of either an Exemption Rating Agency or
a majority vote of outstanding certificateholders.
o After the transfer of additional obligations to the trust, the
securities must have a credit rating from one of the Exemption Rating
Agencies at least a high as the rating assigned at the time of the
initial issuance of the securities.
o The use of pre-funding does not, in and of itself, cause a reduction
of 100 basis points or more in the weighted average annual percentage
interest rate of all of the obligations included in the trust between
the time of initial issuance of the securities and the end of the
pre-funding period.
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o Either the characteristics of the obligations added to the trust
during the pre- funding period must be monitored by an independent
insurer or other independent credit support provider, or an
independent accountant must furnish a letter, prepared using the same
type of procedures as were applicable to the obligations which were
transferred to the trust as of the closing date of the initial
offering of securities, stating whether or not the characteristics of
the additional obligations conform to the characteristics described in
the prospectus or prospectus supplement.
o The pre-funding period must end no later than three months, or 90 days
if later, after the closing date of the initial issuance of
securities, or earlier in certain circumstances if the unused balance
in the pre-funding account falls below a specified minimum level or an
event of default occurs.
o Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be
invested only in investments which are described in the pooling and
servicing agreement, are permitted by the Exemption Rating Agencies
rating the securities and have been rated, or the obligor has been
rated, in one of the three highest generic rating categories by one of
the Exemption Rating Agencies or else are either direct obligations
of, or obligations fully guaranteed as to timely payment of principal
and interest by, the United States or any agency or instrumentality
thereof, provided that such obligations are backed by the full faith
and credit of the United States.
o The prospectus or prospectus supplement must describe the duration of
the pre- funding period.
o The trustee, or any agent with which the trustee contracts to provide
trust services, must be a substantial financial institution or trust
company experienced in trust activities and familiar with its duties,
responsibilities and liabilities with ERISA and the trustee, as legal
owner of the assets of the trust, must enforce all the rights created
in favor of Securityholders of the trust, including ERISA plans.
ADDITIONAL CONDITIONS FOR THE UNDERWRITERS' EXEMPTION. If the requirements
applicable to the trust and pre-funding account are met, the Underwriters'
Exemption will apply to a particular transaction only if the transaction meets
the following additional conditions:
o The acquisition of securities by an ERISA Plan, a Keogh Plan, an IRA
or a related investment vehicle is on terms, including price, that are
at least as favorable to the buyer as they would be in an arm's-length
transaction with an unrelated party.
o The rights and interests evidenced by the securities acquired by the
ERISA Plan, Keogh Plan, IRA or related investment vehicle are not
subordinated to the rights and interests evidenced by other securities
of the same trust.
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o The securities acquired by the ERISA Plan, Keogh Plan, IRA or related
investment vehicle have received a rating that is in one of three
highest generic rating categories from the Exemption Rating Agencies.
o The trustee of the trust is not an affiliate of the trust sponsor, any
servicer, any underwriter, any insurer or any obligor with respect to
obligations or receivables constituting more than 5% of the aggregate
unamortized principal balance of the assets in the trust, determined
on the date of initial issuance of securities, or any affiliate of any
of these entities.
o The sum of all payments made to and retained by the underwriter(s) or
selling agents must represent not more than reasonable compensation
for underwriting the securities; the sum of all payments made to and
retained by the sponsor pursuant to the assignment of the assets to
the trust must represent not more than the fair market value of such
obligations; and the sum of all payments made to and retained by all
servicers must represent not more than reasonable compensation for
such persons' services and reimbursement of such person's reasonable
expenses in connection with such services.
o The investing ERISA plan, Keogh plan, IRA or related investment
vehicle must be an accredited investor as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act of 1933, as
amended.
LIMITS ON SCOPE OF THE UNDERWRITERS' EXEMPTIONS. The Underwriters'
Exemptions will not provide complete exemptive relief even where a trust
satisfies all of the conditions applicable to the trust and all of the general
conditions are met. It does not provide relief for the purchase of securities
from, or the sale of securities to, a party in interest or disqualified person
where the party in interest or disqualified person is a fiduciary of the
purchaser or seller in which the fiduciary receives consideration for its
personal account from any party other than the purchaser or the seller.
The Underwriters' Exemptions also will not provide exemptive relief for the
purchase and holding of securities by a fiduciary on behalf of a plan sponsored
by the trust's sponsor, the trustee, any insurer, any servicer, any obligor with
respect to obligations or receivables included in the trust constituting more
than 5% of the aggregate unamortized principal balance of the assets in the
trust, determined on the date of initial issuance of the securities, and any
affiliate of any of these entities. The Underwriters' Exemptions generally
provides exemptive relief in other cases for the purchase of securities from, or
the sale of securities to, a party in interest or disqualified person where the
party in interest or disqualified person is a fiduciary of the purchaser or
seller and is also an obligor with respect to 5% or less of the fair market
value of obligations or receivables contained in the trust or an affiliate only
when the following additional conditions are met:
o The purchaser or seller is not an ERISA plan, an IRA or a Keogh plan
that is sponsored by an underwriter or selling agent, a trust's
sponsor, the trustee, any insurer, any servicer or any obligor with
respect to obligations or receivables included in the trust
constituting more than 5% of the aggregate unamortized principal
balance of the assets in the trust, determined on the date of initial
issuance of the securities, or any affiliate of any of these entities.
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o Solely in the case of initial issuance of securities, at least 50% of
each class of securities issued by the trust is acquired by persons
independent of the underwriters or selling agents, the trust's
sponsor, the trustee, any insurer, any servicer, any obligor with
respect to obligations or receivables included in the trust
constituting more than 5% of the aggregate unamortized principal
balance of the assets in the trust, determined on the date of initial
issuance of the securities, and any affiliate of any of these
entities.
o The purchaser's investment in each class of securities issued by the
trust does not exceed 25% of all of the securities in such class
outstanding at the time of the issuance.
o Immediately after the acquisition, no more than 25% of the purchaser's
assets are invested in securities issued by trusts containing assets
sold or serviced by an entity that has discretionary authority over
the purchaser or renders investment advice to the purchaser for a fee.
The Underwriters' Exemptions provide relief for transactions in connection with
the servicing, operation and management of a trust only if:
o The transactions are carried out in accordance with the terms of a
binding pooling and servicing agreement.
o The pooling and servicing agreement is provided to, or fully described
in the prospectus or offering memorandum provided to, investing ERISA
plans, Keogh plans, IRAs and related investment vehicles before they
purchase securities issued by the trust.
STATUTORY EXEMPTION FOR INSURANCE COMPANY GENERAL ACCOUNTS. In addition to
the PTCEs and the Underwriters' Exemptions, a temporary statutory exemption may
be available if you are investing on behalf of an insurance company general
account that includes plan assets. This exemption appears in section 401(c) of
ERISA. Section 401(c) of ERISA requires the United States Department of Labor to
issue regulations defining when an insurance company general account will be
deemed to include plan assets and, hence, be subject to the ERISA prohibited
transaction rules. Generally, until 18 months after the issuance of such
regulations, no person will be subject to liability for prohibited transactions
that result from the inclusion of plan assets in an insurance company general
account. If you are investing on behalf of an insurance company general account,
section 401(c) generally provides an exemption for your purchases and sales of
securities, as well as prohibited transactions resulting from transactions
incident to the operation of the trust, until 18 months after the issuance of
regulations. This will be the case as long as you have not acted to avoid the
regulations or committed a breach of fiduciary responsibilities which would also
constitute a violation of federal or state criminal law. If you are investing on
behalf of an insurance company general account, we cannot assure that the
purchase or sale of securities, the continued holding of securities previously
purchased, or transactions incidental to the operation of the trust, more than
18 months after the issuance of final regulations would qualify for further
statutory exemptive relief.
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CONSULTATION WITH COUNSEL
There can be no assurance that any DOL exemption will apply with respect to
any particular Plan that acquires the securities or, even if all the conditions
specified therein were satisfied, that any such exemption would apply to
transactions involving the trust fund. Prospective Plan investors should consult
with their legal counsel concerning the impact of ERISA and the Code and the
potential consequences to their specific circumstances prior to making an
investment in the securities. Neither the Depositor, the Trustee, the Servicer
nor any of their respective affiliates will make any representation to the
effect that the securities satisfy all legal requirements with respect to the
investment therein by Plans generally or any particular Plan or to the effect
that the securities are an appropriate investment for Plans generally or any
particular Plan.
GOVERNMENT PLANS
Government plans are generally not subject to the fiduciary standards
of ERISA or the prohibited transaction rules of ERISA or the Code. However, many
states have enacted laws which established standards of fiduciary conduct, legal
investment rules, or other requirements for investment transactions involving
the assets of government plans. If you are considering investing in securities
on behalf of a government plan, you should consult with your advisors regarding
the requirements of applicable state law.
REQUIRED DEEMED REPRESENTATIONS OF INVESTORS
If so provided in the prospectus supplement for a series, a purchaser of
the one or more classes of the related securities may be required to represent
or may be deemed to have represented that either (a) it is not an ERISA Plan, an
IRA or a Keogh Plan and is not purchasing such securities by or on behalf of or
with plan assets of an ERISA Plan, an IRA or a Keogh Plan or (b) the purchase of
any such securities by or on behalf of or with plan assets of an ERISA Plan, an
IRA or a Keogh Plan is permissible under applicable law, will not result in any
non-exempt prohibited transaction under ERISA or Section 4975 of the Code and
will not subject the Servicer, the Depositor or the Trustee to any obligation in
addition to those undertaken in the related Agreement. A fiduciary of a Plan or
any person investing plan assets to purchase securities must make its own
determination that the conditions for purchase will be satisfied with respect to
such securities.
THIS DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES WHICH APPLY TO
ERISA PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR RELATED INVESTMENT
VEHICLES. PRIOR TO MAKING AN INVESTMENT IN SECURITIES, PROSPECTIVE PLAN
INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING THE
IMPACT OF ERISA AND THE CODE AND, PARTICULARLY IN THE CASE OF GOVERNMENT PLANS
AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW CONSIDERATIONS, AND
THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES.
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LEGAL INVESTMENT
The prospectus supplement for each series of securities will specify which
classes of securities of the series, if any, will constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984. Any class of securities that is not rated in one of the two highest rating
categories by one or more nationally recognized statistical rating agencies or
that represents an interest in a trust fund that includes junior mortgage loans
will not constitute mortgage related securities for purposes of SMMEA Mortgage
related securities are legal investments 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 persons, trusts, corporations, partnerships, associations,
business trusts and business entities, including depository institutions,
insurance companies and pension funds created pursuant to or existing under the
laws of the United States or of any state, the authorized investments of which
are subject to state regulation. Under SMMEA, if a state enacted legislation
prior to October 3, 1991 specifically limiting the legal investment authority of
any entities with respect to mortgage related securities, the securities would
constitute legal investments for entities subject to that legislation only to
the extent provided in that legislation. SMMEA provides, however, that in no
event will the enactment of any legislation of this kind affect the validity of
any contractual commitment to purchase, hold or invest in mortgage related
securities, or require the sale or other disposition of such securities, so long
as that contractual commitment was made or the securities were acquired prior to
the enactment of that 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 with mortgage
related securities without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in those securities, and
national banks may purchase those securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to regulations as the
applicable federal regulatory authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination Council
issued a revised supervisory 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 and the Office of Thrift Supervision 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 December 1, 1998, the Office of Thrift Supervision issued Thrift
Bulletin 13a, entitled, "Management of Interest Rate Risk, Investment
Securities, and Derivatives Activities", which is applicable to thrift
institutions regulated by the OTS. Thrift Bulletin 13a has an effective date of
December 1, 1998. One of the primary purposes of Thrift Bulletin 13a is to
require thrift institutions, prior to taking any investment position, to (1)
conduct a pre-purchase portfolio
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sensitivity analysis for any significant transaction involving securities or
financial derivatives and (2) conduct a pre-purchase price sensitivity analysis
of any complex security or financial derivative. For the purposes of Thrift
Bulletin 13a, complex security includes among other things any collateralized
mortgage obligation or REMIC 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, the offered securities may be viewed as complex
securities. The OTS 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 as long as management understands the analysis and
its key assumptions. Further, Thrift Bulletin 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.
Thrift Bulletin 13a warns that an investment in complex securities by thrift
institutions that do not have adequate risk measurement, monitoring and control
systems may be viewed by the OTS examiners as an unsafe and unsound practice.
Prospective investors in the securities, including in particular the
classes of securities that do not constitute mortgage related securities for
purposes of SMMEA should consider the matters discussed in the following
paragraph.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase securities or to purchase
securities 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 SECURITIES CONSTITUTE LEGAL INVESTMENTS FOR THOSE
INVESTORS OR ARE SUBJECT TO INVESTMENT, CAPITAL OR OTHER RESTRICTIONS, AND, IF
APPLICABLE, WHETHER SMMEA HAS BEEN OVERRIDDEN IN ANY JURISDICTION RELEVANT TO
THAT INVESTOR.
METHODS OF DISTRIBUTION
The securities offered hereby and by the related prospectus supplements
will be offered in series through one or more of the methods described in the
paragraph below. The prospectus supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the depositor from the sale.
The depositor intends that securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of the securities of a
particular series may be made through a combination of two or more of these
methods. These methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the depositor with institutional investors through
dealers; and
3. By direct placements by the depositor with institutional investors.
If underwriters are used in a sale of any securities, other than in
connection with an underwriting on a best efforts basis, the securities will be
acquired by the underwriters for their own
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account and may be resold from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. The underwriters may be broker-dealers affiliated with the depositor
whose identities and relationships to the depositor will be as set forth in the
related prospectus supplement. The managing underwriter or underwriters with
respect to the offer and sale of the securities of a particular series will be
set forth on the cover of the prospectus supplement relating to the series and
the members of the underwriting syndicate, if any, will be named in the
prospectus supplement.
In connection with the sale of the securities offered, underwriters may
receive compensation from the depositor or from purchasers of such securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the securities may be deemed to be
underwriters in connection with the securities, and any discounts or commissions
received by them from the depositor and any profit on the resale of offered
securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It is anticipated that the underwriting agreement pertaining to the sale of
offered securities of any series will provide that the obligations of the
underwriters will be subject to conditions precedent, that the underwriters will
be obligated to purchase all the securities if any are purchased, other than in
connection with an underwriting on a best efforts basis, and that, in limited
circumstances, the depositor will indemnify the several underwriters and the
underwriters will indemnify the depositor against certain civil liabilities,
including liabilities under the Securities Act of 1933 or will contribute to
payments required to be made in respect thereof.
The prospectus supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of the offering
and any agreements to be entered into between the depositor and purchasers of
offered securities of the series.
The depositor anticipates that the securities offered hereby will be sold
primarily to institutional investors or sophisticated non-institutional
investors. Purchasers of offered securities, including dealers, may, depending
on the facts and circumstances of such purchases, be deemed to be underwriters
within the meaning of the Securities Act of 1933 in connection with reoffers and
sales by them of the offered securities. Holders of offered securities should
consult with their legal advisors in this regard prior to any reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the securities will be passed upon
for the depositor by Thacher Proffitt & Wood, New York, New York.
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FINANCIAL INFORMATION
The depositor has determined that its financial statements are not material
to the offering made hereby. Any prospective purchaser that desires to review
financial information concerning the depositor will be provided by the depositor
on request with a copy of the most recent financial statements of the depositor.
RATING
It is a condition to the issuance of any class of securities that they
shall have been rated not lower than investment grade, that is, in one of the
four highest rating categories, by at least one nationally recognized
statistical rating organization.
Any ratings on the securities address the likelihood of receipt by the
holders thereof of all collections on the underlying mortgage assets to which
such holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with the securities, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any. The
ratings do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which prepayments might differ from
those originally anticipated. As a result, securityholders might suffer a lower
than anticipated yield, and, in addition, holders of Strip Securities in extreme
cases might fail to recoup their initial investments.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Securities and Exchange Commission. Reports and other
information filed by the depositor can be inspected and copied at the public
reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and its Regional
Offices located as follows: Chicago Regional Office, 500 West Madison, 14th
Floor, Chicago, Illinois 60661; New York Regional Office, Seven World Trade
Center, New York, New York 10048. Copies of this material can also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates and electronically through the
Commission's Electronic Data Gathering, Analysis and Retrieval System at the
Commission's Web site (http:\\www.sec.gov). The depositor does not intend to
send any financial reports to securityholders.
This prospectus does not contain all of the information set forth in the
registration statement, of which this prospectus forms a part, and exhibits
thereto which the depositor has filed with the Commission under the securities
Act of 1933 and to which reference is hereby made.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated into this prospectus by reference all documents and
reports filed or caused to be filed by the depositor with respect to a trust
fund under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, prior to the termination of the offering of securities offered hereby
evidencing interest in a trust fund. The depositor will provide or cause to be
provided without charge to each person to whom this prospectus is delivered in
connection with the offering of one or more classes of securities offered
hereby, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent those documents or reports relate to one
or more of the classes of those offered securities, other than the exhibits to
those documents (unless the exhibits are specifically incorporated by reference
in the documents). Requests to the depositor should be directed in writing to
its principal executive office at 1100 Town & Country Road, Orange, California
92868, Attention: Secretary, or by telephone at (714) 541-9960. The depositor
has determined that its financial statements are not material to the offering of
any securities offered hereby.
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GLOSSARY
ACCRUAL SECURITIES: A class of securities as to which accrued interest or a
portion thereof will not be distributed but rather will be added to the
principal balance of the security on each distribution date in the manner
described in the related prospectus supplement.
APPLICABLE FEDERAL RATE: A rate based on the average of current yields on
Treasury securities, which rate is computed and published monthly by the IRS.
ARM LOAN: A mortgage loan with an interest rate that adjusts periodically, with
a corresponding adjustment in the amount of the monthly payment, to equal the
sum of a fixed percentage amount and an index.
CALL CLASS: The holder of a non-offered class of securities that has the right,
at its discretion, to terminate the related trust fund on and effect early
retirement of the securities of such series in the manner described under
"Description of the Securities--Termination" in this prospectus.
CERCLA: The Comprehensive Environmental Response, Compensation and Liability
Act, as amended.
CLEAN-UP CALL: The right of the party entitled to effect a termination of a
trust fund upon the aggregate principal balance of the outstanding trust fund
assets for the series at that time being less than the percentage, as specified
in the related prospectus supplement, of the aggregate principal balance of the
trust fund assets at the cut-off date for that series and which percentage will
be between 25% and 0%.
CLOSING DATE: With respect to any series of securities, the date on which the
securities are issued.
CODE: The Internal Revenue Code of 1986, as amended.
COMMISSION: The Securities and Exchange Commission.
CPR: The Constant Prepayment Rate model, which assumes that the outstanding
principal balance of a pool of mortgage loans prepays at a specified constant
annual rate. In generating monthly cash flows, this rate is converted to an
equivalent constant monthly rate.
CRIME CONTROL ACT: The Comprehensive Crime Control Act of 1984.
DIDMC: The Depository Institutions Deregulation and Monetary Control Act of
1980.
DOL: The U.S. Department of Labor.
DOL REGULATIONS: The regulations promulgated by the U.S. Department of Labor at
29 C.F.R. ss.2510. 3-101
DUE PERIOD: The second day of the month immediately preceding the month in which
the distribution date occurs, or the day after the cut-off date in the case of
the first Due Period, and
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ending on the first day of the month of the related distribution date, unless
the prospectus supplement specifies otherwise.
EQUITY CERTIFICATES: Where the issuer is an owner trust, the certificates
evidencing ownership of the trust fund.
ERISA PERMITTED INVESTMENTS: The types of investments permitted by the rating
agencies named in the Underwriter's Exemption issued by the DOL in which funds
in a pre-funding account may be invested.
FASIT: A financial asset securitization investment trust as defined in Sections
860H through 860L of the Code.
FASIT PROVISIONS: Sections 860H through 860L of the Code.
FASIT SECURITIES: Securities evidencing interests in a trust fund as to which a
FASIT election has been made.
FTC RULE: The "Holder in the Due Course" Rule of the Federal Trade Commission.
GARN-ST. GERMAIN ACT: The Garn-St. Germain Depositor Institutions Act of 1982.
GRANTOR TRUST CERTIFICATE: A certificate representing an interest in a Grantor
Trust Fund.
GRANTOR TRUST FRACTIONAL CERTIFICATE: A Grantor Trust Certificate representing
an undivided equitable ownership interest in the principal of the mortgage loans
constituting the related Grantor Trust Fund, together with interest on the
Grantor Trust Certificates at a pass-through rate.
GRANTOR TRUST STRIP CERTIFICATE: A certificate representing ownership of all or
a portion of the difference between interest paid on the mortgage loans
constituting the related Grantor Trust Fund (net of normal administration fees
and any retained interest of the depositor) and interest paid to the holders of
Grantor Trust Fractional Interest Certificates issued with respect to the
Grantor Trust Fund. A Grantor Trust Strip Certificate may also evidence a
nominal ownership interest in the principal of the mortgage loans constituting
the related Grantor Trust Fund.
GRANTOR TRUST FUND: A trust fund as to which no REMIC election will be made and
which qualifies as a grantor trust within the meaning of Subpart E, part I,
subchapter J of Chapter 1 of the Code.
HIGH COST LOAN: A mortgage loan subject to the Home Ownership and Equity
Protection Act of 1994.
HIGH LTV LOAN: Mortgage loans with loan-to-value ratios in excess of 80% and as
high as 150% and which are not insured by a primary insurance policy.
HOMEOWNERSHIP ACT: The Home Ownership and Equity Protection Act of 1994.
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INSURANCE PROCEEDS: Proceeds received with respect to a mortgage loan under any
hazard insurance policy, special insurance policy, primary insurance policy, FHA
insurance policy, VA guarantee, bankruptcy bond or mortgage pool insurance
policy, to the extent such proceeds are not applied to the restoration of the
property or released to the mortgagor in accordance with normal servicing
procedures.
LIQUIDATED LOAN: A defaulted mortgage loan that is finally liquidated, through
foreclosure sale or otherwise.
LIQUIDATION PROCEEDS: All amounts, other than Insurance Proceeds, received and
retained in connection with the liquidation of a defaulted mortgage loan, by
foreclosure or otherwise.
LOCKOUT DATE: The date of expiration of the Lockout Period with respect to a
mortgage loan.
LOCKOUT PERIOD: The period specified in a mortgage note during which prepayment
of the mortgage loan is prohibited.
MORTGAGE: The mortgage, deed of trust or similar instrument securing a mortgage
loan.
NBRC: The National Bankruptcy Review Commission.
NCUA: The National Credit Union Administration.
NONRECOVERABLE ADVANCE: An advance made or to be made with respect to a mortgage
loan which the master servicer determines is not ultimately recoverable from
Related Proceeds.
OID REGULATIONS: The rules governing original issue discount that are set forth
in Sections 1271-1273 and 1275 of the Code and in the related Treasury
regulations.
PARTNERSHIP CERTIFICATE: A certificate representing an interest in a Partnership
Trust Fund.
PARTNERSHIP TRUST FUND: A trust fund as to which no REMIC election will be made
and which qualifies as a partnership within the meaning of subchapter K of
Chapter 1 of the Code.
PLANS: Employee pension and welfare benefit plans subject to ERISA and
tax-qualified retirement plans described in Section 401(a) of the Code or
Individual Retirement Accounts described in Section 408 of the Code.
PREPAYMENT ASSUMPTION: With respect to a REMIC Regular Certificate or a Grantor
Trust Certificate, the assumption as to the rate of prepayments of the principal
balances of mortgage loans held by the trust fund used in pricing the initial
offering of that security.
PREPAYMENT PERIOD: The calendar month immediately preceding the month in which
the distribution date occurs, unless the prospectus supplement specifies
otherwise.
PTCE: Prohibited Transaction Class Exemption
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PURCHASE PRICE: As to any mortgage loan, an amount equal to the sum of (1) the
unpaid principal balance of the mortgage loan, (2) unpaid accrued interest on
the Stated Principal Balance at the rate at which interest accrues on the
mortgage loan, net of the servicing fee and any retained interest, from the date
as to which interest was last paid to the calendar month in which the relevant
purchase is to occur, (3) any unpaid servicing fees and unreimbursed servicing
expenses payable or reimbursable to the master servicer with respect to that
mortgage loan, (4) any unpaid retained interest with respect to that mortgage
loan, (5) any realized losses incurred with respect to that mortgage loan and
(6) if applicable, any expenses reasonably incurred or to be incurred by the
master servicer or the trustee in respect of the breach or defect giving rise to
a purchase obligation.
RECORD DATE: The last business day of the month preceding the month in which a
distribution date occurs, unless the prospectus supplement specifies otherwise.
RELATED PROCEEDS: Recoveries on a mortgage loan related to amounts which the
master servicer has previously advanced to the related trust fund.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of 1940.
REMIC: A real estate mortgage investment conduit as defined in Sections 860A
through 860G of the Code.
REMIC CERTIFICATES: Certificates evidencing interests in a trust fund as to
which a REMIC election has been made.
REMIC PROVISIONS: Sections 860A through 860G of the Code.
REMIC REGULAR CERTIFICATE: A REMIC Certificate designated as a regular interest
in the related REMIC.
REMIC RESIDUAL CERTIFICATE: A REMIC Certificate designated as a residual
interest in the related REMIC.
REMIC REGULATIONS: The REMIC Provisions and the related Treasury regulations.
RETAINED INTEREST: A portion of the interest payments on a trust fund asset that
may be retained by the depositor or any previous owner of the asset.
RICO: The Racketeer Influenced and Corrupt Organizations statute.
SAIF: The Savings Association Insurance Fund.
SCHEDULED PRINCIPAL BALANCE: As to any mortgage loan or manufactured housing
contract, the unpaid principal balance thereof as of the date of determination,
reduced by the principal portion of all monthly payments due but unpaid as of
the date of determination.
SENIOR/SUBORDINATE SERIES: A series of securities of which one or more classes
is senior in right of payment to one or more other classes to the extent
described in the related prospectus supplement.
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SINGLE FAMILY PROPERTIES: One- to four-family residential properties including
detached and attached dwellings, townhouses, rowhouses, individual condominium
units, individual units in planned-unit developments and individual units in de
minimus planned-unit developments.
SPECIAL HAZARD SUBORDINATION AMOUNT: The amount of any Special Hazard Realized
Loss that is allocated to the subordinate securities of a series.
STATED PRINCIPAL BALANCE: As to any mortgage loan or manufactured housing
contract, the principal balance of the mortgage loan or manufactured housing
contract as of the cut-off date, after application of all scheduled principal
payments due on or before the cut-off date, whether or not received, reduced by
all amounts, including advances by the master servicer, allocable to principal
that are distributed to securityholders on or before the date of determination,
and as further reduced to the extent that any realized loss thereon has been, or
had it not been covered by a form of credit support, would have been, allocated
to one or more classes of securities on or before the determination date.
STRIP SECURITIES: A class of securities which are entitled to (a) principal
distributions, with disproportionate, nominal or no interest distributions, or
(b) interest distributions, with disproportionate, nominal or no principal
distributions.
STRIPPED INTEREST: The distributions of interest on a Strip Security with no or
a nominal principal balance.
UNITED STATES PERSON: A citizen or resident of the United States; a corporation
or partnership, including an entity treated as a corporation or partnership for
federal income tax purposes, created or organized in, or under the laws of, the
United States or any state thereof or the District of Columbia, except, in the
case of a partnership, to the extent provided in Treasury regulations; an estate
whose income is subject to United States federal income tax regardless of its
source; or a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of the
trust. To the extent prescribed in regulations by the Secretary of the Treasury,
which have not yet been issued, a trust which was in existence on August 20,
1996, other than a trust treated as owned by the grantor under subpart E of part
I of subchapter J of chapter 1 of the Code, and which was treated as a United
States person on August 20, 1996 may elect to continue to be treated as a United
States person notwithstanding the previous sentence.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The expenses expected to be incurred in connection with the issuance
and distribution of the Securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
SEC Registration Fee............................. $ 264.00
Printing and Engraving Fees...................... 20,000.00*
Legal Fees and Expenses.......................... 150,000.00*
Accounting Fees and Expenses..................... 50,000.00*
Trustee Fees and Expenses........................ 20,000.00*
Rating Agency Fees............................... 75,000.00*
Miscellaneous.................................... 15,000.00*
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Total....................................... $ 330,264.00
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* Based on the offering of a single series of Securities.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8(b) of the proposed form of Underwriting Agreement, the
Underwriters are obligated under certain circumstances to indemnify certain
controlling persons of Ameriquest Mortgage Securities Inc. (the "Depositor")
against certain liabilities, including liabilities under the Securities Act of
1933.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses (including attorneys' fees) actually and reasonably
incurred by him in con nection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification may be made in respect of any claim, issue or matter as to which
such person
<PAGE>
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b), or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification and advancement of expenses provided by, or granted pursuant to,
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and empowers the corporation to purchase and
maintain insurance on behalf of a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liabilities under Section 145.
The By-Laws of the Depositor provide, in effect, that to the extent and
under the circumstances permitted by subsections (a) and (b) of Section 145 of
the General Corporation Law of Delaware, the Depositor (i) shall indemnify and
hold harmless each person who was or is a party or is threatened to be made a
party to any action, suit or proceeding described in subsections (a) and (b) by
reason of the fact that he is or was a director or officer, or his testator or
intestate is or was a director or officer of the Depositor against expenses,
judgments, fines and amounts paid in settlement, and (ii) shall indemnify and
hold harmless each person who was or is a party or is threat ened to be made a
party to any such action, suit or proceeding if such person is or was serving at
the request of the Depositor as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Pursuant to Section 145 of the General Corporation Law of Delaware,
liability insurance is maintained covering directors and principal officers of
the Depositor.
The Pooling and Servicing Agreement or Trust Agreement with respect to
each series of Certificates and the Servicing Agreement, Indenture and Trust
Agreement with respect to each series of Notes will provide that no director,
officer, employee or agent of the Depositor is liable to the Trust Fund or the
Securityholders, except for such person's own willful misfeasance, bad faith or
gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling and Servicing Agreement or Trust Agreement
with respect to each series of Certificates and the Servicing Agreement,
Indenture and Trust Agreement with respect to each series of Notes will further
provide that, with the exceptions stated above, a director, officer, employee or
agent of the Depositor is entitled to be indemnified against any loss, liability
or expense incurred in connection with legal action relating to such Pooling and
Servicing Agreement, Trust Agreement, Servicing Agreement, Indenture or Trust
Agreement and related Securities other than such expenses related to particular
Mortgage Loans.
II - 2
<PAGE>
Item 16. EXHIBITS.
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1 Form of Pooling and Servicing Agreement, for a series
consisting of Senior and Subordinate Certificates.
4.2 Form of Pooling and Servicing Agreement, for a series
of Certificates with various combinations of credit
support.
4.3 Form of Servicing Agreement, for a series consisting
of Mortgage-Backed Notes.
4.4 Form of Trust Agreement, for a series consisting of
Mortgage-Backed Notes.
4.5 Form of Indenture, for a series consisting of
Mortgage-Backed Notes.
5.1 Opinion of Thacher Proffitt & Wood with respect to
legality.
8.1 Opinion of Thacher Proffitt & Wood with respect to
certain tax matters (included as part of Exhibit
5.1).
23.1 Consent of Thacher Proffitt & Wood (included as part
of Exhibits 5.1 and 8.1).
24.1 Power of Attorney.
II - 3
<PAGE>
Item 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; (iii) to include
any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change of such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
B. UNDERTAKING IN CONNECTION WITH INCORPORATION BY REFERENCE OF CERTAIN
FILINGS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described in Item 15 above,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification
II - 4
<PAGE>
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person in connection
with the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issues.
II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ameriquest Mortgage Securities, Inc. certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3, reasonably
believes that the security rating requirement contained in Transaction
Requirement B.5 of Form S-3 will be met by the time of the sale of the
securities registered hereunder and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Orange, State of California, on the 10th day of January, 2000.
AMERIQUEST MORTGAGE SECURITIES INC.
By:/s/ Aseem Mital
--------------------------------
Name: Aseem Mital
Title: President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to the Registration Statement has been signed below by the
following persons in the capacities indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Aseem Mital Director and President January 10, 2000
- ---------------------- (Principal Executive Officer)
Aseem Mital
/s/ John P. Grazer Director and Treasurer January 10, 2000
- ---------------------- (Principal Financial and
John P. Grazer Principal Accounting Officer)
/s/ Andrew L. Stidd Director January 10, 2000
- ----------------------
Andrew L. Stidd
II - 6
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number
- ------
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
4.1 Form of Pooling and Servicing Agreement, for a series consisting of
Senior and Subordinate Certificates.
4.2 Form of Pooling and Servicing Agreement, for a series of Certificates
with various combinations of credit support.
4.3 Form of Servicing Agreement, for a series consisting of Mortgage-Backed
Notes.
4.4 Form of Trust Agreement, for a series consisting of Mortgage-Backed
Notes.
4.5 Form of Indenture, for a series consisting of Mortgage-Backed Notes.
5.1 Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax matters
(included as part of Exhibit 5.1).
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibits 5.1
and 8.1).
24.1 Power of Attorney
II - 7
EXHIBIT 1.1
-----------
AMERIQUEST MORTGAGE SECURITIES INC.
$____________ (Approximately)
AQ Mortgage Pass-Through Certificates, Series ____-_
Class A $____________ _____%
Class R $____________ _____%
UNDERWRITING AGREEMENT
----------------------
----------------, ----
[Underwriter]
______________________
______________________
Ladies and Gentlemen:
Ameriquest Mortgage Securities Inc., a Delaware corporation (the
"Company"), proposes to sell to you (also referred to herein as the
"Underwriter") AQ Mortgage Pass-Through Certificates, Series ____-__, Class A
and Class R Certificates other than a de minimis portion thereof (collectively,
the "Certificates"), having the aggregate principal amounts and Pass-Through
Rates set forth above. The Certificates, together with the Class M and Class B
Certificates of the same series, will evidence the entire beneficial interest in
the Trust Fund (as defined in the Pooling and Servicing Agreement referred to
below) consisting primarily of a pool (the "Pool") of conventional, fixed-rate,
one- to four-family residential mortgage loans (the "Mortgage Loans") as
described in the Prospectus Supplement (as hereinafter defined) to be sold by
the Company. A de minimis portion of the Class R Certificates will not be sold
hereunder and will be held by the Trustee.
The Certificates will be issued pursuant to a pooling and servicing
agreement (the "Pooling and Servicing Agreement") to be dated as of
__________________, ____ (the "Cut-off Date") among the Company, as seller,
[Name of Master Servicer], as master servicer (the "Master Servicer"), and
___________________________________________, as trustee (the "Trustee"). The
Certificates are described more fully in the Basic Prospectus and the Prospectus
Supplement (each as hereinafter defined) which the Company has furnished to you.
<PAGE>
-2-
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
1.1 The Company represents and warrants to, and agrees with
you that:
(a) The Company has filed with the Securities and
Exchange Commission (the "Commission") a registration statement (No.
33-_____) on Form S-3 for the registration under the Securities Act of
1933, as amended (the "Act"), of Mortgage Pass-Through Certificates and
Mortgage-Backed Notes (issuable in series), including the Certificates,
which registration statement has become effective, and a copy of which,
as amended to the date hereof, has heretofore been delivered to you.
The Company proposes to file with the Commission pursuant to Rule
424(b) under the rules and regulations of the Commission under the Act
(the "1933 Act Regulations") a supplement dated __________, ____ (the
"Prospectus Supplement"), to the prospectus dated __________, ____ (the
"Basic Prospectus"), relating to the Certificates and the method of
distribution thereof. Such registration statement (No. 33-_____)
including exhibits thereto and any information incorporated therein by
reference, as amended at the date hereof, is hereinafter called the
"Registration Statement"; and the Basic Prospectus and the Prospectus
Supplement and any information incorporated therein by reference,
together with any amendment thereof or supplement thereto authorized by
the Company on or prior to the Closing Date for use in connection with
the offering of the Certificates, are hereinafter called the
"Prospectus". Any preliminary form of the Prospectus Supplement which
has heretofore been filed pursuant to Rule 424, or prior to the
effective date of the Registration Statement pursuant to Rule 402(a),
or 424(a) is hereinafter called a "Preliminary Prospectus Supplement."
(b) The Registration Statement has become effective,
and the Registration Statement as of the effective date (the "Effective
Date"), and the Prospectus, as of the date of the Prospectus
Supplement, complied in all material respects with the applicable
requirements of the Act and the 1933 Act Regulations; and the
Registration Statement, as of the Effective Date, did not contain any
untrue statement of a material fact and did not omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading and the Prospectus, as of the date of
the Prospectus Supplement, did not, and as of the Closing Date will
not, contain an untrue statement of a material fact and did not and
will not omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or
omitted from the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto relating to the information
identified by underlining or other highlighting as shown in Exhibit E
(the "Excluded Information"); and provided, further, that the Company
makes no representations or warranties as to either (i) any information
in any Computational Materials or ABS Term Sheets (each as hereinafter
defined) required to be provided by the Underwriter to the Company
pursuant to Section 4.2, except to the extent of any information set
forth therein that constitutes Pool Information (as defined below), or
(ii) as to any information contained in or omitted from the portions of
the
<PAGE>
-3-
Prospectus identified by underlining or other highlighting as shown in
Exhibit F (the "Underwriter Information"). As used herein, "Pool
Information" means information with respect to the characteristics of
the Mortgage Loans and administrative and servicing fees, as provided
by or on behalf of the Company to the Underwriter in final form and set
forth in the Prospectus Supplement. The Company acknowledges that,
except for any Computational Materials, the Underwriter Information
constitutes the only information furnished in writing by you or on your
behalf for use in connection with the preparation of the Registration
Statement, any preliminary prospectus or the Prospectus, and you
confirm that the Underwriter Information is correct.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and has the requisite corporate power to own its properties
and to conduct its business as presently conducted by it.
(d) This Agreement has been duly authorized, executed and
delivered by the Company.
(e) As of the Closing Date (as defined herein) the
Certificates will conform in all material respects to the description
thereof contained in the Prospectus and the representations and
warranties of the Company in the Pooling and Servicing Agreement will
be true and correct in all material respects.
1.2 The Underwriter represents and warrants to and agrees with
the Company that:
(a) No purpose of the Underwriter relating to the
purchase of any of the Class R Certificates by the Underwriter is or
will be to enable the Company to impede the assessment or collection of
any tax.
(b) The Underwriter has no present knowledge or
expectation that it will be unable to pay any United States taxes owed
by it so long as any of the Certificates remain outstanding.
(c) The Underwriter has no present knowledge or
expectation that it will become insolvent or subject to a bankruptcy
proceeding for so long as any of the Certificates remain outstanding.
(d) No purpose of the Underwriter relating to any
sale of any of the Class R Certificates by the Underwriter will be to
enable it to impede the assessment or collection of tax. In this
regard, the Underwriter hereby represents to and for the benefit of the
Company that the Underwriter intends to pay taxes associated with
holding the Class R Certificates, as they become due, fully
understanding that it may incur tax liabilities in excess of any cash
flows generated by the Class R Certificates.
<PAGE>
-4-
(e) The Underwriter will, in connection with any
transfer it makes of any of the Class R Certificates, obtain from its
transferee the affidavit required by Section 5.02(g)(i)(B)(I) of the
Pooling and Servicing Agreement, will not consummate any such transfer
if it knows or believes that any representation contained in such
affidavit is false and will provide the Trustee with the Certificate
required by Section 5.02(g)(i)(B)(II) of the Pooling and Servicing
Agreement.
(f) The Underwriter hereby certifies that (i) with
respect to any classes of Certificates issued in authorized
denominations or Percentage Interests of less than $______ or __%, as
the case may be, the fair market value of each such Certificate sold to
any person on the date of initial sale thereof by the Underwriter will
not be less than $_______, and (ii) with respect to each class of
Certificates to be maintained on the book-entry records of The
Depository Trust Company ("DTC"), the interest in each such class of
Certificates sold to any person on the date of initial sale thereof by
the Underwriter will not be less than an initial Certificate Principal
Balance of $______.
(g) The Underwriter will use its best reasonable
efforts to cause Trepp & Co. to issue a commitment letter, prior to the
Closing Date, to DTC stating that Trepp & Co. will value the DTC
Registered Certificates (hereinafter defined) on an ongoing basis
subsequent to the Closing Date.
(h) The Underwriter will have funds available at
__________________ _______________, in the Underwriter's account at
such bank at the time all documents are executed and the closing of the
sale of the Certificates is completed, except for the transfer of funds
and the delivery of the Certificates. Such funds will be available for
immediate transfer into the account of the Company maintained at such
bank.
(i) As of the date hereof and as of the Closing Date,
the Underwriter has complied with all of its obligations hereunder
including Section 4.2, and, with respect to all Computational Materials
and ABS Term Sheets provided by the Underwriter to the Company pursuant
to Section 4.2, if any, such Computational Materials and ABS Term
Sheets are accurate in all material respects when read in conjunction
with the Prospectus Supplement (taking into account the assumptions
explicitly set forth in the Computational Materials, except to the
extent of any errors therein that are caused by errors in the Pool
Information). The Computational Materials and ABS Term Sheets provided
by the Underwriter to the Company constitute a complete set of all
Computational Materials and ABS Term Sheets that are required to be
filed with the Commission.
1.3 The Underwriter covenants and agrees to pay directly, or
reimburse the Company upon demand for (i) any and all taxes (including penalties
and interest) owed or asserted to be owed by the Company as a result of a claim
by the Internal Revenue Service that the transfer of any of the Class R
Certificates to the Underwriter hereunder or any transfer thereof by the
Underwriter may be disregarded for federal tax purposes and (ii) any and all
losses, claims, damages and liabilities, including attorney's fees and expenses,
arising out of any failure of the Underwriter
<PAGE>
-5-
to make payment or reimbursement in connection with any such assertion as
required in (i) above. In addition, the Underwriter acknowledges that on the
Closing Date immediately after the transactions described herein it will be the
owner of the Class R Certificates for federal tax purposes, and the Underwriter
covenants that it will not assert in any proceeding that the transfer of the
Class R Certificates from the Company to the Underwriter should be disregarded
for any purpose.
2. PURCHASE AND SALE. Subject to the terms and conditions and in
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to you, and you agree to purchase from the Company, the
Certificates (other than for a de minimis portion of the Class R Certificates,
which shall be transferred by the Company to the Trustee) at a price equal to
__________% of the aggregate principal balance of the Certificates as of the
Closing Date. There will be added to the purchase price of the Certificates an
amount equal to interest accrued thereon from the Cut-off Date to but not
including the Closing Date. The purchase price for the Certificates was agreed
to by the Company in reliance upon the transfer from the Company to the
Underwriter of the tax liabilities associated with the ownership of the Class R
Certificates.
3. DELIVERY AND PAYMENT. Delivery of and payment for the Certificates
shall be made at the office of _______________________ at ___________________
time, on ______________, ____ or such later date as you shall designate, which
date and time may be postponed by agreement between you and the Company (such
date and time of delivery and payment for the Certificates being herein called
the "Closing Date"). Delivery of the Certificates (except for the Class R
Certificates (the "Definitive Certificates")) shall be made to you through the
Depository Trust Company ("DTC") (such Certificates, the "DTC Registered
Certificates"), and delivery of the Definitive Certificates shall be made in
registered, certified form, in each case against payment by you of the purchase
price thereof to or upon the order of the Company by wire transfer in
immediately available funds. The Definitive Certificates shall be registered in
such names and in such denominations as you may request not less than two
business days in advance of the Closing Date. The Company agrees to have the
Definitive Certificates available for inspection, checking and packaging by you
in New York, New York not later than ___________ on the business day prior to
the Closing Date.
4. OFFERING BY UNDERWRITER.
4.1 It is understood that you propose to offer the
Certificates for sale to the public as set forth in the Prospectus and you agree
that all such offers and sales by you shall be made in compliance with all
applicable laws and regulations.
4.2 It is understood that you may prepare and provide to
prospective investors certain Computational Materials (as defined below) in
connection with your offering of the Certificates, subject to the following
conditions:
(a) The Underwriter shall comply with all applicable
laws and regulations in connection with the use of Computational
Materials, including the No-Action Letter of May 20, 1994 issued by the
Commission to Kidder, Peabody Acceptance Corporation I, Kidder, Peabody
& Co. Incorporated and Kidder Structured Asset Corporation, as made
<PAGE>
-6-
applicable to other issuers and underwriters by the Commission in
response to the request of the Public Securities Association dated May
24, 1994 (collectively, the "Kidder/PSA Letter") as well as the PSA
Letter referred to below. The Underwriter shall comply with all
applicable laws and regulations in connection with the use of ABS Term
Sheets, including the No-Action Letter of February 17, 1995 issued by
the Commission to the Public Securities Association (the "PSA Letter"
and, together with the Kidder/PSA Letter, the "No-Action Letters").
(b) For purposes hereof, "Computational Materials" as
used herein shall have the meaning given such term in the No-Action
Letters, but shall include only those Computational Materials that have
been prepared or delivered to prospective investors by or at the
direction of the Underwriter. For purposes hereof, "ABS Term Sheets"
and "Collateral Term Sheets" as used herein shall have the meanings
given such terms in the PSA Letter but shall include only those ABS
Term Sheets or Collateral Term Sheets that have been prepared or
delivered to prospective investors by or at the direction of the
Underwriter.
(c) All Computational Materials and ABS Term Sheets
provided to prospective investors that are required to be filed
pursuant to the No-Action Letters shall bear a legend on each page
including the following statement:
"THE INFORMATION HEREIN HAS BEEN PROVIDED SOLELY BY
[Underwriter]. NEITHER THE ISSUER OF THE CERTIFICATES NOR ANY
OF ITS AFFILIATES MAKES ANY REPRESENTATION AS TO THE ACCURACY
OR COMPLETENESS OF THE INFORMATION HEREIN. THE INFORMATION
HEREIN IS PRELIMINARY, AND WILL BE SUPERSEDED BY THE
APPLICABLE PROSPECTUS SUPPLEMENT AND BY ANY OTHER INFORMATION
SUBSEQUENTLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
In the case of Collateral Term Sheets, such legend shall also include
the following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY THE
DESCRIPTION OF THE MORTGAGE POOL CONTAINED IN THE PROSPECTUS
SUPPLEMENT RELATING TO THE CERTIFICATES AND [Except with
respect to the initial Collateral Term Sheet prepared by the
Underwriter] SUPERSEDES ALL INFORMATION CONTAINED IN ANY
COLLATERAL TERM SHEETS RELATING TO THE MORTGAGE POOL
PREVIOUSLY PROVIDED BY [the Underwriter]."
<PAGE>
-7-
The Company shall have the right to require additional specific legends
or notations to appear on any Computational Materials or ABS Term
Sheets, the right to require changes regarding the use of terminology
and the right to determine the types of information appearing therein.
Notwithstanding the foregoing, this subsection (c) will be satisfied if
all such Computational Materials and ABS Term Sheets bear a legend in
the form set forth in Exhibit I hereto.
(d) The Underwriter shall provide the Company with
representative forms of all Computational Materials and ABS Term Sheets
prior to their first use, to the extent such forms have not previously
been approved by the Company for use by the Underwriter. The
Underwriter shall provide to the Company, for filing on Form 8-K as
provided in Section 5.9, copies (in such format as required by the
Company) of all Computational Materials that are required to be filed
with the Commission pursuant to the No-Action Letters. The Underwriter
may provide copies of the foregoing in a consolidated or aggregated
form including all information required to be filed. All Computational
Materials and ABS Term Sheets described in this subsection (d) must be
provided to the Company not later than 10:00 a.m. New York time one
business day before filing thereof is required pursuant to the terms of
this Agreement. The Underwriter agrees that it will not provide to any
investor or prospective investor in the Certificates any Computational
Materials or ABS Term Sheets on or after the day on which Computational
Materials and ABS Term Sheets are required to be provided to the
Company pursuant to this Section 4.2(d) (other than copies of
Computational Materials or ABS Term Sheets previously submitted to the
Company in accordance with this Section 4.2(d) for filing pursuant to
Section 5.9), unless such Computational Materials or ABS Term Sheets
are preceded or accompanied by the delivery of a Prospectus to such
investor or prospective investor.
(e) All information included in the Computational
Materials shall be generated based on substantially the same
methodology and assumptions that are used to generate the information
in the Prospectus Supplement as set forth therein; provided that the
Computational Materials and ABS Term Sheets or ABS Term Sheets, as the
case may be, may include information based on alternative assumptions
if specified therein. If any Computational Materials or ABS Term Sheets
that are required to be filed were based on assumptions with respect to
the Pool that differ from the final Pool Information in any material
respect or on Certificate structuring terms that were revised prior to
the printing of the Prospectus, the Underwriter shall prepare revised
Computational Materials or ABS Term Sheets, as the case may be, based
on the final Pool Information and structuring assumptions, circulate
such revised Computational Materials and ABS Term Sheets to all
recipients of the preliminary versions thereof that indicated orally to
the Underwriter they would purchase all or any portion of the
Certificates and include such revised Computational Materials and ABS
Term Sheets (marked, "as revised") in the materials delivered to the
Company pursuant to subsection (d) above.
(f) The Company shall not be obligated to file any
Computational Materials that have been determined to contain any
material error or omission. In the event
<PAGE>
-8-
that any Computational Materials or ABS Terms Sheets are determined,
within the period which the Prospectus relating to the Certificates is
required to be delivered under the Act, to contain a material error or
omission, the Underwriter shall prepare a corrected version of such
Computational Materials or ABS Term Sheets, shall circulate such
corrected Computational Materials to all recipients of the prior
versions thereof that indicated orally to the Underwriter they would
purchase all or any portion of the Certificates and shall deliver
copies of such corrected Computational Materials and ABS Term Sheets
(marked, "as corrected") to the Company for filing with the Commission
in a subsequent Form 8-K submission (subject to the Company's obtaining
an accountant's comfort letter in respect of such corrected
Computational Materials, which shall be at the expense of the
Underwriter), provided that if any such letter is required to be
revised solely because of a change in the Pool Information, fifty
percent of any additional expenses for such letter resulting from the
change in Pool Information shall be paid by each of the Underwriter and
the Company.
(g) If the Underwriter does not provide any
Computational Materials or ABS Term Sheets to the Company pursuant to
subsection (d) above, the Underwriter shall be deemed to have
represented, as of the Closing Date, that it did not provide any
prospective investors with any information in written or electronic
form in connection with the offering of the Certificates that is
required to be filed with the Commission in accordance with the
No-Action Letters, and the Underwriter shall provide the Company with a
certification to that effect on the Closing Date.
(h) In the event of any delay in the delivery by the
Underwriter to the Company of all Computational Materials and ABS Term
Sheets required to be delivered in accordance with subsection (d)
above, or in the delivery of the accountant's comfort letter in respect
thereof pursuant to Section 5.9, the Company shall have the right to
delay the release of the Prospectus to investors or to the Underwriter,
to delay the Closing Date and to take other appropriate actions in each
case as necessary in order to allow the Company to comply with its
agreement set forth in Section 5.9 to file the Computational Materials
and ABS Term Sheets by the time specified therein.
(i) The Underwriter represents that it has in place,
and covenants that it shall maintain internal controls and procedures
which it reasonably believes to be sufficient to ensure full compliance
with all applicable legal requirements of the No-Action Letters with
respect to the generation and use of Computational Materials and ABS
Term Sheets in connection with the offering of the Certificates.
4.3 You further agree that on or prior to the sixth day after
the Closing Date, you shall provide the Company with a certificate,
substantially in the form of Exhibit G attached hereto, setting forth (i) in the
case of each class of Certificates, (a) if less than 10% of the aggregate
principal balance of such class of Certificates has been sold to the public as
of such date, the value calculated pursuant to clause (b)(iii) of Exhibit G
hereto, or, (b) if __% or more of such class of Certificates has been sold to
the public as of such date but no single price is paid for at least __% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the
<PAGE>
-9-
Certificates of such class were sold expressed as a percentage of the principal
balance of such class of Certificates sold, or (c) the first single price at
which at least __% of the aggregate principal balance of such class of
Certificates was sold to the public, (ii) the prepayment assumption used in
pricing each class of Certificates, and (iii) such other information as to
matters of fact as the Company may reasonably request to enable it to comply
with its reporting requirements with respect to each class of Certificates to
the extent such information can in the good faith judgment of the Underwriter be
determined by it.
5. AGREEMENTS. The Company agrees with you that:
5.1 Before amending or supplementing the Registration
Statement or the Prospectus with respect to the Certificates, the Company will
furnish you with a copy of each such proposed amendment or supplement.
5.2 The Company will cause the Prospectus Supplement to be
transmitted to the Commission for filing pursuant to Rule 424(b) under the Act
by means reasonably calculated to result in filing with the Commission pursuant
to said rule.
5.3 If, during the period after the first date of the public
offering of the Certificates in which a prospectus relating to the Certificates
is required to be delivered under the Act, any event occurs as a result of which
it is necessary to amend or supplement the Prospectus, as then amended or
supplemented, in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if it shall be necessary to amend or supplement the Prospectus to comply with
the Act or the 1933 Act Regulations, the Company promptly will prepare and
furnish, at its own expense, to you, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will comply
with law.
5.4 The Company will furnish to you, without charge, a copy of
the Registration Statement (including exhibits thereto) and, so long as delivery
of a prospectus by an underwriter or dealer may be required by the Act, as many
copies of the Prospectus, any documents incorporated by reference therein and
any amendments and supplements thereto as you may reasonably request.
5.5 The Company agrees, so long as the Certificates shall be
outstanding, or until such time as you shall cease to maintain a secondary
market in the Certificates, whichever first occurs, to deliver to you the annual
statement as to compliance delivered to the Trustee pursuant to Section 3.18 of
the Pooling and Servicing Agreement and the annual statement of a firm of
independent public accountants furnished to the Trustee pursuant to Section 3.19
of the Pooling and Servicing Agreement, as soon as such statements are furnished
to the Company.
5.6 The Company will endeavor to arrange for the qualification
of the Certificates for sale under the laws of such jurisdictions as you may
reasonably designate and will maintain such qualification in effect so long as
required for the initial distribution of the Certificates; provided,
<PAGE>
-10-
however, that the Company shall not be required to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action that would
subject it to general or unlimited service of process in any jurisdiction where
it is not now so subject.
5.7 If the transactions contemplated by this Agreement are
consummated, the Company will pay or cause to be paid all expenses incident to
the performance of the obligations of the Company under this Agreement, and will
reimburse you for any reasonable expenses (including reasonable fees and
disbursements of counsel) reasonably incurred by you in connection with
qualification of the Certificates for sale and determination of their
eligibility for investment under the laws of such jurisdictions as you have
reasonably requested pursuant to Section 5.6 above and the printing of memoranda
relating thereto, for any fees charged by investment rating agencies for the
rating of the Certificates, and for expenses incurred in distributing the
Prospectus (including any amendments and supplements thereto) to the
Underwriter. Except as herein provided, you shall be responsible for paying all
costs and expenses incurred by you, including the fees and disbursements of your
counsel, in connection with the purchase and sale of the Certificates.
5.8 If, during the period after the Closing Date in which a
prospectus relating to the Certificates is required to be delivered under the
Act, the Company receives notice that a stop order suspending the effectiveness
of the Registration Statement or preventing the offer and sale of the
Certificates is in effect, the Company will advise you of the issuance of such
stop order.
5.9 The Company shall file the Computational Materials and ABS
Term Sheets (if any) provided to it by the Underwriter under Section 4.2(d) with
the Commission pursuant to a Current Report on Form 8-K by ___________ on the
morning the Prospectus is delivered to the Underwriter or, the case of any
Collateral Term Sheet required to be filed prior to such date, by ____________
on the second business day following the first day on which such Collateral Term
Sheet has been sent to a prospective investor; provided, however, that prior to
such filing of the Computational Materials and ABS Term Sheets (other than any
Collateral Term Sheets that are not based on the Pool Information) by the
Company, the Underwriter must comply with its obligations pursuant to Section
4.2 and the Company must receive a letter from _______________, certified public
accountants, satisfactory in form and substance to the Company and its counsel,
to the effect that such accountants have performed certain specified procedures,
all of which have been agreed to by the Company, as a result of which they
determined that all information that is included in the Computational Materials
(if any) provided by the Underwriter to the Company for filing on Form 8-K, as
provided in Section 4.2 and this Section 5.9, is accurate without exception. The
foregoing letter shall be at the sole expense of the Underwriter. The Company
shall file any corrected Computational Materials described in Section 4.2(f) as
soon as practicable following receipt thereof. The Company also will file with
the Commission within fifteen days of the issuance of the Certificates a Current
Report on Form 8-K (for purposes of filing the Pooling and Servicing Agreement).
6. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. The Underwriter's
obligation to purchase the Certificates shall be subject to the following
conditions:
<PAGE>
-11-
6.1 No stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for that purpose
shall be pending or, to the knowledge of the Company, threatened by the
Commission; and the Prospectus Supplement shall have been filed or transmitted
for filing, by means reasonably calculated to result in a filing with the
Commission pursuant to Rule 424(b) under the Act.
6.2 Since _________ 1, ____ there shall have been no material
adverse change (not in the ordinary course of business) in the condition of the
Company.
6.3 The Company shall have delivered to you a certificate,
dated the Closing Date, of the President, a Senior Vice President or a Vice
President of the Company to the effect that the signer of such certificate has
examined this Agreement, the Prospectus, the Pooling and Servicing Agreement and
various other closing documents, and that, to the best of his or her knowledge
after reasonable investigation:
(a) the representations and warranties of the Company
in this Agreement and in the Pooling and Servicing Agreement are true
and correct in all material respects; and
(b) the Company has, in all material respects,
complied with all the agreements and satisfied all the conditions on
its part to be performed or satisfied hereunder at or prior to the
Closing Date.
6.4 You shall have received the opinions of Thacher Proffitt &
Wood, counsel for the Company and the Master Servicer, dated the Closing Date
and substantially to the effect set forth in Exhibit A-1 and Exhibit A-2, and
the opinion of [counsel to Master Servicer], dated the Closing Date and
substantially to the effect set forth in Exhibit B.
6.5 You shall have received from ________________________,
counsel for the Underwriter, an opinion dated the Closing Date in form and
substance satisfactory to the Underwriter.
6.6 The Underwriter shall have received from
________________________, certified public accountants, a letter dated the date
hereof and satisfactory in form and substance to the Underwriter and the
Underwriter's counsel, to the effect that they have performed certain specified
procedures, all of which have been agreed to by the Underwriter, as a result of
which they determined that certain information of an accounting, financial or
statistical nature set forth in the Prospectus Supplement under the captions
"Description of the Mortgage Pool", "Pooling and Servicing Agreement",
"Description of the Certificates" and "Certain Yield and Prepayment
Considerations" agrees with the records of the Company excluding any questions
of legal interpreta tion.
6.7 The Certificates shall have been rated "AAA" by [Standard
& Poor's Ratings Services] and [Fitch Investor's Service, L.P.]
<PAGE>
-12-
6.8 You shall have received the opinion of [Trustee's
Counsel], dated the Closing Date, substantially to the effect set forth in
Exhibit C.
6.9 You shall have received from Thacher Proffitt & Wood,
counsel to the Company, reliance letters with respect to any opinions delivered
to Standard & Poor's Ratings Services and Fitch Investor Services, L.P.
The Company will furnish you with conformed copies of the above opinions,
certificates, letters and documents as you reasonably request.
7. INDEMNIFICATION AND CONTRIBUTION.
7.1 The Company agrees to indemnify and hold harmless you and
each person, if any, who controls you within the meaning of either Section 15 of
the Act or Section 20 of the Securities Exchange Act of 1934, from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement for the registration of the Certificates as originally
filed or in any amendment thereof or other filing incorporated by reference
therein, or in the Prospectus or incorporated by reference therein (if used
within the period set forth in Section 5.3 hereof and as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages, or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
any information with respect to which the Underwriter has agreed to indemnify
the Company pursuant to Section 7.2; provided, that neither the Company, or you
will be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein relating to the
Excluded Information.
7.2 You agree to indemnify and hold harmless the Company, its
directors or officers and any person controlling the Company to the same extent
as the indemnity set forth in clause 7.1 above from the Company to you, but only
with respect to (i) the Underwriter Information and (ii) the Computational
Materials and ABS Term Sheets, except to the extent of any errors in the
Computational Materials or ABS Term Sheets that are caused by errors in the Pool
Information. In addition, you agree to indemnify and hold harmless the Company
its directors or officers and any person controlling the Company against any and
all losses, claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees) caused by, resulting from, relating to,
or based upon any legend regarding original issue discount on any Certificate
resulting from incorrect information provided by the Underwriter in the
certificates described in Section 4.3 hereof.
7.3 In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either clause 7.1 or 7.2, such person (the
"indemnified party") shall promptly notify the person against
<PAGE>
-13-
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel, but the reasonable fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them. It is understood
that the indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by you, in the case of parties
indemnified pursuant to clause 7.1 and by the Company, in the case of parties
indemnified pursuant to clause 7.2. The indemnifying party may, at its option,
at any time upon written notice to the indemnified party, assume the defense of
any proceeding and may designate counsel reasonably satisfactory to the
indemnified party in connection therewith provided that the counsel so
designated would have no actual or potential conflict of interest in connection
with such representation. Unless it shall assume the defense of any proceeding
the indemnifying party shall not be liable for any settlement of any proceeding,
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. If the indemnifying party assumes the defense of
any proceeding, it shall be entitled to settle such proceeding with the consent
of the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
7.4 If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clause 7.1 or 7.2 hereof or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities, in
such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Underwriter on the other from
the offering of the Certificates but also the relative fault of the Company on
the one hand and of the Underwriter, on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative fault of the Company on the one hand and of the Underwriter on the
other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or by the Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
<PAGE>
-14-
7.5 The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation or by any other method of allocation which does not take
account of the considerations referred to in clause 7.4, above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in this Section 7 shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim except where the indemnified party is
required to bear such expenses pursuant to clause 7.4; which expenses the
indemnifying party shall pay as and when incurred, at the request of the
indemnified party, to the extent that the indemnifying party believes that it
will be ultimately obligated to pay such expenses. In the event that any
expenses so paid by the indemnifying party are subsequently determined to not be
required to be borne by the indemnifying party hereunder, the party which
received such payment shall promptly refund the amount so paid to the party
which made such payment. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7.6 The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the
Underwriter or on behalf of the Underwriter or any person controlling the
Underwriter or by or on behalf of the Company and its respective directors or
officers or any person controlling the Company and (iii) acceptance of and
payment for any of the Certificates.
8. TERMINATION. This Agreement shall be subject to termination by
notice given to the Company, if the sale of the Certificates provided for herein
is not consummated because of any failure or refusal on the part of the Company
to comply with the terms or to fulfill any of the conditions of this Agreement,
or if for any reason the Company shall be unable to perform their respective
obligations under this Agreement. If you terminate this Agreement in accordance
with this Section 8, the Company will reimburse you for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been reasonably incurred by the Underwriter in connection with
the proposed purchase and sale of the Certificates.
9. CERTAIN REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective
agreements, representations, warranties, indemnities and other statements of the
Company or the officers of the Company, and you set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation, or statement as to the results thereof, made by you or on your
behalf or made by or on behalf of the Company or any of its officers, directors
or controlling persons, and will survive delivery of and payment for the
Certificates.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Underwriter will be mailed,
delivered or telegraphed and confirmed to you at
________________________________________________________________________,
Attention: ____________________________ or if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Ameriquest Mortgage
Securities Inc., ____________________.
<PAGE>
-15-
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7 hereof, and their
successors and assigns, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
13. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, which taken together
shall constitute one and the same instrument.
<PAGE>
-16-
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
AMERIQUEST MORTGAGE
SECURITIES INC.
By:
-----------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
________________________________
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT A-1
[THACHER PROFFITT & WOOD LETTERHEAD]
-------------- ---, ----
Ameriquest Mortgage Securities Inc. [Underwriter]
1100 Town and Country Road ___________________________
Orange, California 92868 ___________________________
[Name of Master Servicer] [TRUSTEE]
[Address of Master Servicer] ___________________________
___________________________
Opinion: Underwriters Agreement
Ameriquest Mortgage Securities Inc.
AQ Mortgage Pass-Through Certificates, Series
Ladies and Gentlemen:
We have acted as counsel to Ameriquest Mortgage Securities Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of AQ Mortgage Pass-Through
Certificates, Series ____- ____ (the "Certificates"), pursuant to the Pooling
and Servicing Agreement, dated as of _______________ 1, ____ (the "Pooling and
Servicing Agreement"), among the Company, the Master Servicer and
___________________, as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B. Only the Senior Certificates and the Class M
Certificates (collectively, the "Offered Certificates") are being offered under
the Prospectus, ________, and the Prospectus Supplement, the Prospectus
Supplement together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant
<PAGE>
Ameriquest Mortgage Securities Inc.
Series ______________
_______________ ___, ____ 2.
to the Custodial Agreement, dated as of _______________ 1, ____, among the
Company, the Master Servicer, the Custodian and the Trustee (the "Custodial
Agreement"). ______________________ (the "Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to the
Assignment and Assumption Agreement, dated _________ __, ____ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, and the
Class M and Class B Certificates. The Company will sell the Class A and the
Class R Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to _______________________ (the "Underwriter"), pursuant to the
Underwriting Agreement, dated _____________ __, ____, between the Company and
the Underwriter (the "Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting Agreement and the
Assignment and Assumption Agreement, collectively, the "Agreements").
Capitalized terms not defined herein have the meanings ascribed to them in the
Agreements. This opinion letter is rendered pursuant to Section 6.4 of the
Underwriting Agreement.
In rendering this opinion letter, we have examined the documents
described above and such other documents as we have deemed necessary including,
where we have deemed appropriate, representations or certifications of officers
of parties thereto or public officials. In rendering this opinion letter, except
for the matters that are specifically addressed in the opinions expressed below,
we have assumed (i) the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies, (ii) the necessary entity formation and continuing existence in the
jurisdiction of formation, and the necessary licensing and qualification in all
jurisdictions, of all parties to all documents, (iii) the necessary
authorization, execution, delivery and enforceability of all documents, and the
necessary entity power with respect thereto and (iv) that there is not any other
agreement that modifies or supplements the agreements expressed in the documents
to which this opinion letter relates and that renders any of the opinions
expressed below inconsistent with such documents as so modified or supplemented.
In rendering this opinion letter, we have made no inquiry, have conducted no
investigation and assume no responsibility with respect to (a) the accuracy of
and compliance by the parties thereto with the representations, warranties and
covenants contained in any document or (b) the conformity of the underlying
assets and related documents to the requirements of the agreements to which this
opinion letter relates.
Our opinions set forth below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality, reasonableness, good faith and fair
dealings and the possible unavailability of specific performance and injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial and other decisions
upon the availability and enforceability of certain covenants, remedies and
other provisions, including the remedies of specific performance and self-help
and provisions imposing penalties and forfeitures and waiving objections to
venue and forum, (iii) bankruptcy, insolvency, receivership, reorganization,
liquidation, voidable preference, fraudulent conveyance and transfer, moratorium
and other similar laws affecting the rights of creditors or secured parties and
(iv) public policy considerations underlying the securities laws, to the extent
that such public policy considerations limit the enforceability of the
provisions of any agreement which purport or are construed to provide
indemnification with respect to securities law violations. Wherever we indicate
that our opinion with respect to the existence or absence of
<PAGE>
Ameriquest Mortgage Securities Inc.
Series ______________
_______________ ___, ____ 3.
facts is based on our knowledge, our opinion is based solely on the current
actual knowledge of the attorneys in this firm who are involved in the
representation of parties to the transactions described herein. In that regard
we have conducted no special or independent investigation of factual matters in
connection with this opinion letter.
In rendering this opinion letter, we do not express any opinion
concerning any law other than the federal laws of the United States, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
We do not express any opinion with respect to the securities laws of any
jurisdiction or any other matter not specifically addressed in the opinions
expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. The Registration Statement has become effective under the 1933
Act, and, to our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and not withdrawn, and no proceedings for that purpose have
been instituted or threatened under Section 8(d) of the 1933
Act.
2. The Registration Statement as of the date of the Prospectus
Supplement and the date hereof, and the Prospectus as of the
date of the Prospectus Supplement and the date hereof, other
than any financial or statistical information, Computational
Materials and ABS Term Sheets contained or incorporated by
reference therein, as to which we express no opinion herein,
complied as to form in all material respects with the
requirements of the Act and the applicable rules and
regulations thereunder.
3. To our knowledge, there are no material contracts, indentures
or other documents of a character required to be described or
referred to in either the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration
Statement, other than Computational Materials and ABS Term
Sheets as to which we express no opinion herein, and those
described or referred to therein or filed or incorporated by
reference as exhibits thereto.
4. The statements made in the Prospectus under the heading
"Description of the Securities," insofar as such statements
purport to summarize certain provisions of the Offered
Certificates and the Pooling and Servicing Agreement, provide
a fair summary of such provisions. The statements made in the
Basic Prospectus and the Prospectus Supplement, as the case
may be, under the headings "Federal Income Tax Consequences,"
"Certain Legal Aspects of Mortgage Loans-Applicability of
Usury Laws" and "-Alternative Mortgage Instruments" and "ERISA
Considerations," to the extent that they constitute matters of
State of New York or federal law or legal conclusions with
respect thereto, while not purporting to discuss all possible
consequences of investment in the Offered Certificates, are
correct in all material respects with respect to those
consequences or matters that are discussed therein. 5. The
Offered Certificates, assuming the execution, authentication
and delivery thereof in accordance with the Pooling and
Servicing Agreement and the delivery thereof and payment
therefor in accordance with the Underwriting Agreement, are
validly issued
<PAGE>
Ameriquest Mortgage Securities Inc.
Series ______________
_______________ ___, ____ 4.
and outstanding and are entitled to the benefits of the
Pooling and Servicing Agreement.
6. The Pooling and Servicing Agreement is not required to be
qualified under the Trust Indenture Act of 1939, as amended.
The Trust Fund created by the Pooling and Servicing Agreement
is not an "investment company" or "controlled by" an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
7. The Class A Certificates will be "mortgage related securities"
as defined in Section 3(a)(41) of the 1934 Act, as amended, so
long as such class is rated in one of the two highest rating
categories by at least one "nationally recognized statistical
rating organization" as that term is used in that Section.
8. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for federal income tax purposes, REMIC I
and REMIC II will each qualify as a real estate mortgage
investment conduit ("REMIC") within the meaning of Sections
860A through 860G (the "REMIC Provisions") of the Internal
Revenue Code of 1986, the Class R-I Certificates will
constitute the sole class of "residual interests" in REMIC I,
each class of Offered Certificates will represent ownership of
"regular interests" in REMIC II and will generally be treated
as debt instruments of REMIC II and the Class R-II
Certificates will constitute the sole class of "residual
certificates" in REMIC II, within the meaning of the REMIC
Provisions in effect on the date hereof.
9. Assuming compliance with the provisions of the Pooling and
Servicing Agreement, for City and State of New York income and
corporation franchise tax purposes, REMIC I and REMIC II will
each be classified as a REMIC and not as a corporation,
partnership or trust, in conformity with the federal income
tax treatment of the Trust Fund. Accordingly, REMIC I and
REMIC II will be exempt from all City and State of New York
taxation imposed on its income, franchise or capital stock,
and its assets will not be included in the calculation of any
franchise tax liability.
<PAGE>
Ameriquest Mortgage Securities Inc.
Series ______________
_______________ ___, ____ 5.
This opinion letter is rendered for the sole benefit of each addressee
hereof, and no other person or entity is entitled to rely hereon. Copies of this
opinion letter may not be made available, and this opinion letter may not be
quoted or referred to in any other document made available, to any other person
or entity except to (i) any applicable rating agency, credit enhancer or
governmental authority, (ii) any accountant or attorney for any person or entity
entitled hereunder to rely hereon or to whom or which this opinion letter may be
made available as provided herein or (iii) as otherwise required by law.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT A-2
[THACHER PROFFITT & WOOD LETTERHEAD]
-------------- ---, ----
Supplemental Letter:
Ameriquest Mortgage Securities Inc.
AQ Mortgage Pass-Through Certificates, Series ____-_____
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Ameriquest Mortgage Securities Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of AQ Mortgage Pass-Through
Certificates, Series ____- ____ (the "Certificates"), pursuant to the Pooling
and Servicing Agreement, dated as of _______________ 1, ____ (the "Pooling and
Servicing Agreement"), among the Company, the Master Servicer and
___________________, as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B. Only the Senior Certificates and the Class M
Certificates (collectively, the "Offered Certificates") are being offered under
the Prospectus, ________, and the Prospectus Supplement, the Prospectus
Supplement together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant to the Custodial
Agreement, dated as of _______________ 1, ____, among the Company, the Master
Servicer, the Custodian and the Trustee (the "Custodial Agreement").
____________________________________ (the "Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to the
Assignment and Assumption Agreement, dated _________ __, ____ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, and the
Class M and Class B Certificates. The Company will sell the Class A and the
Class R Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to
<PAGE>
Ameriquest Mortgage Securities Inc.
[Underwriter]
[Trustee]
__________________ __, ____ 2.
_______________________ (the "Underwriter"), pursuant to the Underwriting
Agreement, dated _____________ __, ____, between the Company and the Underwriter
(the "Underwriting Agreement"; the Pooling and Servicing Agreement, the
Custodial Agreement, the Underwriting Agreement and the Assignment and
Assumption Agreement, collectively, the "Agreements"). Capitalized terms not
defined herein have the meanings ascribed to them in the Agreements. This
opinion letter is rendered pursuant to Section 6.4 of the Underwriting
Agreement.
The primary purpose of our professional engagement was to advise with
respect to legal matters and not to establish factual matters. Many
determinations involved in the preparation of the Prospectus Supplement were
factual. However, at the request of the Seller we reviewed the information
contained in the Prospectus Supplement (other than the information presented in
tabular form) under the captions "SUMMARY OF PROSPECTUS SUPPLEMENT - THE
MORTGAGE LOANS," "RISK FACTORS" and "THE MORTGAGE POOL" (collectively, the
"Information"). We were not engaged to and did not review any other portion of
the Prospectus Supplement or any portion of the Prospectus, and we did not
prepare any of the documents evidencing, or close, any of the Mortgage Loans.
We have not otherwise undertaken any procedures that were intended or
likely to elicit information concerning the accuracy, completeness or fairness
of the Information other than as provided below. We are not otherwise advising
in this letter with respect to the accuracy, completeness or fairness of
statistical, accounting or other financial information contained in the
Information or not contained in the Information and from which the Information
was derived. It is our position that we are not "experts" within the meaning of
Section 11 of the Securities Act of 1933, or "persons" within the meaning of
Section 11(a)(4) thereof, with respect to any portion of the Prospectus
Supplement or the Prospectus, including without limitation such accounting,
financial and statistical information.
Based upon and subject to the foregoing, this is to inform you that no
information has come to the attention of the attorneys in this firm who are
involved in the representation of the Seller in this matter that causes us to
believe that the Information, as of the date of the Prospectus Supplement or
hereof, contained or contains any untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
<PAGE>
Ameriquest Mortgage Securities Inc.
[Underwriter]
[Trustee]
__________________ __, ____ 3.
This letter is rendered for the sole benefit of each addressee hereof,
and no other person or entity is entitled to rely hereon. Copies of this letter
may not be made available, and this letter may not be quoted or referred to in
any other document made available, to any other person or entity except to (i)
any applicable rating agency, credit enhancer or governmental authority, (ii)
any accountant or attorney for any person or entity entitled hereunder to rely
hereon or to whom or which this letter may be made available as provided herein
or (iii) as otherwise required by law.
Very truly yours,
THACHER PROFFITT & WOOD
By
<PAGE>
EXHIBIT B
[COUNSEL TO MASTER SERVICER LETTERHEAD]
-----------------, -----
[TRUSTEE]
_______________________
_______________________
[UNDERWRITER]
_______________________
_______________________
Ameriquest Mortgage Securities Inc.
AQ Mortgage Pass-Through Certificates, Series ____-_____
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Ameriquest Mortgage Securities Inc. (the
"Company") and [Name of Master Servicer] (the "Master Servicer") in connection
with the issuance and sale by the Company of AQ Mortgage Pass-Through
Certificates, Series ____- ____ (the "Certificates"), pursuant to the Pooling
and Servicing Agreement, dated as of _______________ 1, ____ (the "Pooling and
Servicing Agreement"), among the Company, the Master Servicer and
___________________, as trustee (the "Trustee"). The Certificates consist of
____________ classes designated as Class A and Class R (collectively, the
"Senior Certificates") and ____________ classes of subordinated certificates
designated as Class M and Class B. Only the Senior Certificates and the Class M
Certificates (collectively, the "Offered Certificates") are being offered under
the Prospectus, ________, and the Prospectus Supplement, the Prospectus
Supplement together with the Prospectus, the "Prospectus")
The Senior Certificates in the aggregate and the Class M Certificates
will evidence initial undivided ownership interests, in a trust fund (the "Trust
Fund") consisting primarily of a pool of one- to four-family first mortgage
loans (the "Mortgage Loans") held by ______________________________
______________, as custodian (the "Custodian"), pursuant to the Custodial
Agreement, dated as of _______________ 1, ____, among the Company, the Master
Servicer, the Custodian and the Trustee (the "Custodial Agreement").
____________________________________ (the "Purchaser") acquired the Mortgage
Loans through its mortgage loan purchase program from various seller/servicers.
The Purchaser transferred the Mortgage Loans to the Company pursuant to the
Assignment and Assumption Agreement, dated _________ __, ____ (the "Assignment
and Assumption Agreement"), in exchange for immediately available funds, and the
Class M and Class B Certificates. The Company will sell the Class A and the
Class R Certificates other than a de minimis portion thereof (the "Underwritten
Certificates") to _______________________ (the "Underwriter"), pursuant to the
Underwriting Agreement, dated _____________ __, ____, between the Company and
the Underwriter (the "Underwriting Agreement"; the Pooling and Servicing
Agreement, the Custodial Agreement, the Underwriting
<PAGE>
[Trustee]
[Underwriter]
____________________, _____ 2.
Agreement and the Assignment and Assumption Agreement, collectively, the
"Agreements"). Capitalized terms not defined herein have the meanings ascribed
to them in the Agreements. This opinion letter is rendered pursuant to Section
6.4 of the Underwriting Agreement.
Based upon and stated in the foregoing, we are of the opinion that:
1. The Company and the Master Servicer are duly incorporated and are
validly existing as corporations in good standing under the laws of the State of
Delaware and the State of __________, respectively, and each has the requisite
power and authority, corporate or other, to own its properties and conduct its
business, as presently conducted by it, and to enter into and perform its
obligations under the Agreements.
2. Each of the Agreements has been duly and validly authorized,
executed and delivered by the Company and the Master Servicer and, upon due
authorization, execution and delivery by other parties thereto, will constitute
the valid, legal and binding agreements of the Company and the Master Servicer,
enforceable against the Company and the Master Servicer in accordance with its
terms.
3. No consent, approval, authorization or order of the State of
__________ or federal court or governmental agency or body is required for the
consummation by the Company or the Master Servicer of the transactions
contemplated by the terms of the Agreements, except for those consents,
approvals, authorizations or orders which previously have been obtained.
4. Neither the sale, issuance and delivery of the Underwritten
Certificates as provided in the Agreements, nor the consummation of any other of
the transactions contemplated by, or the fulfillment of any other of the terms
of, the Agreements, will result in a breach of any term or provision of the
charter or bylaws of the Company or the Master Servicer or any State of
Minnesota or federal statute or regulation or conflict with, result in a breach,
violation or acceleration of or constitute a default under the terms of any
indenture or other material agreement or instrument to which the Company or the
Master Servicer is a party or by which it is bound or any order or regulation of
any State of Minnesota or federal court, regulatory body, administrative agency
or governmental body having jurisdiction over the Company or the Master
Servicer.
Very truly yours,
COUNSEL TO MASTER SERVICER
<PAGE>
EXHIBIT C
[TRUSTEE'S COUNSEL'S LETTERHEAD]
----------------, -----
[UNDERWRITER] [Name of Master Servicer]
_____________________ [Address of Master Servicer]
_____________________
Ameriquest Mortgage Securities Inc. [TRUSTEE]
1100 Town and Country Road _________________________
Orange, California 92868 _________________________
Re: Ameriquest Mortgage Securities Inc.
AQ Mortgage Pass-Through Certificates, Series ___-_____
-------------------------------------------------------
Ladies and Gentlemen:
In connection with the issuance of the above-referenced Certificates
pursuant to the Pooling and Servicing Agreement, dated as of ____________ 1,
_____ (the "Pooling and Servicing Agreement"), among Ameriquest Mortgage
Securities Inc., as Company, [Name of Master Servicer], as Master Servicer and
_____________________, as Trustee (the "Trustee"), we have been asked to furnish
this opinion. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Pooling and Servicing Agreement.
In arriving at the opinions expressed below, we have examined and
relied upon the originals or copies, certified or otherwise identified to our
satisfaction, of the Pooling and Servicing Agreement and of such documents,
instruments and certificates, and we have made such investigations of law, as we
have deemed appropriate as the basis for the opinions expressed below. We have
assumed but have not verified that the signatures on all documents that we have
examined are genuine and that each person signing each such document was duly
authorized to sign such document on behalf of the person or entity purported to
be bound thereby.
Based on the foregoing, we are of the opinion that:
1. The Trustee has full corporate power and authority to execute
and deliver the Pooling and Servicing Agreement, the Custodial
Agreement and the Certificates and to perform its obligations
under the Pooling and Servicing Agreement and the Custodial
Agreement.
2. Each of the Pooling and Servicing Agreement and the Custodial
Agreement has been duly authorized, executed and delivered by
the Trustee, and the Trustee has duly
<PAGE>
Ameriquest Mortgage Securities Inc.
____________________, _____ Page 2.
executed and delivered the Certificates as provided in the
Pooling and Servicing Agreement.
3. The Pooling and Servicing Agreement is a legal, valid and
binding obligation of the Trustee, enforceable against the
Trustee in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium,
receivership and similar laws affecting the rights of
creditors generally, and subject, as to enforceability, to
general principles of equity, regardless of whether such
enforcement is considered in a proceeding at law or in equity.
4. In the event that the Master Servicer defaults in its
obligation to make Advances pursuant to Section 4.03(b) of the
Pooling and Servicing Agreement, the Trustee is not, as of the
date hereof, prohibited by any provision of its Restated
Organization Certificate or By-Laws or by any provision of the
banking and trust laws of the State of New York from assuming,
pursuant to Section 7.02 of the Pooling and Servicing
Agreement, the obligation to make such Advances.
We express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York.
We are furnishing this opinion to you solely for your benefit. This
opinion may not be used, circulated, quoted or otherwise referred to for any
other purpose.
Very truly yours,
________________________
<PAGE>
EXHIBIT D
<PAGE>
EXHIBIT E
Excluded Information
<PAGE>
EXHIBIT F
Underwriter Information
<PAGE>
EXHIBIT G
------------------, -----
Ameriquest Mortgage Securities Inc.
1100 Town and Country Road
Orange, California 92868
Re: Ameriquest Mortgage Securities Inc.
AQ Mortgage Pass-Through Certificates,
Series __-______, Class A and Class R ______
--------------------------------------------
Pursuant to Section 4 of the Underwriting Agreement, dated
_______________, ____, between Ameriquest Mortgage Securities Inc. and
________________________ (the "Underwriter") relating to the Certificates
referenced above (the "Underwriting Agreement"), the undersigned does hereby
certify that:
(a) The prepayment assumption used in pricing the Certificates was
______% SPA.
(b) Set forth below is (i), the first price, as a percentage of the
principal balance of each class of Certificates, at which 10% of the aggregate
principal balance of each such class of Certificates was sold to the public at a
single price, if applicable, or (ii) if more than 10% of a class of Certificates
have been sold to the public but no single price is paid for at least 10% of the
aggregate principal balance of such class of Certificates, then the weighted
average price at which the Certificates of such class were sold expressed as a
percentage of the principal balance of such class of Certificates, or (iii) if
less than 10% of the aggregate principal balance of a class of Certificates has
been sold to the public, the purchase price for each such class of Certificates
paid by the Underwriter expressed as a percentage of the principal balance of
such class of Certificates calculated by: (1) estimating the fair market value
of each such class of Certificates as of __________________, _____; (2) adding
such estimated fair market value to the aggregate purchase price of each class
of Certificates described in clause (i) or (ii) above; (3) dividing each of the
fair market values determined in clause (1) by the sum obtained in clause (2);
(4) multiplying the quotient obtained for each class of Certificates in clause
(3) by the purchase price paid by the Underwriter for all the Certificates; and
(5) for each class of Certificates, dividing the product obtained from such
class of Certificates in clause (4) by the original principal balance of such
class of Certificates:
Class A: __________________
Class R: __________________
[* less than 10% has been sold to the public]
The prices set forth above do not include accrued interest with respect to
periods before closing.
<PAGE>
Ameriquest Mortgage Securities Inc.
__________________, ____ Page 2.
_______________________________
By:____________________________
Name:__________________________
Title:_________________________
<PAGE>
EXHIBIT I
[Form of Legend]
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AMERIQUEST MORTGAGE SECURITIES INC.
The Certificate of Incorporation Ameriquest Mortgage Securities Inc.,
originally filed with the Secretary of State of the State of Delaware on
December 23, 1999, is hereby amended, restated and integrated, in accordance
with Sections 241 and 245 of the General Corporation Law of the State of
Delaware, to read in its entirety as follows:
1. The name of the corporation incorporated hereby is Ameriquest
Mortgage Securities Inc. (the "Corporation").
2. The name and address of the Corporation's registered agent in the
State of Delaware is National Registered Agents, Inc., 9 East Loockerman Street
in the City of Dover, County of Kent.
3. The Corporation exists only for the purposes specified in this
paragraph 3. The Corporation has been formed for the sole purpose of conducting
the following activities:
(a) Acquiring as purchaser and/or by contribution to the capital
of the Corporation or otherwise, owning, holding,
transferring, assigning, selling, contributing to capital,
pledging and otherwise dealing with (i) mortgage notes and
similar such instruments, related real property mortgages and
deeds of trust and other related agreements, documents, books
and records, (ii) related rights to payment, whether
constituting cash, account, chattel paper, instrument, general
intangible or otherwise, and any other related assets,
property and rights, including without limitation security
interests, (iii) related collection, deposit, custodial, trust
and other accounts, lock boxes and post office boxes and any
amounts and other items from time to time on deposit therein,
(iv) real property and any improvements thereon and personal
property acquired by foreclosure, deed-in-lieu thereof or
otherwise in respect of any of the foregoing, (v)
certificates, notes, bonds or other securities, instruments
and documents evidencing ownership interests in or obligations
secured by all or any of the foregoing and (vi) proceeds and
other payments and distributions of any kind of, on or in
respect of any of the foregoing;
(b) Authorizing, issuing, selling and delivering, directly or
indirectly through business trusts, common law trusts or other
entities established solely for such purpose, certificates,
notes, bonds and other securities, instruments and documents
evidencing ownership interests in or obligations secured by
all or any portion of the assets described in foregoing
paragraph (a), and in connection therewith entering into
servicing, insurance, credit enhancement, reimbursement and
other agreements related thereto; and
<PAGE>
(c) Taking any action necessary or reasonable to enable the
Corporation to engage in any lawful act or activity and to
exercise any powers permitted to corporations organized under
the laws of the State of Delaware that are related or
incidental to and necessary, convenient or advisable to
accomplish any of the foregoing.
4. The total number of shares of stock which the Corporation shall have
authority to issue is one thousand (1,000) shares of common stock, each of which
shall have a par value of $0.01.
5. The election of directors of the Corporation need not be by ballot
unless the by-laws of the Corporation so provide. The books of the Corporation
may, subject to any statutory requirements, be kept at such place within or
outside the State under the laws of Delaware as may be designated by the board
of directors or the by-laws of the Corporation.
6. As used herein, (i) "person" means any individual, proprietorship,
trust, estate, partnership, joint venture, association, company, corporation,
limited liability company or other entity, (ii) "affiliate" means any person
that directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the person specified and (iii)
"control", including the terms "controlling," "controlled by" and "under common
control with", means the direct or indirect possession of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of at least 10% of the voting securities, by contract or
otherwise.
7. The Corporation shall at all times have at least one (1) Independent
Director. As used in this Certificate of Incorporation, "Independent Director"
means a director (i) who is not a current or former director, officer, partner,
member, shareholder, employee, creditor or customer of the Corporation or of any
affiliate of the Corporation, and is not a spouse, parent, brother, sister,
child, aunt, uncle or cousin of any such person, and (ii) who has not received,
and was not a director, officer, director, partner, member, shareholder or
employee of any person that has received any fees or other income other than
fees for serving as such Independent Director from any affiliate of the
Corporation in any year within the five (5) years immediately preceding, or any
year during, such director's incumbency as an Independent Director. However, an
Independent Director may serve, or may have served previously, with compensation
therefor in such a capacity for any other special purpose entity formed by any
affiliate of the Corporation. No resignation or removal of an Independent
Director shall be effective until a successor Independent Director has been
elected to replace such Independent Director.
8. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware or (iv) for any transaction from which the director derived
any improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after the filing of this Certificate of Incorporation to
authorize corporate action eliminating or further limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware as so amended. Any repeal or
modification of the foregoing portion of this paragraph by the stockholders of
the
-2-
<PAGE>
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
9. (a) The affirmative votes or written consents of the holders of all
of the outstanding common stock of the Corporation and of all of the directors
of the Corporation shall be necessary for (i) any amendment of this Certificate
of Incorporation of the Corporation, (ii) any consolidation or merger with or
into any other person or dissolution or liquidation in whole or in part, (iii)
any purchase or other acquisition, or any sale, pledge or other transfer, of any
assets, or any creation, incurring or guarantee of, or other assumption of
liability for, any indebtedness, by the Corporation, other than in a transaction
within the scope of paragraph 3 above, (iv) any institution by the Corporation
of any action to have itself adjudicated as bankrupt or insolvent, any consent
to the institution of bankruptcy or insolvency proceedings against it, any
request or consent to the entry of any order for relief or the appointment of a
receiver, trustee or other similar official for it or for any substantial part
of its property, any liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, any
making of any general assignment for the benefit of creditors, or any admission
in writing that it is unable to pay its debts generally as they become due or
(v) the taking of any corporate action in furtherance of any of the actions set
forth above in this paragraph. In such voting each Independent Director shall
owe a fiduciary duty to the Corporation itself, including the stockholders and
the creditors of the Corporation.
(b) If any outstanding certificates, notes, bonds or other
securities are then rated at the request of the Corporation by any nationally
recognized statistical rating organization (each, a "Rating Agency"), the
Corporation shall not amend or repeal any provision of this Certificate of
Incorporation unless either (a) the Corporation shall have received written
confirmation from each Rating Agency that such amendment or repeal will not
cause such Rating Agency to reduce or withdraw any rating then so assigned to
any such securities or (b) the Corporation shall have received written consent
to any such amendment or repeal from the other parties to each agreement
pursuant to which such securities were issued.
10. The Corporation shall be operated in such a manner that its assets
and liabilities shall not be substantively consolidated with those of any other
person in the event of the bankruptcy or insolvency of the Corporation or such
other person. Without limiting the foregoing, the Corporation shall maintain
adequate capital in light of its contemplated business operations, conduct its
business in its own name and through its duly authorized officers or agents,
maintain and hold itself out as a separate entity and observe all appropriate
corporate and other organizational formalities, maintain its assets separate
from those of any other person or entity, maintain its books, records and bank
accounts separate from those of any other person, maintain separate financial
statements showing its assets and liabilities separate and apart from those of
any other person, pay its own liabilities and expenses only out of its own
funds, enter into a transaction with an affiliate only if such transaction is
intrinsically fair, commercially reasonable and on the same terms as would be
available in an arm's length transaction with a person or entity that is not an
affiliate, allocate fairly and reasonably any overhead expenses that are shared
with an affiliate, not hold itself out as being liable for the debts
-3-
<PAGE>
of any other person and not take any other action or engage in any other
activity that would be inconsistent with maintaining the separate legal identity
of the Corporation.
THE UNDERSIGNED hereby certifies that the Corporation has not received
any payment for any of its stock and has hereby signed this Amended and Restated
Certificate of Incorporation as the sole incorporator of the Corporation in
accordance with Sections 241 and 245 of the General Corporation Law of the State
of Delaware as of January 7, 2000.
/s/ Susan A.T. Tice
--------------------------------
Susan A.T. Tice
c/o Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
EXHIBIT 3.2
BY-LAWS
OF
AMERIQUEST MORTGAGE SECURITIES INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of
the Corporation shall be in the City of Wilmington, County of Newcastle, State
of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also
have offices at such other places both within and without the State of Delaware
as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of
Stockholders shall be held on such date and at such time as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting, at which meeting the stockholders shall elect by a plurality vote a
Board of Directors, and transact such other business as may properly be brought
before the meeting. Written notice of the Annual Meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by
law or by the Certificate of Incorporation, Special Meetings of Stockholders,
for any purpose or purposes, may be called by either (i) the Chairman, if there
be one, or (ii) the President, (iii) any Vice President, if there be one, (iv)
the Secretary or (v) any Assistant Secretary, if there be one, and shall be
called by any such officer at the request in writing of a majority of the Board
of Directors or at the request in writing of stockholders owning a majority of
the capital stock of the Corporation issued and outstanding and entitled to
vote. Such request shall state the purpose or purposes of the proposed
<PAGE>
meeting. Written notice of a Special Meeting stating the place, date and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by
the Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
busi ness may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting.
SECTION 5. VOTING. Unless otherwise required by law,
the Certificate of Incorporation or these By-Laws, any question brought before
any meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote thereat. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote thereat held by such
stockholder. Such votes may be cast in person or by proxy but no proxy shall be
voted on or after three years from its date, unless such proxy provides for a
longer period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place
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of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
SECTION 8. STOCK LEDGER. The stock ledger of the
Corporation shall be the only evidence as to who are the stockholders entitled
to examine the stock ledger, the list required by Section 7 of this Article II
or the books of the Corporation, or to vote in person or by proxy at any meeting
of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER ELECTION AND REMOVAL OF DIRECTORS. The Board
of Directors shall consist of not less than one nor more than five members the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. The Board of Directors
shall at all times include at least one independent director who is not a
director, officer or employee of the Corporation's direct or indirect parent.
Except as provided in Section 2 of this Article, directors shall be elected by a
plurality of the votes cast at Annual Meetings of Stockholders and each director
so elected shall hold office until the next Annual Meeting and until his
successor is duly elected and qualified or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders. At any time, directors may be removed and
their successors chosen by the unanimous written consent of the holders of the
outstanding stock of the Corporation entitled to vote on the election of
directors. No removal of the independent director shall be effective until a
successor independent director has been elected to replace such removed
independent director.
SECTION 2. VACANCIES. Subject to Section 1 of this Article,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, though less than a quorum, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and qualified, or until their earlier
resignation or removal.
SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
By-Laws directed or required to be exercised or done by the
stockholders.
SECTION 4. MEETINGS. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. Regular meetings of the Board of Directors may be held without
notice at such time and at such place as may from time to time be determined by
the Board of Directors. Special meetings of the Board of Directors may be called
by the Chairman, if there be one, the President, or any two directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
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SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these ByLaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
SECTION 9. COMPENSATION. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 10. INTERESTED DIRECTORS. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
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officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the shareholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the shareholders; or (iii) the contract or transaction is fair as to
the Corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof or the shareholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a Chairman
of the Board of Directors (who must be a director) and one or more
Vice-Presidents or Assistant Vice-Presidents, Assistant Secretaries, Assistant
Treasurers and other officers. The Corporation shall at all times have at least
one executive officer who is not a director, officer or employee of the direct
or indirect parent of the Corporation. Any number of offices may be held by the
same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any
Vice-President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at
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any such meeting shall possess and may exercise any and all rights and power
incident to the ownership of such securities and which, as the owner thereof,
the Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like
powers upon any other person or persons.
SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. He shall be the Chief Executive
Officer of the Corporation, and except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 5. PRESIDENT. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. He shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
SECTION 6. VICE-PRESIDENTS. At the request of the
President or in his absence or in the event of his inability or refusal to act
(and if there be no Chairman of the Board of Directors), the Vice-President or
the Vice-Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Each Vice-President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the event of the inability or refusal of the President to
act, shall perform the duties of the President, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President.
SECTION 7. SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as
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may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
SECTION 8. TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President, any Vice-President, if there be one, or
the Secretary, and in the absence of the Secretary or in the event of his
disability or refusal to act, shall perform the duties of the Secretary, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Secretary.
SECTION 10. ASSISTANT TREASURERS. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any
Vice-President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform the
duties of the Treasurer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
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SECTION 11. OTHER OFFICERS. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by him in the Corporation.
SECTION 2. SIGNATURES. Where a certificate is countersigned by
(i) a transfer agent other than the Corporation or its employee, or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall
be transferable in the manner prescribed by law and in these By-Laws. Transfers
of stock shall be made on the books of the Corporation only by the person named
in the certificate or by his attorney lawfully constituted in writing and upon
the surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not
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be more than sixty days nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for
money and notes of the Corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
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SECTION 3. FISCAL YEAR. The fiscal year of the
Corporation shall be fixed by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall
have inscribed thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal, Delaware". The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investi gative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit were brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
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SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Sec tion 1 or Section 2 of this Article VIII, as the case
may be. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the extent,
however, that a director, officer, employee or agent of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or pro
ceeding described above, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
SECTION 4. GOOD FAITH DEFINED. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of account
of the Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the Corporation
or another en terprise by an independent certified public accountant or by an
appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust or
other enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, employee or agent. The provisions of this
Section 4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Sections 1 or 2 of this Article VIII, as the
case may be.
SECTION 5. INDEMNIFICATION BY A COURT. Not withstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2 of this Article VIII, as the case may be. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application.
SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred in
defending or investigating a threatened or pending action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the director,
officer,
-11-
<PAGE>
employee or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation as authorized in this
Article VIII.
SECTION 7. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION.
The indemnification provided by this Article VIII shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled under
any By-Law, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of the persons specified in Sections 1 and 2 of
this Article VIII shall be made to the fullest extent permitted by law. The
provisions of this Article VIII shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the General Corporation Law of the State of Delaware, or
otherwise. The indemnification provided by this Article VIII shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
SECTION 8. INSURANCE. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of this
Article VIII.
SECTION 9. MEANING OF "CORPORATION" FOR PURPOSES OF ARTICLE
VIII. For purposes of this Article VIII, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the name
position under the provisions of this Article VIII with respect to the resulting
or surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE IX
AMENDMENTS
SECTION 1. These By-Laws may be altered, amended or repealed,
in whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
-12-
<PAGE>
SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this
Article IX and in these By-Laws generally, the term "entire Board of Directors"
means the total number of directors that the Corporation would have if there
were no vacancies.
-13-
EXHIBIT 4.1
AMERIQUEST MORTGAGE SECURITIES INC.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer
and
[NAME OF TRUSTEE]
Trustee
-----------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ________ 1, ____
-----------------------------------------
AQ Floating Rate Mortgage Pass-Through Certificates
Series ____-___
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
ARTICLE I
DEFINITIONS
<S> <C> <C>
1.01. Defined Terms..................................................................................9
1.02. Allocation of Certain Interest Shortfalls.....................................................51
</TABLE>
ARTICLE II
<TABLE>
<CAPTION>
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
<S> <C> <C>
2.01. Conveyance of Mortgage Loans..................................................................52
2.02. Acceptance of REMIC I by the Trustee..........................................................54
2.03. Repurchase or Substitution of Mortgage Loans by the Originator, the Seller or the
Depositor; Payment of Prepayment Charges in the event of breach...............................55
2.04. Representations and Warranties of the Depositor...............................................59
2.05. Representations, Warranties and Covenants of the Master Servicer..............................61
2.06. Issuance of Class R-I Certificates............................................................63
2.07. Conveyance of REMIC I Regular Interests; Acceptance of REMIC II by the Trustee
64
2.08. Issuance of Class R-II Certificates...........................................................64
2.09. Conveyance of REMIC II Regular Interests; Acceptance of REMIC III by the
Trustee.......................................................................................64
2.10. Issuance of REMIC III Certificates............................................................64
2.11. Conveyance of the Subsequent Mortgage Loans...................................................64
</TABLE>
<TABLE>
<CAPTION>
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
<S> <C> <C>
3.01. Master Servicer to Act as Master Servicer.....................................................68
3.02. Sub-Servicing Agreements Between the Master Servicer and Sub-Servicers........................69
3.03. Successor Sub-Servicers.......................................................................70
3.04. Liability of the Master Servicer..............................................................71
3.05. No Contractual Relationship Between Sub-Servicers and Trustee or
Certificateholders............................................................................71
3.06. Assumption or Termination of Sub-Servicing Agreements by Trustee..............................71
3.07. Collection of Certain Mortgage Loan Payments..................................................72
3.08. Sub-Servicing Accounts........................................................................72
3.09. Collection of Taxes, Assessments and Similar Items; Servicing Accounts........................73
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
3.10. Collection Account and Distribution Account...................................................74
3.11. Withdrawals from the Collection Account and Distribution Account..............................76
3.12. Investment of Funds in the Pre-Funding Account, the Interest Coverage Account,
Collection Account and the Distribution Account...............................................78
3.13. [intentionally omitted].......................................................................79
3.14. Maintenance of Hazard Insurance and Errors and Omissions and Fidelity Coverage
79
3.15. Enforcement of Due-On-Sale Clauses; Assumption Agreements.....................................81
3.16. Realization Upon Defaulted Mortgage Loans.....................................................81
3.17. Trustee to Cooperate; Release of Mortgage Files...............................................83
3.18. Servicing Compensation........................................................................84
3.19. Reports to the Trustee; Collection Account Statements.........................................85
3.20. Statement as to Compliance....................................................................85
3.21. Independent Public Accountants' Servicing Report..............................................86
3.22. Access to Certain Documentation...............................................................86
3.23. Title, Management and Disposition of REO Property.............................................87
3.24. Obligations of the Master Servicer in Respect of Prepayment Interest Shortfalls
.............................................................................................90
3.25. Obligations of the Master Servicer in Respect of Mortgage Rates and Monthly
Payments......................................................................................90
3.26. ..............................................................................................90
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
<S> <C> <C>
4.01. Distributions.................................................................................91
4.02. Statements to Certificateholders..............................................................97
4.03. Remittance Reports; P&I Advances.............................................................101
4.04. Allocation of Realized Losses................................................................103
4.05. Compliance with Withholding Requirements.....................................................105
4.06. Commission Reporting.........................................................................105
4.07. Pre-Funding Account..........................................................................105
4.08. Interest Coverage Account....................................................................107
</TABLE>
<TABLE>
<CAPTION>
ARTICLE V
THE CERTIFICATES
<S> <C> <C>
5.01. The Certificates.............................................................................109
5.02. Registration of Transfer and Exchange of Certificates........................................111
5.03. Mutilated, Destroyed, Lost or Stolen Certificates............................................116
5.04. Persons Deemed Owners........................................................................116
5.05. Certain Available Information................................................................116
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
<S> <C> <C>
6.01. Liability of the Depositor and the Master Servicer...........................................118
6.02. Merger or Consolidation of the Depositor or the Master Servicer..............................118
6.03. Limitation on Liability of the Depositor, the Master Servicer and Others.....................118
6.04. Limitation on Resignation of the Master Servicer.............................................119
6.05. Rights of the Depositor in Respect of the Master Servicer....................................120
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VII
DEFAULT
<S> <C> <C>
7.01. Master Servicer Events of Default............................................................121
7.02. Trustee to Act; Appointment of Successor.....................................................123
7.03. Notification to Certificateholders...........................................................125
7.04. Waiver of Master Servicer Events of Default..................................................125
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VIII
CONCERNING THE TRUSTEE
<S> <C> <C>
8.01. Duties of Trustee............................................................................126
8.02. Certain Matters Affecting the Trustee........................................................127
8.03. Trustee Not Liable for Certificates or Mortgage Loans........................................128
8.04. Trustee May Own Certificates.................................................................128
8.05. Trustee's Fees and Expenses..................................................................128
8.06. Eligibility Requirements for Trustee.........................................................129
8.07. Resignation and Removal of the Trustee.......................................................129
8.08. Successor Trustee............................................................................130
8.09. Merger or Consolidation of Trustee...........................................................131
8.10. Appointment of Co-Trustee or Separate Trustee................................................131
8.11. Appointment of Custodians....................................................................132
8.12. Appointment of Office or Agency..............................................................132
8.13. Representations and Warranties of the Trustee................................................132
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IX
TERMINATION
<S> <C> <C>
9.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans.............................134
9.02 Additional Termination Requirements..........................................................136
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
REMIC PROVISIONS
<S> <C> <C>
10.01. REMIC Administration.........................................................................137
10.02. Prohibited Transactions and Activities.......................................................139
10.03. Master Servicer and Trustee Indemnification..................................................140
</TABLE>
<TABLE>
<CAPTION>
ARTICLE XI
MISCELLANEOUS PROVISIONS
<S> <C> <C>
11.01. Amendment....................................................................................141
11.02. Recordation of Agreement; Counterparts.......................................................142
11.03. Limitation on Rights of Certificateholders...................................................142
11.04. Governing Law................................................................................143
11.05. Notices......................................................................................143
11.06. Severability of Provisions...................................................................144
11.07. Notice to Rating Agencies....................................................................144
11.08. Article and Section References...............................................................145
11.09. Grant of Security Interest...................................................................145
</TABLE>
<TABLE>
<CAPTION>
Exhibits
<S> <C> <C>
Exhibit A-1 Form of Class A-1 Certificate
Exhibit A-2 Form of Class A-2 Certificate
Exhibit A-3 Form of Class M-1 Certificate
Exhibit A-4 Form of Class M-2 Certificate
Exhibit A-5 Form of Class M-3 Certificate
Exhibit A-6 Form of Class CE Certificate
Exhibit A-7 Form of Class P Certificate
Exhibit A-8 Form of Class R-I Certificate
Exhibit A-9 Form of Class R-II Certificate
Exhibit A-10 Form of Class R-III Certificate
Exhibit B [Reserved]
Exhibit C-1 Form of Trustee's Initial Certification
Exhibit C-2 Form of Trustee's Final Certification
Exhibit D-1 Form of Mortgage Loan Sale and Contribution Agreement
Exhibit D-2 Form of Mortgage Loan Purchase Agreement
Exhibit E-1 Request for Release
Exhibit E-2 Request for Release Mortgage Loans paid in full
Exhibit F-1 Form of Transferor Representation Letter and Form of Transferee
Representation Letter in Connection with Transfer of Class CE and Class P
Certificates Pursuant to Rule 144A Under the 1933 Act
</TABLE>
<PAGE>
-5-
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit F-2 Form of Transfer Affidavit and Agreement and Form of Transferor Affidavit
in Connection with Transfer of Residual Certificates
Exhibit G Form of Certification with respect to ERISA and the Code
Exhibit H Form of Custodial Agreement
Exhibit I Subsequent Transfer Instrument
Exhibit J Addition Notice
Schedule 1 Mortgage Loan Schedule
Schedule 2 Prepayment Charge Schedule
</TABLE>
This Pooling and Servicing Agreement, is dated and effective
as of ________ 1, ____, among AMERIQUEST MORTGAGE SECURITIES INC. as Depositor,
[NAME OF MASTER SERVICER], as Master Servicer and [NAME OF TRUSTEE], as Trustee.
PRELIMINARY STATEMENT:
The Depositor intends to sell pass-through certificates
(collectively, the "Certificates"), to be issued hereunder in multiple classes,
which in the aggregate will evidence the entire beneficial ownership interest in
each REMIC (as defined herein) created hereunder. The Trust Fund will consist of
a segregated pool of assets comprising of the Mortgage Loans, the Pre-Funding
Account and the Interest Coverage Account and certain other related assets
subject to this Agreement.
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the Mortgage Loans and certain other
related assets (other than the Master Servicer Prepayment Charge Payment Amount,
the Pre-Funding Account and the Interest Coverage Account) subject to this
Agreement as a REMIC for federal income tax purposes, and such segregated pool
of assets will be designated as "REMIC I." The Class R-I Certificates will be
the sole class of "residual interests" in REMIC I for purposes of the REMIC
Provisions (as defined herein). The following table irrevocably sets forth the
designation, the REMIC I Remittance Rate, the initial Uncertificated Balance
and, solely for purposes of satisfying Treasury regulation Section 1.860G-
1(a)(4)(iii), the "latest possible maturity date" for each of the REMIC I
Regular Interests (as defined herein). None of the REMIC I Regular Interests
will be certificated.
<TABLE>
<CAPTION>
REMIC I Initial Latest Possible
<S> <C> <C> <C> <C>
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
I-LT1 Variable(2)
I-LT2 Variable(2)
I-LT3 Variable(2)
I-LT4 Variable(2)
I-LT5 Variable(2)
I-LT6 Variable(2)
<PAGE>
-6-
I-LT7 Variable(2)
I-LTP (3)
</TABLE>
- -----------------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date" for each REMIC I Regular Interest.
(2) Calculated in accordance with the definition of "REMIC I Remittance Rate"
herein.
(3) The REMIC I Regular Interest I-LTP will not accrue interest.
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC I Regular Interests as a REMIC
for federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC II." The Class R-II Certificates will evidence the sole
class of "residual interests" in REMIC II for purposes of the REMIC Provisions.
The following table irrevocably sets forth the designation, the REMIC II
Remittance Rate, the initial Uncertificated Balance and, solely for purposes of
satisfying Treasury regulation Section 1.860G- 1(a)(4)(iii), the "latest
possible maturity date" for each of the REMIC II Regular Interests. None of the
REMIC II Regular Interests will be certificated.
<TABLE>
<CAPTION>
REMIC II Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
----------- --------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
II-LT1 Variable(2)
II-LT2 Variable(2)
II-LT3 Variable(2)
II-LT4 Variable(2)
II-LT5 Variable(2)
II-LT6 7.000%
II-LT7 Variable(2)
II-LTP (3)
II-LT2S Variable(2) (4)
II-LT3S Variable(2) (4)
II-LT4S Variable(2) (4)
II-LT5S Variable(2) (4)
II-LT6S Variable(2) (4)
</TABLE>
<PAGE>
-7-
- -----------------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date" for each REMIC II Regular Interest.
(2) Calculated in accordance with the definition of "REMIC II Remittance Rate"
herein.
(3) The REMIC II Regular Interest II-LTP will not accrue interest.
(4) This REMIC II Regular Interest has no Uncertificated Balance but will
accrue interest at the related REMIC II Remittance Rate on the related
Uncertificated Notional Amount, which is equal to the Uncertificated
Balance of the Uncertificated Corresponding Component.
<PAGE>
-8-
As provided herein, the Trustee will elect to treat the
segregated pool of assets consisting of the REMIC II Regular Interests as a
REMIC for federal income tax purposes, and such segregated pool of assets will
be designated as "REMIC III." The Class R-III Certificates will evidence the
sole class of "residual interests" in REMIC III for purposes of the REMIC
Provisions under federal income tax law. The following table irrevocably sets
forth the designation, the Pass- Through Rate, the initial aggregate Certificate
Principal Balance and, solely for purposes of satisfying Treasury regulation
Section 1.860G-1(a)(4)(iii), the "latest possible maturity date" for the
indicated Classes of Certificates.
<TABLE>
<CAPTION>
Initial Aggregate Latest Possible
Designation Pass-Through Rate Certificate Principal Balance Maturity Date(1)
<S> <C>
Class A-1 Variable(2)
Class A-2 Variable(2)
Class M-1 Variable(2)
Class M-2 Variable(2)
Class M-3 7.000%
Class CE Variable(2)
Class P (4)
</TABLE>
- -----------------------------
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loans with the latest maturity date has been designated as
the "latest possible maturity date" for each Class of Certificates.
(2) Calculated in accordance with the definition of "Pass-Through Rate" herein.
(3) The Class CE Certificates will accrue interest at their variable
Pass-Through Rate on the Notional Amount of the Class CE Certificates
outstanding from time to time which shall equal the Uncertificated Balance
of REMIC II Regular Interests (other than the Uncertificated Balance of the
REMIC II Regular Interest II-LTP). The Class CE Certificates will not
accrue interest on their Certificate Principal Balance.
(4) The Class P Certificates will not accrue interest.
As of the Cut-off Date, the Initial Mortgage Loans had an
aggregate Scheduled Principal Balance equal to $_____________. The amount
deposited by the Depositor in the Pre- Funding Account on the Closing Date is
$___________.
In consideration of the mutual agreements herein contained,
the Depositor, the Master Servicer and the Trustee agree as follows:
<PAGE>
-9-
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, including, without
limitation, in the Preliminary Statement hereto, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Unless otherwise specified, all calculations
described herein shall be made on the basis of a 360-day year consisting of
twelve 30-day months.
"Accrued Certificate Interest": With respect to any Class of
Certificates (other than the Class P Certificates and the Residual Certificates)
and each Distribution Date, interest accrued during the related Interest Accrual
Period at the Pass-Through Rate for such Certificate for such Distribution Date
on the Certificate Principal Balance, in the case of the Class A Certificates
and the Mezzanine Certificates, or on the Notional Amount, in the case of the
Class CE Certificates, of such Certificate immediately prior to such
Distribution Date. The Class P Certificates are not entitled to distributions in
respect of interest and, accordingly, will not accrue interest. All
distributions of interest on the Class A Certificates and the Mezzanine
Certificates will be calculated on the basis of a 360-day year and the actual
number of days in the applicable Interest Accrual Period. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class A Certificate,
Mezzanine Certificate or Class CE Certificate, shall be reduced by an amount
equal to the portion allocable to such Certificate pursuant to Section 1.02
hereof of the sum of (a) the aggregate Prepayment Interest Shortfall, if any,
for such Distribution Date to the extent not covered by payments pursuant to
Section 3.24 and (b) the aggregate amount of any Relief Act Interest Shortfall,
if any, for such Distribution Date. In addition, Accrued Certificate Interest
with respect to each Distribution Date, as to any Class CE Certificate, shall be
reduced by an amount equal to the portion allocable to such Class CE Certificate
of Realized Losses, if any, pursuant to Section 4.04 hereof.
"Addition Notice": With respect to the transfer of Subsequent
Mortgage Loans to the Trust Fund pursuant to Section 2.11, a notice of the
Depositor's designation of the Subsequent Mortgage Loans to be sold to the Trust
Fund and the aggregate principal balance of such Subsequent Mortgage Loans as of
the Subsequent Cut-off Date. The Addition Notice shall be given not later than
three Business Days prior to the related Subsequent Transfer Date and shall be
substantially in the form of Exhibit J.
"Adjustment Date": With respect to each Mortgage Loan, the
first day of the month in which the Mortgage Rate of a Mortgage Loan changes
pursuant to the related Mortgage Note. The first Adjustment Date following the
Cut-off Date as to each Mortgage Loan is set forth in the Mortgage Loan
Schedule.
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of
<PAGE>
-10-
voting securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement and all
amendments hereof and supplements hereto.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form (excepting therefrom if applicable,
the mortgage recordation information which has not been returned by the
applicable recorder's office and/or the assignee's name), which is sufficient
under the laws of the jurisdiction wherein the related Mortgaged Property
is located to reflect of record the sale of the Mortgage.
"Available Distribution Amount": With respect to any
Distribution Date, an amount equal to (1) the sum of (a) the aggregate of the
amounts on deposit in the Collection Account and Distribution Account as of the
close of business on the related Determination Date, (b) the aggregate of any
amounts received in respect of an REO Property withdrawn from any REO Account
and deposited in the Distribution Account for such Distribution Date pursuant to
Section 3.23, (c) the aggregate of any amounts deposited in the Distribution
Account by the Master Servicer in respect of Prepayment Interest Shortfalls for
such Distribution Date pursuant to Section 3.24, (d) the aggregate of any P&I
Advances made by the Master Servicer for such Distribution Date pursuant to
Section 4.03, (e) the aggregate of any advances made by the Trustee for such
Distribution Date pursuant to Section 7.02(b), (f) with respect to the
Distribution Date immediately following the end of the Funding Period, any
amounts in the Pre-Funding Account after giving effect to any purchase of
Subsequent Mortgage Loans and (g) with respect to each Distribution Date during
the Funding Period and on the Distribution Date immediately following the end of
the Funding Period, any amounts withdrawn by the Trustee from the Interest
Coverage Account for distribution on the Certificates, reduced (to not less than
zero) by (2) the sum of (x) the portion of the amount described in clause (1)(a)
above that represents (i) Monthly Payments on the Mortgage Loans received from a
Mortgagor on or prior to the Determination Date but due during any Due Period
subsequent to the related Due Period, (ii) Principal Prepayments on the Mortgage
Loans received after the related Prepayment Period (together with any interest
payments received with such Principal Prepayments to the extent they represent
the payment of interest accrued on the Mortgage Loans during a period subsequent
to the related Prepayment Period), (iii) Liquidation Proceeds and Insurance
Proceeds received in respect of the Mortgage Loans after the related Prepayment
Period, (iv) amounts reimbursable or payable to the Depositor, the Master
Servicer, the Trustee, the Originator or any Sub-Servicer pursuant to Section
3.11 or Section 3.12 or otherwise payable in respect of Extraordinary Trust Fund
Expenses, (v) Stayed Funds, (vi) the Trustee Fee payable from the Distribution
Account pursuant to Section 8.05, (vii) amounts deposited in the Collection
Account or the Distribution Account in error and (viii) the amount of any
Prepayment Charges collected by the Master Servicer in connection with the
voluntary Principal Prepayment in full of any of the Mortgage Loans (or any
Master Servicer Prepayment Charge Payment Amount) and (y) amounts reimbursable
to the Trustee for an advance made pursuant to Section 7.02(b) which advance the
Trustee has determined to be nonrecoverable from the Stayed Funds in respect of
which it was made.
<PAGE>
-11-
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11
of the United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Realized Loss resulting from a Deficient Valuation or Debt Service Reduction.
"Book-Entry Certificate": Any Certificate registered in the
name of the Depository or its nominee. Initially, the Book-Entry Certificates
will be the Class A Certificates and the Mezzanine Certificates.
"Book-Entry Custodian": The custodian appointed pursuant to
Section 5.01.
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking or savings and loan institutions in the State of Nevada,
the State of _________or the State of ____________, or in the city in which the
Corporate Trust Office of the Trustee is located, are authorized or obligated by
law or executive order to be closed.
"Certificate": Any one of the Depositor's AQ Floating Rate
Mortgage Pass-Through Certificates, Series ____-___, Class A-1, Class A-2, Class
M-1, Class M-2, Class M-3, Class CE, Class P, Class R-I, Class R-II or Class
R-III, issued under this Agreement.
"Certificate Factor": With respect to any Class of Regular
Certificates as of any Distribution Date, a fraction, expressed as a decimal
carried to six places, the numerator of which is the aggregate Certificate
Principal Balance (and in the case of the Class CE Certificates, the Notional
Amount) of such Class of Certificates on such Distribution Date (after giving
effect to any distributions of principal and allocations of Realized Losses in
reduction of the Certificate Principal Balance (and in the case of the Class CE
Certificates, the Notional Amount) of such Class of Certificates to be made on
such Distribution Date), and the denominator of which is the initial aggregate
Certificate Principal Balance (and in the case of the Class CE Certificates, the
Notional Amount) of such Class of Certificates as of the Closing Date.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register, except that a
Disqualified Organization or a Non-United States Person shall not be a Holder of
a Residual Certificate for any purposes hereof and, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or the Master Servicer or any Affiliate thereof shall be
deemed not to be outstanding and the Voting Rights to which it is entitled shall
not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 11.01. The Trustee may conclusively rely upon a
certificate of the Depositor or the Master Servicer in determining whether a
Certificate is held by an Affiliate thereof. All references herein to "Holders"
or "Certificateholders" shall reflect the rights of Certificate Owners as they
may indirectly exercise such rights through the Depository and participating
members thereof, except as otherwise specified herein; provided, however, that
the Trustee shall be required to recognize as a "Holder" or "Certificateholder"
only the Person in whose name a Certificate is registered in the Certificate
Register.
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"Certificate Owner": With respect to a Book-Entry Certificate,
the Person who is the beneficial owner of such Certificate as reflected on the
books of the Depository or on the books of a Depository Participant or on the
books of an indirect participating brokerage firm for which a
Depository Participant acts as agent.
"Certificate Principal Balance": With respect to each Class A
Certificate, Mezzanine Certificate or Class P Certificate as of any date of
determination, the Certificate Principal Balance of such Certificate on the
Distribution Date immediately prior to such date of determination, minus all
distributions allocable to principal made thereon and Realized Losses allocated
thereto on such immediately prior Distribution Date (or, in the case of any date
of determination up to and including the first Distribution Date, the initial
Certificate Principal Balance of such Certificate, as stated on the face
thereof). With respect to each Class CE Certificate as of any date of
determination, an amount equal to the Percentage Interest evidenced by such
Certificate times the excess, if any, of (A) the then aggregate Uncertificated
Balances of the REMIC II Regular Interests over (B) the then aggregate
Certificate Principal Balances of the Class A Certificates, the Mezzanine
Certificates and the Class P Certificates then outstanding.
"Certificate Register" and "Certificate Registrar": The
register maintained and the registrar appointed pursuant to Section 5.02.
"Class": Collectively, all of the Certificates bearing the
same class designation.
"Class A Certificate": Any Class A-1 Certificate or Class A-2
Certificate, and taken together, the "Class A Certificates."
"Class A-1 Certificate": Any one of the Class A-1 Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-1 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class A-2 Certificate": Any one of the Class A-2 Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-2 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class A-1 Interest Distribution Amount": With respect to any
Distribution Date, an amount equal to the sum of (i) the Interest Distribution
Amount for such Distribution Date for the Class A-1 Certificates and (ii) the
Interest Carry Forward Amount with respect to the Class A-1
Certificates.
"Class A-2 Interest Distribution Amount": With respect to any
Distribution Date, an amount equal to the sum of (i) the Interest Distribution
Amount for such Distribution Date for the Class A-2 Certificates and (ii) the
Interest Carry Forward Amount with respect to the Class A-2
Certificates.
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"Class A-1 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the Certificate Principal Balance of the Class
A-1 Certificates immediately prior to such Distribution Date over (y) the lesser
of (A) the product of (i) _____% and (ii) the aggregate Stated Principal Balance
of the Mortgage Loans as of the last day of the related Due Period and (B) the
aggregate Stated Principal Balance of the Mortgage Loans as of the last day of
the related Due Period minus
$---------.
"Class A-2 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A-1 Certificates (after taking into account the payment of
the Class A-1 Principal Distribution Amount on such Distribution Date) and (ii)
the Certificate Principal Balance of the Class A-2 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
_____% and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as
of the last day of the related Due Period and (B) the aggregate Stated Principal
Balance of the Mortgage Loans as of the last day of the related Due Period minus
$---------.
"Class CE Certificate": Any one of the Class CE Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-6 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class Exemption": A class exemption granted by the DOL, which
provides relief from certain of the prohibited transaction provisions of ERISA
and the related excise tax provisions of the Code.
"Class M-1 Certificate": Any one of the Class M-1 Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-3 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class M-1 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A-1 Certificates (after taking into account the payment of
the Class A-1 Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class A-2 Certificates (after taking into
account the payment of the Class A-2 Principal Distribution Amount on such
Distribution Date) and (iii) the Certificate Principal Balance of the Class M-1
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) _____% and (ii) the aggregate Stated Principal Balance of
the Mortgage Loans as of the last day of the related Due Period and (B) the
aggregate Stated Principal Balance of the Mortgage Loans as of the last day of
the related Due Period minus $6,000,000.
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"Class M-2 Certificate": Any one of the Class M-2 Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-4 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class M-2 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A-1 Certificates (after taking into account the payment of
the Class A-1 Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class A-2 Certificates (after taking into
account the payment of the Class A-2 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date) and (iv) the Certificate
Principal Balance of the Class M-2 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) _____% and (ii)
the aggregate Stated Principal Balance of the Mortgage Loans as of the last day
of the related Due Period and (B) the aggregate Stated Principal Balance of the
Mortgage Loans as of the last day of the related Due Period minus $_________.
"Class M-3 Certificate": Any one of the Class M-3 Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-5 and
evidencing a Regular Interest in REMIC III for purposes of the
REMIC Provisions.
"Class M-3 Principal Distribution Amount": With respect to any
Distribution Date on or after the Stepdown Date and on which a Trigger Event is
not in effect, the excess of (x) the sum of (i) the Certificate Principal
Balance of the Class A-1 Certificates (after taking into account the payment of
the Class A-1 Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class A-2 Certificates (after taking into
account the payment of the Class A-2 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iv) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the payment of
the Class M-2 Principal Distribution Amount on such Distribution Date) and (v)
the Certificate Principal Balance of the Class M-3 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
_____% and (ii) the aggregate Stated Principal Balance of the Mortgage Loans as
of the last day of the related Due Period and (B) the aggregate Stated Principal
Balance of the Mortgage Loans as of the last day of the related Due Period minus
$_________.
"Class P Certificate": Any one of the Class P Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form annexed hereto as Exhibit A-7 and
evidencing a Regular Interest in REMIC III for purposes of the REMIC
Provisions.
"Class R-I Certificate": Any one of the Class R-I Certificates
executed by the Trustee, and authenticated and delivered by the Certificate
Registrar, substantially in the form
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annexed hereto as Exhibit A-8 and evidencing the Residual Interest in REMIC I
for purposes of the REMIC Provisions.
"Class R-II Certificate": Any one of the Class R-II
Certificates executed by the Trustee, and authenticated and delivered by the
Certificate Registrar, substantially in the form annexed hereto as Exhibit A-9
and evidencing the Residual Interest in REMIC II for purposes of the
REMIC Provisions.
"Class R-III Certificates": Any one of the Class R-III
Certificates executed by the Trustee, and authenticated and delivered by the
Certificate Registrar, substantially in the form annexed hereto as Exhibit A-10
and evidencing the Residual Interest in REMIC III for purposes of
the REMIC Provisions.
"Closing Date": ___________, ____.
"Code": The Internal Revenue Code of 1986.
"Collection Account": The account or accounts created and
maintained by the Master Servicer pursuant to Section 3.10(a), which shall be
entitled "___________________________, as Master Servicer for
______________________, as Trustee, in trust for the registered holders of
Ameriquest Mortgage Securities Inc., AQ Floating Rate Mortgage Pass-Through
Certificates, Series ____-___" The Collection Account must be an Eligible
Account.
"Commission": The Securities and Exchange Commission.
"Corporate Trust Office": The principal corporate trust office
of the Trustee at which at any particular time its corporate trust business in
connection with this Agreement shall be administered, which office at the date
of the execution of this instrument is located at ______________________, or at
such other address as the Trustee may designate from time to time by notice to
the Certificateholders, the Depositor and the Master Servicer.
"Corresponding Certificate": With respect to REMIC I Regular
Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4,
REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6 and REMIC I
Regular Interest I-LTP, the Class A-1 Certificates, Class A-2 Certificates,
Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates and Class
P Certificates, respectively. With respect to REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II
Regular Interest II-LT5, REMIC II Regular Interest II-LT6 and REMIC II Regular
Interest II-LTP, the Class A-1 Certificates, Class A-2 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates and Class P
Certificates, respectively.
"Credit Enhancement Percentage": For any Distribution Date,
the percentage equivalent of a fraction, the numerator of which is the sum of
the aggregate Certificate Principal Balances of the Class A-2 Certificates, the
Mezzanine Certificates and the Class CE Certificates, and the denominator of
which is the aggregate Stated Principal Balance of the Mortgage Loans,
<PAGE>
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calculated after taking into account distributions of principal on the Mortgage
Loans and distribution of the Principal Distribution Amount to the Certificates
then entitled to distributions of principal on
such Distribution Date.
"Cumulative Loss Percentage": With respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
aggregate amount of Realized Losses incurred from the Cut-off Date to the last
day of the preceding calendar month and the denominator of which is the sum of
the aggregate Stated Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date and the Original Pre-Funded Amount.
"Custodial Agreement": An agreement that may be entered into
among the Depositor, the Master Servicer, the Trustee and a Custodian in the
form of Exhibit H annexed hereto or an agreement assigned to the Trustee with
respect to the Mortgage Loans.
"Custodian": A Custodian, which shall not be the Depositor,
the Master Servicer, the Seller or any affiliate of any of them, appointed
pursuant to a Custodial Agreement.
"Cut-off Date": With respect to each Initial Mortgage Loan,
__________, ____. With respect to all Qualified Substitute Mortgage Loans, their
respective dates of substitution. References herein to the "Cut-off Date," when
used with respect to more than one Mortgage Loan, shall be to the respective
Cut-off Dates for such Mortgage Loans.
"DCR": Duff & Phelps Credit Rating Co., or its successor in
interest.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient Valuation.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the Bankruptcy
Code.
"Definitive Certificates": As defined in Section 5.01(b).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquency Percentage": As of the last day of the related
Due Period, the percentage equivalent of a fraction, the numerator of which is
the aggregate Stated Principal Balance of all Mortgage Loans that, as of the
last day of the previous calendar month, are 60 or more days delinquent, are in
foreclosure, have been converted to REO Properties or have been discharged by
reason of bankruptcy, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties as of the last day of
the previous calendar month; provided,
<PAGE>
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however, that any Mortgage Loan purchased by the Master Servicer pursuant to
Section 3.16(c) shall not be included in either the numerator or the denominator
for purposes of calculating the
Delinquency Percentage.
"Depositor": Ameriquest Mortgage Securities Inc., a Delaware
corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository, for purposes
of registering those Certificates that are to be Book-Entry Certificates, is
CEDE & Co. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust
company, including the Trustee, that (a) is incorporated under the laws of the
United States of America or any State thereof, (b) is subject to supervision and
examination by federal or state banking authorities and (c) has outstanding
unsecured commercial paper or other short-term unsecured debt obligations that
are rated D-1+ by DCR (if rated by DCR), P-1 by Moody's and A-1 by S&P (or
comparable ratings if DCR, Moody's and S&P are not the Rating Agencies).
"Depository Participant": A broker, dealer, bank or other
financial institution or other Person for whom from time to time a Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
"Determination Date": With respect to each Distribution Date,
the first day of the calendar month in which such Distribution Date occurs or,
if such first day is not a Business Day, the Business Day immediately preceding
such first day.
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, the holding of such REO Property primarily for
sale to customers, the performance of any construction work thereon or any use
of such REO Property in a trade or business conducted by REMIC I other than
through an Independent Contractor; provided, however, that the Trustee (or the
Master Servicer on behalf of the Trustee) shall not be considered to Directly
Operate an REO Property solely because the Trustee (or the Master Servicer on
behalf of the Trustee) establishes rental terms, chooses tenants, enters into or
renews leases, deals with taxes and insurance, or makes decisions as to repairs
or capital expenditures with respect to such REO Property.
"Disqualified Organization": Any of the following: (i) the
United States, any State or political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality which is a corporation if all of its activities are
subject to tax and, except for Freddie Mac, a majority of its board of directors
is not selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers'
<PAGE>
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cooperatives described in Section 521 of the Code) which is exempt from the tax
imposed by Chapter 1 of the Code (including the tax imposed by Section 511 of
the Code on unrelated business taxable income), (iv) rural electric and
telephone cooperatives described in Section
1381(a)(2)(C)
of the Code, (v) an "electing large partnership" and (vi) any other Person so
designated by the Trustee based upon an Opinion of Counsel that the holding of
an Ownership Interest in a Residual Certificate by such Person may cause any of
REMIC I, REMIC II or REMIC III or any Person having an Ownership Interest in any
Class of Certificates (other than such Person) to incur a liability for any
federal tax imposed under the Code that would not otherwise be imposed but for
the Transfer of an Ownership Interest in a Residual Certificate to such Person.
The terms "United States," "State" and "international organization" shall have
the meanings set forth in Section 7701 of the Code or successor provisions.
"Distribution Account": The trust account or accounts created
and maintained by the Trustee pursuant to Section 3.10(b) which shall be
entitled " ___________________, as Trustee, in trust for the registered holders
of Ameriquest Mortgage Securities Inc., AQ Floating Rate Mortgage Pass-Through
Certificates, Series ____-___." The Distribution Account must be an Eligible
Account.
"Distribution Date": The 15th day of any month, or if such
15th day is not a Business Day, the Business Day immediately following such 15th
day, commencing in December 1999.
"Due Date": With respect to each Distribution Date, the first
day of the calendar month in which such Distribution Date occurs, which is the
day of the month on which the Monthly Payment is due on a Mortgage Loan,
exclusive of any days of grace.
"Due Period": With respect to any Distribution Date, the
period commencing on the second day of the month immediately preceding the month
in which such Distribution Date occurs and ending on the related Due Date.
"Eligible Account": Any of (i) an account or accounts
maintained with a Depository Institution or trust company the short-term
unsecured debt obligations of which are rated "AAA" or "D-1+", as applicable, by
DCR, P-1 by Moody's and A-1+ by S&P (or comparable ratings if DCR, Moody's and
S&P are not the Rating Agencies) at the time any amounts are held on deposit
therein, (ii) an account or accounts the deposits in which are fully insured by
the FDIC or (iii) a trust account or accounts maintained with the corporate
trust department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity. Eligible Accounts may bear interest.
"ERISA": The Employee Retirement Income Security Act of 1974,
as amended.
"Estate in Real Property": A fee simple estate in a parcel of
land.
"Excess Overcollateralized Amount": With respect to the Class
A Certificates and the Mezzanine Certificates and any Distribution Date, the
excess, if any, of (i) the Overcollateralized Amount for such Distribution Date
over (ii) the Required Overcollateralized Amount for such
Distribution Date.
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"Expense Adjusted Mortgage Rate": With respect to any Mortgage
Loan or REO Property, the then applicable Mortgage Rate thereon minus the sum of
(i) the Trustee's Fee Rate and (ii) the Servicing Fee Rate.
"Extraordinary Trust Fund Expense": Any amounts reimbursable
to the Trustee, or any director, officer, employee or agent of the Trustee, from
the Trust Fund pursuant to Section 8.05, any amounts payable from the
Distribution Account in respect of taxes pursuant to Section 10.01(g)(iii) and
any amounts payable by the Trustee for the recording of the assignments of
mortgage pursuant to Section 2.01.
"Fannie Mae": Fannie Mae, formally known as the Federal
National Mortgage Association, or any successor thereto.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"Final Recovery Determination": With respect to any defaulted
Mortgage Loan or any REO Property (other than a Mortgage Loan or REO Property
purchased by the Originator, the Seller, the Depositor, the Majority Class CE
Certificateholder or the Master Servicer pursuant to or as contemplated by
Section 2.03, Section 3.16(c) or Section 9.01), a determination made by the
Master Servicer that all Insurance Proceeds, Liquidation Proceeds and other
payments or recoveries which the Master Servicer, in its reasonable good faith
judgment, expects to be finally recoverable in respect thereof have been so
recovered. The Master Servicer shall maintain records, prepared by a Servicing
Officer, of each Final Recovery Determination made thereby.
"Freddie Mac": Freddie Mac, formally known as the Federal Home
Loan Mortgage Corporation, or any successor thereto.
"Funding Period": The period beginning on the Closing Date and
ending on the earlier of the date on which (a) the amount on deposit in the
Pre-Funding Account is reduced to zero or (b) 2:00 p.m., _____________ time, on
_______________.
"Gross Margin": With respect to each Mortgage Loan, the fixed
percentage set forth in the related Mortgage Note that is added to the Index on
each Adjustment Date in accordance with the terms of the related Mortgage Note
used to determine the Mortgage Rate for such Mortgage
Loan.
"Independent": When used with respect to any specified Person,
any such Person who (a) is in fact independent of the Depositor, the Master
Servicer, the Originator and their respective Affiliates, (b) does not have any
direct financial interest in or any material indirect financial interest in the
Depositor, the Originator, the Master Servicer or any Affiliate thereof, and (c)
is not connected with the Depositor, the Originator, the Master Servicer or any
Affiliate thereof as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions; provided, however,
that a Person shall not fail to be Independent of the Depositor, the Originator,
the Master Servicer or any Affiliate thereof merely because such Person is the
beneficial
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owner of 1% or less of any class of securities issued by the Depositor or the
Master Servicer or any Affiliate thereof, as the case may be.
"Independent Contractor": Either (i) any Person (other than
the Master Servicer) that would be an "independent contractor" with respect to
REMIC I within the meaning of Section 856(d)(3) of the Code if REMIC I were a
real estate investment trust (except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35% or more of any Class of Certificates), so long as REMIC I does
not receive or derive any income from such Person and provided that the
relationship between such Person and REMIC I is at arm's length, all within the
meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person
(including the Master Servicer) if the Trustee has received an Opinion of
Counsel to the effect that the taking of any action in respect of any REO
Property by such Person, subject to any conditions therein specified, that is
otherwise herein contemplated to be taken by an Independent Contractor will not
cause such REO Property to cease to qualify as "foreclosure property" within the
meaning of Section 860G(a)(8) of the Code (determined without regard to the
exception applicable for purposes of Section 860D(a) of the Code), or cause any
income realized in respect of such REO Property to fail to qualify as Rents from
Real Property.
"Index": With respect to each Mortgage Loan and each related
Adjustment Date, the average of the interbank offered rates for six-month United
States dollar deposits in the London market as published in THE WALL STREET
JOURNAL and as most recently available as of the first business day 45 days or
more prior to such Adjustment Date, as specified in the related Mortgage Note.
"Initial Mortgage Loan": Any of the Mortgage Loans included in
REMIC I as of the Closing Date.
"Insurance Proceeds": Proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with the procedures that the
Master Servicer would follow in servicing mortgage loans held for its own
account, subject to the terms and conditions of the related Mortgage Note and
Mortgage.
"Interest Accrual Period": With respect to any Distribution
Date and the Class A Certificates, the Mezzanine Certificates (other than the
Class M-3 Certifiates), REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest
II-LT5, REMIC II Regular Interest II-LT2S, REMIC II Regular Interest II-LT3S,
REMIC II Regular Interest II-LT4S and REMIC II Regular Interest II-LT5S, the
period commencing on the Distribution Date of the month immediately preceding
the month in which such Distribution Date occurs (or, in the case of the first
Distribution Date, commencing on the Closing Date) and ending on the day
preceding such Distribution Date. With respect to any Distribution Date and the
Class M-3 Certificates, REMIC II Regular Interest II-LT1, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT6S, REMIC II Regular Interest
II-LT7 and the REMIC I Regular Interests, the one-month period ending on the
last day of the calendar month preceding the month in which such Distribution
Date occurs.
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"Interest Carry Forward Amount": With respect to any
Distribution Date and any Class of Class A Certificates or Mezzanine
Certificates, the sum of (i) the amount, if any, by which (a) the Interest
Distribution Amount for such Class of Certificates as of the immediately
preceding Distribution Date exceeded (b) the actual amount distributed on such
Class of Certificates in respect of interest on such immediately preceding
Distribution Date and (ii) the amount of any Interest Carry Forward Amount for
such Class of Certificates remaining unpaid from the previous Distribution Date,
plus accrued interest on such sum calculated at the related Pass-Through Rate
for the most recently ended Interest Accrual Period.
"Interest Coverage Account": The account established and
maintained pursuant to Section 4.08, as defined therein.
"Interest Coverage Amount": The amount to be paid by the
Depositor to the Trustee for deposit into the Interest Coverage Account on the
Closing Date pursuant to Section 4.08, which amount is $____________.
"Interest Determination Date": With respect to the Class A
Certificates, the Mezzanine Certificates (other than the Class M-3
Certificates), REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT2S, REMIC II Regular Interest II-LT3, REMIC II Regular Interest II-LT3S,
REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT4S, REMIC II
Regular Interest II-LT5 and REMIC II Regular Interest II-LT5S, and any Interest
Accrual Period therefor, the second London Business Day preceding the
commencement of such Interest Accrual Period.
"Interest Distribution Amount": With respect to any
Distribution Date and any Class A Certificate, any Mezzanine Certificate and any
Class CE Certificate, the aggregate Accrued Certificate Interest on the
Certificates of such Class for such Distribution Date.
"Interest Remittance Amount": With respect to any Distribution
Date, that portion of the Available Distribution Amount for such Distribution
Date allocable to interest.
"Late Collections": With respect to any Mortgage Loan and any
Due Period, all amounts received subsequent to the Determination Date
immediately following such Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of principal and/or interest due (without
regard to any acceleration of payments under the related Mortgage and Mortgage
Note) but delinquent for such Due Period and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of
the following events: (i) such Mortgage Loan is paid in full; (ii) a Final
Recovery Determination is made as to such Mortgage Loan; or (iii) such Mortgage
Loan is removed from REMIC I by reason of its being purchased, sold or replaced
pursuant to or as contemplated by Section 2.03, Section 3.16(c) or Section 9.01.
With respect to any REO Property, either of the following events: (i) a Final
Recovery Determination is made as to such REO Property; or (ii) such REO
Property is removed from REMIC I by reason of its being purchased pursuant to
Section 9.01.
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"Liquidation Proceeds": The amount (other than Insurance
Proceeds or amounts received in respect of the rental of any REO Property prior
to REO Disposition) received by the Master Servicer in connection with (i) the
taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage
Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the
repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by Section 2.03, Section 3.16(c), Section 3.23 or Section
9.01.
"Loan-to-Value Ratio": As of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at such date and the denominator of which
is the Value of the related Mortgaged Property.
"London Business Day": Any day on which banks in the City of
London are open and conducting transactions in United States dollars.
"Majority Class CE Certificateholder": Any single Holder or
group of Holders of Class CE Certificates representing a greater than 50%
Percentage Interest in such Class.
"Master Servicer": ____________________ ("___________") or any
successor master servicer appointed as herein provided, in its capacity as
Master Servicer hereunder.
"Master Servicer Event of Default": One or more of the events
described in Section 7.01.
"Master Servicer Prepayment Charge Payment Amount": The
amounts payable by the Master Servicer in respect of any waived Prepayment
Charges pursuant to Section 2.05 or Section 3.01.
"Master Servicer Remittance Date": With respect to any
Distribution Date, 3:00 p.m. ________ time on the 8th day of the calendar month
in which such Distribution Date occurs or, if such 8th day is not a Business
Day, the Business Day immediately preceding such 8th day; provided, however,
that if such immediately preceding Business Day is the Determination Date, the
Master Servicer Remittance Date shall be the next succeeding Business Day.
"Master Servicer Termination Test": With respect to any
Distribution Date, the Master Servicer Termination Test will be failed if the
Cumulative Loss Percentage exceeds ____%.
"Maximum I-LT7 Uncertificated Interest Deferral Amount": With
respect to any Distribution Date, the excess of (i) accrued interest at the
REMIC I Remittance Rate applicable to REMIC I Regular Interest I-LT7 for such
Distribution Date on a balance equal to the Uncertificated Balance of REMIC I
Regular Interest I-LT7 minus the REMIC I Overcollateralized Amount, in each case
for such Distribution Date, over (ii) Uncertificated Interest on REMIC II
Regular Interest II- LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4, REMIC II Regular Interest II-LT5 and REMIC II Regular Interest
II-LT6 for such Distribution Date.
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"Maximum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the maximum Mortgage
Rate thereunder.
"Mezzanine Certificate": Any Class M-1 Certificate, Class M-2
Certificate or Class M-3 Certificate.
"Minimum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the minimum Mortgage
Rate thereunder.
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by the related Mortgagor from time to time under the related Mortgage
Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or
Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction
in the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Master Servicer pursuant to Section 3.07; and (c) on the assumption that all
other amounts, if any, due under such Mortgage Loan are paid when due.
"Moody's": Moody's Investors Service, or its successor in
interest.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, a Mortgaged
Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned
to the Trustee pursuant to Section 2.01 or Section 2.03(d) of this Agreement, as
held from time to time held as a part of REMIC I, the Mortgage Loans so held
being identified in the Mortgage Loan Schedule.
"Mortgage Loan Purchase Agreement": The agreement among the
Originator, the Seller and the Depositor, regarding the transfer of the Mortgage
Loans by the Seller to or at the direction of the Depositor, substantially in
the form of Exhibit D-2 annexed hereto.
"Mortgage Loan Sale and Contribution Agreement": The agreement
between the Seller and the Originator, regarding the transfer of the Mortgage
Loans by the Originator to or at the direction of the Seller, substantially in
the form of Exhibit D-1 annexed hereto.
"Mortgage Loan Schedule": As of any date, the list of Mortgage
Loans included in REMIC I on such date, attached hereto as Schedule 1 as
supplemented by each schedule of Subsequent Mortgage Loans attached to a
Subsequent Transfer Instrument. The Mortgage Loan Schedule shall set forth the
following information with respect to each Mortgage Loan:
(i) the Originator's Mortgage Loan identifying number;
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(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the
state and zip code;
(iv) a code indicating whether the Mortgaged Property is
owner-occupied;
(v) the type of Residential Dwelling constituting the Mortgaged
Property;
(vi) the original months to maturity;
(vii) the Loan-to-Value Ratio at origination;
(viii) the Mortgage Rate in effect immediately following the
Cut-off Date (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan);
(ix) the date on which the first Monthly Payment was due on the
Mortgage Loan;
(x) the stated maturity date;
(xi) the amount of the Monthly Payment due on the first Due Date
after the Cut-off Date (or Subsequent Cut-off Date, with
respect to a Subsequent Mortgage Loan);
(xii) the last Due Date on which a Monthly Payment was actually
applied to the unpaid Stated Principal Balance;
(xiii) the original principal amount of the Mortgage Loan;
(xiv) the Scheduled Principal Balance of the Mortgage Loan as of
the close of business on the Cut-off Date (or Subsequent
Cut-off Date, with respect to a Subsequent Mortgage Loan);
(xv) the Gross Margin;
(xvi) a code indicating the purpose of the Mortgage Loan (I.E.,
purchase financing, rate/term refinancing, cash-out
refinancing);
(xvii) the Maximum Mortgage Rate;
(xviii) the Minimum Mortgage Rate;
(xix) the Mortgage Rate at origination;
(xx) the Periodic Rate Cap and the maximum first Adjustment Date
Mortgage Rate adjustment;
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(xxi) a code indicating the documentation program (I.E., Full
Documentation, Fast Trac or Stated Income);
(xxii) the first Adjustment Date immediately following the
Cut-off Date (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan);
(xxiii) the risk grade;
(xxiv) the Value of the Mortgaged Property; and
(xxv) the sale price of the Mortgaged Property, if applicable.
The Mortgage Loan Schedule shall set forth the following
information with respect to the Mortgage Loans in the aggregate as of the
Cut-off Date (or Subsequent Cut-off Date, with respect to a Subsequent Mortgage
Loan): (1) the number of Mortgage Loans; (2) the current principal balance of
the Mortgage Loans; (3) the weighted average Mortgage Rate of the Mortgage
Loans; and (4) the weighted average maturity of the Mortgage Loans. The Mortgage
Loan Schedule shall be amended from time to time by the Depositor in accordance
with the provisions of this Agreement. With respect to any Qualified Substitute
Mortgage Loan, the Cut-off Date shall refer to the related Cut-off Date for such
Mortgage Loan, determined in accordance with the definition of Cut-off Date
herein.
"Mortgage Note": The original executed note or other evidence
of the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on
Schedule 1 from time to time, and any REO Properties acquired in respect
thereof.
"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note, which rate (A) as
of any date of determination until the first Adjustment Date following the
Cut-off Date (or Subsequent Cut-off Date, with respect to a Subsequent Mortgage
Loan) shall be the rate set forth in the Mortgage Loan Schedule as the Mortgage
Rate in effect immediately following the Cut-off Date (or Subsequent Cut-off
Date, with respect to a Subsequent Mortgage Loan) and (B) as of any date of
determination thereafter shall be the rate as adjusted on the most recent
Adjustment Date equal to the sum, rounded to the nearest 0.125% as provided in
the Mortgage Note, of the Index, as most recently available as of a date prior
to the Adjustment Date as set forth in the related Mortgage Note, plus the
related Gross Margin; provided that the Mortgage Rate on such Mortgage Loan on
any Adjustment Date shall never be more than the lesser of (i) the sum of the
Mortgage Rate in effect immediately prior to the Adjustment Date plus the
related Periodic Rate Cap, if any, and (ii) the related Maximum Mortgage Rate,
and shall never be less than the greater of (i) the Mortgage Rate in effect
immediately prior to the Adjustment Date less the Periodic Rate Cap, if any, and
(ii) the related Minimum Mortgage Rate. With respect to each Mortgage Loan that
becomes an REO Property, as of any date of determination, the annual rate
<PAGE>
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determined in accordance with the immediately preceding sentence as of the date
such Mortgage Loan became an REO Property.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, including any REO Property, consisting of an Estate in Real
Property improved by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Monthly Excess Cashflow": With respect to any
Distribution Date, the sum of (i) any Overcollateralization Reduction Amount for
such Distribution Date and (ii) the excess of (x) the Available Distribution
Amount for such Distribution Date over (y) the sum for such Distribution Date of
(A) the Interest Distribution Amount payable to the holders of the Class A
Certificates and the Mezzanine Certificates and (B) the sum of the amounts
described in clauses (b)(i) through (iii) of the definition of Principal
Distribution Amount.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the
related REO Property) as of any date of determination, a per annum rate of
interest equal to the then applicable Mortgage Rate for such Mortgage Loan minus
the Servicing Fee Rate.
"Net WAC Pass-Through Rate": With respect to REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5, the Class A Certificates and the
Mezzanine Certificates (other than the Class M-3 Certificates) and any
Distribution Date, a rate per annum equal to the weighted average of the Expense
Adjusted Mortgage Rates on the then outstanding Mortgage Loans, weighted based
on their Scheduled Principal Balances as of the first day of the calendar month
preceding the month in which the Distribution Date occurs multiplied by a
fraction, the numerator of which is 30 and the denominator of which is the
actual number of days elapsed in the related Interest Accrual Period.
"New Lease": Any lease of REO Property entered into on behalf
of REMIC I, including any lease renewed or extended on behalf of REMIC I, if
REMIC I has the right to renegotiate the terms of such lease.
"Nonrecoverable P&I Advance": Any P&I Advance previously made
or proposed to be made in respect of a Mortgage Loan or REO Property that, in
the good faith business judgment of the Master Servicer, will not or, in the
case of a proposed P&I Advance, would not be ultimately recoverable from related
late payments, Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan
or REO Property as provided herein.
"Non-United States Person": Any Person other than a United
States Person.
"Notional Amount": With respect to the Class CE Certificates
and any Distribution Date, the Uncertificated Balance of the REMIC II Regular
Interests (other than the Uncertificated Balance of REMIC II Regular Interest
II-LTP) for such Distribution Date.
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"Officers' Certificate": With respect to the Depositor, a
certificate signed by the Chairman of the Board, the Vice Chairman of the Board,
the President or a vice president (however denominated), and by the Treasurer,
the Secretary, or one of the assistant treasurers or assistant secretaries. With
respect to the Seller, the Mortgage Loan Transferor and the Master Servicer, any
officer who is authorized to act for the Master Servicer in matters relating to
this Agreement, and whose action is binding upon the Master Servicer, initially
including those individuals whose names appear on the list of authorized
officers delivered at the closing.
"One-Month LIBOR": With respect to the Class A Certificates,
the Mezzanine Certificates (other than the Class M-3 Certificates), REMIC II
Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular
Interest II-LT4 and REMIC II Regular Interest II-LT5 and any Interest Accrual
Period therefor, the rate determined by the Trustee on the related Interest
Determination Date on the basis of the offered rate for one-month U.S. dollar
deposits, as such rate appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on such Interest Determination Date; provided that if such rate does not
appear on Telerate Page 3750, the rate for such date will be determined on the
basis of the offered rates of the Reference Banks for one-month U.S. dollar
deposits, as of 11:00 a.m. (London time) on such Interest Determination Date. In
such event, the Trustee will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If on such Interest
Determination Date, two or more Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Accrual Period shall be the arithmetic
mean of such offered quotations (rounded upwards if necessary to the nearest
whole multiple of 1/16%). If on such Interest Determination Date, fewer than two
Reference Banks provide such offered quotations, One-Month LIBOR for the related
Interest Accrual Period shall be the higher of (i) LIBOR as determined on the
previous Interest Determination Date and (ii) the Reserve Interest Rate.
Notwithstanding the foregoing, if, under the priorities described above, LIBOR
for an Interest Determination Date would be based on LIBOR for the previous
Interest Determination Date for the third consecutive Interest Determination
Date, the Trustee shall select an alternative comparable index (over which the
Trustee has no control), used for determining one-month Eurodollar lending rates
that is calculated and published (or otherwise made available) by an independent
party.
"One-Month LIBOR Pass-Through Rate": With respect to the Class
A-1 Certificates and REMIC II Regular Interest II-LT2 and any Distribution Date,
a per annum rate equal to One- Month LIBOR plus ____%, in the case of each
Distribution Date through and including the Distribution Date on which the
aggregate Stated Principal Balance of the Mortgage Loans and REO Properties
remaining in the Trust Fund is reduced to less than ____% of the sum of the
aggregate Stated Principal Balance of the Initial Mortgage Loans as of the
Cut-off Date and the Original Pre- Funded Amount, or One-Month LIBOR plus ____%,
in the case of any Distribution Date thereafter.
With respect to the Class A-2 Certificates and REMIC II
Regular Interest II-LT3 and any Distribution Date, a per annum rate equal to
One-Month LIBOR plus ____%, in the case of each Distribution Date through and
including the Distribution Date on which the aggregate Stated Principal Balance
of the Mortgage Loans and REO Properties remaining in the Trust Fund is reduced
to less than ___% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans
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as of the Cut-off Date and the Original Pre-Funded Amount, or One-Month LIBOR
plus ___%, in the case of any Distribution Date thereafter.
With respect to the Class M-1 Certificates and REMIC II
Regular Interest II-LT4 and any Distribution Date, a per annum rate equal to
One-Month LIBOR plus ____%, in the case of each Distribution Date through and
including the Distribution Date on which the aggregate Stated Principal Balance
of the Mortgage Loans and REO Properties remaining in the Trust Fund is reduced
to less than ___% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the Original Pre-Funded
Amount, or One-Month LIBOR plus ____%, in the case of any Distribution Date
thereafter.
With respect to the Class M-2 Certificates and REMIC II
Regular Interest II-LT5 and any Distribution Date, a per annum rate equal to
One-Month LIBOR plus ___%, in the case of each Distribution Date through and
including the Distribution Date on which the aggregate Stated Principal Balance
of the Mortgage Loans and REO Properties remaining in the Trust Fund is reduced
to less than ___% of the sum of the aggregate Stated Principal Balance of the
Initial Mortgage Loans as of the Cut-off Date and the Original Pre-Funded
Amount, or One-Month LIBOR plus ___%, in the case of any Distribution Date
thereafter.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be salaried counsel for the Depositor or the Master Servicer
acceptable to the Trustee, except that any opinion of counsel relating to (a)
the qualification of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
compliance with the REMIC Provisions must be an opinion of Independent counsel.
"Original Pre-Funded Amount": The amount deposited by the
Depositor in the Pre- Funding Account on the Closing Date, which amount is
$___________.
"Original Mortgage Loan": Any of the Mortgage Loans included
in REMIC I as of the Closing Date.
"Originator": ___________________________, or its successor in
interest, in its capacity as originator under the Mortgage Loan Purchase
Agreement.
"Overcollateralized Amount": With respect to any Distribution
Date, the excess, if any, of (a) the aggregate Stated Principal Balances of the
Mortgage Loans and REO Properties immediately following such Distribution Date
over (b) the sum of the aggregate Certificate Principal Balances of the Class A
Certificates, the Mezzanine Certificates and the Class P Certificates as of such
Distribution Date (after taking into account the payment of the amounts
described in clauses (b)(i) through (iv) of the definition of Principal
Distribution Amount on such Distribution Date).
"Overcollateralization Deficiency Amount": With respect to any
Distribution Date, the excess, if any, of (a) the Required Overcollateralized
Amount applicable to such Distribution Date over (b) the Overcollateralized
Amount applicable to such Distribution Date prior to taking into account the
payment of any Overcollateralization Increase Amount on such Distribution Date.
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"Overcollateralization Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Overcollateralization Deficiency Amount
as of such Distribution Date (after taking into account the payment of the
Principal Distribution Amount on such Distribution Date, exclusive of the
payment of any Overcollateralization Increase Amount) and (b) the amount of
Accrued Certificate Interest payable on the Class CE Certificates on such
Distribution Date as reduced by Realized Losses allocated thereto with respect
to such Distribution Date pursuant to Section 4.04.
"Overcollateralization Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralized Amount and (b) the sum of the amounts available for
distribution specified in clauses (b)(i) through (iii) of the definition of
Principal Distribution Amount.
"Ownership Interest": As to any Certificate, any ownership or
security interest in such Certificate, including any interest in such
Certificate as the Holder thereof and any other interest therein, whether direct
or indirect, legal or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to the Class A Certificates
and the Mezzanine Certificates (other than the Class M-3 Certificates) and any
Distribution Date, a rate per annum equal to the lesser of (i) the related
One-Month LIBOR Pass-Through Rate for such Distribution Date and (ii) the Net
WAC Pass-Through Rate for such Distribution Date. With respect to the Class M-3
Certificates, for any Distribution Date, a fixed rate equal to _____% per annum.
With respect to the Class CE Certificates and any Distribution Date, a rate per
annum equal to the percentage equivalent of a fraction, the numerator of which
is the sum of the amounts calculated pursuant to clauses (i) through (vii)
below, and the denominator of which is the Uncertificated Balance of the REMIC
II Regular Interests (other than the Uncertificated Balance of REMIC II Regular
Interest II- LTP). For purposes of calculating the Pass-Through Rate for the
Class CE Certificates, the numerator is equal to the sum of the following
components:
(i) the REMIC II Remittance Rate for REMIC II Regular Interest
II-LT1 minus two (2) times the weighted average of the REMIC II
Remittance Rates for REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT6 and REMIC II Regular
Interest II-LT7, with the rate on REMIC II Regular Interest II-LT7
equal to zero for the purpose of this calculation, applied to an amount
equal to the Uncertificated Balance of REMIC II Regular Interest
II-LT1;
(ii) the weighted average of the REMIC II Remittance Rates for
REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3,
REMIC II Regular Interest II- LT4, REMIC II Regular Interest II-LT5 and
REMIC II Regular Interest II-LT6 minus two (2) times the weighted
average of the REMIC II Remittance Rates for REMIC II Regular Interest
II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular Interest
II-LT6 and REMIC II Regular Interest II-LT7, with the rate on REMIC II
Regular Interest II-LT7 equal to zero for the purpose of this
calculation, applied to an amount equal to the sum of the
Uncertificated Balances of
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REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3,
REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT5 and
REMIC II Regular Interest II-LT6;
(iii) the REMIC II Remittance Rate for REMIC II Regular
Interest II-LT7 minus two (2) times the weighted average of the REMIC
II Remittance Rates for REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II
Regular Interest II-LT5, REMIC II Regular Interest II-LT6 and REMIC II
Regular Interest II-LT7, with the rate on REMIC II Regular Interest
II-LT7 equal to zero for the purpose of this calculation, applied to an
amount equal to the Uncertificated Balance of REMIC II Regular Interest
II-LT7;
(iv) 100% of the interest on REMIC II Regular Interest
II-LT2S;
(v) 100% of the interest on REMIC II Regular Interest
II-LT3S;
(v) 100% of the interest on REMIC II Regular Interest
II-LT4S;
(vi) 100% of the interest on REMIC II Regular Interest
II-LT5S; and
(vii) 100% of the interest on REMIC II Regular Interest
II-LT6S.
"Percentage Interest": With respect to any Class of
Certificates (other than the Residual Certificates), the undivided percentage
ownership in such Class evidenced by such Certificate, expressed as a
percentage, the numerator of which is the initial Certificate Principal Balance
represented by such Certificate and the denominator of which is the aggregate
initial Certificate Principal Balance of all of the Certificates of such Class.
The Class A Certificates and the Mezzanine Certificates are issuable only in
minimum Percentage Interests corresponding to minimum initial Certificate
Principal Balances of $______ and integral multiples of $____ in excess thereof.
The Class P Certificates are issuable only in minimum Percentage Interests
corresponding to minimum initial Certificate Principal Balances of $___ and
integral multiples thereof. The Class CE Certificates are issuable only in
minimum Percentage Interests corresponding to minimum initial Certificate
Principal Balances of $______ and integral multiples of $____ in excess thereof;
provided, however, that a single Certificate of such Class of Certificates may
be issued having a Percentage Interest corresponding to the remainder of the
aggregate initial Certificate Principal Balance of such Class or to an otherwise
authorized denomination for such Class plus such remainder. With respect to any
Residual Certificate, the undivided percentage ownership in such Class evidenced
by such Certificate, as set forth on the face of such Certificate. The Residual
Certificates are issuable in Percentage Interests of ___% and multiples thereof.
"Periodic Rate Cap": With respect to each Mortgage Loan and
any Adjustment Date therefor, the fixed percentage set forth in the related
Mortgage Note, which is the maximum amount by which the Mortgage Rate for such
Mortgage Loan may increase or decrease (without regard to the Maximum Mortgage
Rate or the Minimum Mortgage Rate) on such Adjustment Date from the Mortgage
Rate in effect immediately prior to such Adjustment Date.
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"Permitted Investments": Any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
regardless of whether issued by the Depositor, the Master Servicer, the Trustee
or any of their respective Affiliates:
(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States;
(ii) demand and time deposits in, certificates of
deposit of, or bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
365 days or a remaining maturity of more than 30 days) denominated in
United States dollars and issued by, any Depository Institution;
(iii) repurchase obligations with respect to any
security described in clause (i) above entered into with a Depository
Institution (acting as principal);
(iv) securities bearing interest or sold at a
discount that are issued by any corporation incorporated under the laws
of the United States of America or any state thereof and that are rated
by each Rating Agency that rates such securities in its highest
long-term unsecured rating categories at the time of such investment or
contractual commitment providing for such investment;
(v) commercial paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than 30
days after the date of acquisition thereof) that is rated by each
Rating Agency that rates such securities in its highest short-term
unsecured debt rating available at the time of such investment;
(vi) units of money market funds, including money
market funds advised by the Trustee or an Affiliate thereof, that have
been rated "AAA" by DCR (if rated by DCR), "Aaa" by Moody's and "AAA"
by S&P; and
(viii) if previously confirmed in writing to the
Trustee, any other demand, money market or time deposit, or any other
obligation, security or investment, as may be acceptable to the Rating
Agencies as a permitted investment of funds backing securities having
ratings equivalent to its highest initial rating of the Class A
Certificates;
provided, however, that no instrument described hereunder shall evidence either
the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations.
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"Permitted Transferee": Any Transferee of a Residual
Certificate other than a Disqualified Organization or Non-United States Person.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"P&I Advance": As to any Mortgage Loan or REO Property, any
advance made by the Master Servicer in respect of any Distribution Date
representing the aggregate of all payments of principal and interest, net of the
Servicing Fee, that were due during the related Due Period on the Mortgage Loans
and that were delinquent on the related Determination Date, plus certain amounts
representing assumed payments not covered by any current net income on the
Mortgaged Properties acquired by foreclosure of deed in lieu of foreclosure as
determined pursuant to Section 4.03.
"Plan": Any employee benefit plan or certain other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and bank collective investment funds and insurance company general
or separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA and Section 4975 of the Code.
"Pre-Funding Account ": The account established and maintained
pursuant to Section 4.07 as defined therein.
"Prepayment Assumption": A prepayment rate for the Mortgage
Loans of ___% CPR. The Prepayment Assumption is used solely for determining the
accrual of original issue discount on the Certificates for federal income tax
purposes. A CPR (or Constant Prepayment Rate) represents an annualized constant
assumed rate of prepayment each month of a pool of mortgage loans relative to
its outstanding principal balance for the life of such pool.
"Prepayment Charge": With respect to any Prepayment Period,
any prepayment premium, penalty or charge collected by the Master Servicer from
a Mortgagor in connection with any voluntary Principal Prepayment in full
pursuant to the terms of the related Mortgage Note as from time to time held as
a part of the Trust Fund, the Prepayment Charges so held being identified in the
Prepayment Charge Schedule (other than any Master Servicer Prepayment Charge
Payment Amount).
"Prepayment Charge Schedule": As of any date, the list of
Prepayment Charges included in the Trust Fund on such date, attached hereto as
Schedule 2 (including the prepayment charge summary attached thereto) as
supplemented by each schedule of Subsequent Mortgage Loans which by their terms
have related Prepayment Charges. The Prepayment Charge Schedule shall set forth
the following information with respect to each Prepayment Charge:
(i) the Master Servicer's Mortgage Loan identifying number;
(ii) a code indicating the type of Prepayment Charge;
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(iii) the date on which the first Monthly Payment was due on the
related Mortgage Loan;
(iv) the term of the Prepayment Charge;
(v) the original principal balance of the related Mortgage Loan;
(vi) the principal balance of the related Mortgage Loan as of the
Cut-off Date (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan;
The Prepayment Charge Schedule shall be amended from time to
time by the Depositor in accordance with the provisions of this Agreement.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, for each Mortgage Loan that was during the related Prepayment Period the
subject of a Principal Prepayment in full or in part that was applied by the
Master Servicer to reduce the outstanding principal balance of such loan on a
date preceding the Due Date in the succeeding Prepayment Period, an amount equal
to interest at the applicable Net Mortgage Rate on the amount of such Principal
Prepayment for the number of days commencing on the date on which the prepayment
is applied and ending on the last day of the related Prepayment Period. The
obligations of the Master Servicer in respect of any Prepayment Interest
Shortfall are set forth in Section 3.24.
"Prepayment Period": With respect to any Distribution Date, the
calendar month preceding the calendar month in which such Distribution Date
occurs.
"Principal Distribution Amount": With respect to any
Distribution Date, the lesser of:
(a) the excess of the Available Distribution Amount over the
amount payable on the Class A Certificates and the
Mezzanine Certificates pursuant to Section 4.01(a)(2); and
(b) the sum of:
(i) the principal portion of each Monthly Payment on the
Mortgage Loans due during the related Due Period, whether or
not received on or prior to the related
Determination Date;
(ii) the Stated Principal Balance of any Mortgage Loan that
was purchased during the related Prepayment Period pursuant to
or as contemplated by Section 2.03, Section 3.16(c) or Section
9.01 and the amount of any shortfall deposited in the
Collection Account in connection with the substitution of a
Deleted Mortgage Loan pursuant to Section 2.03 during the
related Prepayment Period;
(iii) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments, Insurance Proceeds, Liquidation Proceeds and
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REO Principal Amortization) received during the related
Prepayment Period, net of any portion thereof that represents
a recovery of principal for which an advance was made by the
Master Servicer pursuant to Section 4.03 in respect of a
preceding Distribution Date, and with respect to the
Distribution Date immediately following the end of the Funding
Period, any amounts in the Pre-Funding Account after giving
effect to the purchase of any Subsequent Mortgage Loans;
(iv) the principal portion of any Realized Losses incurred on
the Mortgage Loans in the calendar month preceding such
Distribution Date; and
(v) the amount of any Overcollateralization Increase Amount
for such Distribution Date;
minus:
(vi) the amount of any Overcollateralization Reduction Amount
for such Distribution Date.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest (without regard to
any prepayment charge that may have been collected by the Master Servicer in
connection with such payment of principal) representing the full amount of
scheduled interest due on any Due Date in any month or months subsequent to the
month of prepayment.
"PTCE": A Prohibited Transaction Class Exemption.
"Purchase Price": With respect to any Mortgage Loan or REO
Property to be purchased pursuant to or as contemplated by Section 2.03, Section
3.16(c) or Section 9.01, and as confirmed by an Officers' Certificate from the
Master Servicer to the Trustee, an amount equal to the sum of (i) 100% of the
Stated Principal Balance thereof as of the date of purchase (or such other price
as provided in Section 9.01), (ii) in the case of (x) a Mortgage Loan, accrued
interest on such Stated Principal Balance at the applicable Net Mortgage Rate in
effect from time to time from the Due Date as to which interest was last covered
by a payment by the Mortgagor or an advance by the Master Servicer, which
payment or advance had as of the date of purchase been distributed pursuant to
Section 4.01, through the end of the calendar month in which the purchase is to
be effected and (y) an REO Property, the sum of (1) accrued interest on such
Stated Principal Balance at the applicable Net Mortgage Rate in effect from time
to time from the Due Date as to which interest was last covered by a payment by
the Mortgagor or an advance by the Master Servicer through the end of the
calendar month immediately preceding the calendar month in which such REO
Property was acquired, plus (2) REO Imputed Interest for such REO Property for
each calendar month commencing with the calendar month in which such REO
Property was acquired and ending with the calendar month in which such purchase
is to be effected, net of the total of all net rental income, Insurance
Proceeds, Liquidation Proceeds and P&I Advances that as of the date of purchase
had been distributed as or to cover REO Imputed Interest pursuant to Section
4.01, (iii) any unreimbursed
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Servicing Advances and P&I Advances and any unpaid Servicing Fees allocable to
such Mortgage Loan or REO Property, (iv) any amounts previously withdrawn from
the Collection Account in respect of such Mortgage Loan or REO Property pursuant
to Sections 3.11(ix) and 3.16(b), and (v) in the case of a Mortgage Loan
required to be purchased pursuant to Section 2.03, expenses reasonably incurred
or to be incurred by the Master Servicer or the Trustee in respect of the breach
or defect giving rise to the purchase obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted
for a Deleted Mortgage Loan pursuant to the terms of this Agreement which must,
on the date of such substitution, (i) have an outstanding principal balance,
after application of all scheduled payments of principal and interest due during
or prior to the month of substitution, not in excess of the Scheduled Principal
Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month
during which the substitution occurs, (ii) have a Mortgage Rate not less than
(and not more than one percentage point in excess of) the Mortgage Rate of the
Deleted Mortgage Loan, (iii) have a Maximum Mortgage Rate not less than the
Maximum Mortgage Rate on the Deleted Mortgage Loan, (iv) have a Minimum Mortgage
Rate not less than the Minimum Mortgage Rate of the Deleted Mortgage Loan, (v)
have a Gross Margin equal to the Gross Margin of the Deleted Mortgage Loan, (vi)
have a next Adjustment Date not more than two months later than the next
Adjustment Date on the Deleted Mortgage Loan, (vii) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Deleted Mortgage Loan, (viii) have the same Due Date as the Due Date on the
Deleted Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of
substitution equal to or lower than the Loan-to-Value Ratio of the Deleted
Mortgage Loan as of such date, (x) have a risk grading determined by the Seller
at least equal to the risk grading assigned on the Deleted Mortgage Loan and
(xi) conform to each representation and warranty set forth in Section 6 of the
Mortgage Loan Purchase Agreement applicable to the Deleted Mortgage Loan. In the
event that one or more mortgage loans are substituted for one or more Deleted
Mortgage Loans, the amounts described in clause (i) hereof shall be determined
on the basis of aggregate principal balances, the Mortgage Rates described in
clause (ii) hereof shall be determined on the basis of weighted average Mortgage
Rates, the risk gradings described in clause (x) hereof shall be satisfied as to
each such mortgage loan, the terms described in clause (vii) hereof shall be
determined on the basis of weighted average remaining terms to maturity, the
Loan-to-Value Ratios described in clause (ix) hereof shall be satisfied as to
each such mortgage loan and, except to the extent otherwise provided in this
sentence, the representations and warranties described in clause (xi) hereof
must be satisfied as to each Qualified Substitute Mortgage Loan or in the
aggregate, as the case may be.
"Rating Agency or Rating Agencies": ______, _______ and _____ or
their successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating agencies, or other comparable Persons, designated by the Depositor,
notice of which designation shall be given to the Trustee and the Master
Servicer.
"Realized Loss": With respect to each Mortgage Loan as to which a
Final Recovery Determination has been made, an amount (not less than zero) equal
to (i) the unpaid principal balance of such Mortgage Loan as of the commencement
of the calendar month in which the Final Recovery Determination was made, plus
(ii) accrued interest from the Due Date as to which interest was last paid by
the Mortgagor through the end of the calendar month in which such Final Recovery
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Determination was made, calculated in the case of each calendar month during
such period (A) at an annual rate equal to the annual rate at which interest was
then accruing on such Mortgage Loan and (B) on a principal amount equal to the
Stated Principal Balance of such Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) any amounts
previously withdrawn from the Collection Account in respect of such Mortgage
Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (iv) the
proceeds, if any, received in respect of such Mortgage Loan during the calendar
month in which such Final Recovery Determination was made, net of amounts that
are payable therefrom to the Master Servicer with respect to such Mortgage Loan
pursuant to Section 3.11(a)(iii).
With respect to any REO Property as to which a Final Recovery
Determination has been made, an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of REMIC I, plus (ii) accrued
interest from the Due Date as to which interest was last paid by the Mortgagor
in respect of the related Mortgage Loan through the end of the calendar month
immediately preceding the calendar month in which such REO Property was
acquired, calculated in the case of each calendar month during such period (A)
at an annual rate equal to the annual rate at which interest was then accruing
on the related Mortgage Loan and (B) on a principal amount equal to the Stated
Principal Balance of the related Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such Final Recovery Determination was made, plus (iv)
any amounts previously withdrawn from the Collection Account in respect of the
related Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus
(v) the aggregate of all P&I Advances made by the Master Servicer in respect of
such REO Property or the related Mortgage Loan for which the Master Servicer has
been or, in connection with such Final Recovery Determination, will be
reimbursed pursuant to Section 3.23 out of rental income, Insurance Proceeds and
Liquidation Proceeds received in respect of such REO Property, minus (vi) the
total of all net rental income, Insurance Proceeds and Liquidation Proceeds
received in respect of such REO Property that has been, or in connection with
such Final Recovery Determination, will be transferred to the Distribution
Account pursuant to Section 3.23.
With respect to each Mortgage Loan which has become the subject of
a Deficient Valuation, the difference between the principal balance of the
Mortgage Loan outstanding immediately prior to such Deficient Valuation and the
principal balance of the Mortgage Loan as reduced by the Deficient Valuation.
With respect to each Mortgage Loan which has become the subject of
a Debt Service Reduction, the portion, if any, of the reduction in each affected
Monthly Payment attributable to a reduction in the Mortgage Rate imposed by a
court of competent jurisdiction. Each such Realized Loss shall be deemed to have
been incurred on the Due Date for each affected Monthly Payment.
"Record Date": With respect to each Distribution Date and any
Book-Entry Certificate, the Business Day immediately preceding such Distribution
Date. With respect to each Distribution
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Date and any other Class of Certificates, including any Definitive Certificates,
the last Business Day of the month immediately preceding the month in which such
Distribution Date occurs.
"Reference Banks": _____________________, __________________,
________________ and __________________ and their successors in interest;
provided, however, that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Trustee which are
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) not
controlling, under the control of or under common control with the Depositor or
any Affiliate thereof and (iii) which have been designated as such by the
Trustee.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of
which were not used to purchase the related Mortgaged Property.
"Regular Certificate": Any Class A Certificate, Mezzanine
Certificate, Class P Certificate or Class CE Certificate.
"Regular Interest": A "regular interest" in a REMIC within the
meaning of Section 860G(a)(1) of the Code.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"Relief Act Interest Shortfall": With respect to any Distribution
Date and any Mortgage Loan, any reduction in the amount of interest collectible
on such Mortgage Loan for the most recently ended calendar month as a result of
the application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC I": The segregated pool of assets subject hereto,
constituting the primary trust created hereby and to be administered hereunder,
with respect to which a REMIC election is to be made, consisting of: (i) such
Mortgage Loans and Prepayment Charges as from time to time are subject to this
Agreement, together with the Mortgage Files relating thereto, and together with
all collections thereon and proceeds thereof, (ii) any REO Property, together
with all collections thereon and proceeds thereof, (iii) the Trustee's rights
with respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to this Agreement and any proceeds thereof, (iv) the
Depositor's rights under the Mortgage Loan Purchase Agreement (including any
security interest created thereby) to the extent conveyed pursuant to Section
2.01 and (v) the Collection Account (other than any amounts representing any
Master Servicer Prepayment Charge Payment Amount), the Distribution Account
(other than any amounts representing any Master Servicer Prepayment Charge
Payment Amount) and any REO Account and such assets that are deposited therein
from time to time and any investments thereof, together with any and all income,
proceeds and payments with respect thereto. Notwithstanding the foregoing,
however, REMIC I specifically excludes the Pre-Funding Account, the Interest
Coverage and all payments and other collections of principal and
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interest due on the Mortgage Loans on or before the Cut-off Date and all
Prepayment Charges payable in connection with Principal Prepayments made before
the Cut-off Date.
"REMIC I Interest Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to (a) the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) the REMIC I Remittance Rate for REMIC I Regular Interest
I-LT1 minus two (2) times the weighted average of the REMIC II Remittance Rates
for REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II- LT4, REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6 and REMIC II Regular Interest II-LT7, with the rate on REMIC II
Regular Interest II-LT7 equal to zero for purposes of this calculation, divided
by (b) 12.
"REMIC I Overcollateralized Amount": With respect to any date of
determination, (i) 1% of the aggregate Uncertificated Balances of the REMIC I
Regular Interests minus (ii) the aggregate of the Uncertificated Balances of
REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5 and REMIC I Regular Interest
I-LT6, in each case as of such date of determination.
"REMIC I Principal Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to the product of (i) the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties then outstanding and
(ii) 1 minus a fraction, the numerator of which is two times the aggregate of
the Uncertificated Balances of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5
and REMIC I Regular Interest I-LT6 and the denominator of which is the aggregate
of the Uncertificated Balances of REMIC I Regular Interest I-LT2, REMIC I
Regular Interest I-LT3, REMIC I Regular Interest I- LT4, REMIC I Regular
Interest I-LT5, REMIC I Regular Interest I-LT6 and REMIC I Regular Interest
I-LT7.
"REMIC I Regular Interest": Any of the seven separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a "regular interest" in REMIC I. Each REMIC I Regular Interest
(other than REMIC I Regular Interest I-LTP, with respect to interest) shall
accrue interest at the related REMIC I Remittance Rate in effect from time to
time, and shall be entitled to distributions of principal, subject to the terms
and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC I Regular Interests are set forth in the
Preliminary Statement hereto.
"REMIC I Regular Interest I-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT1
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
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"REMIC I Regular Interest I-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT2
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT3
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT4
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT5
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT6
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT7": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LT7
shall accrue interest at the related REMIC I Remittance Rate in effect from time
to time, and shall be entitled to distributions of principal, subject to the
terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC I issued hereunder and
designated as a Regular Interest in REMIC I. REMIC I Regular Interest I-LTP
shall be entitled to any Prepayment Charges collected by the Master
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Servicer and to a distribution of principal, subject to the terms and conditions
hereof, in an aggregate amount equal to its initial Uncertificated Balance as
set forth in the Preliminary Statement
hereto.
"REMIC I Remittance Rate": With respect to each REMIC I Regular
Interest, the weighted average of the Expense Adjusted Mortgage Rates on the
then outstanding Mortgage Loans and REO Properties.
"REMIC I Required Overcollateralized Amount": ____% of the
Required Overcollateralization Amount.
"REMIC II": The segregated pool of assets consisting of all of the
REMIC I Regular Interests conveyed in trust to the Trustee for the benefit of
REMIC III, as holder of the REMIC II Regular Interests, and the Class R-II
Certificateholders pursuant to Section 2.07, and all amounts deposited therein,
with respect to which a separate REMIC election is to be made.
"REMIC II Regular Interest": Any of the eleven separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a "regular interest" in REMIC II. Each REMIC II Regular Interest
(other than REMIC II Regular Interest II-LTP, with respect to interest) shall
accrue interest at the related REMIC II Remittance Rate in effect from time to
time, and shall be entitled to distributions of principal, subject to the terms
and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto. The
designations for the respective REMIC II Regular Interests are set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT1
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
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"REMIC II Regular Interest II-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT7": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT7
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LTP
shall be entitled to any Prepayment Charges collected by the Master Servicer and
to a distribution of principal, subject to the terms and conditions hereof, in
an aggregate amount equal to its initial Uncertificated Balance as set forth in
the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT3S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
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"REMIC II Regular Interest II-LT4S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT5S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT6S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Remittance Rate": With respect to REMIC II Regular
Interest II-LT1 and REMIC II Regular Interest II-LT7, the weighted average of
the Expense Adjusted Mortgage Rates on the then outstanding Mortgage Loans and
REO Properties. With respect to REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4 and REMIC II Regular
Interest II-LT5, the lesser of (i) the related One-Month LIBOR Pass-Through Rate
(based on the actual number of days elapsed in the applicable Interest Accrual
Period and a 360-day year) and (ii) the Net WAC Pass-Through Rate, multiplied by
the actual number of days elapsed in the related Interest Accrual Period divided
by 360. With respect to REMIC II Regular Interest II-LT6, a fixed rate per annum
equal to the related REMIC II Remittance Rate as set forth in the Preliminary
Statement hereto. With respect to REMIC II Regular Interest II-LT2S, REMIC II
Regular Interest II-LT3S, REMIC II Regular Interest II-LT4S, REMIC II Regular
Interest II-LT5S and REMIC II Regular Interest II-LT6S, a rate per annum equal
to excess of the REMIC I Remittance Rate for the related Uncertificated
Corresponding Component over the REMIC II Remittance Rate for REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5 and REMIC II Regular Interest II-LT6,
respectively.
"REMIC III": The segregated pool of assets consisting of all of
the REMIC II Regular Interests conveyed in trust to the Trustee for the benefit
of the REMIC III Certificateholders pursuant to Section 2.09, and all amounts
deposited therein, with respect to which a separate REMIC election is to be
made.
"REMIC III Certificate": Any Regular Certificate or Class R-III
Certificate.
"REMIC III Certificateholder": The Holder of any REMIC III
Certificate.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related
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provisions, and proposed, temporary and final regulations and published rulings,
notices and announcements promulgated thereunder, as the foregoing may be in
effect from time to time.
"Remittance Report": A report in form and substance that is
acceptable to the Trustee on a magnetic disk or tape prepared by the Master
Servicer pursuant to Section 4.03 with such additions, deletions and
modifications as agreed to by the Trustee and the Master Servicer.
"Rents from Real Property": With respect to any REO Property,
gross income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
"REO Account": Each of the accounts maintained by the Master
Servicer in respect of an REO Property pursuant to Section 3.23.
"REO Disposition": The sale or other disposition of an REO
Property on behalf of REMIC I.
"REO Imputed Interest": As to any REO Property, for any calendar
month during which such REO Property was at any time part of REMIC I, one
month's interest at the applicable Net Mortgage Rate on the Stated Principal
Balance of such REO Property (or, in the case of the first such calendar month,
of the related Mortgage Loan, if appropriate) as of the close of business on the
Distribution Date in such calendar month.
"REO Principal Amortization": With respect to any REO Property,
for any calendar month, the excess, if any, of (a) the aggregate of all amounts
received in respect of such REO Property during such calendar month, whether in
the form of rental income, sale proceeds (including, without limitation, that
portion of the Termination Price paid in connection with a purchase of all of
the Mortgage Loans and REO Properties pursuant to Section 9.01 that is allocable
to such REO Property) or otherwise, net of any portion of such amounts (i)
payable pursuant to Section 3.23(c) in respect of the proper operation,
management and maintenance of such REO Property or (ii) payable or reimbursable
to the Master Servicer pursuant to Section 3.23(d) for unpaid Servicing Fees in
respect of the related Mortgage Loan and unreimbursed Servicing Advances and P&I
Advances in respect of such REO Property or the related Mortgage Loan, over (b)
the REO Imputed Interest in respect of such REO Property for such calendar
month.
"REO Property": A Mortgaged Property acquired by the Master
Servicer on behalf of REMIC I through foreclosure or deed-in-lieu of
foreclosure, as described in Section 3.23.
"Request for Release": A release signed by a Servicing Officer, in
the form of Exhibit E-1 or Exhibit E-2 attached hereto.
"Required Overcollateralized Amount": With respect to any
Distribution Date (i) prior to the Stepdown Date, $__________, (ii) on or after
the Stepdown Date provided a Trigger Event is not in effect, the greater of (x)
____% of the aggregate Stated Principal Balance of the Mortgage Loans as of the
last day of the related Due Period and (y) $_________, and (iii) on or after the
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Stepdown Date and a Trigger Event is in effect, the Required Overcollateralized
Amount for the immediately preceding Distribution Date.
"Reserve Interest Rate": With respect to any Interest
Determination Date, the rate per annum that the Trustee determines to be either
(i) the arithmetic mean (rounded upwards if necessary to the nearest whole
multiple of 1/16%) of the one-month U.S. dollar lending rates which New York
City banks selected by the Trustee are quoting on the relevant Interest
Determination Date to the principal London offices of leading banks in the
London interbank market or (ii) in the event that the Trustee can determine no
such arithmetic mean, the lowest one-month U.S. dollar lending rate which New
York City banks selected by the Trustee are quoting on such Interest
Determination Date to leading European banks.
"Residential Dwelling": Any one of the following: (i) an attached
or detached one-family dwelling, (ii) a detached two- to four-family dwelling,
(iii) a one-family dwelling unit in a condominium project or (iv) a detached
one-family dwelling in a planned unit development, none of which is a
co-operative, mobile or manufactured home (unless such mobile or manufactured
home is defined as real property under applicable state law).
"Residual Certificate": Any one of the Class R-I Certificates,
Class R-II Certificates or Class R-III Certificates.
"Residual Interest": The sole class of "residual interests" in a
REMIC within the meaning of Section 860G(a)(2) of the Code.
"Responsible Officer": When used with respect to the Trustee, the
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or
Vice Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
vice president, any assistant vice president, the Secretary, any assistant
secretary, the Treasurer, any assistant treasurer, the Cashier, any assistant
cashier, any trust officer or assistant trust officer, the Controller and any
assistant controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers
and, with respect to a particular matter, to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Scheduled Principal Balance": With respect to any Mortgage Loan:
(a) as of the Cutoff Date, (or Subsequent Cut-off Date, with respect to a
Subsequent Mortgage Loan), the outstanding principal balance of such Mortgage
Loan as of such date, net of the principal portion of all unpaid Monthly
Payments, if any, due on or before such date; (b) as of any Due Date subsequent
to the Cutoff Date (or Subsequent Cut-off Date, as applicable) up to and
including the Due Date in the calendar month in which a Liquidation Event occurs
with respect to such Mortgage Loan, the Scheduled Principal Balance of such
Mortgage Loan as of the Cut-off Date (or Subsequent Cut-off Date, as
applicable), minus the sum of (i) the principal portion of each Monthly Payment
due on or before such Due Date but subsequent to the Cut-off Date (or Subsequent
Cut-off Date, as applicable), whether or not received, (ii) all Principal
Prepayments received before such Due Date but after the Cut-off Date (or
Subsequent Cut-off Date, as applicable), (iii) the principal portion of all
Liquidation
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Proceeds and Insurance Proceeds received before such Due Date but after the
Cut-off Date (or Subsequent Cut-off Date, as applicable), net of any portion
thereof that represents principal due (without regard to any acceleration of
payments under the related Mortgage and Mortgage Note) on a Due Date occurring
on or before the date on which such proceeds were received and (iv) any Realized
Loss incurred with respect thereto as a result of a Deficient Valuation
occurring before such Due Date, but only to the extent such Realized Loss
represents a reduction in the portion of principal of such Mortgage Loan not yet
due (without regard to any acceleration of payments under the related Mortgage
and Mortgage Note) as of the date of such Deficient Valuation; and (c) as of any
Due Date subsequent to the occurrence of a Liquidation Event with respect to
such Mortgage Loan, zero. With respect to any REO Property: (a) as of any Due
Date subsequent to the date of its acquisition on behalf of the Trust Fund up to
and including the Due Date in the calendar month in which a Liquidation Event
occurs with respect to such REO Property, an amount (not less than zero) equal
to the Scheduled Principal Balance of the related Mortgage Loan as of the Due
Date in the calendar month in which such REO Property was acquired, minus the
aggregate amount of REO Principal Amortization, if any, in respect of such REO
Property for all previously ended calendar months; and (b) as of any Due Date
subsequent to the occurrence of a Liquidation Event with respect to such REO
Property, zero.
"Seller": ____________________________, a ______________ company,
or its successor in interest, in its capacity as seller under the Mortgage Loan
Purchase Agreement.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.09.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by the Master Servicer in connection with a default,
delinquency or other unanticipated event by the Master Servicer in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration and protection of a Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
in respect of a particular Mortgage Loan, (iii) the management (including
reasonable fees in connection therewith) and liquidation of any REO Property and
(iv) the performance of its obligations under Section 3.01, Section 3.09,
Section 3.14, Section 3.16 and Section 3.23. The Master Servicer shall not be
required to make any Servicing Advance in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the Master Servicer, would
not be ultimately recoverable from related Insurance Proceeds or Liquidation
Proceeds on such Mortgage Loan or REO Property as provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for any
calendar month, an amount equal to one month's interest (or in the event of any
payment of interest which accompanies a Principal Prepayment in full made by the
Mortgagor during such calendar month, interest for the number of days covered by
such payment of interest) at the applicable Servicing Fee Rate on the same
principal amount on which interest on such Mortgage Loan accrues for such
calendar month. A portion of such Servicing Fee may be retained by any
Sub-Servicer as its servicing compensation.
"Servicing Fee Rate": ____% per annum; provided however, in the
event that the weighted average of the Net Mortgage Rates on the Mortgage Loans
is less than ____%, the
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Servicing Fee Rate shall be reduced by the amount needed to pay the Pass-Through
Certificates on the Class M-3 Certificates.
"Servicing Officer": Any employee of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans,
whose name and specimen signature appear on a list of Servicing Officers
furnished by the Master Servicer to the Trustee and the Depositor on the Closing
Date, as such list may from time to time be amended.
"Single Certificate": With respect to any Class of Certificates
(other than the Class P Certificates and the Residual Certificates), a
hypothetical Certificate of such Class evidencing a Percentage Interest for such
Class corresponding to an initial Certificate Principal Balance or Notional
Amount of $1,000. With respect to the Class P Certificates and the Residual
Certificates, a hypothetical Certificate of such Class evidencing a 20%
Percentage Interest in such Class.
"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or its successor in interest.
"Startup Day": With respect to each of REMIC I, REMIC II and REMIC
III, the day designated as such pursuant to Section 10.01(b) hereof.
"Stated Principal Balance": With respect to any Mortgage Loan: (a)
as of any date of determination up to but not including the Distribution Date on
which the proceeds, if any, of a Liquidation Event with respect to such Mortgage
Loan would be distributed, the Scheduled Principal Balance of such Mortgage Loan
as of the Cut-off Date (or Subsequent Cut-off Date, with respect to a Subsequent
Mortgage Loan), as shown in the Mortgage Loan Schedule, minus the sum of (i) the
principal portion of each Monthly Payment due on a Due Date subsequent to the
Cut-off Date (or Subsequent Cut-off Date, as applicable), to the extent received
from the Mortgagor or advanced by the Master Servicer and distributed pursuant
to Section 4.01 on or before such date of determination, (ii) all Principal
Prepayments received after the Cut-off Date (or Subsequent Cut-off Date, as
applicable), to the extent distributed pursuant to Section 4.01 on or before
such date of determination, (iii) all Liquidation Proceeds and Insurance
Proceeds applied by the Master Servicer as recoveries of principal in accordance
with the provisions of Section 3.16, to the extent distributed pursuant to
Section 4.01 on or before such date of determination and (iv) any Realized Loss
incurred with respect thereto as a result of a Deficient Valuation made during
or prior to the Prepayment Period for the most recent Distribution Date
coinciding with or preceding such date of determination; and (b) as of any date
of determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan
would be distributed, zero. With respect to any REO Property: (a) as of any date
of determination up to but not including the Distribution Date on which the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be distributed, an amount (not less than zero) equal to the Stated Principal
Balance of the related Mortgage Loan as of the date on which such REO Property
was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was
acquired before the Distribution Date in any calendar month, the principal
portion of the Monthly Payment due on the Due Date in the calendar month of
acquisition, to the extent advanced by the Master Servicer and distributed
pursuant to Section 4.01 on or before such date of determination, and (ii) the
aggregate
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amount of REO Principal Amortization in respect of such REO Property for all
previously ended calendar months, to the extent distributed pursuant to Section
4.01 on or before such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such REO Property
would be distributed, zero.
"Stayed Funds": If the Master Servicer is the subject of a
proceeding under the federal Bankruptcy Code and the making of a Remittance (as
defined in Section 7.02(b)) is prohibited by Section 362 of the federal
Bankruptcy Code, funds that are in the custody of the Master Servicer, a trustee
in bankruptcy or a federal bankruptcy court and should have been the subject of
such Remittance absent such prohibition.
"Stepdown Date": The later to occur of (i) the Distribution Date
occurring in ____________ and (ii) the first Distribution Date on which the
Credit Enhancement Percentage (calculated for this purpose only after taking
into account distributions of principal on the Mortgage Loans but prior to any
distribution of the Principal Distribution Amount to the Certificates then
entitled to distributions of principal on such Distribution Date) is equal to or
greater than
- -----%.
"Subsequent Cut-off Date": With respect to those Subsequent
Mortgage Loans sold to the Trust Fund pursuant to a Subsequent Transfer
Instrument, the first day of the month in which the related Subsequent Transfer
Date occurs.
"Subsequent Mortgage Loan": A Mortgage Loan sold by the Depositor
to the Trust Fund pursuant to Section 2.11, such Mortgage Loan being identified
on the Mortgage Loan Schedule attached to a Subsequent Transfer Instrument.
"Subsequent Mortgage Loan Purchase Agreement": The agreement
between the Depositor and the Seller regarding the transfer of the Subsequent
Mortgage Loans by the Seller to the Depositor.
"Subsequent Transfer Date": With respect to each Subsequent
Transfer Instrument, the date on which the related Subsequent Mortgage Loans are
sold to the Trust Fund.
"Subsequent Transfer Instrument": Each subsequent transfer
instrument, dated as of a Subsequent Transfer Date, executed by the Trustee and
the Depositor substantially in the form of Exhibit I, by which Subsequent
Mortgage Loans are sold to the Trust Fund.
"Sub-Servicer": Any Person with which the Master Servicer has
entered into a Sub- Servicing Agreement and which meets the qualifications of a
Sub-Servicer pursuant to Section 3.02.
"Sub-Servicing Account": An account established by a Sub-Servicer
which meets the requirements set forth in Section 3.08 and is otherwise
acceptable to the Master Servicer.
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"Sub-Servicing Agreement": The written contract between the Master
Servicer and a Sub-Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02.
"Substitution Shortfall Amount": As defined in Section 2.03(d).
"Tax Returns": The federal income tax return on Internal Revenue
Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as a REMIC
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Telerate Page 3750": The display designated as page "3750" on the
Dow Jones Telerate Capital Markets Report (or such other page as may replace
page 3750 on that report for the purpose of displaying London interbank offered
rates of major banks).
"Termination Price": As defined in Section 9.01.
"Terminator": As defined in Section 9.01.
"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation, or other form of assignment of any Ownership Interest in a
Certificate.
"Transferee": Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any
Ownership Interest in a Certificate.
"Trigger Event": A Trigger Event has occurred with respect to a
Distribution Date if the Delinquency Percentage exceeds the lesser of (i) ____%
of the Credit Enhancement Percentage (calculated for this purpose only with the
aggregate Certificate Principal Balance of the Mezzanine
Certificates and the Class CE Certificates) or (ii) ____%.
"Trust Fund": Collectively, all of the assets of REMIC I, REMIC II
and REMIC III.
"Trustee": ______________________, a national banking association,
or its successor in interest, or any successor trustee appointed as herein
provided.
"Trustee's Fee": The amount payable to the Trustee on each
Distribution Date pursuant to Section 8.05 as compensation for all services
rendered by it in the execution of the trust hereby created and in the exercise
and performance of any of the powers and duties of the Trustee
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hereunder, which amount shall equal one twelfth of the product of (i) the
Trustee's Fee Rate, multiplied by (ii) the aggregate Scheduled Principal Balance
of the Mortgage Loans and any REO Properties and any amount in the Pre-Funding
Account as of the second preceding Due Date (or, in the case of the initial
Distribution Date, as of the Cut-off Date).
"Trustee's Fee Rate": _______% per annum.
"Uncertificated Balance": The amount of any REMIC I Regular
Interest or REMIC II Regular Interest outstanding as of any date of
determination. As of the Closing Date, the Uncertificated Balance of each REMIC
I Regular Interest and each REMIC II Regular Interest shall equal the amount set
forth in the Preliminary Statement hereto as its initial uncertificated balance.
On each Distribution Date, the Uncertificated Balance of each REMIC I Regular
Interest and each REMIC II Regular Interest shall be reduced by all
distributions of principal made on such REMIC I Regular Interest or such REMIC
II Regular Interest, as applicable, on such Distribution Date pursuant to
Section 4.01 and, if and to the extent necessary and appropriate, shall be
further reduced on such Distribution Date by Realized Losses as provided in
Section 4.04 and the Uncertificated Balances of the REMIC I Regular Interest
I-LT7 and REMIC II Regular Interest II-LT7 shall be increased by interest
deferrals as provided in Section 4.01(a)(1)(A)(i) and Section 4.01(a)(1)(B)(i),
respectively. The Uncertificated Balance of each REMIC I Regular Interest and
each REMIC II Regular Interest shall never be less than zero.
"Uncertificated Corresponding Component": With respect to: REMIC
II Regular Interest II-LT1, REMIC I Regular Interest I-LT1; REMIC II Regular
Interest II-LT2 and REMIC II Regular Interest II-LT2S, REMIC I Regular Interest
I-LT2; REMIC II Regular Interest II-LT3 and REMIC II Regular Interest II-LT3S,
REMIC I Regular Interest I-LT3, REMIC II Regular Interest II- LT4 and REMIC II
Regular Interest II-LT4S, REMIC I Regular Interest I-LT4; REMIC II Regular
Interest II-LT5 and REMIC II Regular Interest II-LT5S, REMIC I Regular Interest
I-LT5; REMIC II Regular Interest II-LT6 and REMIC II Regular Interest II-LT6S,
REMIC I Regular Interest I-LT6; REMIC II Regular Interest II-LT7, REMIC I
Regular Interest I-LT7; and REMIC II Regular Interest II-LTP, REMIC I Regular
Interest I-LTP.
"Uncertificated Interest": With respect to any REMIC I Regular
Interest for any Distribution Date, one month's interest at the REMIC I
Remittance Rate applicable to such REMIC I Regular Interest for such
Distribution Date, accrued on the Uncertificated Balance thereof immediately
prior to such Distribution Date. With respect to any REMIC II Regular Interest
for any Distribution Date, one month's interest at the REMIC II Remittance Rate
applicable to such REMIC II Regular Interest for such Distribution Date, accrued
on the Uncertificated Balance thereof immediately prior to such Distribution
Date. Uncertificated Interest in respect of any REMIC I Regular Interest (other
than REMIC I Regular Interest I-LTP), REMIC II Regular Interest II-LT1, REMIC II
Regular Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II Regular
Interest II- LT2S, REMIC II Regular Interest II-LT3S, REMIC II Regular Interest
II-LT4S, REMIC II Regular Interest II-LT5S and REMIC II Regular Interest II-LT6S
shall accrue on the basis of a 360-day year consisting of twelve 30-day months;
Uncertificated Interest in respect of REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4 and REMIC II Regular
Interest II-LT5, shall accrue on the basis of a 360-day year and the actual
number of days in the
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applicable Interest Accrual Period. Uncertificated Interest with respect to each
Distribution Date, as to any REMIC I Regular Interest or REMIC II Regular
Interest, shall be reduced by an amount equal to the sum of (a) the aggregate
Prepayment Interest Shortfall, if any, for such Distribution Date to the extent
not covered by payments pursuant to Section 3.24 and (b) the aggregate amount of
any Relief Act Interest Shortfall, if any allocated, in each case, to such REMIC
I Regular Interest or REMIC II Regular Interest pursuant to Section 1.02. In
addition, Uncertificated Interest with respect to each Distribution Date, as to
any REMIC I Regular Interest or REMIC II Regular Interest, shall be reduced by
Realized Losses, if any, allocated to such REMIC I Regular Interest or REMIC II
Regular Interest pursuant to Section 1.02 and Section 4.04.
"Uncertificated Notional Amount": With respect to REMIC II Regular
Interest II-LT2S, REMIC II Regular Interest II-LT3S, REMIC II Regular Interest
II-LT4S, REMIC II Regular Interest II-LT5S and REMIC II Regular Interest
II-LT6S, the Uncertificated Balance of REMIC I Regular Interest I-LT2, REMIC I
Regular Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest
I-LT5 and REMIC I Regular Interest I-LT6, respectively.
"Uninsured Cause": Any cause of damage to a Mortgaged Property
such that the complete restoration of such property is not fully reimbursable by
the hazard insurance policies required to be maintained pursuant to Section
3.14.
"United States Person": 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 thereof
(except, in the case of a partnership, to the extent provided in regulations) or
an estate whose income is subject to United States federal income tax regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. To the extent prescribed in regulations by the Secretary
of the Treasury, which have not yet been issued, a trust which was in existence
on August 20, 1996 (other than a trust treated as owned by the grantor under
subpart E of part I of subchapter J of chapter 1 of the Code), and which was
treated as a United States person on August 20, 1996 may elect to continue to be
treated as a United States person notwithstanding the previous sentence. The
term "United States" shall have the meaning set forth in Section 7701 of the
Code.
"Value": With respect to any Mortgaged Property, the lesser of (i)
the value thereof as determined by an appraisal made for the originator of the
Mortgage Loan at the time of origination of the Mortgage Loan by an appraiser
who met the minimum requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, and (ii) the purchase price paid for the related
Mortgaged Property by the Mortgagor with the proceeds of the Mortgage Loan,
provided, however, in the case of a Refinanced Mortgage Loan, such value of the
Mortgaged Property is based solely upon the value determined by an appraisal
made for the originator of such Refinanced Mortgage Loan at the time of
origination of such Refinanced Mortgage Loan by an appraiser who met the minimum
requirements of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989.
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"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. With respect to any date of
determination, 98% of all Voting Rights will be allocated among the holders of
the Class A Certificates, the Mezzanine Certificates and the Class CE
Certificates in proportion to the then outstanding Certificate Principal
Balances of their respective Certificates, 1% of all Voting Rights will be
allocated to the holders of the Class P Certificates and 1/3 of 1% of all Voting
Rights will be allocated among the holders of each Class of Residual
Certificates. The Voting Rights allocated to each Class of Certificate shall be
allocated among Holders of each such Class in accordance with their respective
Percentage Interests as of the most recent Record Date.
SECTION 1.02. Allocation of Certain Interest Shortfalls.
For purposes of calculating the amount of Accrued Certificate
Interest and the amount of the Interest Distribution Amount for the Class A
Certificates, the Mezzanine Certificates and the Class CE Certificates for any
Distribution Date, (1) the aggregate amount of any Prepayment Interest
Shortfalls (to the extent not covered by payments by the Master Servicer
pursuant to Section 3.24) and any Relief Act Interest Shortfall incurred in
respect of the Mortgage Loans for any Distribution Date shall be allocated
first, among the Class CE Certificates on a PRO RATA basis based on, and to the
extent of, one month's interest at the then applicable respective Pass-Through
Rate on the respective Notional Amount of each such Certificate and thereafter,
among the Class A Certificates and the Mezzanine Certificates on a PRO RATA
basis based on, and to the extent of, one month's interest at the then
applicable respective Pass-Through Rate on the respective Certificate Principal
Balance of each such Certificate and (2) the aggregate amount of any Realized
Losses incurred for any Distribution Date shall be allocated among the Class CE
Certificates on a PRO RATA basis based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Notional Amount of each such Certificate.
For purposes of calculating the amount of Uncertificated Interest
for the REMIC I Regular Interests for any Distribution Date, the aggregate
amount of any Prepayment Interest Shortfalls (to the extent not covered by
payments by the Master Servicer pursuant to Section 3.24) and Relief Act
Interest Shortfalls incurred in respect of the Mortgage Loans for any
Distribution Date shall be allocated first, to Uncertificated Interest payable
to REMIC I Regular Interest I-LT1 and REMIC I Regular Interest I-LT7 up to an
aggregate amount equal to the REMIC I Interest Loss Allocation Amount, 98% and
2%, respectively, and thereafter among REMIC I Regular Interest I- LT1, REMIC I
Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest
I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6 and REMIC
I Regular Interest I-LT7 PRO RATA based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Uncertificated Balance of each such REMIC I Regular Interest.
All Prepayment Interest Shortfalls and Relief Act Interest Shortfalls
on the REMIC II Regular Interests shall be allocated by the Trustee on each
Distribution Date among the REMIC II Regular Interests in the proportion that
Prepayment Interest Shortfalls and Relief Act Interest Shortfalls are allocated
to the related Uncertificated Corresponding Component.
<PAGE>
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of Mortgage Loans.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse for the benefit of the Certificateholders all the
right, title and interest of the Depositor, including any security interest
therein for the benefit of the Depositor, in and to the Mortgage Loans
identified on the Mortgage Loan Schedule, the rights of the Depositor under the
Mortgage Loan Purchase Agreement (except Section 17 thereof), and all other
assets included or to be included in REMIC I. Such assignment includes all
interest and principal received by the Depositor or the Master Servicer on or
with respect to the Mortgage Loans (other than payments of principal and
interest due on such Mortgage Loans on or before the Cut-off Date). The
Depositor herewith delivers to the Trustee an executed copy of the Mortgage Loan
Purchase Agreement and the Mortgage Loan Sale and Contribution Agreement.
In connection with such transfer and assignment, the Depositor
does hereby deliver to, and deposit with, the Trustee, or to one or more
Custodians as the agent or agents of the Trustee, the following documents or
instruments with respect to each Initial Mortgage Loan so transferred and
assigned and the Depositor shall, in accordance with Section 2.11, deliver or
cause to be delivered to the Trustee with respect to each Subsequent Mortgage
Loan, the following documents or instruments (a "Mortgage File"):
(i) the original Mortgage Note, endorsed in blank or in the
following form: "Pay to the order of
_______________________________, as Trustee under the applicable
agreement, without recourse," with all prior and intervening
endorsements showing a complete chain of endorsement from the
originator to the Person so endorsing to the
Trustee;
(ii) the original Mortgage with evidence of recording thereon,
and a copy, certified by the appropriate recording office, of the
recorded power of attorney, if the Mortgage was executed pursuant
to a power of attorney, with evidence of recording thereon;
(iii) an original Assignment of the Mortgage in blank;
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the
originator to the Person assigning the Mortgage to the Trustee as
contemplated by the immediately preceding clause (iii);
(v) the original or copies of each assumption, modification,
written assurance or substitution agreement, if any; and
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(vi) the original lender's title insurance policy, together with
all endorsements or riders which were issued with or subsequent to
the issuance of such policy, insuring the priority of the Mortgage
as a first lien on the Mortgaged Property represented therein as a
fee interest vested in the Mortgagor, or in the event such
original title policy is unavailable, a written commitment or
uniform binder or preliminary report of title issued by the title
insurance or escrow company.
The Master Servicer (in its capacity as Originator) shall promptly
(and in no event later than thirty (30) Business Days, subject to extension upon
a mutual agreement between the Master Servicer and the Trustee, following the
later of (i) the Closing Date (or Subsequent Transfer Date, with respect to the
Subsequent Mortgage Loans), (ii) the date on which the Originator receives the
Assignment from the Custodian and (iii) the date of receipt by the Master
Servicer of the recording information for a Mortgage) submit or cause to be
submitted for recording, at no expense to the Trust Fund or the Trustee, in the
appropriate public office for real property records, each Assignment referred to
in Sections 2.01(iii) and (iv) above and shall execute each original Assignment
in the following form: "______________________, as Trustee under the applicable
agreement". In the event that any such Assignment is lost or returned unrecorded
because of a defect therein, the Master Servicer (in its capacity as Originator)
shall promptly prepare or cause to be prepared a substitute Assignment or cure
or cause to be cured such defect, as the case may be, and thereafter cause each
such Assignment to be duly recorded. Notwithstanding the foregoing, however, for
administrative convenience and facilitation of servicing and to reduce closing
costs, the assignments of Mortgage shall not be required to be completed and
submitted for recording with respect to any Mortgage Loan only if the Trustee
and each Rating Agency has received an opinion of counsel, satisfactory in form
and substance to the Trustee and each Rating Agency, to the effect that the
recordation of such assignments in any specific jurisdiction is not necessary to
protect the Trustee's interest in the related Mortgage Note; provided further,
however, notwithstanding the delivery of any opinion of counsel, each assignment
of Mortgage shall be submitted for recording by the Originator in the manner
described above, at no expense to the Trust Fund or Trustee, upon the earliest
to occur of: (i) reasonable direction by Holders of Certificates entitled to at
least 25% of the Voting Rights, (ii) failure of the Master Servicer Termination
Test, (iii) the occurrence of a bankruptcy, insolvency or foreclosure relating
to the Originator, (iv) the occurrence of a servicing transfer as described in
Section 7.02 hereof and (iv) if the Originator is not the Master Servicer and
with respect to any one assignment of Mortgage, the occurrence of a bankruptcy,
insolvency or foreclosure relating to the Mortgagor under the related Mortgage.
Notwithstanding the foregoing, if the Master Servicer is unable to pay the cost
of recording the Assignments of Mortgage, such expense will be paid by the
Trustee.
If any of the documents referred to in Sections 2.01(ii), (iii) or
(iv) above has as of the Closing Date (or Subsequent Transfer Date, with respect
to the Subsequent Mortgage Loans) been submitted for recording but either (x)
has not been returned from the applicable public recording office or (y) has
been lost or such public recording office has retained the original of such
document, the obligations of the Depositor to deliver such documents shall be
deemed to be satisfied upon (1) delivery to the Trustee, or to the appropriate
Custodian on behalf of the Trustee, of a copy of each such document certified by
the Originator in the case of (x) above or the applicable public recording
office in the case of (y) above to be a true and complete copy of the original
that was submitted for
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recording and (2) if such copy is certified by the Originator, delivery to the
Trustee, or to the appropriate Custodian on behalf of the Trustee, promptly upon
receipt thereof of either the original or a copy of such document certified by
the applicable public recording office to be a true and complete copy of the
original. If the original lender's title insurance policy was not delivered
pursuant to Section 2.01(vi) above, the Depositor shall deliver or cause to be
delivered to the Trustee, or to the appropriate Custodian on behalf of the
Trustee, promptly after receipt thereof, the original lender's title insurance
policy. The Depositor shall deliver or cause to be delivered to the Trustee, or
to the appropriate Custodian on behalf of the Trustee, promptly upon receipt
thereof any other original documents constituting a part of a Mortgage File
received with respect to any Mortgage Loan, including, but not limited to, any
original documents evidencing an assumption or modification of any Mortgage
Loan.
All original documents relating to the Mortgage Loans that are not
delivered to the Trustee, or to the appropriate Custodian on behalf of the
Trustee, are and shall be held by or on behalf of the Originator, the Seller,
the Depositor or the Master Servicer, as the case may be, in trust for the
benefit of the Trustee on behalf of the Certificateholders. In the event that
any such original document is required pursuant to the terms of this Section to
be a part of a Mortgage File, such document shall be delivered promptly to the
Trustee, or to the appropriate Custodian on behalf of the Trustee. Any such
original document delivered to or held by the Depositor that is not required
pursuant to the terms of this Section to be a part of a Mortgage File, shall be
delivered promptly to the Master Servicer.
SECTION 2.02. Acceptance of REMIC I by the Trustee.
Subject to the provisions of Section 2.01 and subject to any
exceptions noted on the exception report described in the next paragraph below,
the Trustee acknowledges receipt (or, with respect to Mortgage Loans subject to
a Custodial Agreement, receipt by the respective Custodian as the duly appointed
agent of the Trustee) of the documents referred to in Section 2.01 (other than
such documents described in Section 2.01(v)) above and all other assets included
in the definition of "REMIC I" under clauses (i), (iii), (iv) and (v) (to the
extent of amounts deposited into the Distribution Account) and declares that it,
or such Custodian as its agent, holds and will hold such documents and the other
documents delivered to it constituting the Mortgage File, and that it holds or
will hold all such assets and such other assets included in the definition of
"REMIC I" in trust for the exclusive use and benefit of all present and future
Certificateholders.
The Trustee agrees, for the benefit of the Certificateholders, to
review (or cause a Custodian on its behalf to review) each Mortgage File on or
before the Closing Date (or Subsequent Transfer Date, with respect to the
Subsequent Mortgage Loans) and to certify in substantially the form attached
hereto as Exhibit C-1 (or cause the Custodian to certify in the form of the
Initial Certification attached to the Custodial Agreement) that, as to each
Initial Mortgage Loan or Subsequent Mortgage Loan, as the case may be, listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (i) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required to be delivered to it pursuant to this Agreement are in its possession,
(ii) such documents have been
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reviewed by it or such Custodian and are not mutilated, torn or defaced unless
initialed by the related borrower and relate to such Mortgage Loan, (iii) based
on its or the Custodian's examination and only as to the foregoing, the
information set forth in the Mortgage Loan Schedule that corresponds to items
(i) through (iii), (vi), (ix), (x), (xiii), (xv) and (xvii) through (xx) of the
definition of "Mortgage Loan Schedule" accurately reflects information set forth
in the Mortgage File. It is herein acknowledged that, in conducting such review,
the Trustee or such Custodian was under no duty or obligation (i) to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine whether they are genuine, enforceable, or appropriate for the
represented purpose or whether they have actually been recorded or that they are
other than what they purport to be on their face or (ii) to determine whether
any Mortgage File should include any of the documents specified in clause (v) of
Section 2.01.
Prior to the first anniversary date of this Agreement the Trustee
shall deliver to the Depositor and the Master Servicer a final certification in
the form annexed hereto as Exhibit C-2 (or shall cause the Custodian to deliver
to the Trustee, the Depositor and the Master Servicer a final certification in
the form attached to the Custodial Agreement) evidencing the completeness of the
Mortgage Files, with any applicable exceptions noted thereon, with respect to
all of the Initial Mortgage Loans and the Subsequent Mortgage Loans.
If in the process of reviewing the Mortgage Files and making or
preparing, as the case may be, the certifications referred to above, the Trustee
or any Custodian finds any document or documents constituting a part of a
Mortgage File to be missing or defective in any material respect, at the
conclusion of its review the Trustee (or a Custodian on behalf of the Trustee)
shall so notify the Depositor and the Master Servicer. In addition, upon the
discovery by the Depositor, the Master Servicer or the Trustee of a breach of
any of the representations and warranties made by the Originator or the Seller
in the Mortgage Loan Purchase Agreement in respect of any Mortgage Loan which
materially adversely affects such Mortgage Loan or the interests of the related
Certificateholders in such Mortgage Loan, the party discovering such breach
shall give prompt written notice to the other parties.
The Trustee (or a Custodian on behalf of the Trustee) shall, at
the written request and expense of any Certificateholder, provide a written
report to such Certificateholder, of all Mortgage
Files released to the Master Servicer for servicing purposes.
SECTION 2.03. Repurchase or Substitution of Mortgage
Loans by the Originator, the Seller or the
Depositor; Payment of Prepayment Charges in
the event of breach.
(a) Upon discovery or receipt of notice of any materially
defective document in, or that a document is missing from, the Mortgage File or
of the breach by the Originator or the Seller of any representation, warranty or
covenant under the Mortgage Loan Purchase Agreement in respect of any Mortgage
Loan which materially adversely affects the value of such Mortgage Loan or the
interest therein of the Certificateholders (in the case of any such
representation or warranty made to the knowledge or the best of knowledge of the
Originator or the Seller, as to which the Originator or the Seller has no
knowledge, without regard to the Originator's or the Seller's lack of knowledge
<PAGE>
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with respect to the substance of such representation or warranty being
inaccurate at the time it was made), the Trustee (or a Custodian on behalf of
the Trustee) shall promptly notify the Originator or the Seller and the Master
Servicer of such defect, missing document or breach and request that the
Originator or the Seller, as the case may be, deliver such missing document or
cure such defect or breach within 90 days from the date the Originator or the
Seller, as the case may be, was notified of such missing document, defect or
breach, and if the Originator or the Seller, as the case may be, does not
deliver such missing document or cure such defect or breach in all material
respects during such period, the Master Servicer (or, in accordance with Section
3.02(b), the Trustee) shall enforce the obligations of the Originator or the
Seller, as the case may be, under the Mortgage Loan Purchase Agreement to
repurchase such Mortgage Loan from REMIC I at the Purchase Price within 90 days
after the date on which the Originator or the Seller, as the case may be, was
notified (subject to Section 2.03(e)) of such missing document, defect or
breach, if and to the extent that the Originator or the Seller, as the case may
be, is obligated to do so under the Mortgage Loan Purchase Agreement. The
Purchase Price for the repurchased Mortgage Loan shall be deposited in the
Collection Account, and the Trustee, upon receipt of written certification from
the Master Servicer of such deposit, shall release to the Originator or the
Seller, as the case may be, the related Mortgage File and shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as the Originator or the Seller, as the case may be, shall furnish to
it and as shall be necessary to vest in the Originator or the Seller, as the
case may be, any Mortgage Loan released pursuant hereto, and the Trustee shall
have no further responsibility with regard to such Mortgage File. In lieu of
repurchasing any such Mortgage Loan as provided above, if so provided in the
Mortgage Loan Purchase Agreement, the Originator or the Seller, as the case may
be, may cause such Mortgage Loan to be removed from REMIC I (in which case it
shall become a Deleted Mortgage Loan) and substitute one or more Qualified
Substitute Mortgage Loans in the manner and subject to the limitations set forth
in Section 2.03(d). It is understood and agreed that the obligation of the
Originator or the Seller, as the case may be, to cure or to repurchase (or to
substitute for) any Mortgage Loan as to which a document is missing, a material
defect in a constituent document exists or as to which such a breach has
occurred and is continuing shall constitute the sole remedy respecting such
omission, defect or breach available to the Trustee on behalf of the
Certificateholders.
(b) Subject to Section 2.03(e), within 90 days of the earlier of
discovery by the Depositor or receipt of notice by the Depositor of the breach
of any representation or warranty of the Depositor set forth in Section 2.04
with respect to any Mortgage Loan, which materially adversely affects the value
of such Mortgage Loan or the interest therein of the Certificateholders, the
Depositor shall (i) cure such breach in all material respects, (ii) repurchase
the Mortgage Loan from REMIC I at the Purchase Price or (iii) remove such
Mortgage Loan from REMIC I (in which case it shall become a Deleted Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans in the
manner and subject to the limitations set forth in Section 2.03(d). If any such
breach is a breach of any of the representations and warranties included in
Section 2.04(a)(iv), and the Depositor is unable to cure such breach, the
Depositor shall repurchase or substitute the smallest number of Mortgage Loans
as shall be required to make such representation or warranty true and correct.
The Purchase Price for any repurchased Mortgage Loan shall be delivered to the
Master Servicer for deposit in the Collection Account, and the Trustee, upon
receipt of written certification from the Master Servicer of such deposit, shall
at the Depositor's direction release to the Depositor
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the related Mortgage File and shall execute and deliver such instruments of
transfer or assignment furnished by the Depositor, in each case without
recourse, as the Depositor shall furnish to it and as shall be necessary to vest
in the Depositor any Mortgage Loan released pursuant hereto.
(c) (i) Promptly upon the earlier of discovery by the Master
Servicer or receipt of notice by the Master Servicer of the breach of any
representation, warranty or covenant of the Master Servicer set forth in Section
2.05 which materially and adversely affects the interests of the
Certificateholders in any Mortgage Loan, the Master Servicer shall cure such
breach in all material respects.
(ii) Within 90 days of the earlier of discovery by the
Master Servicer or receipt of notice by the Master Servicer of the breach of any
representation, warranty or covenant of the Master Servicer set forth in Section
2.05 which materially and adversely affects the interests of the Holders of the
Class P Certificates to any Prepayment Charge, the Master Servicer shall cure
such breach in all material respects. If the representation made by the Master
Servicer in Section 2.05(vii) is breached, the Master Servicer must pay into the
Collection Account the amount of the scheduled Prepayment Charge, less any
amount collected and paid by the Master Servicer into the Collection Account;
and if the covenant made by the Master Servicer in Section 2.05(viii) is
breached, the Master Servicer must pay into the Collection Account the amount of
the waived Prepayment Charge.
(d) Any substitution of Qualified Substitute Mortgage Loans for
Deleted Mortgage Loans made pursuant to Section 2.03(a), in the case of the
Originator or the Seller, or Section 2.03(b), in the case of the Depositor, must
be effected prior to the date which is two years after the Startup Day for
REMIC I.
As to any Deleted Mortgage Loan for which the Originator or the
Seller or the Depositor substitutes a Qualified Substitute Mortgage Loan or
Loans, such substitution shall be effected by the Originator or the Seller or
the Depositor, as the case may be, delivering to the Trustee (or a Custodian on
behalf of the Trustee), for such Qualified Substitute Mortgage Loan or Loans,
the Mortgage Note, the Mortgage, the Assignment to the Trustee, and such other
documents and agreements, with all necessary endorsements thereon, as are
required by Section 2.01, together with an Officers' Certificate providing that
each such Qualified Substitute Mortgage Loan satisfies the definition thereof
and specifying the Substitution Shortfall Amount (as described below), if any,
in connection with such substitution. The Trustee (or a Custodian on behalf of
the Trustee) shall acknowledge receipt for such Qualified Substitute Mortgage
Loan or Loans and, within ten Business Days thereafter, review such documents as
specified in Section 2.02 and deliver to the Depositor and the Master Servicer,
with respect to such Qualified Substitute Mortgage Loan or Loans, a
certification substantially in the form attached hereto as Exhibit C-1, with any
applicable exceptions noted thereon. Within one year of the date of
substitution, the Trustee shall deliver to the Depositor and the Master Servicer
a certification substantially in the form of Exhibit C-2 hereto with respect to
such Qualified Substitute Mortgage Loan or Loans, with any applicable exceptions
noted thereon. Monthly Payments due with respect to Qualified Substitute
Mortgage Loans in the month of substitution are not part of REMIC I and will be
retained by the Depositor, the Originator or the Seller, as the case may be. For
the month of substitution, distributions to Certificateholders will reflect the
Monthly Payment due on such Deleted Mortgage Loan on or before the Due Date in
the
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month of substitution, and the Depositor, the Originator or the Seller, as the
case may be, shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Mortgage Loan. The Depositor shall give or
cause to be given written notice to the Certificateholders that such
substitution has taken place, shall amend the Mortgage Loan Schedule to reflect
the removal of such Deleted Mortgage Loan from the terms of this Agreement and
the substitution of the Qualified Substitute Mortgage Loan or Loans and shall
deliver a copy of such amended Mortgage Loan Schedule to the Trustee. Upon such
substitution, such Qualified Substitute Mortgage Loan or Loans shall constitute
part of the Mortgage Pool and shall be subject in all respects to the terms of
this Agreement and, in the case of a substitution effected by the Originator or
the Seller, the Mortgage Loan Purchase Agreement, including, in the case of a
substitution effected by the Originator or the Seller, all applicable
representations and warranties thereof included in the Mortgage Loan Purchase
Agreement, and in the case of a substitution effected by the Depositor, all
applicable representations and warranties thereof set forth in Section 2.04, in
each case as of the date of substitution.
For any month in which the Depositor, the Originator or the Seller
substitutes one or more Qualified Substitute Mortgage Loans for one or more
Deleted Mortgage Loans, the Master Servicer will determine the amount (the
"Substitution Shortfall Amount"), if any, by which the aggregate Purchase Price
of all such Deleted Mortgage Loans exceeds the aggregate of, as to each such
Qualified Substitute Mortgage Loan, the Scheduled Principal Balance thereof as
of the date of substitution, together with one month's interest on such
Scheduled Principal Balance at the applicable Net Mortgage Rate. On the date of
such substitution, the Depositor, the Originator or the Seller, as the case may
be, will deliver or cause to be delivered to the Master Servicer for deposit in
the Collection Account an amount equal to the Substitution Shortfall Amount, if
any, and the Trustee, upon receipt of the related Qualified Substitute Mortgage
Loan or Loans and certification by the Master Servicer of such deposit, shall
release to the Depositor, the Originator or the Seller, as the case may be, the
related Mortgage File or Files and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as the Depositor, the
Originator or the Seller, as the case may be, shall deliver to it and as shall
be necessary to vest therein any Deleted Mortgage Loan released pursuant hereto.
In addition, the Depositor, the Originator or the Seller, as the
case may be, shall obtain at its own expense and deliver to the Trustee an
Opinion of Counsel to the effect that such substitution will not cause (a) any
federal tax to be imposed on any of REMIC I, REMIC II or REMIC III, including
without limitation, any federal tax imposed on "prohibited transactions" under
Section 860F(a)(1) of the Code or on "contributions after the startup date"
under Section 860G(d)(1) of the Code, or (b) any of REMIC I, REMIC II or REMIC
III to fail to qualify as a REMIC at any time that any Certificate is
outstanding.
(e) Upon discovery by the Depositor, the Originator, the Seller,
the Master Servicer or the Trustee that any Mortgage Loan does not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code, the
party discovering such fact shall within two Business Days give written notice
thereof to the other parties. In connection therewith, the Originator, the
Seller or the Depositor shall repurchase or, subject to the limitations set
forth in Section 2.03(d), substitute one or more Qualified Substitute Mortgage
Loans for the affected Mortgage Loan within 90 days of the earlier of discovery
or receipt of such notice with respect to such affected Mortgage Loan. Such
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repurchase or substitution shall be made by (i) the Originator or the Seller, as
the case may be, if the affected Mortgage Loan's status as a non-qualified
mortgage is or results from a breach of any representation, warranty or covenant
made by the Originator or the Seller, as the case may be, under the Mortgage
Loan Purchase Agreement or (ii) the Depositor, if the affected Mortgage Loan's
status as a non-qualified mortgage is a breach of any representation or warranty
of the Depositor set forth in Section 2.04, or if its status as a non-qualified
mortgage is a breach of no representation or warranty. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.03(a),
if made by the Originator or the Seller, or Section 2.03(b), if made by the
Depositor. The Trustee shall reconvey to the Depositor, the Originator or the
Seller, as the case may be, the Mortgage Loan to be released pursuant hereto in
the same manner, and on the same terms and conditions, as it would a Mortgage
Loan repurchased for breach of a representation or warranty.
SECTION 2.04. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the Trustee
for the benefit of the Certificateholders that as of the Closing Date or as of
such other date specifically provided herein:
(i) The information set forth in the Mortgage Loan Schedule for
the Initial Mortgage Loans is complete, true and correct in all
material respects at the date or dates respecting
which such information is furnished;
(ii) Except with respect to approximately ____% of the Initial
Mortgage Loans, by aggregate Stated Principal Balance as of the
Cut-off Date, which, as of the Cut-off Date, were 30 or more but
less than 60 days delinquent and approximately ____% of the
Initial Mortgage Loans by aggregate Stated Principal Balance as of
the Cut-off Date, which, as of the Cut-off Date, were 60 or more
but less than 90 days delinquent, as of the Cutoff Date, the
Monthly Payment due under each Initial Mortgage Loan is not 30 or
more days delinquent in payment and has not been 30 or more days
delinquent in payment more than once in the twelve month period
prior to the Cut-off Date (assuming that a "rolling" 30 day
delinquency is considered to be one time delinquent);
(iii) Each Initial Mortgage Loan had an original term to maturity
of not greater than 30 years; each Initial Mortgage Loan is an
adjustable-rate mortgage loan with payments due on the first day
of each month and each such Mortgage Loan is fully amortizing;
effective with the first payment due after each Adjustment Date,
the monthly payment amount for each Initial Mortgage Loan will be
adjusted to an amount which would amortize fully the outstanding
principal balance of such Mortgage Loan over its remaining term
and pay interest at the Mortgage Rate so adjusted; on the first
Adjustment Date and on each Adjustment Date thereafter the
Mortgage Rate on each Initial Mortgage Loan will be adjusted to
equal the sum of the Index and the related Gross Margin, rounded
to the nearest multiple of 0.125%, subject to the Periodic Rate
Cap, the Maximum Mortgage Rate and the Minimum Mortgage Rate
applicable to such Mortgage Loan;
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(iv) (A) No more than approximately ___%, approximately ___%,
approximately ___%, approximately ___%, approximately ___%,
approximately ___%, approximately ___%, approximately ___%,
approximately ___% and approximately ___% of the Initial Mortgage
Loans, by outstanding principal balance of the Initial Mortgage Loans
as of the Cut-off Date, will be secured by Mortgaged Properties located
in California, Florida, Illinois, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Pennsylvania, Texas and Washington, respectively,
and no more than approximately ___% of the Initial Mortgage Loans, by
outstanding principal balance of the Initial Mortgage Loans as of the
Cut-off Date, will be secured by Mortgaged Properties located in any
other single state; (B) as of the Cutoff Date, no more than
approximately ___% of the Initial Mortgage Loans, by outstanding
principal balance of the Initial Mortgage Loans as of the Cut-off Date,
are secured by Mortgaged Properties located in any one California zip
code area, and no more than approximately ___% of the Initial Mortgage
Loans, by outstanding principal balance of the Initial Mortgage Loans
as of the Cut-off Date are secured by units in two- to four-family
dwellings, condominiums, town houses, planned unit developments or
manufactured housing; and (C) at least approximately ___% of the
Initial Mortgage Loans, by outstanding principal balance of the Initial
Mortgage Loans as of the Cut-off Date, are secured by real property
with a single family residence erected thereon;
(v) If the Mortgaged Property securing an Initial Mortgage Loan is
identified in the Federal Register by the Federal Emergency Management
Agency ("FEMA") as having special flood hazards, a flood insurance
policy is in effect at the Closing Date which met the requirements of
FEMA at the time such policy was issued;
(vi) With respect to each Initial Mortgage Loan, the Loan-to-Value
Ratio was less than or equal to ____% at the origination of such
Initial Mortgage Loan; and
(vii) With respect to at least approximately ___% of the Initial
Mortgage Loans by outstanding principal balance as of the Cut-off Date,
at the time that the Mortgage Loan was made, the Mortgagor represented
that the Mortgagor would occupy the Mortgaged Property as the
Mortgagor's primary residence. With respect to approximately ____% of
the Initial Mortgage Loans by outstanding principal balance as of the
Cut-off Date, at the time that the Mortgage Loan was made, the
Mortgagor represented that the Mortgagor would occupy the Mortgaged
Property as the Mortgagor's secondary residence or that the Mortgaged
Property would be an investor property.
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trustee or to a Custodian, as the case may be, and shall inure to
the benefit of the Certificateholders notwithstanding any restrictive or
qualified endorsement or assignment. Upon discovery by any of the Depositor, the
Master Servicer or the Trustee of a breach of any of the foregoing
representations and warranties which materially and adversely affects the value
of any Mortgage Loan, Prepayment Charge or the interests therein of the
Certificateholders, the party discovering such breach shall give prompt written
notice to the other parties, and in no event later than two Business Days from
the date of such discovery. It is understood and agreed that the obligations of
the Depositor set forth in Section 2.03(b) to cure,
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substitute for or repurchase a Mortgage Loan constitute the sole remedies
available to the Certificateholders or to the Trustee on their behalf respecting
a breach of the representations and warranties contained in this Section 2.04.
SECTION 2.05. Representations, Warranties and Covenants of
the Master Servicer.
The Master Servicer hereby represents, warrants and covenants to
the Trustee, for the benefit of each of the Trustee, the Certificateholders and
to the Depositor that as of the Closing Date
or as of such date specifically provided herein:
(i) The Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
____________ and is duly authorized and qualified to transact any
and all business contemplated by this Agreement to be conducted by
the Master Servicer in any state in which a Mortgaged Property is
located or is otherwise not required under applicable law to
effect such qualification and, in any event, is in compliance with
the doing business laws of any such State, to the extent necessary
to ensure its ability to enforce each Mortgage Loan and to service
the Mortgage Loans in accordance with the terms of this Agreement;
(ii) The Master Servicer has the full corporate power and
authority to service each Mortgage Loan, and to execute, deliver
and perform, and to enter into and consummate the transactions
contemplated by this Agreement and has duly authorized by all
necessary corporate action on the part of the Master Servicer the
execution, delivery and performance of this Agreement; and this
Agreement, assuming the due authorization, execution and delivery
thereof by the Depositor and the Trustee, constitutes a legal,
valid and binding obligation of the Master Servicer, enforceable
against the Master Servicer in accordance with its terms, except
to the extent that (a) the enforceability thereof may be limited
by bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the
remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to
the discretion of the court before which any proceeding therefor
may be brought;
(iii) The execution and delivery of this Agreement by the Master
Servicer, the servicing of the Mortgage Loans by the Master
Servicer hereunder, the consummation of any other of the
transactions herein contemplated, and the fulfillment of or
compliance with the terms hereof are in the ordinary course of
business of the Master Servicer and will not (A) result in a
breach of any term or provision of the charter or by-laws of the
Master Servicer or (B) conflict with, result in a breach,
violation or acceleration of, or result in a default under, the
terms of any other material agreement or instrument to which the
Master Servicer is a party or by which it may be bound, or any
statute, order or regulation applicable to the Master Servicer of
any court, regulatory body, administrative agency or governmental
body having jurisdiction over the Master Servicer; and the Master
Servicer is not a party to, bound by, or in breach or violation of
any indenture or other agreement or instrument, or subject to or
in violation of any
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statute, order or regulation of any court, regulatory body,
administrative agency or governmental body having jurisdiction
over it, which materially and adversely affects or, to the Master
Servicer's knowledge, would in the future materially and adversely
affect, (x) the ability of the Master Servicer to perform its
obligations under this Agreement or (y) the business, operations,
financial condition, properties or assets of the Master Servicer
taken as a whole;
(iv) The Master Servicer is an approved seller/servicer for
Fannie Mae or Freddie Mac in good standing and is a HUD approved
mortgagee pursuant to Section 203 and Section
211 of the National Housing Act;
(v) No litigation is pending against the Master Servicer that
would materially and adversely affect the execution, delivery or
enforceability of this Agreement or the ability of the Master
Servicer to service the Mortgage Loans or to perform any of its
other obligations hereunder in accordance with the terms hereof;
(vi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution,
delivery and performance by the Master Servicer of, or compliance
by the Master Servicer with, this Agreement or the consummation of
the transactions contemplated by this Agreement, except for such
consents, approvals, authorizations or orders, if any, that have
been obtained prior to the Closing Date;
(vii) The information set forth in the Prepayment Charge Schedule
(including the prepayment charge summary attached thereto) is
complete, true and correct in all material respects at the date or
dates respecting which such information is furnished and each
Prepayment Charge is permissible and enforceable in accordance
with its terms (except to the extent that (i) the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium,
receivership and other similar laws relating to creditors' rights
generally, (ii) the collectability thereof may be limited due to
acceleration in connection with a foreclosure or other involuntary
payment and (iii) subsequent changes in applicable law may limit
or prohibit the enforceability thereof) under applicable state
law;
(viii) The Master Servicer will not waive any Prepayment Charge or
part of a Prepayment Charge unless, in the Master Servicer's
reasonable judgment as described in Section 3.01 hereof, such
waiver would maximize recovery of total proceeds taking into
account the value of such Prepayment Charge and related Mortgage
Loan and doing so is standard and customary in servicing similar
Mortgage Loans (including any waiver of a Prepayment Charge in
connection with a refinancing of a Mortgage Loan that is related
to a default or a reasonably foreseeable default) and in no event
will it waive a Prepayment Charge in connection with a refinancing
of a Mortgage Loan that is not related to a default or a
reasonably foreseeable default;
(ix) The Master Servicer's computer and other systems used in
servicing mortgage loans will be modified and maintained to
operate in a manner such that at all times,
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including on and after January 1, 2000, (i) the Master Servicer
can service the Mortgage Loans in accordance with the terms of
this Agreement if necessary and (ii) the Master Servicer can
operate its business in the same manner as it is operating on the
date hereof; provided that the Master Servicer's ability to meet
the requirements of this representation may be limited in
circumstances where it relies (after reasonable due diligence in
inquiring into and obtaining reasonable compliance
representations) on third party systems which are incompatible
with those of the Master Servicer on or after January 1, 2000; and
(x) The information set forth in the "monthly tape" provided to
the Trustee or any of its affiliates is true and correct in all
material respects.
It is understood and agreed that the representations, warranties
and covenants set forth in this Section 2.05 shall survive delivery of the
Mortgage Files to the Trustee or to a Custodian, as the case may be, and shall
inure to the benefit of the Trustee, the Depositor and the Certificateholders.
Upon discovery by any of the Depositor, the Master Servicer or the Trustee of a
breach of any of the foregoing representations, warranties and covenants which
materially and adversely affects the value of any Mortgage Loan, Prepayment
Charge or the interests therein of the Certificateholders, the party discovering
such breach shall give prompt written notice (but in no event later than two
Business Days following such discovery) to the Trustee. Subject to Section 7.01,
the obligation of the Master Servicer set forth in Section 2.03(c) to cure
breaches shall constitute the sole remedies against the Master Servicer
available to the Certificateholders, the Depositor or the Trustee on behalf of
the Certificateholders respecting a breach of the representations, warranties
and covenants contained in this Section 2.05. The preceding sentence shall not,
however, limit any remedies available to the Certificateholders, the Depositor
or the Trustee on behalf of the Certificateholders, pursuant to the Mortgage
Loan Purchase Agreement signed by the Master Servicer in its capacity as Seller,
respecting a breach of the representations, warranties and covenants of the
Master Servicer in its capacity as Seller contained in such Mortgage Loan
Purchase Agreement.
SECTION 2.06. Issuance of Class R-I Certificates.
The Trustee acknowledges the assignment to it of the Mortgage
Loans and the delivery to it, or any Custodian on its behalf, of the Mortgage
Files, subject to the provisions of Section 2.01 and Section 2.02, together with
the assignment to it of all other assets included in REMIC I, receipt of which
is hereby acknowledged. Concurrently with such assignment and delivery and in
exchange therefor, the Trustee, pursuant to the written request of the Depositor
executed by an officer of the Depositor, has executed, authenticated and
delivered to or upon the order of the Depositor, the Class R-I Certificates in
authorized denominations. The interests evidenced by the Class R-I Certificates,
together with the REMIC I Regular Interests, constitute the entire beneficial
ownership interest in REMIC I. The rights of the Class R-I Certificateholders
and REMIC II (as holder of the REMIC I Regular Interests) to receive
distributions from the proceeds of REMIC I in respect of the Class R-I
Certificates and the REMIC I Regular Interests, respectively, and all ownership
interests evidenced or constituted by the Class R-I Certificates and the REMIC I
Regular Interests, shall be as set forth in this Agreement.
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SECTION 2.07. Conveyance of REMIC I Regular Interests;
Acceptance of REMIC II by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse all the right, title and interest of the Depositor in
and to the REMIC I Regular Interests for the benefit of the Class R-II and REMIC
III Certificateholders. The Trustee acknowledges receipt of the REMIC I Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future Class R-II
Certificateholders and REMIC III Certificateholders. The rights of the Class
R-II Certificateholders and REMIC III (as holder of the REMIC II Regular
Interests) to receive distributions from the proceeds of REMIC II in respect of
the Class R-II Certificates and REMIC II Regular Interests, respectively, and
all ownership interests evidenced or constituted by the Class R-II Certificates
and the REMIC II Regular Interests, shall be as set forth in this Agreement.
SECTION 2.08. Issuance of Class R-II Certificates.
The Trustee acknowledges the assignment to it of the REMIC I
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed by an officer of the Depositor,
the Trustee has executed, authenticated and delivered to or upon the order of
the Depositor, the Class R-II Certificates in authorized denominations. The
interests evidenced by the Class R-II Certificates, together with the REMIC II
Regular Interests, constitute the entire beneficial ownership interest in REMIC
II.
SECTION 2.09. Conveyance of REMIC II Regular Interests;
Acceptance of REMIC III by the Trustee.
The Depositor, concurrently with the execution and delivery
hereof, does hereby transfer, assign, set over and otherwise convey to the
Trustee without recourse all the right, title and interest of the Depositor in
and to the REMIC II Regular Interests for the benefit of the REMIC III
Certificateholders. The Trustee acknowledges receipt of the REMIC II Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future REMIC III
Certificateholders. The rights of the REMIC III Certificateholders to receive
distributions from the proceeds of REMIC III in respect of the REMIC III
Certificates, and all ownership interests evidenced or constituted by the REMIC
III Certificates, shall be as set forth in this Agreement.
SECTION 2.10. Issuance of REMIC III Certificates.
The Trustee acknowledges the assignment to it of the REMIC II
Regular Interests and, concurrently therewith and in exchange therefor, pursuant
to the written request of the Depositor executed by an officer of the Depositor,
the Trustee has executed, authenticated and delivered to or upon the order of
the Depositor, the REMIC III Certificates in authorized denominations evidencing
the entire beneficial ownership interest in REMIC III.
SECTION 2.11. Conveyance of the Subsequent
Mortgage Loans.
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(a) Subject to the conditions set forth in paragraph (b) below in
consideration of the Trustee's delivery on the Subsequent Transfer Dates to or
upon the order of the Depositor of all or a portion of the balance of funds in
the Pre-Funding Account, the Depositor shall on any Subsequent Transfer Date
sell, transfer, assign, set over and convey without recourse to the Trust Fund
but subject to the other terms and provisions of this Agreement all of the
right, title and interest of the Depositor in and to (i) the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule attached to the related
Subsequent Transfer Instrument delivered by the Depositor on such Subsequent
Transfer Date, (ii) principal due and interest accruing on the Subsequent
Mortgage Loans after the related Subsequent Cut-off Date and (iii) all items
with respect to such Subsequent Mortgage Loans to be delivered pursuant to
Section 2.01 and the other items in the related Mortgage Files; provided,
however, that the Depositor reserves and retains all right, title and interest
in and to principal received and interest accruing on the Subsequent Mortgage
Loans prior to the related Subsequent Cut-off Date. The transfer to the Trustee
for deposit in the Mortgage Pool by the Depositor of the Subsequent Mortgage
Loans identified on the Mortgage Loan Schedule shall be absolute and is intended
by the Depositor, the Master Servicer, the Trustee and the Certificateholders to
constitute and to be treated as a sale of the Subsequent Mortgage Loans by the
Depositor to the Trust Fund. The related Mortgage File for each Subsequent
Mortgage Loan shall be delivered to the Trustee or the Custodian at least three
Business Days prior to the related Subsequent Transfer Date.
The purchase price paid by the Trustee from amounts released from
the Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
Stated Principal Balance of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule provided by the Depositor). This
Agreement shall constitute a fixed-price purchase contract in accordance
with Section 860G(a)(3)(A)(ii) of the Code.
(b) The Depositor shall transfer to the Trustee for deposit in the
Mortgage Pool the Subsequent Mortgage Loans and the other property and rights
related thereto as described in paragraph (a) above, and the Trustee shall
release funds from the Pre-Funding Account, only upon the satisfaction of each
of the following conditions on or prior to the related Subsequent Transfer Date:
(i) the Depositor shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Trustee with respect to the Subsequent Mortgage Loans;
(ii) the Depositor shall have delivered to the Trustee a duly
executed Subsequent Transfer Instrument, which shall include a Mortgage
Loan Schedule listing the Subsequent Mortgage Loans, and the Master
Servicer, in its capacity as Seller, shall have delivered a computer
file containing such Mortgage Loan Schedule to the Trustee at least
three Business Days prior to the related Subsequent Transfer Date;
(iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Subsequent Transfer Instrument, substantially in the
form of Exhibit I, the Depositor shall not be insolvent nor shall it
have been rendered insolvent by such transfer nor shall it be aware of
any pending insolvency;
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(iv) such sale and transfer shall not result in a material adverse
tax consequence to the Trust Fund or the Certificateholders;
(v) the Funding Period shall not have terminated;
(vi) the Depositor shall not have selected the Subsequent Mortgage
Loans in a manner that it believed to be adverse to the interests of
the Certificateholders;
(vii) the Depositor shall have delivered to the Trustee a
Subsequent Transfer Instrument confirming the satisfaction of the
conditions precedent specified in this Section 2.11 and, pursuant to
the Subsequent Transfer Instrument, assigned to the Trustee without
recourse for the benefit of the Certificateholders all the right, title
and interest of the Depositor, in, to and under the Subsequent Mortgage
Loan Purchase Agreement, to the extent of the Subsequent Mortgage
Loans;
(viii) the Depositor shall have delivered to the Trustee a letter
from an Independent accountant (with copies provided to each Rating
Agency) stating that the characteristics of the Subsequent Mortgage
Loans conform to the characteristics set forth in paragraphs (c) and
(d) below; and
(ix) the Depositor shall have delivered to the Trustee an Opinion
of Counsel addressed to the Trustee and the Rating Agencies with
respect to the transfer of the Subsequent Mortgage Loans substantially
in the form of the Opinion of Counsel delivered to the Trustee on the
Closing Date regarding the true sale of the Subsequent Mortgage Loans.
(c) The obligation of the Trust Fund to purchase a Subsequent
Mortgage Loan on any Subsequent Transfer Date is subject to the satisfaction of
the conditions set forth in paragraph (d) below and the accuracy of the
following representations and warranties with respect to such Subsequent
Mortgage Loan determined as of the Subsequent Cut-off Date: (i) the Subsequent
Mortgage Loan may not be 30 or more days delinquent as of the related Subsequent
Cut-off Date provided, however that approximately ___% of the Subsequent
Mortgage Loans, by aggregate principal balance as of the related Subsequent
Cut-off Date, may be thirty days or more but less than sixty days delinquent in
their monthly payments as of the related Subsequent Cut-off Date and
approximately ___% of the Subsequent Mortgage Loans, by aggregate principal
balance as of the related Subsequent Cut-off Date, may be sixty days or more but
less than ninety days delinquent in their monthly payments as of the related
Subsequent Cut-off Date; (ii) the stated term to maturity of the Subsequent
Mortgage Loan will not be less than ___ months and will not exceed ___ months;
(iii) the Subsequent Mortgage Loan may not provide for negative amortization;
(iv) the Subsequent Mortgage Loan will not have a Loan-to-Value Ratio greater
than ___%; (v) the Subsequent Mortgage Loans will have as of the Subsequent
Cut-off Date, a weighted average term since origination not in excess of ___
months; (vi) no Subsequent Mortgage Loan shall have a Mortgage Rate less than
____% or greater than ___%; (vii) the Subsequent Mortgage Loan will have been
serviced by the Master Servicer since origination or purchased by the Depositor;
(viii) the Subsequent Mortgage Loan must have a first Monthly Payment due on or
before ________________ and (ix) the Subsequent Mortgage Loan will be
underwritten in accordance with the criteria set forth under the
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section "The Mortgage Pool--Underwriting Standards; Representations" in the
Prospectus Supplement.
(d) Following the purchase of the Subsequent Mortgage Loans by the
Trust Fund, the Mortgage Loans (including the Subsequent Mortgage Loans) will,
as of the Subsequent Cut-off Date: (i) have a weighted average original term to
stated maturity of not more than ___ months; (ii) have a weighted average
Mortgage Rate of not less than _____% and not more than _____%; (iii) have a
weighted average Loan-to-Value Ratio of not more than ______%; (iv) have no
Mortgage Loan with a principal balance in excess of $_______ and (v) have a
weighted average Gross Margin of not less than _____%, in each case, as
applicable, by aggregate principal balance of the Mortgage Loans as of the
related Subsequent Cut-off Date.
(e) Notwithstanding the foregoing, any Subsequent Mortgage Loan
may be rejected by either Rating Agency if the inclusion of any such Subsequent
Mortgage Loan would adversely affect the ratings of any Class of Certificates.
At least one Business Day prior to the related Subsequent Transfer Date, each
Rating Agency shall notify the Trustee, the Master Servicer and the Depositor as
to which Subsequent Mortgage Loans, if any, shall not be included in the
transfer on the related Subsequent Transfer Date; provided, however, that the
Master Servicer, in its capacity as Seller, shall have delivered to each Rating
Agency at least three Business Days prior to such Subsequent Transfer Date a
computer file acceptable to each Rating Agency describing the characteristics
specified in paragraphs (c) and (d) above.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Master Servicer to Act as Master Servicer.
The Master Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee and in the best interests of and for the benefit of the
Certificateholders (as determined by the Master Servicer in its reasonable
judgment) in accordance with the terms of this Agreement and the respective
Mortgage Loans and, to the extent consistent with such terms, in the same manner
in which it services and administers similar mortgage loans for its own
portfolio, giving due consideration to customary and usual standards of practice
of prudent mortgage lenders and loan servicers administering similar mortgage
loans but without regard to:
(i) any relationship that the Master Servicer, any Sub-Servicer
or any Affiliate of the Master Servicer or any Sub-Servicer may
have with the related Mortgagor;
(ii) the ownership of any Certificate by the Master Servicer or
any Affiliate of the Master Servicer;
(iii) the Master Servicer's obligation to make P&I Advances or
Servicing Advances; or
(iv) the Master Servicer's or any Sub-Servicer's right to receive
compensation for its services hereunder or with respect to any
particular transaction.
To the extent consistent with the foregoing, the Master Servicer shall also seek
to maximize the timely and complete recovery of principal and interest on the
Mortgage Notes. Subject only to the above-described servicing standards and the
terms of this Agreement and of the respective Mortgage Loans, the Master
Servicer shall have full power and authority, acting alone or through
Sub-Servicers as provided in Section 3.02, to do or cause to be done any and all
things in connection with such servicing and administration which it may deem
necessary or desirable. Without limiting the generality of the foregoing, the
Master Servicer in its own name or in the name of a Sub-Servicer is hereby
authorized and empowered by the Trustee when the Master Servicer believes it
appropriate in its best judgment in accordance with the servicing standards set
forth above, to execute and deliver, on behalf of the Certificateholders and the
Trustee, and upon notice to the Trustee, any and all instruments of satisfaction
or cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Mortgage Loans and the Mortgaged
Properties and to institute foreclosure proceedings or obtain a deed-in-lieu of
foreclosure so as to convert the ownership of such properties, and to hold or
cause to be held title to such properties, on behalf of the Trustee and
Certificateholders. The Master Servicer shall service and administer the
Mortgage Loans in accordance with applicable state and federal law and shall
provide to the Mortgagors any reports required to be provided to them thereby.
The Master Servicer shall also comply in the performance of this Agreement with
all reasonable rules and requirements of each insurer under any
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standard hazard insurance policy. Subject to Section 3.17, the Trustee shall
execute, at the written request of the Master Servicer, and furnish to the
Master Servicer and any Sub-Servicer such documents as are necessary or
appropriate to enable the Master Servicer or any Sub-Servicer to carry out their
servicing and administrative duties hereunder, and the Trustee hereby grants to
the Master Servicer a power of attorney to carry out such duties. The Trustee
shall not be liable for the actions of the Master Servicer or any Sub-Servicers
under such powers of attorney.
Subject to Section 3.09 hereof, in accordance with the standards
of the preceding paragraph, the Master Servicer shall advance or cause to be
advanced funds as necessary for the purpose of effecting the timely payment of
taxes and assessments on the Mortgaged Properties, which advances shall be
Servicing Advances reimbursable in the first instance from related collections
from the Mortgagors pursuant to Section 3.09, and further as provided in Section
3.11. Any cost incurred by the Master Servicer or by Sub-Servicers in effecting
the timely payment of taxes and assessments on a Mortgaged Property shall not,
for the purpose of calculating distributions to Certificateholders, be added to
the unpaid principal balance of the related Mortgage Loan, notwithstanding that
the terms of such Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary, the
Master Servicer may not make any future advances with respect to a Mortgage Loan
(except as provided in Section 4.03) and the Master Servicer shall not (i)
permit any modification with respect to any Mortgage Loan that would change the
Mortgage Rate, reduce or increase the principal balance (except for reductions
resulting from actual payments of principal) or change the final maturity date
on such Mortgage Loan (unless, as provided in Section 3.07, the Mortgagor is in
default with respect to the Mortgage Loan or such default is, in the judgment of
the Master Servicer, reasonably foreseeable) or (ii) permit any modification,
waiver or amendment of any term of any Mortgage Loan that would both (A) effect
an exchange or reissuance of such Mortgage Loan under Section 1001 of the Code
(or final, temporary or proposed Treasury regulations promulgated thereunder)
and (B) cause any of REMIC I, REMIC II or REMIC III to fail to qualify as a
REMIC under the Code or the imposition of any tax on "prohibited transactions"
or "contributions after the startup date" under the REMIC Provisions.
The Master Servicer may delegate its responsibilities under this
Agreement; provided, however, that no such delegation shall release the Master
Servicer from the responsibilities or liabilities arising under this Agreement.
SECTION 3.02. Sub-Servicing Agreements Between the Master
Servicer and Sub-Servicers.
(a) The Master Servicer may enter into Sub-Servicing Agreements
(provided that such agreements would not result in a withdrawal or a downgrading
by any Rating Agency of the ratings on any Class of Certificates) with
Sub-Servicers, for the servicing and administration of the
Mortgage Loans.
Each Sub-Servicer shall be (i) authorized to transact business in
the state or states in which the related Mortgaged Properties it is to service
are situated, if and to the extent required by applicable law to enable the
Sub-Servicer to perform its obligations hereunder and under the
Sub-
Servicing Agreement, (ii) an institution approved as a mortgage loan originator
by the Federal Housing Administration or an institution the deposit accounts in
which are insured by the FDIC and (iii) a Freddie Mac or Fannie Mae approved
mortgage servicer. Each Sub-Servicing Agreement must impose on the Sub-Servicer
requirements conforming to the provisions set forth in Section 3.08 and provide
for servicing of the Mortgage Loans consistent with the terms of this Agreement.
The Master Servicer will examine each Sub-Servicing Agreement and will be
familiar with the terms thereof. The terms of any Sub-Servicing Agreement will
not be inconsistent with any of the provisions of this Agreement. The Master
Servicer and the Sub-Servicers may enter into and make amendments to the
Sub-Servicing Agreements or enter into different forms of Sub-Servicing
Agreements; provided, however, that any such amendments or different forms shall
be consistent with and not violate the provisions of this Agreement, and that no
such amendment or different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of the
Certificateholders, without the consent of the Holders of Certificates entitled
to at least 66% of the Voting Rights. Any variation without the consent of the
Holders of Certificates entitled to at least 66% of the Voting Rights from the
provisions set forth in Section 3.08 relating to insurance or priority
requirements of Sub-Servicing Accounts, or credits and charges to the Sub-
Servicing Accounts or the timing and amount of remittances by the Sub-Servicers
to the Master Servicer, are conclusively deemed to be inconsistent with this
Agreement and therefore prohibited. The Master Servicer shall deliver to the
Trustee copies of all Sub-Servicing Agreements, and any amendments or
modifications thereof, promptly upon the Master Servicer's execution and
delivery of such instruments.
(b) As part of its servicing activities hereunder, the Master
Servicer (except as otherwise provided in the last sentence of this paragraph),
for the benefit of the Trustee and the Certificateholders, shall enforce the
obligations of each Sub-Servicer under the related Sub-Servicing Agreement and
of the Seller under the Mortgage Loan Purchase Agreement, including, without
limitation, any obligation to make advances in respect of delinquent payments as
required by a Sub- Servicing Agreement, or to purchase a Mortgage Loan on
account of missing or defective documentation or on account of a breach of a
representation, warranty or covenant, as described in Section 2.03(a). Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Sub-Servicing Agreements, and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Master Servicer, in its good faith business judgment, would require
were it the owner of the related Mortgage Loans. The Master Servicer shall pay
the costs of such enforcement at its own expense, and shall be reimbursed
therefor only (i) from a general recovery resulting from such enforcement, to
the extent, if any, that such recovery exceeds all amounts due in respect of the
related Mortgage Loans or (ii) from a specific recovery of costs, expenses or
attorneys' fees against the party against whom such enforcement is directed.
Enforcement of the Mortgage Loan Purchase Agreement against the Seller shall be
effected by the Master Servicer to the extent it is not the Seller, and
otherwise by the Trustee, in accordance with the foregoing provisions of this
paragraph.
SECTION 3.03. Successor Sub-Servicers.
The Master Servicer shall be entitled to terminate any
Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in accordance
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with the terms and conditions of such Sub-Servicing Agreement. In the event of
termination of any Sub-Servicer, all servicing obligations of such Sub-Servicer
shall be assumed simultaneously by the Master Servicer without any act or deed
on the part of such Sub-Servicer or the Master Servicer, and the Master Servicer
either shall service directly the related Mortgage Loans or shall enter into a
Sub- Servicing Agreement with a successor Sub-Servicer which qualifies under
Section 3.02.
Any Sub-Servicing Agreement shall include the provision that such
agreement may be immediately terminated by the Trustee without fee, in
accordance with the terms of this Agreement, in the event that the Master
Servicer shall, for any reason, no longer be the Master Servicer (including
termination due to a Master Servicer Event of Default).
SECTION 3.04. Liability of the Master Servicer.
Notwithstanding any Sub-Servicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Master
Servicer and a Sub-Servicer or reference to actions taken through a Sub-Servicer
or otherwise, the Master Servicer shall remain obligated and primarily liable to
the Trustee and the Certificateholders for the servicing and administering of
the Mortgage Loans in accordance with the provisions of Section 3.01 without
diminution of such obligation or liability by virtue of such Sub-Servicing
Agreements or arrangements or by virtue of indemnification from the Sub-Servicer
and to the same extent and under the same terms and conditions as if the Master
Servicer alone were servicing and administering the Mortgage Loans. The Master
Servicer shall be entitled to enter into any agreement with a Sub-Servicer for
indemnification of the Master Servicer by such Sub-Servicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.
SECTION 3.05. No Contractual Relationship Between
Sub-Servicers and Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Master Servicer alone, and the Trustee and Certificateholders shall not be
deemed parties thereto and shall have no claims, rights, obligations, duties or
liabilities with respect to the Sub-Servicer except as set forth in Section
3.06. The Master Servicer shall be solely liable for all fees owed by it to any
Sub-Servicer, irrespective of whether the Master Servicer's compensation
pursuant to this Agreement is sufficient to pay such fees.
SECTION 3.06. Assumption or Termination of Sub-Servicing
Agreements by Trustee.
In the event the Master Servicer shall for any reason no longer be
the master servicer (including by reason of the occurrence of a Master Servicer
Event of Default), the Trustee or its designee shall thereupon assume all of the
rights and obligations of the Master Servicer under each Sub-Servicing Agreement
that the Master Servicer may have entered into, unless the Trustee elects to
terminate any Sub-Servicing Agreement in accordance with its terms as provided
in Section 3.03. Upon such assumption, the Trustee, its designee or the
successor servicer for the Trustee appointed pursuant to Section 7.02 shall be
deemed, subject to Section 3.03, to have assumed all of the Master
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Servicer's interest therein and to have replaced the Master Servicer as a party
to each Sub-Servicing Agreement to the same extent as if each Sub-Servicing
Agreement had been assigned to the assuming party, except that (i) the Master
Servicer shall not thereby be relieved of any liability or obligations under any
Sub-Servicing Agreement and (ii) none of the Trustee, its designee or any
successor Master Servicer shall be deemed to have assumed any liability or
obligation of the Master Servicer that arose before it ceased to be the Master
Servicer.
The Master Servicer at its expense shall, upon request of the
Trustee, deliver to the assuming party all documents and records relating to
each Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by or on behalf of it, and otherwise
use its best efforts to effect the orderly and efficient transfer of the Sub-
Servicing Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Master Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any applicable insurance policies, follow such
collection procedures as it would follow with respect to mortgage loans
comparable to the Mortgage Loans and held for its own account. Consistent with
the foregoing, the Master Servicer may in its discretion (i) waive any late
payment charge or, if applicable, penalty interest, or (ii) extend the due dates
for the Monthly Payments due on a Mortgage Note for a period of not greater than
180 days; provided that any extension pursuant to clause (ii) above shall not
affect the amortization schedule of any Mortgage Loan for purposes of any
computation hereunder, except as provided below. In the event of any such
arrangement pursuant to clause (ii) above, the Master Servicer shall make timely
advances on such Mortgage Loan during such extension pursuant to Section 4.03
and in accordance with the amortization schedule of such Mortgage Loan without
modification thereof by reason of such arrangements. Notwithstanding the
foregoing, in the event that any Mortgage Loan is in default or, in the judgment
of the Master Servicer, such default is reasonably foreseeable, the Master
Servicer, consistent with the standards set forth in Section 3.01, may also,
waive, modify or vary any term of such Mortgage Loan (including modifications
that would change the Mortgage Rate, forgive the payment of principal or
interest or extend the final maturity date of such Mortgage Loan), accept
payment from the related Mortgagor of an amount less than the Stated Principal
Balance in final satisfaction of such Mortgage Loan (such payment, a "Short
Pay-off") or consent to the postponement of strict compliance with any such term
or otherwise grant indulgence to any Mortgagor.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan
pursuant to a Sub- Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account. The
Sub-Servicer shall deposit in the clearing account (which account must be an
Eligible Account) in which it customarily deposits payments and collections on
mortgage loans in connection with its mortgage loan servicing activities on a
daily basis, and in no event more than
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one Business Day after the Sub-Servicer's receipt thereof, all proceeds of
Mortgage Loans received by the Sub-Servicer less its servicing compensation to
the extent permitted by the Sub-Servicing Agreement, and shall thereafter
deposit such amounts in the Sub-Servicing Account, in no event more than two
Business Days after the deposit of such funds into the clearing account. The
Sub- Servicer shall thereafter deposit such proceeds in the Collection Account
or remit such proceeds to the Master Servicer for deposit in the Collection
Account not later than two Business Days after the deposit of such amounts in
the Sub-Servicing Account. For purposes of this Agreement, the Master Servicer
shall be deemed to have received payments on the Mortgage Loans when the
Sub-Servicer receives such payments.
SECTION 3.09. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts.
The Master Servicer shall establish and maintain one or more
accounts (the "Servicing Accounts"). Servicing Accounts shall be Eligible
Accounts. The Master Servicer shall deposit in the clearing account (which
account must be an Eligible Account) in which it customarily deposits payments
and collections on mortgage loans in connection with its mortgage loan servicing
activities on a daily basis, and in no event more than one Business Day after
the Master Servicer's receipt thereof, all collections from the Mortgagors (or
related advances from Sub-Servicers) for the payment of taxes, assessments,
hazard insurance premiums and comparable items for the account of the Mortgagors
("Escrow Payments") collected on account of the Mortgage Loans and shall
thereafter deposit such Escrow Payments in the Servicing Accounts, in no event
more than two Business Days after the deposit of such funds in the clearing
account, for the purpose of effecting the payment of any such items as required
under the terms of this Agreement. Withdrawals of amounts from a Servicing
Account may be made only to (i) effect payment of taxes, assessments, hazard
insurance premiums, and comparable items; (ii) reimburse the Master Servicer (or
a Sub- Servicer to the extent provided in the related Sub-Servicing Agreement)
out of related collections for any advances made pursuant to Section 3.01 (with
respect to taxes and assessments) and Section 3.14 (with respect to hazard
insurance); (iii) refund to Mortgagors any sums as may be determined to be
overages; (iv) pay interest, if required and as described below, to Mortgagors
on balances in the Servicing Account; (v) clear and terminate the Servicing
Account at the termination of the Master Servicer's obligations and
responsibilities in respect of the Mortgage Loans under this Agreement in
accordance with Article IX or (vi) recover amounts deposited in error. As part
of its servicing duties, the Master Servicer or Sub-Servicers shall pay to the
Mortgagors interest on funds in Servicing Accounts, to the extent required by
law and, to the extent that interest earned on funds in the Servicing Accounts
is insufficient, to pay such interest from its or their own funds, without any
reimbursement therefor. To the extent that a Mortgage does not provide for
Escrow Payments, the Master Servicer shall determine whether any such payments
are made by the Mortgagor in a manner and at a time that avoids the loss of the
Mortgaged Property due to a tax sale or the foreclosure of a tax lien. The
Master Servicer assumes full responsibility for the payment of all such bills
and shall effect payments of all such bills irrespective of the Mortgagor's
faithful performance in the payment of same or the making of the Escrow Payments
and shall make advances from its own funds to effect such payments.
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SECTION 3.10. Collection Account and Distribution Account.
(a) On behalf of the Trust Fund, the Master Servicer shall
establish and maintain one or more accounts (such account or accounts, the
"Collection Account"), held in trust for the benefit of the Trustee and the
Certificateholders. On behalf of the Trust Fund, the Master Servicer shall
deposit or cause to be deposited in the clearing account (which account must be
an Eligible Account) in which it customarily deposits payments and collections
on mortgage loans in connection with its mortgage loan servicing activities on a
daily basis, and in no event more than one Business Day after the Master
Servicer's receipt thereof, and shall thereafter deposit in the Collection
Account, in no event more than two Business Days after the deposit of such funds
into the clearing account, as and when received or as otherwise required
hereunder, the following payments and collections received or made by it
subsequent to the Cut-off Date with respect to the Initial Mortgage Loans, or
Subsequent Cut-off Date with respect to the Subsequent Mortgage Loans (other
than in respect of principal or interest on the related Mortgage Loans due on or
before the Cut-off Date or Subsequent Cut-off Date, as applicable), or payments
(other than Principal Prepayments) received by it on or prior to the Cut-off
Date or Subsequent Cut-off Date, as applicable but allocable to a Due Period
subsequent thereto:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the related
Servicing Fee) on each Mortgage Loan;
(iii) all Insurance Proceeds and Liquidation Proceeds (other than
proceeds collected in respect of any particular REO Property and
amounts paid by the Master Servicer in connection with a purchase
of Mortgage Loans and REO Properties pursuant to Section 9.01);
(iv) any amounts required to be deposited pursuant to Section
3.12 in connection with any losses realized on Permitted
Investments with respect to funds held in the Collection Account;
(v) any amounts required to be deposited by the Master Servicer
pursuant to the second paragraph of Section 3.14(a) in respect of
any blanket policy deductibles;
(vi) all proceeds of any Mortgage Loan repurchased or purchased
in accordance with Section 2.03 or Section 9.01;
(vii) all amounts required to be deposited in connection with
shortfalls in principal amount of Qualified Substitute Mortgage
Loans pursuant to Section 2.03; and
(viii) all Prepayment Charges collected by the Master Servicer in
connection with the voluntary Principal Prepayment in full of any
of the Mortgage Loans.
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For purposes of the immediately preceding sentence, the Cut-off Date with
respect to any Qualified Substitute Mortgage Loan shall be deemed to be the date
of substitution.
The foregoing requirements for deposit in the Collection Accounts
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of late payment charges, NSF
fees, reconveyance fees or assumption fees and other similar fees and charges
need not be deposited by the Master Servicer in the Collection Account and
shall, upon collection, belong to the Master Servicer as additional compensation
for its servicing activities. In the event the Master Servicer shall deposit in
the Collection Account any amount not required to be deposited therein, it may
at any time withdraw such amount from the Collection Account, any provision
herein to the contrary notwithstanding.
(b) On behalf of the Trust Fund, the Trustee shall establish and
maintain one or more accounts (such account or accounts, the "Distribution
Account"), held in trust for the benefit of the Certificateholders. On behalf of
the Trust Fund, the Master Servicer shall deliver to the Trustee in immediately
available funds for deposit in the Distribution Account on or before 3:00 p.m.
____________ time (i) on the Master Servicer Remittance Date, that portion of
the Available Distribution Amount (calculated without regard to the references
in clause (2) of the definition thereof to amounts that may be withdrawn from
the Distribution Account) for the related Distribution Date then on deposit in
the Collection Account and the amount of all Prepayment Charges collected by the
Master Servicer in connection with the voluntary Principal Prepayment in full of
any of the Mortgage Loans then on deposit in the Collection Account (other than
any such Prepayment Charges received after the related Prepayment Period) and
(ii) on each Business Day as of the commencement of which the balance on deposit
in the Collection Account exceeds
$--------
following any withdrawals pursuant to the next succeeding sentence, the amount
of such excess, but only if the Collection Account constitutes an Eligible
Account solely pursuant to clause (ii) of the definition of "Eligible Account."
If the balance on deposit in the Collection Account exceeds $______ as of the
commencement of business on any Business Day and the Collection Account
constitutes an Eligible Account solely pursuant to clause (ii) of the definition
of "Eligible Account," the Master Servicer shall, on or before 3:00 p.m. New
York time on such Business Day, withdraw from the Collection Account any and all
amounts payable or reimbursable to the Depositor, the Master Servicer, the
Trustee, the Seller or any Sub-Servicer pursuant to Section 3.11 and shall pay
such amounts to the Persons entitled thereto.
(c) Funds in the Collection Account and the Distribution Account
may be invested in Permitted Investments in accordance with the provisions set
forth in Section 3.12. The Master Servicer shall give notice to the Trustee and
the Depositor of the location of the Collection Account maintained by it when
established and prior to any change thereof. The Trustee shall give notice to
the Master Servicer and the Depositor of the location of the Distribution
Account when established and prior to any change thereof.
(d) Funds held in the Collection Account at any time may be
delivered by the Master Servicer to the Trustee for deposit in an account (which
may be the Distribution Account and must satisfy the standards for the
Distribution Account as set forth in the definition thereof) and for all
purposes of this Agreement shall be deemed to be a part of the Collection
Account; provided,
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however, that the Trustee shall have the sole authority to withdraw any funds
held pursuant to this subsection (d). In the event the Master Servicer shall
deliver to the Trustee for deposit in the Distribution Account any amount not
required to be deposited therein, it may at any time request that the Trustee
withdraw such amount from the Distribution Account and remit to it any such
amount, any provision herein to the contrary notwithstanding. In addition, the
Master Servicer shall deliver to the Trustee from time to time for deposit, and
the Trustee shall so deposit, in the Distribution Account:
(i) any P&I Advances, as required pursuant to Section 4.03;
(ii) any amounts required to be deposited pursuant to Section
3.23(d) or (f) in connection with any REO Property;
(iii) any amounts to be paid by the Master Servicer in connection
with a purchase of Mortgage Loans and REO Properties pursuant to
Section 9.01;
(iv) any amounts required to be deposited pursuant to Section
3.24 in connection with any Prepayment Interest Shortfalls; and
(v) any Stayed Funds, as soon as permitted by the federal
bankruptcy court having jurisdiction in such matters.
(e) Promptly upon receipt of any Stayed Funds, whether from the
Master Servicer, a trustee in bankruptcy, or federal bankruptcy court or other
source, the Trustee shall deposit such funds in the Distribution Account,
subject to withdrawal thereof pursuant to Section 7.02(b) or as otherwise
permitted hereunder. In addition, the Master Servicer shall deposit in the
Collection Account any amounts required to be deposited pursuant to Section
3.12(b) in connection with losses realized on Permitted Investments with respect
to funds held in the Collection Account.
SECTION 3.11. Withdrawals from the Collection Account and
Distribution Account.
(a) The Master Servicer shall, from time to time, make withdrawals
from the Collection Account for any of the following purposes or as described in
Section 4.03:
(i) to remit to the Trustee for deposit in the Distribution
Account the amounts required to be so remitted pursuant to Section
3.10(b) or permitted to be so remitted pursuant to the first
sentence of Section 3.10(d);
(ii) subject to Section 3.16(d), to reimburse the Master Servicer
for P&I Advances, but only to the extent of amounts received which
represent Late Collections (net of the related Servicing Fees) of
Monthly Payments on Mortgage Loans with respect to which such P&I
Advances were made in accordance with the provisions of Section
4.03;
(iii) subject to Section 3.16(d), to pay the Master Servicer or
any Sub-Servicer any unpaid Servicing Fees and reimburse any
unreimbursed Servicing Advances with respect
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to each Mortgage Loan, but only to the extent of any Liquidation
Proceeds, Insurance Proceeds or other amounts as may be collected
by the Master Servicer from a Mortgagor, or otherwise received
with respect to such Mortgage Loan;
(iv) to pay to the Master Servicer as servicing compensation (in
addition to the Servicing Fee) on the Master Servicer Remittance
Date any interest or investment income earned on funds deposited
in the Collection Account;
(v) to pay to the Master Servicer, the Depositor or the Seller,
as the case may be, with respect to each Mortgage Loan that has
previously been purchased or replaced pursuant to Section 2.03 or
Section 3.16(c) all amounts received thereon subsequent to the
date of purchase or substitution, as the case may be;
(vi) to reimburse the Master Servicer for any P&I Advance
previously made which the Master Servicer has determined to be a
Nonrecoverable P&I Advance in accordance with the provisions of
Section 4.03;
(vii) to reimburse the Master Servicer or the Depositor for
expenses incurred by or reimbursable to the Master Servicer or the
Depositor, as the case may be, pursuant to Section 6.03;
(viii) to reimburse the Master Servicer or the Trustee, as the
case may be, for expenses reasonably incurred in respect of the
breach or defect giving rise to the purchase obligation under
Section 2.03 or Section 2.04 of this Agreement that were included
in the Purchase Price of the Mortgage Loan, including any expenses
arising out of the enforcement of the purchase obligation;
(ix) to pay, or to reimburse the Master Servicer for advances in
respect of, expenses incurred in connection with any Mortgage Loan
pursuant to Section 3.16(b); and
(x) to clear and terminate the Collection Account pursuant to
Section 9.01.
The Master Servicer shall keep and maintain separate accounting,
on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account, to the extent held by or on behalf of
it, pursuant to subclauses (ii), (iii), (iv), (v), (vi), (viii) and (ix) above.
The Master Servicer shall provide written notification to the Trustee, on or
prior to the next succeeding Master Servicer Remittance Date, upon making any
withdrawals from the Collection Account pursuant to subclause (vii) above.
(b) The Trustee shall, from time to time, make withdrawals from
the Distribution Account, for any of the following purposes, without priority:
(i) to make distributions to Certificateholders in accordance
with Section 4.01;
(ii) to pay to itself the Trustee's Fee pursuant to Section 8.05;
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(iii) to pay itself any interest income earned on funds deposited
in the Distribution Account pursuant to Section 3.12(c);
(iv) to reimburse itself pursuant to Section 7.02;
(v) to pay any amounts in respect of taxes pursuant to Section
10.01(g)(iii); and
(vi) to clear and terminate the Distribution Account pursuant to
Section 9.01.
SECTION 3.12. Investment of Funds in the Pre-Funding Account,
the Interest Coverage Account, Collection
Account and the Distribution Account.
(a) The Master Servicer may direct any depository institution
maintaining the Pre- Funding Account, the Interest Coverage Account and the
Collection Account (for purposes of this Section 3.12, an "Investment Account"),
and the Trustee, in its individual capacity, may direct any depository
institution maintaining the Distribution Account (for purposes of this Section
3.12, also an "Investment Account"), to invest the funds (other than the Initial
Deposit) in such Investment Account in one or more Permitted Investments bearing
interest or sold at a discount, and maturing, unless payable on demand, (i) no
later than the Business Day immediately preceding the date on which such funds
are required to be withdrawn from such account pursuant to this Agreement, if a
Person other than the Trustee is the obligor thereon and (ii) no later than the
date on which such funds are required to be withdrawn from such account pursuant
to this Agreement, if the Trustee is the obligor thereon. All such Permitted
Investments shall be held to maturity, unless payable on demand. Any investment
of funds in an Investment Account shall be made in the name of the Trustee (in
its capacity as such) or in the name of a nominee of the Trustee. The Trustee
shall be entitled to sole possession (except with respect to investment
direction of funds held in the Pre- Funding Account, the Interest Coverage
Account and the Collection Account and any income and gain realized thereon)
over each such investment, and any certificate or other instrument evidencing
any such investment shall be delivered directly to the Trustee or its agent,
together with any document of transfer necessary to transfer title to such
investment to the Trustee or its nominee. In the event amounts on deposit in an
Investment Account are at any time invested in a Permitted Investment payable on
demand, the Trustee shall:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on the
last day such Permitted Investment may otherwise mature
hereunder in an amount equal to the lesser of (1) all
amounts then payable thereunder and (2) the amount
required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly upon
determination by a Responsible Officer of the Trustee that
such Permitted Investment would not constitute a Permitted
Investment in respect of funds thereafter on deposit in
the Investment Account.
(b) All income and gain realized from the investment of funds
deposited in the Pre- Funding Account, the Interest Coverage Account and the
Collection Account held by or on behalf
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of the Master Servicer, shall be for the benefit of the Master Servicer and
shall be subject to its withdrawal in accordance with Sections 4.07 and 4.08.
The Master Servicer shall deposit in the Pre- Funding Account, the Interest
Coverage Account and the Collection Account the amount of any loss of principal
incurred in respect of any such Permitted Investment made with funds in such
accounts immediately upon realization of such loss.
(c) All income and gain realized from the investment of funds
deposited in the Distribution Account held by or on behalf of the Trustee,
shall be for the benefit of the Trustee and shall be subject to its withdrawal
at any time. The Trustee shall deposit in the Distribution Account, the amount
of any loss of principal incurred in respect of any such Permitted Investment
made with funds in such accounts immediately upon realization of such loss.
(d) Except as otherwise expressly provided in this Agreement, if
any default occurs in the making of a payment due under any Permitted
Investment, or if a default occurs in any other performance required under any
Permitted Investment, the Trustee may and, subject to Section 8.01 and Section
8.02(v), upon the request of the Holders of Certificates representing more than
___% of the Voting Rights allocated to any Class of Certificates, shall take
such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate proceedings.
SECTION 3.13. [intentionally omitted]
SECTION 3.14. Maintenance of Hazard Insurance and Errors
and Omissions and Fidelity Coverage.
(a) The Master Servicer shall cause to be maintained for each
Mortgage Loan fire insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the least of (i) the current
principal balance of such Mortgage Loan, (ii) the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis and (iii) the maximum insurable value of
the improvements which are a part of such Mortgaged Property, in each case in an
amount not less than such amount as is necessary to avoid the application of any
coinsurance clause contained in the related hazard insurance policy. The Master
Servicer shall also cause to be maintained fire insurance with extended coverage
on each REO Property in an amount which is at least equal to the lesser of (i)
the maximum insurable value of the improvements which are a part of such
property and (ii) the outstanding principal balance of the related Mortgage Loan
at the time it became an REO Property, plus accrued interest at the Mortgage
Rate and related Servicing Advances. The Master Servicer will comply in the
performance of this Agreement with all reasonable rules and requirements of each
insurer under any such hazard policies. Any amounts to be collected by the
Master Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the property subject to the related Mortgage or amounts
to be released to the Mortgagor in accordance with the procedures that the
Master Servicer would follow in servicing loans held for its own account,
subject to the terms and conditions of the related Mortgage and Mortgage Note)
shall be deposited in the Collection Account, subject to withdrawal pursuant to
Section 3.11, if received in respect of a Mortgage Loan, or in the REO Account,
subject to withdrawal pursuant to Section 3.23, if received in respect of an
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REO Property. Any cost incurred by the Master Servicer in maintaining any such
insurance shall not, for the purpose of calculating distributions to
Certificateholders, be added to the unpaid principal balance of the related
Mortgage Loan, notwithstanding that the terms of such Mortgage Loan so permit.
It is understood and agreed that no earthquake or other additional insurance is
to be required of any Mortgagor other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. If the Mortgaged Property or REO Property is at any time
in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards, the Master Servicer will
cause to be maintained a flood insurance policy in respect thereof. Such flood
insurance shall be in an amount equal to the lesser of (i) the unpaid principal
balance of the related Mortgage Loan and (ii) the maximum amount of such
insurance available for the related Mortgaged Property under the national flood
insurance program (assuming that the area in which such Mortgaged Property is
located is participating in such program).
In the event that the Master Servicer shall obtain and maintain a
blanket policy with an insurer having a General Policy Rating of A:X or better
in Best's Key Rating Guide (or such other rating that is comparable to such
rating) insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first two sentences of this Section 3.14, it being understood and agreed that
such policy may contain a deductible clause, in which case the Master Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property or REO Property a policy complying with the first two
sentences of this Section 3.14, and there shall have been one or more losses
which would have been covered by such policy, deposit to the Collection Account
from its own funds the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Master Servicer agrees to
prepare and present, on behalf of itself, the Trustee and Certificateholders,
claims under any such blanket policy in a timely fashion in accordance with the
terms of such policy.
(b) The Master Servicer shall keep in force during the term of
this Agreement a policy or policies of insurance covering errors and omissions
for failure in the performance of the Master Servicer's obligations under this
Agreement, which policy or policies shall be in such form and amount that would
meet the requirements of Fannie Mae or Freddie Mac if it were the purchaser of
the Mortgage Loans, unless the Master Servicer has obtained a waiver of such
requirements from Fannie Mae or Freddie Mac. The Master Servicer shall also
maintain a fidelity bond in the form and amount that would meet the requirements
of Fannie Mae or Freddie Mac, unless the Master Servicer has obtained a waiver
of such requirements from Fannie Mae or Freddie Mac. The Master Servicer shall
provide the Trustee (upon the Trustee's reasonable request) with copies of any
such insurance policies and fidelity bond. The Master Servicer shall be deemed
to have complied with this provision if an Affiliate of the Master Servicer has
such errors and omissions and fidelity bond coverage and, by the terms of such
insurance policy or fidelity bond, the coverage afforded thereunder extends to
the Master Servicer. Any such errors and omissions policy and fidelity bond
shall by its terms not be cancelable without thirty days' prior written notice
to the Trustee. The Master Servicer shall also cause each Sub-Servicer to
maintain a policy of insurance covering errors and omissions and a fidelity bond
which would meet such requirements.
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SECTION 3.15. Enforcement of Due-On-Sale Clauses;
Assumption Agreements.
The Master Servicer will, to the extent it has knowledge of any
conveyance or prospective conveyance of any Mortgaged Property by any Mortgagor
(whether by absolute conveyance or by contract of sale, and whether or not the
Mortgagor remains or is to remain liable under the Mortgage Note and/or the
Mortgage), exercise its rights to accelerate the maturity of such Mortgage Loan
under the "due-on-sale" clause, if any, applicable thereto; provided, however,
that the Master Servicer shall not exercise any such rights if prohibited by law
from doing so. If the Master Servicer reasonably believes it is unable under
applicable law to enforce such "due-on-sale" clause, or if any of the other
conditions set forth in the proviso to the preceding sentence apply, the Master
Servicer will enter into an assumption and modification agreement from or with
the person to whom such property has been conveyed or is proposed to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, to the extent permitted by applicable state law, the Mortgagor remains
liable thereon. The Master Servicer is also authorized to enter into a
substitution of liability agreement with such person, pursuant to which the
original Mortgagor is released from liability and such person is substituted as
the Mortgagor and becomes liable under the Mortgage Note, provided that no such
substitution shall be effective unless such person satisfies the underwriting
criteria of the Master Servicer and has a credit risk rating at least equal to
that of the original Mortgagor. In connection with any assumption or
substitution, the Master Servicer shall apply such underwriting standards and
follow such practices and procedures as shall be normal and usual in its general
mortgage servicing activities and as it applies to other mortgage loans owned
solely by it. The Master Servicer shall not take or enter into any assumption
and modification agreement, however, unless (to the extent practicable in the
circumstances) it shall have received confirmation, in writing, of the continued
effectiveness of any applicable hazard insurance policy, or a new policy meeting
the requirements of this Section is obtained. Any fee collected by the Master
Servicer in respect of an assumption or substitution of liability agreement will
be retained by the Master Servicer as additional servicing compensation. In
connection with any such assumption, no material term of the Mortgage Note
(including but not limited to the related Mortgage Rate and the amount of the
Monthly Payment) may be amended or modified, except as otherwise required
pursuant to the terms thereof. The Master Servicer shall notify the Trustee and
any respective Custodian that any such substitution or assumption agreement has
been completed by forwarding to the Trustee or to such Custodian, as the case
may be, the executed original of such substitution or assumption agreement,
which document shall be added to the related Mortgage File and shall, for all
purposes, be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Master Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of any assumption
of a Mortgage Loan by operation of law or by the terms of the Mortgage Note or
any assumption which the Master Servicer may be restricted by law from
preventing, for any reason whatever. For purposes of this Section 3.15, the term
"assumption" is deemed to also include a sale (of the Mortgaged Property)
subject to the Mortgage that is not accompanied by an assumption or substitution
of liability agreement.
SECTION 3.16. Realization Upon Defaulted Mortgage Loans.
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(a) The Master Servicer shall, consistent with the servicing
standard set forth in Section 3.01, foreclose upon or otherwise comparably
convert the ownership of properties securing such of the Mortgage Loans
(including selling any such Mortgage Loans other than converting the ownership
of the related property) as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Section 3.07. The Master Servicer shall be responsible for all costs
and expenses incurred by it in any such proceedings; provided, however, that
such costs and expenses will be recoverable as Servicing Advances by the Master
Servicer as contemplated in Section 3.11 and Section 3.23. The foregoing is
subject to the provision that, in any case in which Mortgaged Property shall
have suffered damage from an Uninsured Cause, the Master Servicer shall not be
required to expend its own funds toward the restoration of such property unless
it shall determine in its discretion that such restoration will increase the
proceeds of liquidation of the related Mortgage Loan after reimbursement to
itself for such expenses.
(b) Notwithstanding the foregoing provisions of this Section 3.16
or any other provision of this Agreement, with respect to any Mortgage Loan as
to which the Master Servicer has received actual notice of, or has actual
knowledge of, the presence of any toxic or hazardous substance on the related
Mortgaged Property, the Master Servicer shall not, on behalf of the Trustee,
either (i) obtain title to such Mortgaged Property as a result of or in lieu of
foreclosure or otherwise or (ii) otherwise acquire possession of, or take any
other action with respect to, such Mortgaged Property, if, as a result of any
such action, the Trustee, the Trust Fund or the Certificateholders would be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Master Servicer has
also previously determined, based on its reasonable judgment and a report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:
(1) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that it would be in the best
economic interest of the Trust Fund to take such actions as are
necessary to bring the Mortgaged Property into compliance
therewith; and
(2) there are no circumstances present at such Mortgaged
Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required
under any federal, state or local law or regulation, or that if
any such materials are present for which such action could be
required, that it would be in the best economic interest of the
Trust Fund to take such actions with respect to the affected
Mortgaged Property.
The cost of the environmental audit report contemplated by this
Section 3.16 shall be advanced by the Master Servicer, subject to the Master
Servicer's right to be reimbursed therefor from the Collection Account as
provided in Section 3.11(a)(ix), such right of reimbursement being prior to the
rights of Certificateholders to receive any amount in the Collection Account
received in respect of the affected Mortgage Loan or other Mortgage Loans.
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If the Master Servicer determines, as described above, that it is
in the best economic interest of the Trust Fund to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes or petroleum-based materials affecting any such Mortgaged Property, then
the Master Servicer shall take such action as it deems to be in the best
economic interest of the Trust Fund. The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Master Servicer,
subject to the Master Servicer's right to be reimbursed therefor from the
Collection Account as provided in Section 3.11(a)(ix), such right of
reimbursement being prior to the rights of Certificateholders to receive any
amount in the Collection Account received in respect of the affected Mortgage
Loan or other Mortgage Loans.
(c) The Master Servicer may at its option purchase from REMIC I
any Mortgage Loan or related REO Property that is 90 days or more delinquent,
which the Master Servicer determines in good faith will otherwise become subject
to foreclosure proceedings (evidence of such determination to be delivered in
writing to the Trustee prior to purchase), at a price equal to the Purchase
Price; provided, however, that the Master Servicer shall purchase any such
Mortgage Loans or related REO Properties on the basis of delinquency, purchasing
the most delinquent Mortgage Loans or related REO Properties first. The Purchase
Price for any Mortgage Loan or related REO Property purchased hereunder shall be
deposited in the Collection Account, and the Trustee, upon receipt of written
certification from the Master Servicer of such deposit, shall release or cause
to be released to the Master Servicer the related Mortgage File and shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as the Master Servicer shall furnish and as shall be necessary
to vest in the Master Servicer title to any Mortgage Loan or related REO
Property released pursuant hereto.
(d) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan,
will be applied in the following order of priority: first, to reimburse the
Master Servicer or any Sub-Servicer for any related unreimbursed Servicing
Advances and P&I Advances, pursuant to Section 3.11(a)(ii) or (a)(iii); second,
to accrued and unpaid interest on the Mortgage Loan, to the date of the Final
Recovery Determination, or to the Due Date prior to the Distribution Date on
which such amounts are to be distributed if not in connection with a Final
Recovery Determination; and third, as a recovery of principal of the Mortgage
Loan. If the amount of the recovery so allocated to interest is less than the
full amount of accrued and unpaid interest due on such Mortgage Loan, the amount
of such recovery will be allocated by the Master Servicer as follows: first, to
unpaid Servicing Fees; and second, to the balance of the interest then due and
owing. The portion of the recovery so allocated to unpaid Servicing Fees shall
be reimbursed to the Master Servicer or any Sub-Servicer pursuant to Section
3.11(a)(iii).
SECTION 3.17. Trustee to Cooperate; Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the receipt
by the Master Servicer of a notification that payment in full shall be escrowed
in a manner customary for such purposes, the Master Servicer will immediately
notify the Trustee and any related Custodian by a
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certification in the form of Exhibit E-2 (which certification shall include a
statement to the effect that all amounts received or to be received in
connection with such payment which are required to be deposited in the
Collection Account pursuant to Section 3.10 have been or will be so deposited)
of a Servicing Officer and shall request delivery to it of the Mortgage File.
Upon receipt of such certification and request, the Trustee or such Custodian,
as the case may be, shall promptly release the related Mortgage File to the
Master Servicer. No expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Collection
Account or the Distribution Account.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any insurance policy relating to the Mortgage Loans, the Trustee and any related
Custodian shall, upon request of the Master Servicer and delivery to the Trustee
or such Custodian, as the case may be, of a Request for Release in the form of
Exhibit E-l, release the related Mortgage File to the Master Servicer, and the
Trustee shall, at the direction of the Master Servicer, execute such documents
as shall be necessary to the prosecution of any such proceedings and the Master
Servicer shall retain such Mortgage File in trust for the benefit of the
Certificateholders. Such Request for Release shall obligate the Master Servicer
to return each and every document previously requested from the Mortgage File to
the Trustee or to such Custodian when the need therefor by the Master Servicer
no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Collection Account or the Mortgage File or such document has been delivered to
an attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Master Servicer has delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which such
Mortgage File or such document was delivered and the purpose or purposes of such
delivery. Upon receipt of a certificate of a Servicing Officer stating that such
Mortgage Loan was liquidated and that all amounts received or to be received in
connection with such liquidation that are required to be deposited into the
Collection Account have been so deposited, or that such Mortgage Loan has become
an REO Property, a copy of the Request for Release shall be released by the
Trustee or such Custodian to the Master Servicer.
(c) Upon written certification of a Servicing Officer, the Trustee
shall execute and deliver to the Master Servicer any court pleadings, requests
for trustee's sale or other documents reasonably necessary to the foreclosure or
trustee's sale in respect of a Mortgaged Property or to any legal action brought
to obtain judgment against any Mortgagor on the Mortgage Note or Mortgage or to
obtain a deficiency judgment, or to enforce any other remedies or rights
provided by the Mortgage Note or Mortgage or otherwise available at law or in
equity. Each such certification shall include a request that such pleadings or
documents be executed by the Trustee and a statement as to the reason such
documents or pleadings are required and that the execution and delivery thereof
by the Trustee will not invalidate or otherwise affect the lien of the Mortgage,
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
SECTION 3.18. Servicing Compensation.
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As compensation for the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to the Servicing Fee with
respect to each Mortgage Loan payable solely from payments of interest in
respect of such Mortgage Loan, subject to Section 3.24. In addition, the Master
Servicer shall be entitled to recover unpaid Servicing Fees out of Insurance
Proceeds or Liquidation Proceeds to the extent permitted by Section 3.11(a)(iii)
and out of amounts derived from the operation and sale of an REO Property to the
extent permitted by Section 3.23. The right to receive the Servicing Fee may not
be transferred in whole or in part except in connection with the transfer of all
of the Master Servicer's responsibilities and obligations under this Agreement.
Additional servicing compensation in the form of assumption fees,
late payment charges, NSF fees, reconveyance fees and other similar fees and
charges (other than Prepayment Charges) shall be retained by the Master Servicer
(subject to Section 3.24) only to the extent such fees or charges are received
by the Master Servicer. The Master Servicer shall also be entitled pursuant to
Section 3.11(a)(iv) to withdraw from the Collection Account, and pursuant to
Section 3.23(b) to withdraw from any REO Account, as additional servicing
compensation, interest or other income earned on deposits therein, subject to
Section 3.12 and Section 3.24. The Master Servicer shall be required to pay all
expenses incurred by it in connection with its servicing activities hereunder
(including premiums for the insurance required by Section 3.14, to the extent
such premiums are not paid by the related Mortgagors or by a Sub-Servicer,
servicing compensation of each Sub-Servicer, and to the extent provided herein
in Section 8.05, the fees and expenses of the Trustee) and shall not be entitled
to reimbursement therefor except as specifically provided herein.
SECTION 3.19. Reports to the Trustee; Collection Account
Statements.
Not later than fifteen days after each Distribution Date, the
Master Servicer shall forward to the Trustee and the Depositor a statement
prepared by the Master Servicer setting forth the status of the Collection
Account as of the close of business on such Distribution Date and showing, for
the period covered by such statement, the aggregate amount of deposits into and
withdrawals from the Collection Account of each category of deposit specified in
Section 3.10(a) and each category of withdrawal specified in Section 3.11. Such
statement may be in the form of the then current Fannie Mae Monthly Accounting
Report for its Guaranteed Mortgage Pass-Through Program with appropriate
additions and changes, and shall also include information as to the aggregate of
the outstanding principal balances of all of the Mortgage Loans as of the last
day of the calendar month immediately preceding such Distribution Date. Copies
of such statement shall be provided by the Trustee to any Certificateholder and
to any Person identified to the Trustee as a prospective transferee of a
Certificate, upon request at the expense of the requesting party, provided such
statement is delivered by the Master Servicer to the Trustee.
SECTION 3.20. Statement as to Compliance.
The Master Servicer will deliver to the Trustee, the Depositor and
each Rating Agency on or before __________ of each calendar year commencing in
________, an Officers' Certificate stating, as to each signatory thereof, that
(i) a review of the activities of the Master Servicer during the preceding year
and of performance under this Agreement has been made under such officers'
supervision and (ii) to the best of such officers' knowledge, based on such
review, the Master
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Servicer has fulfilled all of its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Copies of any such statement shall be provided by the
Trustee to any Certificateholder and to any Person identified to the Trustee as
a prospective transferee of a Certificate, upon the request and at the expense
of the requesting party, provided that such statement is delivered by the Master
Servicer to the Trustee.
SECTION 3.21. Independent Public Accountants' Servicing
Report.
Not later than _________ of each calendar year commencing in
______, the Master Servicer, at its expense, shall cause a nationally recognized
firm of independent certified public accountants to furnish to the Master
Servicer a report stating that (i) it has obtained a letter of representation
regarding certain matters from the management of the Master Servicer which
includes an assertion that the Master Servicer has complied with certain minimum
residential mortgage loan servicing standards, identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the servicing of residential mortgage
loans during the most recently completed fiscal year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. In rendering its report such firm may
rely, as to matters relating to the direct servicing of residential mortgage
loans by Sub- Servicers, upon comparable reports of firms of independent
certified public accountants rendered on the basis of examinations conducted in
accordance with the same standards (rendered within one year of such report)
with respect to those Sub-Servicers. Immediately upon receipt of such report,
the Master Servicer shall furnish a copy of such report to the Trustee and each
Rating Agency. Copies of such statement shall be provided by the Trustee to any
Certificateholder upon request at the Master Servicer's expense, provided that
such statement is delivered by the Master Servicer to the Trustee. In the event
such firm of independent certified public accountants requires the Trustee to
agree to the procedures performed by such firm, the Master Servicer shall direct
the Trustee in writing to so agree; it being understood and agreed that the
Trustee will deliver such letter of agreement in conclusive reliance upon the
direction of the Master Servicer, and the Trustee has not made any independent
inquiry or investigation as to, and shall have no obligation or liability in
respect of, the sufficiency, validity or correctness of such procedures.
SECTION 3.22. Access to Certain Documentation.
The Master Servicer shall provide to the Office of Thrift
Supervision, the FDIC, and any other federal or state banking or insurance
regulatory authority that may exercise authority over any Certificateholder,
access to the documentation regarding the Mortgage Loans required by applicable
laws and regulations. Such access shall be afforded without charge, but only
upon reasonable request and during normal business hours at the offices of the
Master Servicer designated by it. In addition, access to the documentation
regarding the Mortgage Loans will be provided to any Certificateholder, the
Trustee and to any Person identified to the Master Servicer as a prospective
transferee of a Certificate, upon reasonable request during normal business
hours at the offices of the Master Servicer designated by it at the expense of
the Person requesting such access.
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SECTION 3.23. Title, Management and Disposition of REO
Property.
(a) The deed or certificate of sale of any REO Property shall
be taken in the name of the Trustee, or its nominee, in trust for the benefit of
the Certificateholders. The Master Servicer, on behalf of REMIC I (and on behalf
of the Trustee for the benefit of the Certificateholders), shall either sell any
REO Property before the close of the third taxable year after the year REMIC I
acquires ownership of such REO Property for purposes of Section 860G(a)(8) of
the Code or request from the Internal Revenue Service, no later than 60 days
before the day on which the three-year grace period would otherwise expire, an
extension of the three-year grace period, unless the Master Servicer shall have
delivered to the Trustee and the Depositor an Opinion of Counsel, addressed to
the Trustee and the Depositor, to the effect that the holding by REMIC I of such
REO Property subsequent to three years after its acquisition will not result in
the imposition on REMIC I, REMIC II or REMIC III of taxes on "prohibited
transactions" thereof, as defined in Section 860F of the Code, or cause any of
REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC under Federal law
at any time that any Certificates are outstanding. The Master Servicer shall
manage, conserve, protect and operate each REO Property for the
Certificateholders solely for the purpose of its prompt disposition and sale in
a manner which does not cause such REO Property to fail to qualify as
"foreclosure property" within the meaning of Section 860G(a)(8) of the Code or
result in the receipt by REMIC I, REMIC II or REMIC III of any "income from
non-permitted assets" within the meaning of Section 860F(a)(2)(B) of the Code,
or any "net income from foreclosure property" which is subject to taxation under
the REMIC Provisions.
(b) The Master Servicer shall segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets and shall establish and
maintain with respect to REO Properties an account held in trust for the Trustee
for the benefit of the Certificateholders (the "REO Account"), which shall be an
Eligible Account. The Master Servicer shall be permitted to allow the Collection
Account to serve as the REO Account, subject to separate ledgers for each REO
Property. The Master Servicer shall be entitled to retain or withdraw any
interest income paid on funds deposited in the REO Account.
(c) The Master Servicer shall have full power and authority,
subject only to the specific requirements and prohibitions of this Agreement, to
do any and all things in connection with any REO Property as are consistent with
the manner in which the Master Servicer manages and operates similar property
owned by the Master Servicer or any of its Affiliates, all on such terms and for
such period as the Master Servicer deems to be in the best interests of
Certificateholders. In connection therewith, the Master Servicer shall deposit,
or cause to be deposited in the clearing account (which account must be an
Eligible Account) in which it customarily deposits payments and collections on
mortgage loans in connection with its mortgage loan servicing activities on a
daily basis, and in no event more than one Business Day after the Master
Servicer's receipt thereof, and shall thereafter deposit in the REO Account, in
no event more than two Business Days after the deposit of such funds into the
clearing account, all revenues received by it with respect to an REO Property
and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of such REO Property including, without limitation:
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(i) all insurance premiums due and payable in respect of such
REO Property;
(ii) all real estate taxes and assessments in respect of such
REO Property that may result in the imposition of a lien
thereon; and
(iii) all costs and expenses necessary to maintain such REO
Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Master Servicer shall advance
from its own funds such amount as is necessary for such purposes if, but only
if, the Master Servicer would make such advances if the Master Servicer owned
the REO Property and if in the Master Servicer's judgment, the payment of such
amounts will be recoverable from the rental or sale of the REO Property.
Notwithstanding the foregoing, neither the Master Servicer nor the
Trustee shall:
(i) authorize the Trust Fund to enter into, renew or extend any
New Lease with respect to any REO Property, if the New Lease by
its terms will give rise to any income that does not constitute
Rents from Real Property;
(ii) authorize any amount to be received or accrued under any New
Lease other than amounts that will constitute Rents from Real
Property;
(iii) authorize any construction on any REO Property, other than
the completion of a building or other improvement thereon, and
then only if more than ten percent of the construction of such
building or other improvement was completed before default on the
related Mortgage Loan became imminent, all within the meaning of
Section 856(e)(4)(B) of the Code; or
(iv) authorize any Person to Directly Operate any REO Property on
any date more than 90 days after its date of acquisition by the
Trust Fund;
unless, in any such case, the Master Servicer has obtained an Opinion of
Counsel, provided to the Trustee, to the effect that such action will not cause
such REO Property to fail to qualify as "foreclosure property" within the
meaning of Section 860G(a)(8) of the Code at any time that it is held by REMIC
I, in which case the Master Servicer may take such actions as are specified in
such Opinion of Counsel.
The Master Servicer may contract with any Independent Contractor
for the operation and management of any REO Property, provided that:
(i) the terms and conditions of any such contract shall not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered to
require, that the Independent Contractor pay all costs and
expenses incurred in connection with the
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operation and management of such REO Property, including those
listed above and remit all related revenues (net of such costs and
expenses) to the Master Servicer as soon as practicable, but in no
event later than thirty days following the receipt thereof by such
Independent Contractor;
(iii) none of the provisions of this Section 3.23(c) relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Master Servicer of any
of its duties and obligations to the Trustee on behalf of the
Certificateholders with respect to the operation and management of
any such REO Property; and
(iv) the Master Servicer shall be obligated with respect thereto
to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of
such REO Property.
The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, irrespective of whether
the Master Servicer's compensation pursuant to Section 3.18 is sufficient to pay
such fees.
(d) In addition to the withdrawals permitted under Section
3.23(c), the Master Servicer may from time to time make withdrawals from the REO
Account for any REO Property: (i) to pay itself or any Sub-Servicer unpaid
Servicing Fees in respect of the related Mortgage Loan; and (ii) to reimburse
itself or any Sub-Servicer for unreimbursed Servicing Advances and P&I Advances
made in respect of such REO Property or the related Mortgage Loan. On the Master
Servicer Remittance Date, the Master Servicer shall withdraw from each REO
Account maintained by it and deposit into the Distribution Account in accordance
with Section 3.10(d)(ii), for distribution on the related Distribution Date in
accordance with Section 4.01, the income from the related REO Property received
during the prior calendar month, net of any withdrawals made pursuant to Section
3.23(c) or this Section 3.23(d).
(e) Subject to the time constraints set forth in Section 3.23(a),
each REO Disposition shall be carried out by the Master Servicer at such price
and upon such terms and conditions as the Master Servicer shall deem necessary
or advisable, as shall be normal and usual in its general
servicing activities for similar properties.
(f) The proceeds from the REO Disposition, net of any amount
required by law to be remitted to the Mortgagor under the related Mortgage Loan
and net of any payment or reimbursement to the Master Servicer or any
Sub-Servicer as provided above, shall be deposited in the Distribution Account
in accordance with Section 3.10(d)(ii) on the Master Servicer Remittance Date in
the month following the receipt thereof for distribution on the related
Distribution Date in accordance with Section 4.01. Any REO Disposition shall be
for cash only (unless changes in the REMIC Provisions made subsequent to the
Startup Day allow a sale for other consideration).
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(g) The Master Servicer shall file information returns with
respect to the receipt of mortgage interest received in a trade or business,
reports of foreclosures and abandonments of any Mortgaged Property and
cancellation of indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code, respectively. Such
reports shall be in form and substance sufficient to meet the reporting
requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
SECTION 3.24. Obligations of the Master Servicer in
Respect of Prepayment Interest Shortfalls.
The Master Servicer shall deliver to the Trustee for deposit into
the Distribution Account on or before 3:00 p.m. New York time on the Master
Servicer Remittance Date from its own funds an amount equal to the lesser of (i)
the aggregate of the Prepayment Interest Shortfalls for the related Distribution
Date resulting solely from Principal Prepayments during the related Prepayment
Period and (ii) the amount of its aggregate Servicing Fee for the most recently
ended calendar month.
SECTION 3.25. Obligations of the Master Servicer in
Respect of Mortgage Rates and Monthly
Payments.
In the event that a shortfall in any collection on or liability
with respect to any Mortgage Loan results from or is attributable to adjustments
to Mortgage Rates, Monthly Payments or Stated Principal Balances that were made
by the Master Servicer in a manner not consistent with the terms of the related
Mortgage Note and this Agreement, the Master Servicer, upon discovery or receipt
of notice thereof, immediately shall deliver to the Trustee for deposit in the
Distribution Account from its own funds the amount of any such shortfall and
shall indemnify and hold harmless the Trust Fund, the Trustee, the Depositor and
any successor master servicer in respect of any such liability. Such indemnities
shall survive the termination or discharge of this Agreement.
SECTION 3.26. Advance Facility.
The Master Servicer is hereby authorized to enter into a facility
with any Person which provides that such Person (an "Advancing Person") may fund
P&I Advances and/or Servicing Advances under this Agreement, although no such
facility shall reduce or otherwise affect the Master Servicer's obligation to
fund such P&I Advances and/or Servicing Advances. To the extent that an
Advancing Person funds any P&I Advance or any Servicing Advance and provides the
Trustee with notice, such Advancing Person shall be entitled to receive
reimbursement pursuant to this Agreement for such amount to the same extent that
the Master Servicer would be so reimbursed had the Master Servicer funded such
amount. An Advancing Person whose obligations are limited to the funding of P&I
Advances and/or Servicing Advances shall not be required to meet the
qualifications of a Sub-Servicer pursuant to Section 3.02 hereof.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
(a)(1)(A) On each Distribution Date, the following amounts, in the
following order of priority, shall be distributed by REMIC I to REMIC II on
account of the REMIC I Regular Interests or withdrawn from the Distribution
Account and distributed to the holders of the Class R-I
Certificates, as the case may be:
(i) to the Holders of REMIC I Regular Interests (other than
REMIC I Regular Interest I-LTP), in an amount equal to (A) the
Uncertificated Interest for such Distribution Date, plus (B) any
amounts in respect thereof remaining unpaid from previous
Distribution Dates. Amounts payable as Uncertificated Interest in
respect of REMIC I Regular Interest I-LT7 shall be reduced when
the REMIC I Overcollateralized Amount is less than the REMIC I
Required Overcollateralized Amount, by the lesser of (x) the
amount of such difference and (y) the Maximum I-LT7
Uncertificated Interest Deferral Amount; and
(ii) on each Distribution Date, to the Holders of REMIC I Regular
Interests, in an amount equal to the remainder of the Available
Distribution Amount for such Distribution Date after the
distributions made pursuant to clause (i) above, allocated as
follows (except as provided below):
(a) to the Holders of the REMIC I Regular Interest I-LTP,
on the Distribution Date immediately following the expiration
of the latest Prepayment Charge term as identified on the
Mortgage Loan Schedule or any Distribution Date thereafter
until $100 has been distributed pursuant to this clause;
(b) to the Holders of the REMIC I Regular Interest I-LT1,
____% of the amount remaining after application of clause (a),
until the Uncertificated Balance of such REMIC I Regular
Interest is reduced to zero and any remaining amount to the
Holders of the Class R-I Certificates;
(c) to the Holders of the REMIC I Regular Interest I-LT2,
REMIC I Regular Interest I-LT3, REMIC I Regular Interest
I-LT4, REMIC I Regular Interest I-LT5 and REMIC I Regular
Interest I-LT6, ____% of the amount remaining after
application of clause (a), in the same proportion as principal
payments are allocated to the related Corresponding
Certificates, until the Uncertificated Balances of such REMIC
I Regular Interests are reduced to zero and any remaining
amount to the Holders of the Class R-I Certificates; and
(d) to the Holders of the REMIC I Regular Interest I-LT7,
____% of the amount remaining after application of clause (a),
until the Uncertificated Balance of such
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REMIC I Regular Interest is reduced to zero and any remaining
amount to the Holders of the Class R-I Certificates;
provided, however, that _____% and _____% of any principal payments that are
attributable to a Overcollateralization Reduction Amount shall be allocated to
Holders of the REMIC I Regular Interest I-LT1 and REMIC I Regular Interest
I-LT7, respectively.
(B) On each Distribution Date, the following amounts shall be
distributed by REMIC II to REMIC III on account of the REMIC II Regular
Interests:
(i) any amounts paid as either Uncertificated Interest paid or
accrued to the REMIC I Regular Interests (other than REMIC I
Regular Interest I-LTP) shall be deemed to have been paid to the
related Uncertificated Corresponding Component in REMIC II in
accordance with the REMIC II Remittance Rates and any amounts
deferred on REMIC I Regular Interest I-LT7 pursuant to Section
4.01(a)(1)(A) shall be deemed to have been deferred with respect
to REMIC II Regular Interest II-LT7; and
(ii) any amounts paid as principal on the REMIC I Regular
Interests shall be deemed to have been paid to the related
Uncertificated Corresponding Component in REMIC II in accordance
with the same priorities and conditions.
(2) On each Distribution Date, the Trustee shall withdraw from the
Distribution Account an amount equal to the Interest Remittance Amount and
distribute to the Certificateholders the following amounts, in the following
order of priority:
(i) to the Holders of the Class A-1 Certificates, an amount
equal to the Class A-1 Interest Distribution Amount;
(ii) to the extent of the Interest Remittance Amount remaining
after distribution of the Class A-1 Interest Distribution Amount,
to the Holders of the Class A-2 Certificates, an amount equal to
the Class A-2 Interest Distribution Amount allocable to the Class
A- 2 Certificates;
(ii) to the extent of the Interest Remittance Amount remaining
after distribution of the Class A-1 Interest Distribution Amount
and the Class A-2 Interest Distribution Amount, to the Holders of
the Class M-1 Certificates, an amount equal to the Interest
Distribution Amount allocable to the Class M-1 Certificates;
(iii) to the extent of the Interest Remittance Amount remaining
after distribution of the Class A-1 Interest Distribution Amount,
the Class A-2 Interest Distribution Amount and the Interest
Distribution Amount allocable to the Class M-1 Certificates, to
the Holders of the Class M-2 Certificates, an amount equal to the
Interest Distribution Amount allocable to the Class M-2
Certificates; and
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(iv) to the extent of the Interest Remittance Amount remaining
after distribution of the Class A-1 Interest Distribution Amount,
the Class A-2 Interest Distribution Amount and the Interest
Distribution Amounts allocable to the Class M-1 Certificates and
the Class M-2 Certificates, to the Holders of the Class M-3
Certificates, an amount equal to the Interest Distribution Amount
allocable to the Class M-3 Certificates.
(3) On each Distribution Date, the Trustee shall withdraw from the
Distribution Account an amount equal to the Principal Distribution Amount and
distribute to the Certificateholders the following amounts, in the following
order of priority:
(i) On each Distribution Date (a) prior to the Stepdown Date or
(b) on which a Trigger Event is in effect, the Principal
Distribution Amount shall be distributed in the following order of
priority;
first, to the Holders of the Class A-1 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero;
second, to the Holders of the Class A-2 Certificates, until
the Certificate Principal Balance of such Class has been
reduced to zero;
third, to the Holders of the Class M-1 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero;
fourth, to the Holders of the Class M-2 Certificates, until
the Certificate Principal Balance of such Class has been
reduced to zero; and
fifth, to the Holders of the Class M-3 Certificates, until the
Certificate Principal Balance of such Class has been reduced
to zero.
(ii) On each Distribution Date (a) on or after the Stepdown Date
and (b) on which a Trigger Event is not in effect, the Principal
Distribution Amount shall be distributed in
the following order of priority;
first, the lesser of (x) the Principal Distribution Amount and
(y) the Class A-1 Principal Distribution Amount shall be
distributed to the Holders of the Class A-1 Certificates,
until the Certificate Principal Balance of such Class has been
reduced to zero;
second, the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the amount distributed to the
Holders of the Class A-1 Certificates pursuant to clause first
above and (y) the Class A-2 Principal Distribution Amount
shall be distributed to the Holders of the Class A-2
Certificates, until the Certificate Principal Balance of such
Class has been reduced to zero;
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third, the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the amount distributed to the
Holders of the Class A-1 Certificates pursuant to clause first
above and to the Holders of the Class A-2 Certificates
pursuant to clause second above and (y) the Class M-1
Principal Distribution Amount shall be distributed to the
Holders of the Class M-1 Certificates, until the Certificate
Principal Balance of such Class has been reduced to zero;
fourth, the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the sum of the amounts
distributed to the Holders of the Class A-1 Certificates
pursuant to clause first above, to the Holders of the Class
A-2 Certificates pursuant to clause second above and to the
Holders of the Class M-1 Certificates pursuant to clause third
above and (y) the Class M-2 Principal Distribution Amount
shall be distributed to the Holders of the Class M-2
Certificates, until the Certificate Principal Balance of such
Class has been reduced to zero; and
fifth, the lesser of (x) the excess of (i) the Principal
Distribution Amount over (ii) the sum of the amounts
distributed to the Holders of the Class A-1 Certificates
pursuant to clause first above, to the Holders of the Class
A-2 Certificates pursuant to clause second above, to the
Holders of the Class M-1 Certificates pursuant to clause third
above and to the Holders of the Class M-2 Certificates
pursuant to clause fourth above and (y) the Class M-3
Principal Distribution Amount shall be distributed to the
Holders of the Class M-3 Certificates, until the Certificate
Principal Balance of such Class has been reduced to zero.
(4) On each Distribution Date, the Net Monthly Excess Cashflow
(or, in the case of clause (i) below, the Net Monthly Excess Cashflow exclusive
of any Overcollateralization Reduction
Amount) shall be distributed as follows:
(i) to the Holders of the Class or Classes of Certificates
then entitled to receive distributions in respect of
principal, in an amount equal to the principal portion of any
Realized Losses incurred or deemed to have been incurred on
the Mortgage Loans, applied to reduce the Certificate
Principal Balance of such Certificates until the aggregate
Certificate Principal Balance of such Certificates is reduced
to zero;
(ii) to the Holders of the Class or Classes of Certificates
then entitled to receive distributions in respect of
principal, in an amount equal to the Overcollateralization
Increase Amount, applied to reduce the Certificate Principal
Balance of such Certificates until the aggregate Certificate
Principal Balance of such Certificates is reduced to zero;
(iii) to the Holders of the Class M-1 Certificates, in an
amount equal to the Interest Carry Forward Amount (plus
accrued interest) allocable to such Class of Certificates;
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(iv) to the Holders of the Class M-2 Certificates, in an
amount equal to the Interest Carry Forward Amount (plus
accrued interest) allocable to such Class of Certificates;
(v) to the Holders of the Class M-3 Certificates, in an amount
equal to the Interest Carry Forward Amount (plus accrued
interest) allocable to such Class of Certificates;
(vi) to the Holders of the Class A-1 Certificates, in an
amount equal to the aggregate of any Prepayment Interest
Shortfalls (to the extent not covered by payments pursuant to
Section 3.24) and any Relief Act Interest Shortfall allocated
to such Certificates;
(vii) to the Holders of the Class A-2 Certificates, in an
amount equal to the aggregate of any Prepayment Interest
Shortfalls (to the extent not covered by payments pursuant to
Section 3.24) and any Relief Act Interest Shortfall allocated
to such Certificates;
(viii) to the Holders of the Class M-1 Certificates, in an
amount equal to the aggregate of any Prepayment Interest
Shortfalls (to the extent not covered by payments pursuant to
Section 3.24) and any Relief Act Interest Shortfall allocated
to such Certificates;
(ix) to the Holders of the Class M-2 Certificates, in an
amount equal to the aggregate of any Prepayment Interest
Shortfalls (to the extent not covered by payments pursuant to
Section 3.24) and any Relief Act Interest Shortfall allocated
to such Certificates;
(x) to the Holders of the Class M-3 Certificates, in an amount
equal to the aggregate of any Prepayment Interest Shortfalls
(to the extent not covered by payments pursuant to Section
3.24) and any Relief Act Interest Shortfall allocated to such
Certificates;
(xi) to the Holders of the Class CE Certificates, the Interest
Distribution Amount and any Overcollateralization Reduction
Amount for such Distribution Date; and
(xii) to the Holders of the Class R-III Certificates, any
remaining amounts; provided that if such Distribution Date is
the Distribution Date immediately following the expiration of
the latest Prepayment Charge term as identified on the
Mortgage Loan Schedule or any Distribution Date thereafter,
then any such remaining amounts will be distributed FIRST, to
the Holders of the Class P Certificates, until the Certificate
Principal Balance thereof has been reduced to zero; and
SECOND, to the Holders of the Class R-III Certificates.
On the Distribution Date immediately following the end of the
Funding Period, the Trustee shall distribute any amounts remaining in the
Pre-Funding Account to the Holders of the
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Certificates then entitled to distributions in respect of principal in reduction
of the Certificate Principal Balance of such Certificates.
(b) On each Distribution Date, the Trustee shall withdraw any
amounts then on deposit in the Distribution Account that represent Prepayment
Charges collected by the Master Servicer in connection with the Principal
Prepayment of any of the Mortgage Loans or any Master Servicer Prepayment Charge
Payment Amount and shall distribute such amounts to the Holders of the Class P
Certificates. Such distributions shall not be applied to reduce the Certificate
Principal Balance of the Class P Certificates.
(c) All distributions made with respect to each Class of
Certificates on each Distribution Date shall be allocated PRO RATA among the
outstanding Certificates in such Class based on their respective Percentage
Interests. Payments in respect of each Class of Certificates on each
Distribution Date will be made to the Holders of the respective Class of record
on the related Record Date (except as otherwise provided in Section 4.01(e) or
Section 9.01 respecting the final distribution on such Class), based on the
aggregate Percentage Interest represented by their respective Certificates, and
shall be made by wire transfer of immediately available funds to the account of
any such Holder at a bank or other entity having appropriate facilities
therefor, if such Holder shall have so notified the Trustee in writing at least
five Business Days prior to the Record Date immediately prior to such
Distribution Date and is the registered owner of Certificates having an initial
aggregate Certificate Principal Balance that is in excess of the lesser of (i)
$5,000,000 or (ii) two-thirds of the initial Certificate Principal Balance of
such Class of Certificates, or otherwise by check mailed by first class mail to
the address of such Holder appearing in the Certificate Register. The final
distribution on each Certificate will be made in like manner, but only upon
presentment and surrender of such Certificate at the Corporate Trust Office or
such other location specified in the notice to Certificateholders of such final
distribution.
Each distribution with respect to a Book-Entry Certificate shall
be paid to the Depository, as Holder thereof, and the Depository shall be
responsible for crediting the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trustee, the
Certificate Registrar, the Depositor or the Master Servicer shall have any
responsibility therefor except as otherwise provided by this Agreement or
applicable law.
(d) The rights of the Certificateholders to receive distributions
in respect of the Certificates, and all interests of the Certificateholders in
such distributions, shall be as set forth in this Agreement. Neither the Holders
of any Class of Certificates nor the Trustee nor the Master Servicer shall in
any way be responsible or liable to the Holders of any other Class of
Certificates in respect of amounts properly previously distributed on the
Certificates.
(e) Except as otherwise provided in Section 9.01, whenever the
Trustee expects that the final distribution with respect to any Class of
Certificates will be made on the next Distribution
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Date, the Trustee shall, no later than five (5) days after the related
Determination Date, mail to each Holder on such date of such Class of
Certificates a notice to the effect that:
(i) the Trustee expects that the final distribution with respect to
such Class of Certificates will be made on such Distribution Date, but
only upon presentation and surrender of such Certificates at the office
of the Trustee therein specified, and
(ii) no interest shall accrue on such Certificates from and after the
end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust by
the Trustee and credited to the account of the appropriate non- tendering Holder
or Holders. If any Certificates as to which notice has been given pursuant to
this Section 4.01(e) shall not have been surrendered for cancellation within six
months after the time specified in such notice, the Trustee shall mail a second
notice to the remaining non-tendering Certificateholders to surrender their
Certificates for cancellation in order to receive the final distribution with
respect thereto. If within one year after the second notice all such
Certificates shall not have been surrendered for cancellation, the Trustee
shall, directly or through an agent, mail a final notice to remaining
non-tendering Certificateholders concerning surrender of their Certificates but
shall continue to hold any remaining funds for the benefit of non-tendering
Certificateholders. The costs and expenses of maintaining the funds in trust and
of contacting such Certificateholders shall be paid out of the assets remaining
in such trust fund. If within one year after the final notice any such
Certificates shall not have been surrendered for cancellation, the Trustee shall
pay to Salomon Smith Barney Inc. all such amounts, and all rights of
non-tendering Certificateholders in or to such amounts shall thereupon cease. No
interest shall accrue or be payable to any Certificateholder on any amount held
in trust by the Trustee as a result of such Certificateholder's failure to
surrender its Certificate(s) for final payment thereof in accordance with this
Section 4.01(e).
(f) Notwithstanding anything to the contrary herein, (i) in no
event shall the Certificate Principal Balance of a Class A Certificate or a
Mezzanine Certificate be reduced more than once in respect of any particular
amount both (a) allocated to such Certificate in respect of Realized Losses
pursuant to Section 4.04 and (b) distributed to the Holder of such Certificate
in reduction of the Certificate Principal Balance thereof pursuant to this
Section 4.01 from Net Monthly Excess Cashflow and (ii) in no event shall the
Uncertificated Balance of a REMIC I Regular Interest be reduced more than once
in respect of any particular amount both (a) allocated to such REMIC I Regular
Interest in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed on such REMIC I Regular Interest in reduction of the Uncertificated
Balance thereof pursuant to this Section 4.01.
SECTION 4.02. Statements to Certificateholders.
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On each Distribution Date, the Trustee shall prepare and make
available to each Holder of the Regular Certificates, a statement as to the
distributions made on such Distribution Date setting forth:
(i) the amount of the distribution made on such Distribution
Date to the Holders of the Certificates of each Class allocable to
principal, and the amount of distribution made on such
Distribution Date to the Holders of the Class P Certificates
allocable to Prepayment Charges;
(ii) the amount of the distribution made on such Distribution
Date to the Holders of the Certificates of each Class allocable to
interest;
(iii) the aggregate Servicing Fee received by the Master Servicer
during the related Due Period and such other customary information
as the Trustee deems necessary or desirable, or which a
Certificateholder reasonably requests, to enable
Certificateholders to prepare their tax returns;
(iv) the aggregate amount of P&I Advances for such Distribution
Date;
(v) the aggregate Stated Principal Balance of the Mortgage Loans
and any REO Properties as of the close of business on such
Distribution Date;
(vi) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average Mortgage Rate of
the Mortgage Loans as of the related Due Date and the number and
aggregate principal balance of all Subsequent Mortgage
Loans added during the preceding Due Period;
(vii) the number and aggregate unpaid principal balance of
Mortgage Loans (a) delinquent 30-59 days, (b) delinquent 60-89
days, (c) delinquent 90 or more days in each case, as of the last
day of the preceding calendar month, (d) as to which foreclosure
proceedings have been commenced and (e) with respect to which the
related Mortgagor has filed for protection under applicable
bankruptcy laws, with respect to whom bankruptcy proceedings are
pending or with respect to whom bankruptcy protection is in force;
(viii) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number of
such Mortgage Loan, the unpaid principal balance and the Stated
Principal Balance of such Mortgage Loan as of the date it became
an REO Property;
(ix) the book value and the Stated Principal Balance of any REO
Property as of the close of business on the last Business Day of
the calendar month preceding the Distribution Date;
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(x) the aggregate amount of Principal Prepayments made during
the related Prepayment Period;
(xi) the aggregate amount of Realized Losses incurred during the
related Prepayment Period (or, in the case of Bankruptcy Losses
allocable to interest, during the related Due Period), separately
identifying whether such Realized Losses constituted Bankruptcy
Losses and the aggregate amount of Realized Losses incurred since
the Closing Date;
(xii) the aggregate amount of Extraordinary Trust Fund Expenses
withdrawn from the Collection Account or the Distribution Account
for such Distribution Date;
(xiii) the aggregate Certificate Principal Balance of the each
Class of Certificates, after giving effect to the distributions,
and allocations of Realized Losses, made on such Distribution
Date, separately identifying any reduction thereof due to
allocations of Realized Losses;
(xiv) the Certificate Factor for each such Class of Certificates
applicable to such Distribution Date;
(xv) the Interest Distribution Amount in respect of the Class A
Certificates, the Mezzanine Certificates and the Class CE
Certificates for such Distribution Date and the Interest Carry
Forward Amount, if any, with respect to the Class A Certificates
and the Mezzanine Certificates on such Distribution Date, and in
the case of the Class A Certificates, the Mezzanine Certificates
and the Class CE Certificates, separately identifying any
reduction thereof due to allocations of Realized Losses,
Prepayment Interest Shortfalls and Relief Act Interest Shortfalls;
(xvi) the aggregate amount of any Prepayment Interest Shortfall
for such Distribution Date, to the extent not covered by payments
by the Master Servicer pursuant to Section 3.24;
(xvii) the aggregate amount of Relief Act Interest Shortfalls for
such Distribution Date;
(xviii) the Required Overcollateralized Amount and the Credit
Enhancement Percentage for such Distribution Date;
(xix) the Overcollateralization Increase Amount, if any, for such
Distribution Date;
(xx) the Overcollateralization Reduction Amount, if any, for such
Distribution Date;
(xxi) with respect to any Mortgage Loan as to which foreclosure
proceedings have been concluded, the loan number and unpaid
principal balance of such Mortgage Loan as of the date of such
conclusion of foreclosure proceedings;
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(xxii) with respect to Mortgage Loans as to which a Final
Liquidation has occurred, the number of Mortgage Loans, the unpaid
principal balance of such Mortgage Loans as of the date of such
Final Liquidation and the amount of proceeds (including
Liquidation Proceeds and Insurance Proceeds) collected in respect
of such Mortgage Loans; and
(xxiii) the respective Pass-Through Rates applicable to the Class
A Certificates, the Mezzanine Certificates and the Class CE
Certificates for such Distribution Date and the Pass-Through Rate
applicable to the Class A Certificates and the Mezzanine
Certificates for the immediately succeeding Distribution Date.
(xxiv) the amount on deposit in the Pre-Funding Account and the
Interest Coverage Account;
(xxv) for the distribution occurring on the Distribution Date
immediately following the end of the Funding Period, the current
balance on deposit in the Pre-Funding Account that has not been
used to purchase Subsequent Mortgage Loans and that is being
distributed to the Class A-1 Certificateholders as a mandatory
prepayment of principal, if any, on such Distribution Date;
The Trustee will make such statement (and, at its option, any
additional files containing the same information in an alternative format)
available each month to Certificateholders and the Rating Agencies via the
Trustee's internet website and its fax-on-demand service. The Trustee's
fax-on-demand service may be accessed by calling (301) 815-6610. The Trustee's
internet website shall initially be located at "www.ctslink.com". Assistance in
using the website or the fax-on- demand service can be obtained by calling the
Trustee's customer service desk at (301) 815-6600. Parties that are unable to
use the above distribution options are entitled to have a paper copy mailed to
them via first class mail by calling the customer service desk and indicating
such. The Trustee shall have the right to change the way such statements are
distributed in order to make such distribution more convenient and/or more
accessible to the above parties and the Trustee shall provide timely and
adequate notification to all above parties regarding any such changes.
In the case of information furnished pursuant to subclauses (i)
through (iii) above, the amounts shall be expressed as a dollar amount per
Single Certificate of the relevant Class.
Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Regular Certificate a statement containing the
information set forth in subclauses (i) through (iii) above, aggregated for such
calendar year or applicable portion thereof during which such person was a
Certificateholder. Such obligation of the Trustee shall be deemed to have been
satisfied to the extent that substantially comparable information shall be
provided by the Trustee pursuant to any requirements of the Code as from time to
time are in force.
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Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each Person who at any time during the
calendar year was a Holder of a Residual Certificate a statement setting forth
the amount, if any, actually distributed with respect to the Residual
Certificates, as appropriate, aggregated for such calendar year or applicable
portion thereof during which such Person was a Certificateholder. Such
obligation of the Trustee shall be deemed to have been satisfied to the extent
that substantially comparable information shall be prepared by the Trustee and
furnished to such Holders pursuant to the rules and regulations of the Code as
are in force from time to time.
The Trustee shall, upon request, furnish to each
Certificateholder, during the term of this Agreement, such periodic, special, or
other reports or information, whether or not provided for herein, as shall be
reasonable with respect to the Certificateholder, or otherwise with respect to
the purposes of this Agreement, all such reports or information to be provided
at the expense of the Certificateholder in accordance with such reasonable and
explicit instructions and directions as the Certificateholder may provide. For
purposes of this Section 4.02, the Trustee's duties are limited to the extent
that the Trustee receives timely reports as required from the Master Servicer.
On each Distribution Date the Trustee shall provide Bloomberg
Financial Markets, L.P. ("Bloomberg") CUSIP level factors for each class of
Certificates as of such Distribution Date, using a format and media mutually
acceptable to the Trustee and Bloomberg.
SECTION 4.03. Remittance Reports; P&I Advances.
(a) On the Master Servicer Remittance Date, the Master Servicer
shall deliver to the Trustee by telecopy (or by such other means as the Master
Servicer and the Trustee may agree from time to time) a Remittance Report with
respect to the related Distribution Date. Such Remittance Report will include
(i) the amount of P&I Advances to be made by the Master Servicer in respect of
the related Distribution Date, the aggregate amount of P&I Advances outstanding
after giving effect to such P&I Advances, and the aggregate amount of
Nonrecoverable P&I Advances in respect of such Distribution Date and (ii) such
other information with respect to the Mortgage Loans as the Trustee may
reasonably require to perform the calculations necessary to make the
distributions contemplated by Section 4.01 and to prepare the statements to
Certificateholders contemplated by Section 4.02. The Trustee shall not be
responsible to recompute, recalculate or verify any information provided to it
by the Master Servicer.
On or prior to each Master Servicer Remittance Date, the Master
Servicer shall provide in an electronic format acceptable to the Trustee the
data necessary for the Trustee to perform its verification duties set forth in
this Section 4.03(a). The Trustee or a third party reasonably acceptable to the
Trustee and the Depositor (the "Verification Agent") will perform such
verification duties and will use its best efforts to issue its findings in a
report (the "Verification Report") within ten (10) Business Days following the
Master Servicer Remittance Date; provided, however, that if the Verification
Agent is unable to issue the Verification Report within ten (10) Business Days
following the Master Servicer Remittance Date, the Verification Agent may issue
the Verification Report upon the completion of its verification duties. The
Trustee shall forward the Verification Report to the Master Servicer and shall
notify the Master Servicer if the Trustee has determined that
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the Master Servicer did not deliver the appropriate Prepayment Charges to the
Trustee in accordance with Section 3.10 and Schedule 2 hereof. Such written
notification from the Trustee shall include the loan number, prepayment penalty
code and prepayment penalty amount as calculated by the Trustee or the
Verification Agent, as applicable, of each Mortgage Loan for which there is a
discrepancy. If the Master Servicer agrees with the verified amounts, the Master
Servicer shall adjust the immediately succeeding Remittance Report and the
amount remitted to the Trustee with respect to prepayments accordingly. If the
Master Servicer disagrees with the determination of the Trustee, the Master
Servicer shall, within five (5) Business Days of its receipt of the Verification
Report, notify the Trustee of such disagreement and provide the Trustee with
detailed information to support the Master Servicer's position. The Master
Servicer and the Trustee shall cooperate to resolve any discrepancy on or prior
to the immediately succeeding Master Servicer Remittance Date, and the Master
Servicer will indicate the effect of such resolution on the related Remittance
Report and shall adjust the amount remitted with respect to prepayments on such
Master Servicer Remittance Date accordingly. During such time as the Master
Servicer and the Trustee are resolving discrepancies with respect to the
Prepayment Charges, no payments in respect of any disputed Prepayment Charges
will be remitted to the Collection Account and the Trustee shall not be
obligated to remit such payments, unless otherwise required pursuant to Section
7.02 hereof.
In connection with such duties, the Trustee shall be able to rely
solely on the information provided to it by the Master Servicer and any
Verification Agent in accordance with this Section. The Trustee shall not be
responsible for verifying the accuracy of any of the information provided to it
by the Master Servicer or the Verification Agent. The costs of such
verification, whether performed by the Trustee or any third party on behalf of
the Trustee, shall be paid by the Trustee. Anything to the contrary herein
notwithstanding, the verification procedures set forth in this Section shall not
be performed after the securities relating to any resecuritization of the Class
P Certificates have been paid in full.
(b) The amount of P&I Advances to be made by the Master Servicer
for any Distribution Date shall equal, subject to Section 4.03(d), the sum of
(i) the aggregate amount of Monthly Payments (with each interest portion thereof
net of the related Servicing Fee), due on the related Due Date in respect of the
Mortgage Loans, which Monthly Payments were delinquent as of the close of
business on the related Determination Date and (ii) with respect to each REO
Property, which REO Property was acquired during or prior to the related
Prepayment Period and as to which such REO Property an REO Disposition did not
occur during the related Prepayment Period, an amount equal to the excess, if
any, of the Monthly Payments (with each interest portion thereof net of the
related Servicing Fee) that would have been due on the related Due Date in
respect of the related Mortgage Loans, over the net income from such REO
Property transferred to the Distribution Account pursuant to Section 3.23 for
distribution on such Distribution Date.
On or before 3:00 p.m. __________ time on the Master Servicer
Remittance Date, the Master Servicer shall remit in immediately available funds
to the Trustee for deposit in the Distribution Account an amount equal to the
aggregate amount of P&I Advances, if any, to be made in respect of the Mortgage
Loans and REO Properties for the related Distribution Date either (i) from its
own funds or (ii) from the Collection Account, to the extent of funds held
therein for future distribution (in which case, it will cause to be made an
appropriate entry in the records of Collection
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Account that amounts held for future distribution have been, as permitted by
this Section 4.03, used by the Master Servicer in discharge of any such P&I
Advance) or (iii) in the form of any combination of (i) and (ii) aggregating the
total amount of P&I Advances to be made by the Master Servicer with respect to
the Mortgage Loans and REO Properties. Any amounts held for future distribution
and so used shall be appropriately reflected in the Master Servicer's records
and replaced by the Master Servicer by deposit in the Collection Account on or
before any future Master Servicer Remittance Date to the extent that the
Available Distribution Amount for the related Distribution Date (determined
without regard to P&I Advances to be made on the Master Servicer Remittance
Date) shall be less than the total amount that would be distributed to the
Classes of Certificateholders pursuant to Section 4.01 on such Distribution Date
if such amounts held for future distributions had not been so used to make P&I
Advances. The Trustee will provide notice to the Master Servicer by telecopy by
the close of business on any Master Servicer Remittance Date in the event that
the amount remitted by the Master Servicer to the Trustee on such date is less
than the P&I Advances required to be made by the Master Servicer for the related
Distribution Date.
(c) The obligation of the Master Servicer to make such P&I
Advances is mandatory, notwithstanding any other provision of this Agreement but
subject to (d) below, and, with respect to any Mortgage Loan or REO Property,
shall continue until a Final Recovery Determination in connection therewith or
the removal thereof from REMIC I pursuant to any applicable provision of this
Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no P&I
Advance shall be required to be made hereunder by the Master Servicer if such
P&I Advance would, if made, constitute a Nonrecoverable P&I Advance. The
determination by the Master Servicer that it has made a Nonrecoverable P&I
Advance or that any proposed P&I Advance, if made, would constitute a
Nonrecoverable P&I Advance, shall be evidenced by an Officers' Certificate of
the Master Servicer delivered to the Depositor and the Trustee.
SECTION 4.04. Allocation of Realized Losses.
(a) Prior to each Determination Date, the Master Servicer shall
determine as to each Mortgage Loan and REO Property: (i) the total amount of
Realized Losses, if any, incurred in connection with any Final Recovery
Determinations made during the related Prepayment Period; (ii) whether and the
extent to which such Realized Losses constituted Bankruptcy Losses and (iii) the
respective portions of such Realized Losses allocable to interest and allocable
to principal. Prior to each Determination Date, the Master Servicer shall also
determine as to each Mortgage Loan: (A) the total amount of Realized Losses, if
any, incurred in connection with any Deficient Valuations made during the
related Prepayment Period and (B) the total amount of Realized Losses, if any,
incurred in connection with Debt Service Reductions in respect of Monthly
Payments due during the related Due Period. The information described in the two
preceding sentences that is to be supplied by the Master Servicer shall be
evidenced by an Officers' Certificate delivered to the Trustee by the Master
Servicer prior to the Determination Date immediately following the end of (x) in
the case of Bankruptcy Losses allocable to interest, the Due Period during which
any such Realized Loss was incurred, and (y) in the case of all other Realized
Losses, the Prepayment Period during which any such Realized Loss was incurred.
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(b) All Realized Losses on the Mortgage Loans allocated to any
REMIC II Regular Interest pursuant to Section 4.04(c), shall be allocated by the
Trustee on each Distribution Date as follows: first, to Net Monthly Excess
Cashflow; second, to the Class CE Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; third, to the Class M-3 Certificates,
until the Certificate Principal Balance thereof has been reduced to zero;
fourth, to the Class M-2 Certificates, until the Certificate Principal Balance
thereof has been reduced to zero; fifth, to the Class M-1 Certificates, until
the Certificate Principal Balance thereof has been reduced to zero and sixth, to
the Class A-2 Certificates, until the Certificate Principal Balance thereof has
been reduced to zero. All Realized Losses to be allocated to the Certificate
Principal Balances of all Classes on any Distribution Date shall be so allocated
after the actual distributions to be made on such date as provided above. All
references above to the Certificate Principal Balance of any Class of
Certificates shall be to the Certificate Principal Balance of such Class
immediately prior to the relevant Distribution Date, before reduction thereof by
any Realized Losses, in each case to be allocated to such Class of Certificates,
on such Distribution Date.
Any allocation of Realized Losses to a Class A-2 Certificate or a
Mezzanine Certificate on any Distribution Date shall be made by reducing the
Certificate Principal Balance thereof by the amount so allocated, or in the case
of a Class CE Certificate, by reducing the amount otherwise payable in respect
thereof pursuant to Section 4.01(a)(4)(x). No allocations of any Realized Losses
shall be made to the Certificate Principal Balances of the Class A-1
Certificates or the Class P Certificates.
As used herein, an allocation of a Realized Loss on a "PRO RATA
basis" among two or more specified Classes of Certificates means an allocation
on a PRO RATA basis, among the various Classes so specified, to each such Class
of Certificates on the basis of their then outstanding Certificate Principal
Balances prior to giving effect to distributions to be made on such Distribution
Date. All Realized Losses and all other losses allocated to a Class of
Certificates hereunder will be allocated among the Certificates of such Class in
proportion to the Percentage Interests evidenced thereby.
(c) All Realized Losses on the Mortgage Loans shall be allocated
by the Trustee on each Distribution Date to the following REMIC I Regular
Interests in the specified percentages, as follows: first, to Uncertificated
Interest payable to the REMIC I Regular Interest I-LT1 and REMIC I Regular
Interest I-LT7 up to an aggregate amount equal to the REMIC I Interest Loss
Allocation Amount, _____% and 2%, respectively; second, to the Uncertificated
Balances of the REMIC I Regular Interest I-LT1 and REMIC I Regular Interest
I-LT7 up to an aggregate amount equal to the REMIC I Principal Loss Allocation
Amount, ___% and ____%, respectively; third, to the Uncertificated Balances of
REMIC I Regular Interest I-LT1, REMIC I Regular Interest I-LT6 and REMIC I
Regular Interest I-LT7, ____%, 1% and 1%, respectively, until the Uncertificated
Balance of REMIC I Regular Interest I-LT6 has been reduced to zero; fourth, to
the Uncertificated Balances of REMIC I Regular Interest I-LT1, REMIC I Regular
Interest I-LT5 and REMIC I Regular Interest I-LT7, ____%, __% and __%,
respectively, until the Uncertificated Balance of REMIC I Regular Interest I-LT5
has been reduced to zero; fifth, to the Uncertificated Balances of REMIC I
Regular Interest I-LT1, REMIC I Regular Interest I-LT4 and REMIC I Regular
Interest I-LT7, ___%, __% and ____%, respectively, until the Uncertificated
Balance of REMIC I Regular Interest I-LT4 has
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been reduced to zero and sixth, to the Uncertificated Balances of REMIC I
Regular Interest I-LT1, REMIC I Regular Interest I-LT3 and REMIC I Regular
Interest I-LT7, ___%, ___% and ___%, respectively, until the Uncertificated
Balance of REMIC I Regular Interest I-LT3 has been reduced to zero.
(d) All Realized Losses on the REMIC II Regular Interests shall be
allocated by the Trustee on each Distribution Date among the REMIC II Regular
Interests in the proportion that Realized Losses are allocated to the related
Uncertificated Corresponding Component.
As used herein, an allocation of a Realized Loss on a "PRO RATA
basis" among the REMIC I Regular Interests (other than REMIC I Regular Interest
I-LTP) means an allocation on a PRO RATA basis among the REMIC I Regular
Interests (other than REMIC I Regular Interest I-LTP) on the basis of their then
outstanding Uncertificated Balances, in each case prior to giving effect to
distributions to be made on such Distribution Date.
SECTION 4.05. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Agreement, the Trustee
shall comply with all federal withholding requirements respecting payments to
Certificateholders of interest or original issue discount that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders shall not be required for such withholding. In the event the
Trustee does withhold any amount from interest or original issue discount
payments or advances thereof to any Certificateholder pursuant to federal
withholding requirements, the Trustee shall indicate the amount withheld to such
Certificateholders.
SECTION 4.06. Commission Reporting.
Within 15 days after each Distribution Date, the Trustee shall
file with the Commission via the Electronic Data Gathering and Retrieval System,
a Form 8-K with a copy of the statement to Certificateholders for such
Distribution Date as an exhibit thereto. Prior to
- ----------------,
the Trustee shall file a Form 15 Suspension Notification with respect to the
Trust Fund, if applicable. Prior to ________________, the Trustee shall file a
Form 10-K, in substance conforming to industry standards, with respect to the
Trust Fund. The Depositor hereby grants to the Trustee a limited power of
attorney to execute and file each such document on behalf of the Depositor. Such
power of attorney shall continue until the earlier of (i) receipt by the Trustee
from the Depositor of written termination of such power of attorney and (ii) the
termination of the Trust Fund. At least three Business Days prior to filing any
Form 8-K or Form 10-K pursuant to this Section 4.06, the Trustee shall deliver a
copy of such Form 8-K or Form 10-K, as the case may be, to the Depositor. The
Depositor agrees to promptly furnish to the Trustee, from time to time upon
request, such further information, reports and financial statements within its
control related to this Agreement and the Mortgage Loans as the Trustee
reasonably deems appropriate to prepare and file all necessary reports with the
Commission.
SECTION 4.07. Pre-Funding Account.
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(a) No later than the Closing Date, the Trustee shall establish
and maintain a segregated trust account that is an Eligible Account, which shall
be titled "Pre-Funding Account, ____________________ as Trustee for the
registered holders of Ameriquest Mortgage Securities Inc., AQ Floating Rate
Mortgage Pass-Through Certificates, Series ____-___" (the "Pre-Funding
Account"). The Trustee shall, promptly upon receipt, deposit in the Pre-Funding
Account and retain therein the Original Pre-Funded Amount remitted on the
Closing Date to the Trustee by the Depositor. Funds deposited in the Pre-Funding
Account shall be held in trust by the Trustee for the Certificateholders for the
uses and purposes set forth herein.
(b) The Trustee will invest funds deposited in the Pre-Funding
Account in Permitted Investments of the kind described in clauses (i), (v) or
(vi) of the definition of Permitted Investments, as directed by the Master
Servicer, with a maturity date no later than the second Business Day preceding
each Distribution Date. For federal income tax purposes, the holder of the
largest Percentage Interest of the Residual Certificates shall be the owner of
the Pre-Funding Account and shall report all items of income, deduction, gain or
loss arising therefrom. All income and gain realized from investment of funds
deposited in the Pre-Funding Account shall be transferred to the Interest
Coverage Account on the Business Day immediately preceding each Distribution
Date. The Master Servicer shall deposit in the Pre-Funding Account the amount of
any net loss incurred in respect of any such Permitted Investment immediately
upon realization of such loss without any right of reimbursement therefor. Prior
to the Distribution Date immediately following the end of the Funding Period or
any earlier Subsequent Transfer Date on which the entire balance of the Original
Pre-Funded Amount is applied to purchase Subsequent Mortgage Loans, the
Pre-Funding Account will not be an asset of any of REMIC I, REMIC II or REMIC
III.
(c) Amounts on deposit in the Pre-Funding Account shall be
withdrawn by the Trustee as follows:
(i) On any Subsequent Transfer Date, the Trustee shall withdraw
from the Pre- Funding Account an amount equal to ___% of the
Stated Principal Balances of the Subsequent Mortgage Loans
transferred and assigned to the Trustee for deposit in the
Mortgage Pool on such Subsequent Transfer Date and pay such amount
to or upon the order of the Depositor upon satisfaction of the
conditions set forth in Section 2.11 with respect to such transfer
and assignment;
(ii) if the amount on deposit in the Pre-Funding Account has not
been reduced to zero during the Funding Period, on the day
immediately following the termination of the Funding Period, the
Trustee shall deposit into the Distribution Account any amounts
remaining in the Pre-Funding Account, net of any gain realized
from the investment of funds on deposit therein to the extent not
previously paid to the Master Servicer, for distribution in
accordance with the terms hereof;
(iii) to withdraw any amount not required to be deposited in the
Pre-Funding Account or deposited therein in error;
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(iv) to distribute to the Master Servicer any income and gain
realized from the investment of funds in the Pre-Funding Account;
and
(v) to clear and terminate the Pre-Funding Account upon the
earlier to occur of (A) the Distribution Date immediately
following the end of the Funding Period and (B) the termination of
this Agreement, with any amounts remaining on deposit therein
being paid to the Holders of the Certificates then entitled to
distributions in respect of principal.
SECTION 4.08. Interest Coverage Account.
(a) No later than the Closing Date, the Trustee shall establish
and maintain a segregated trust account that is an Eligible Account, which shall
be titled "Interest Coverage Account, ____________________, as Trustee for the
registered holders of Ameriquest Mortgage Securities Inc., AQ Floating Rate
Mortgage Pass-Through Certificates, Series ____-___" (the "Interest Coverage
Account"). The Trustee shall, promptly upon receipt, deposit in the Interest
Coverage Account and retain therein the Interest Coverage Amount remitted on the
Closing Date to the Trustee by the Depositor. Funds deposited in the Interest
Coverage Account shall be held in trust by the Trustee for the
Certificateholders for the uses and purposes set forth herein.
(b) The Trustee will invest funds deposited in the Interest
Coverage Account in Permitted Investments of the kind described in clauses (i),
(v) or (vi) of the definition of Permitted Investments, as directed by the
Master Servicer, with a maturity date no later than the second Business Day
preceding each Distribution Date. For federal income tax purposes, the holder of
the largest Percentage Interest of the Residual Certificates shall be the owner
of the Interest Coverage Account and shall report all items of income,
deduction, gain or loss arising therefrom. At no time will the Interest Coverage
Account be an asset of any of REMIC I, REMIC II or REMIC III. All income and
gain realized from investment of funds deposited in the Interest Coverage
Account shall be for the sole and exclusive benefit of the Master Servicer and
shall be remitted by the Trustee to the Master Servicer on the first Business
Day following each Remittance Date. The Master Servicer shall deposit in the
Interest Coverage Account the amount of any net loss incurred in respect of any
such Permitted Investment immediately upon realization of such loss.
(c) With respect to each Distribution Date during the Funding
Period and on the Distribution Date immediately following the end of the Funding
Period, the Trustee shall withdraw from the Interest Coverage Account and
deposit in the Distribution Account an amount, as provided in the related
Remittance Report, equal to (i) 30 days' interest on the Original Pre-Funded
Amount calculated at an annual rate equal to the weighted average of the Net
Mortgage Rates of the Mortgage Loans in the Trust Fund as of the commencement of
the related Due Period, minus (ii) the sum of (1) any interest payments received
by the Master Servicer on Subsequent Mortgage Loans during the related Due
Period and (2) any P&I Advance in respect of the interest portion of delinquent
Monthly Payments on the Subsequent Mortgage Loans conveyed to the Trustee during
the related Due Period.
(d) Upon the earlier of (i) the Distribution Date immediately
following the end of the Funding Period, (ii) the reduction of the Certificate
Principal Balance of the Class A Certificates and
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the Mezzanine Certificates to zero or (iii) the termination of this Agreement in
accordance with Section 9.01, any amount remaining on deposit in the Interest
Coverage Account after distributions pursuant to paragraph (c) above shall be
withdrawn by the Trustee and paid to the Depositor or its
designee.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates in the aggregate will represent the entire
beneficial ownership interest in the Mortgage Loans and all other assets
included in REMIC I. At the Closing Date, the aggregate Certificate Principal
Balance of the Certificates will equal the aggregate Stated Principal
Balance of the Mortgage Loans.
The Certificates will be substantially in the forms annexed hereto
as Exhibits A-1 through A-10. The Certificates of each Class will be issuable in
registered form only, in denominations of authorized Percentage Interests as
described in the definition thereof. Each Certificate will share ratably in all
rights of the related Class.
Upon original issue, the Certificates shall be executed and
delivered by the Trustee, and the Trustee shall cause the Certificates to be
authenticated by the Certificate Registrar to or upon the order of the
Depositor. The Certificates shall be executed and attested by manual or
facsimile signature on behalf of the Trustee by an authorized signatory.
Certificates bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates. No Certificate shall be
entitled to any benefit under this Agreement or be valid for any purpose, unless
there appears on such Certificate a certificate of authentication substantially
in the form provided herein executed by the Certificate Registrar by manual
signature, and such certificate of authentication shall be conclusive evidence,
and the only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
(b) The Class A Certificates and the Mezzanine Certificates shall
initially be issued as one or more Certificates held by the Book-Entry Custodian
or, if appointed to hold such Certificates as provided below, the Depository and
registered in the name of the Depository or its nominee and, except as provided
below, registration of such Certificates may not be transferred by the Trustee
except to another Depository that agrees to hold such Certificates for the
respective Certificate Owners with Ownership Interests therein. The Certificate
Owners shall hold their respective Ownership Interests in and to such
Certificates through the book-entry facilities of the Depository and, except as
provided below, shall not be entitled to definitive, fully registered
Certificates ("Definitive Certificates") in respect of such Ownership Interests.
All transfers by Certificate Owners of their respective Ownership Interests in
the Book-Entry Certificates shall be made in accordance with the procedures
established by the Depository Participant or brokerage firm representing such
Certificate Owner. Each Depository Participant shall only transfer the Ownership
Interests in the Book-Entry Certificates of Certificate Owners it represents or
of brokerage firms for which it acts as agent in accordance with the
Depository's normal procedures. The Trustee is hereby initially appointed as the
Book-Entry Custodian and hereby agrees to act as such in accordance
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herewith and in accordance with the agreement that it has with the Depository
authorizing it to act as such. The Book-Entry Custodian may, and if it is no
longer qualified to act as such, the Book- Entry Custodian shall, appoint, by a
written instrument delivered to the Depositor, the Master Servicer, the Trustee
(if the Trustee is not the Book-Entry Custodian) and any other transfer agent
(including the Depository or any successor Depository) to act as Book-Entry
Custodian under such conditions as the predecessor Book-Entry Custodian and the
Depository or any successor Depository may prescribe, provided that the
predecessor Book-Entry Custodian shall not be relieved of any of its duties or
responsibilities by reason of any such appointment of other than the Depository.
If the Trustee resigns or is removed in accordance with the terms hereof, the
successor trustee or, if it so elects, the Depository shall immediately succeed
to its predecessor's duties as Book-Entry Custodian. The Depositor shall have
the right to inspect, and to obtain copies of, any Certificates held as Book-
Entry Certificates by the Book-Entry Custodian.
The Trustee, the Master Servicer and the Depositor may for all
purposes (including the making of payments due on the Book-Entry Certificates)
deal with the Depository as the authorized representative of the Certificate
Owners with respect to the Book-Entry Certificates for the purposes of
exercising the rights of Certificateholders hereunder. The rights of Certificate
Owners with respect to the Book-Entry Certificates shall be limited to those
established by law and agreements between such Certificate Owners and the
Depository Participants and brokerage firms representing such Certificate
Owners. Multiple requests and directions from, and votes of, the Depository as
Holder of the Book-Entry Certificates with respect to any particular matter
shall not be deemed inconsistent if they are made with respect to different
Certificate Owners. The Trustee may establish a reasonable record date in
connection with solicitations of consents from or voting by Certificateholders
and shall give notice to the Depository of such record date.
If (i)(A) the Depositor advises the Trustee in writing that the
Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (B) the Depositor is unable to locate a
qualified successor, (ii) the Depositor at its option advises the Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (iii) after the occurrence of a Master Servicer Event of Default, Certificate
Owners representing in the aggregate not less than 51% of the Ownership
Interests of the Book-Entry Certificates advise the Trustee through the
Depository, in writing, that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Certificate Owners, the
Trustee shall notify all Certificate Owners, through the Depository, of the
occurrence of any such event and of the availability of Definitive Certificates
to Certificate Owners requesting the same. Upon surrender to the Trustee of the
Book- Entry Certificates by the Book-Entry Custodian or the Depository, as
applicable, accompanied by registration instructions from the Depository for
registration of transfer, the Trustee shall issue the Definitive Certificates.
Such Definitive Certificates will be issued in minimum denominations of $______,
except that any beneficial ownership that was represented by a Book-Entry
Certificate in an amount less than $______ immediately prior to the issuance of
a Definitive Certificate shall be issued in a minimum denomination equal to the
amount represented by such Book-Entry Certificate. None of the Depositor, the
Master Servicer or the Trustee shall be liable for any delay in the delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and
<PAGE>
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performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates, and the Trustee shall recognize the Holders of the
Definitive Certificates as Certificateholders
hereunder.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
(a) The Trustee shall cause to be kept at one of the offices or
agencies to be appointed by the Trustee in accordance with the provisions of
Section 8.12 a Certificate Register for the Certificates in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. The Trustee will initially serve as Certificate Registrar
for the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided. The Certificate Registrar may appoint, by a
written instrument delivered to the Master Servicer and the Depositor, any other
bank or trust company to act as Certificate Registrar under such conditions as
the predecessor Certificate Registrar may prescribe, provided that the
predecessor Certificate Registrar shall not be relieved of any of its duties or
responsibilities hereunder by reason of such appointment. If the Trustee shall
at any time not be the Certificate Registrar, the Trustee shall have and
maintain the right to inspect the Certificate Register or to obtain a copy
thereof at all reasonable times, and to rely conclusively upon a certificate of
the Certificate Registrar as to the information set forth in the Certificate
Register.
(b) No transfer of any Class CE Certificate, Class P Certificate
or Residual Certificate shall be made unless that transfer is made pursuant to
an effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), and an effective registration or qualification under
applicable state securities laws, or is made in a transaction that does not
require such registration or qualification. In the event that such a transfer of
a Class CE Certificate, Class P Certificate or Residual Certificate is to be
made without registration or qualification (other than in connection with the
initial transfer of any such Certificate by the Depositor to an affiliate of the
Depositor), the Trustee and the Certificate Registrar shall each require receipt
of: (i) if such transfer is purportedly being made in reliance upon Rule 144A
under the 1933 Act, written certifications from the Certificateholder desiring
to effect the transfer and from such Certificateholder's prospective transferee,
substantially in the forms attached hereto as Exhibit F-1; and (ii) in all other
cases, an Opinion of Counsel satisfactory to it that such transfer may be made
without such registration or qualification (which Opinion of Counsel shall not
be an expense of the Depositor, the Trustee, the Master Servicer, in its
capacity as such, or the Trust Fund), together with copies of the written
certification(s) of the Certificateholder desiring to effect the transfer and/or
such Certificateholder's prospective transferee upon which such Opinion of
Counsel is based, if any. None of the Depositor, the Certificate Registrar or
the Trustee is obligated to register or qualify the Class CE Certificates, the
Class P Certificates or the Residual Certificates under the 1933 Act or any
other securities laws or to take any action not otherwise required under this
Agreement to permit the transfer of such Certificates without registration or
qualification. Any Certificateholder desiring to effect the transfer of a Class
CE Certificate, a Class P Certificate or a Residual Certificate shall, and does
hereby agree to, indemnify the Trustee, the Depositor, the Certificate Registrar
and the Master Servicer against any liability that may result if the transfer is
not so exempt or is not made in accordance with such federal and state laws.
<PAGE>
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(c) (i) No transfer of a Class A-2 Certificate or Mezzanine
Certificate or any interest therein shall be made to any Plan subject to ERISA
or Section 4975 of the Code, any Person acting, directly or indirectly, on
behalf of any such Plan or any Person acquiring such Certificates with "Plan
Assets" of a Plan within the meaning of the Department of Labor regulation
promulgated at 29 C.F.R. ss. 2510.3-101 ("Plan Assets") unless the Depositor,
the Master Servicer and the Trustee are provided with an Opinion of Counsel
which establishes to the satisfaction of the Depositor, the Trustee and the
Master Servicer that the purchase of such Certificates is permissible under
applicable law, will not constitute or result in any prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Depositor, the
Master Servicer, the Trustee or the Trust Fund to any obligation or liability
(including obligations or liabilities under ERISA or Section 4975 of the Code)
in addition to those undertaken in this Agreement, which Opinion of Counsel
shall not be an expense of the Depositor, the Master Servicer, the Trustee or
the Trust Fund. In lieu of such Opinion of Counsel, any prospective Transferee
of such Certificates may provide a certification (which the Transferee will be
deemed to have represented such certification) of the foregoing in the form of
Exhibit G to this Agreement (or other form acceptable to the Depositor, the
Trustee and the Master Servicer), which the Trustee may rely upon without
further inquiry or investigation. An Opinion of Counsel, any certification or a
deemed representation will not be required in connection with the initial
transfer of any such Certificate by the Depositor to an affiliate of the
Depositor (in which case, the Depositor or any affiliate thereof shall have
deemed to have represented that such affiliate is not a Plan or a Person
investing Plan Assets) and the Trustee shall be entitled to conclusively rely
upon a representation (which, upon the request of the Trustee, shall be a
written representation) from the Depositor of the status of such transferee as
an affiliate of the Depositor. The Transferee of a Class A-2 Certificate or a
Mezzanine Certificate that is a Plan, a Person acting, directly or indirectly,
on behalf of any such Plan or a person using Plan Assets to acquire Class A-2
Certificates or Mezzanine Certificates will be deemed to have represented that
such acquisition is permissible under applicable law, will not constitute or
result in any non-exempt prohibited transaction under ERISA or Section 4975 of
the Code, will not subject the Depositor, the Master Servicer, the Trusteee or
the Trust Fund to any obligation in addition to those undertaken in this
Agreement and the following conditions are met: (a) the source of funds used to
purchase such Class A-2 Certificates or Mezzanine Certificates is an "insurance
company general account" (as such term is defined in PTCE 95-60), (b) the
conditions set forth in PTCE 95-60 have been satisfied and (c) there is no Plan
with respect to which the amount of such general account's reserves and
liabilities for contracts held by or on behalf of such Plan and all other Plans
maintained by the same employer (or any "affiliate" thereof, as defined in PTCE
95-60) or by the same employee organization exceed 10% of the total of all
reserves and liabilities of such general account (as determined under PTCE
95-60) as of the date of the acquisition of such Class A-2 Certificates or
Mezzanine Certificates.
(ii) No transfer of a Class CE Certificate, Class P
Certificate or Residual Certificate or any interest therein shall be made to any
Plan subject to ERISA or Section 4975 of the Code, any Person acting, directly
or indirectly, on behalf of any such Plan or any Person acquiring such
Certificates with "Plan Assets" of a Plan within the meaning of the Department
of Labor regulation promulgated at 29 C.F.R. ss. 2510.3-101 ("Plan Assets")
unless the Depositor, the Master Servicer and the Trustee are provided with an
Opinion of Counsel which establishes to the satisfaction of the Depositor, the
Trustee and the Master Servicer that the purchase of such Certificates is
permissible under applicable law, will not constitute or result in any
prohibited
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transaction under ERISA or Section 4975 of the Code and will not subject the
Depositor, the Master Servicer, the Trustee or the Trust Fund to any obligation
or liability (including obligations or liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in this Agreement, which Opinion of
Counsel shall not be an expense of the Depositor, the Master Servicer, the
Trustee or the Trust Fund.
(d) (i) Each Person who has or who acquires any Ownership Interest
in a Residual Certificate shall be deemed by the acceptance or acquisition of
such Ownership Interest to have agreed to be bound by the following provisions
and to have irrevocably authorized the Trustee or its designee under clause
(iii)(A) below to deliver payments to a Person other than such Person and to
negotiate the terms of any mandatory sale under clause (iii)(B) below and to
execute all instruments of Transfer and to do all other things necessary in
connection with any such sale. The rights of each Person acquiring any Ownership
Interest in a Residual Certificate are expressly subject to the following
provisions:
(A) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall be a Permitted
Transferee and shall promptly notify the Trustee of any change
or impending change in its status as a Permitted Transferee.
(B) In connection with any proposed Transfer of any
Ownership Interest in a Residual Certificate, the Trustee
shall require delivery to it and shall not register the
Transfer of any Residual Certificate until its receipt of an
affidavit and agreement (a "Transfer Affidavit and
Agreement"), in the form attached hereto as Exhibit F-2 from
the proposed Transferee, in form and substance satisfactory to
the Trustee, representing and warranting, among other things,
that such Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual Certificate
that is the subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership
Interest in a Residual Certificate, it will endeavor to remain
a Permitted Transferee, and that it has reviewed the
provisions of this Section 5.02(d) and agrees to be bound by
them.
(C) Notwithstanding the delivery of a Transfer Affidavit
and Agreement by a proposed Transferee under clause (B) above,
if a Responsible Officer of the Trustee who is assigned to
this transaction has actual knowledge that the proposed
Transferee is not a Permitted Transferee, no Transfer of an
Ownership Interest in a Residual Certificate to such proposed
Transferee shall be effected.
(D) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall agree (x) to require
a Transfer Affidavit and Agreement from any other Person to
whom such Person attempts to transfer its Ownership Interest
in a Residual Certificate and (y) not to transfer its
Ownership Interest unless it provides a Transferor Affidavit
(in the form attached hereto as Exhibit F-2), to the Trustee
stating that, among other things, it has no actual knowledge
that such other Person is not a Permitted Transferee.
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(E) Each Person holding or acquiring an Ownership Interest
in a Residual Certificate, by purchasing an Ownership Interest
in such Certificate, agrees to give the Trustee written notice
that it is a "pass-through interest holder" within the meaning
of temporary Treasury regulation Section 1.67-3T(a)(2)(i)(A)
immediately upon acquiring an Ownership Interest in a Residual
Certificate, if it is, or is holding an Ownership Interest in
a Residual Certificate on behalf of, a "pass-through interest
holder."
(ii) The Trustee will register the Transfer of any Residual
Certificate only if it shall have received the Transfer Affidavit
and Agreement and all of such other documents as shall have been
reasonably required by the Trustee as a condition to such
registration. In addition, no Transfer of a Residual Certificate
shall be made unless the Trustee shall have received a
representation letter from the Transferee of such Certificate to
the effect that such Transferee is a Permitted Transferee.
(iii) (A) If any purported Transferee shall become a Holder of a
Residual Certificate in violation of the provisions of this
Section 5.02(d), then the last preceding Permitted Transferee
shall be restored, to the extent permitted by law, to all rights
as holder thereof retroactive to the date of registration of such
Transfer of such Residual Certificate. The Trustee shall be under
no liability to any Person for any registration of Transfer of a
Residual Certificate that is in fact not permitted by this Section
5.02(d) or for making any payments due on such Certificate to the
holder thereof or for taking any other action with respect to such
holder under the provisions of this Agreement.
(B) If any purported Transferee shall become a holder of a
Residual Certificate in violation of the restrictions in this
Section 5.02(d) and to the extent that the retroactive restoration
of the rights of the holder of such Residual Certificate as
described in clause (iii)(A) above shall be invalid, illegal or
unenforceable, then the Trustee shall have the right, without
notice to the holder or any prior holder of such Residual
Certificate, to sell such Residual Certificate to a purchaser
selected by the Trustee on such terms as the Trustee may choose.
Such purported Transferee shall promptly endorse and deliver each
Residual Certificate in accordance with the instructions of the
Trustee. Such purchaser may be the Trustee itself or any Affiliate
of the Trustee. The proceeds of such sale, net of the commissions
(which may include commissions payable to the Trustee or its
Affiliates), expenses and taxes due, if any, will be remitted by
the Trustee to such purported Transferee. The terms and conditions
of any sale under this clause (iii)(B) shall be determined in the
sole discretion of the Trustee, and the Trustee shall not be
liable to any Person having an Ownership Interest in a Residual
Certificate as a result of its exercise of such discretion.
(iv) The Trustee shall make available to the Internal Revenue
Service and those Persons specified by the REMIC Provisions all
information necessary to compute any tax imposed (A) as a result
of the Transfer of an Ownership Interest in a Residual Certificate
to any Person who is a Disqualified Organization, including the
information described in Treasury regulations sections
1.860D-1(b)(5) and 1.860E-2(a)(5) with
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respect to the "excess inclusions" of such Residual Certificate
and (B) as a result of any regulated investment company, real
estate investment trust, common trust fund, partnership, trust,
estate or organization described in Section 1381 of the Code that
holds an Ownership Interest in a Residual Certificate having as
among its record holders at any time any Person which is a
Disqualified Organization. Reasonable compensation for providing
such information may be accepted by the Trustee.
(v) The provisions of this Section 5.02(d) set forth prior to
this subsection (v) may be modified, added to or eliminated,
provided that there shall have been delivered to the Trustee at
the expense of the party seeking to modify, add to or eliminate
any such provision the following:
(A) written notification from each Rating Agency to the
effect that the modification, addition to or elimination of
such provisions will not cause such Rating Agency to downgrade
its then-current ratings of any Class of Certificates; and
(B) an Opinion of Counsel, in form and substance
satisfactory to the Trustee, to the effect that such
modification of, addition to or elimination of such
provisions will not cause any of REMIC I, REMIC II or REMIC
III to cease to qualify as a REMIC and will not cause any of
REMIC I, REMIC II or REMIC III, as the case may be, to be
subject to an entity-level tax caused by the Transfer of any
Residual Certificate to a Person that is not a Permitted
Transferee or (y) a Person other than the prospective
transferee to be subject to a REMIC-tax caused by the
Transfer of a Residual Certificate to a Person that is not a
Permitted Transferee.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at any office or agency of the
Trustee maintained for such purpose pursuant to Section 8.12, the Trustee shall
execute and the Certificate Registrar shall authenticate and deliver, in the
name of the designated Transferee or Transferees, one or more new Certificates
of the same Class of a like aggregate Percentage Interest.
(f) At the option of the Holder thereof, any Certificate may be
exchanged for other Certificates of the same Class with authorized denominations
and a like aggregate Percentage Interest, upon surrender of such Certificate to
be exchanged at any office or agency of the Trustee maintained for such purpose
pursuant to Section 8.12. Whenever any Certificates are so surrendered for
exchange the Trustee shall execute and cause the Certificate Registrar to
authenticate and deliver the Certificates which the Certificateholder making the
exchange is entitled to receive. Every Certificate presented or surrendered for
transfer or exchange shall (if so required by the Trustee) be duly endorsed by,
or be accompanied by a written instrument of transfer in the form satisfactory
to the Trustee and the Certificate Registrar duly executed by, the Holder
thereof or his attorney duly authorized in writing.
(g) No service charge to the Certificateholders shall be made for
any transfer or exchange of Certificates, but the Trustee may require payment of
a sum sufficient to cover any tax
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or governmental charge that may be imposed in connection with any transfer or
exchange of Certificates.
(h) All Certificates surrendered for transfer and exchange shall
be canceled and destroyed by the Certificate Registrar in accordance with its
customary procedures.
(i) The Trustee will cause the Certificate Registrar (unless the
Trustee is acting as Certificate Registrar) to provide notice to the Trustee of
each transfer of a Certificate and to provide the Trustee with an updated copy
of the Certificate Register on the first Business Day in January and
June of each year, commencing in ____________.
(j) Any attempted or purported transfer of any Certificate in
violation of the provisions of Section 5.02(c) hereof shall be void ab initio
and such Certificate shall be considered to have been
held continuously by the prior permitted Holder.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen
Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee or
the Certificate Registrar, or the Trustee and the Certificate Registrar receive
evidence to their satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee and the Certificate
Registrar such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of actual knowledge by the Trustee or the
Certificate Registrar that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute and deliver, in exchange for or in lieu of
any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
the same Class and of like denomination and Percentage Interest. Upon the
issuance of any new Certificate under this Section, the Trustee may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Certificate Registrar) connected therewith. Any replacement
Certificate issued pursuant to this Section shall constitute complete and
indefeasible evidence of ownership in the applicable REMIC created hereunder, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, the Master Servicer, the Trustee, the Certificate
Registrar and any agent of any of them may treat the Person in whose name any
Certificate is registered as the owner of such Certificate for the purpose of
receiving distributions pursuant to Section 4.01 and for all other purposes
whatsoever, and none of the Depositor, the Master Servicer, the Trustee, the
Certificate Registrar or any agent of any of them shall be affected by notice to
the contrary.
SECTION 5.05. Certain Available Information.
On or prior to the date of the first sale of any Class CE
Certificate, Class P Certificate or Residual Certificate to an Independent third
party, the Depositor shall provide to the Trustee ten copies of any private
placement memorandum or other disclosure document used by the Depositor
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in connection with the offer and sale of the Class CE Certificates, Class P
Certificates or the Residual Certificates. In addition, if any such private
placement memorandum or disclosure document is revised, amended or supplemented
at any time following the delivery thereof to the Trustee, the Depositor
promptly shall inform the Trustee of such event and shall deliver to the Trustee
ten copies of the private placement memorandum or disclosure document, as
revised, amended or supplemented. The Trustee shall maintain at its Corporate
Trust Office and shall make available free of charge during normal business
hours for review by any Holder of a Certificate or any Person identified to the
Trustee as a prospective transferee of a Certificate, originals or copies of the
following items: (i) in the case of a Holder or prospective transferee of a
Class CE Certificate, a Class P Certificate or a Residual Certificate, the
private placement memorandum or other disclosure document relating to such
Certificates, if any, in the form most recently provided to the Trustee; and
(ii) in all cases, (A) this Agreement and any amendments hereof entered into
pursuant to Section 11.01, (B) all monthly statements required to be delivered
to Certificateholders of the relevant Class pursuant to Section 4.02 since the
Closing Date, and all other notices, reports, statements and written
communications delivered to the Certificateholders of the relevant Class
pursuant to this Agreement since the Closing Date, (C) all certifications
delivered by a Responsible Officer of the Trustee since the Closing Date
pursuant to Section 10.01(h), (D) any and all Officers' Certificates delivered
to the Trustee by the Master Servicer since the Closing Date to evidence the
Master Servicer's determination that any P&I Advance was, or if made, would be a
Nonrecoverable P&I Advance and (E) any and all Officers' Certificates delivered
to the Trustee by the Master Servicer since the Closing Date pursuant to Section
4.04(a). Copies and mailing of any and all of the foregoing items will be
available from the Trustee upon request at the expense of the person requesting
the same.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Liability of the Depositor and the Master
Servicer.
The Depositor and the Master Servicer each shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
by this Agreement and undertaken hereunder
by the Depositor and the Master Servicer herein.
SECTION 6.02. Merger or Consolidation of the Depositor or
the Master Servicer.
Subject to the following paragraph, the Depositor will keep in
full effect its existence, rights and franchises as a corporation under the laws
of the jurisdiction of its incorporation. Subject to the following paragraph,
the Master Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation and its qualification as an approved conventional seller/servicer
for Fannie Mae or Freddie Mac in good standing. The Depositor and the Master
Servicer each will obtain and preserve its qualification to do business as a
foreign corporation in each jurisdiction in which such qualification is or shall
be necessary to protect the validity and enforceability of this Agreement, the
Certificates or any of the Mortgage Loans and to perform its respective duties
under this Agreement.
The Depositor or the Master Servicer may be merged or consolidated
with or into any Person, or transfer all or substantially all of its assets to
any Person, in which case any Person resulting from any merger or consolidation
to which the Depositor or the Master Servicer shall be a party, or any Person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to service mortgage loans on behalf of
Fannie Mae or Freddie Mac; and provided further that the Rating Agencies'
ratings of the Class A Certificates and the Mezzanine Certificates in effect
immediately prior to such merger or consolidation will not be qualified, reduced
or withdrawn as a result thereof (as evidenced by a letter to such effect from
the Rating Agencies).
SECTION 6.03. Limitation on Liability of the Depositor,
the Master Servicer and Others.
None of the Depositor, the Master Servicer or any of the
directors, officers, employees or agents of the Depositor or the Master Servicer
shall be under any liability to the Trust Fund or the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Master Servicer or any such
person against any breach of warranties, representations or covenants made
herein, or against any specific liability imposed on the Master Servicer
pursuant hereto, or against any liability which would otherwise be imposed by
reason of
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willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Master Servicer and any director, officer, employee or agent of the
Depositor or the Master Servicer may rely in good faith on any document of any
kind which, PRIMA FACIE, is properly executed and submitted by any Person
respecting any matters arising hereunder. The Depositor, the Master Servicer and
any director, officer, employee or agent of the Depositor or the Master Servicer
shall be indemnified and held harmless by the Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, other than any loss, liability or expense
relating to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) or any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder or
by reason of reckless disregard of obligations and duties hereunder. Neither the
Depositor nor the Master Servicer shall be under any obligation to appear in,
prosecute or defend any legal action unless such action is related to its
respective duties under this Agreement and, in its opinion, does not involve it
in any expense or liability; provided, however, that each of the Depositor and
the Master Servicer may in its discretion undertake any such action which it may
deem necessary or desirable with respect to this Agreement and the rights and
duties of the parties hereto and the interests of the Certificateholders
hereunder. In such event, unless the Depositor or the Master Servicer acts
without the consent of Holders of Certificates entitled to at least _____% of
the Voting Rights (which consent shall not be necessary in the case of
litigation or other legal action by either to enforce their respective rights or
defend themselves hereunder), the legal expenses and costs of such action and
any liability resulting therefrom (except any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder) shall be expenses, costs and liabilities of
the Trust Fund, and the Depositor and the Master Servicer shall be entitled to
be reimbursed therefor from the Collection Account as and to the extent provided
in Section 3.11, any such right of reimbursement being prior to the rights of
the Certificateholders to receive any amount in the Collection Account.
SECTION 6.04. Limitation on Resignation of the Master Servicer.
The Master Servicer shall not resign from the obligations and
duties hereby imposed on it except (i) upon determination that its duties
hereunder are no longer permissible under applicable law or (ii) with the
written consent of the Trustee and written confirmation from each Rating Agency
(which confirmation shall be furnished to the Depositor and the Trustee) that
such resignation will not cause such Rating Agency to reduce the then current
rating of the Class A Certificates or the Mezzanine Certificates. Any such
determination pursuant to clause (i) of the preceding sentence permitting the
resignation of the Master Servicer shall be evidenced by an Opinion of Counsel
to such effect obtained at the expense of the Master Servicer and delivered to
the Trustee. No resignation of the Master Servicer shall become effective until
the Trustee or a successor servicer shall have assumed the Master Servicer's
responsibilities, duties, liabilities (other than those liabilities arising
prior to the appointment of such successor) and obligations under this
Agreement.
Except as expressly provided herein, the Master Servicer shall not
assign or transfer any of its rights, benefits or privileges hereunder to any
other Person, nor delegate to or subcontract with,
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nor authorize or appoint any other Person to perform any of the duties,
covenants or obligations to be performed by the Master Servicer hereunder. If,
pursuant to any provision hereof, the duties of the Master Servicer are
transferred to a successor master servicer, the entire amount of the Servicing
Fee and other compensation payable to the Master Servicer pursuant hereto shall
thereafter be payable to such successor master servicer.
SECTION 6.05. Rights of the Depositor in Respect of the
Master Servicer.
The Master Servicer shall afford (and any Sub-Servicing Agreement
shall provide that each Sub-Servicer shall afford) the Depositor and the
Trustee, upon reasonable notice, during normal business hours, access to all
records maintained by the Master Servicer (and any such Sub-Servicer) in respect
of the Master Servicer's rights and obligations hereunder and access to officers
of the Master Servicer (and those of any such Sub-Servicer) responsible for such
obligations. Upon request, the Master Servicer shall furnish to the Depositor
and the Trustee its (and any such Sub- Servicer's) most recent financial
statements and such other information relating to the Master Servicer's capacity
to perform its obligations under this Agreement that it possesses. To the extent
such information is not otherwise available to the public, the Depositor and the
Trustee shall not disseminate any information obtained pursuant to the preceding
two sentences without the Master Servicer's (or any such Sub-Servicer's) written
consent, except as required pursuant to this Agreement or to the extent that it
is appropriate to do so (i) in working with legal counsel, auditors, taxing
authorities or other governmental agencies, rating agencies or reinsurers or
(ii) pursuant to any law, rule, regulation, order, judgment, writ, injunction or
decree of any court or governmental authority having jurisdiction over the
Depositor, the Trustee or the Trust Fund, and in either case, the Depositor or
the Trustee, as the case may be, shall use its best efforts to assure the
confidentiality of any such disseminated non-public information. The Depositor
may, but is not obligated to, enforce the obligations of the Master Servicer
under this Agreement and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Master Servicer under this
Agreement or exercise the rights of the Master Servicer under this Agreement;
provided that the Master Servicer shall not be relieved of any of its
obligations under this Agreement by virtue of such performance by the Depositor
or its designee. The Depositor shall not have any responsibility or liability
for any action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer under this Agreement or
otherwise.
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ARTICLE VII
DEFAULT
SECTION 7.01. Master Servicer Events of Default.
"Master Servicer Event of Default," wherever used herein, means
any one of the following events:
(i) any failure by the Master Servicer to remit to the Trustee
for distribution to the Certificateholders any payment (other than
a P&I Advance required to be made from its own funds on any Master
Servicer Remittance Date pursuant to Section 4.03) required to be
made under the terms of the Certificates and this Agreement which
continues unremedied for a period of _____________ after the date
upon which written notice of such failure, requiring the same to
be remedied, shall have been given to the Master Servicer by the
Depositor or the Trustee (in which case notice shall be provided
by telecopy), or to the Master Servicer, the Depositor and the
Trustee by the Holders of Certificates entitled to at least ___%
of the Voting Rights; or
(ii) any failure on the part of the Master Servicer duly to
observe or perform in any material respect any of the covenants or
agreements on the part of the Master Servicer contained in the
Certificates or in this Agreement (or, if the Master Servicer is
the Originator, the failure of the Originator to repurchase a
Mortgage Loan as to which a breach has been established that
requires a repurchase pursuant to the terms of Section 7 of the
Mortgage Loan Purchase Agreement) which continues unremedied for a
period of ___ days after the earlier of (i) the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Master Servicer by the Depositor or
the Trustee, or to the Master Servicer, the Depositor and the
Trustee by the Holders of Certificates entitled to at least ___%
of the Voting Rights and (ii) actual knowledge of such failure by
a Servicing Officer of the Master Servicer; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary
case under any present or future federal or state bankruptcy,
insolvency or similar law or the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceeding, or
for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer and if such proceeding is
being contested by the Master Servicer in good faith, such decree
or order shall have remained in force undischarged or unstayed for
a period of ____ days or results in the entry of an order for
relief or any such adjudication or appointment; or
(iv) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceedings of or relating to the Master Servicer or of or
relating to all or substantially all of its property; or
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(v) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to
take advantage of any applicable insolvency or reorganization
statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(vi) any failure by the Master Servicer of the Master Servicer
Termination Test; or
(vii) any failure of the Master Servicer to make any P&I Advance
on any Master Servicer Remittance Date required to be made from
its own funds pursuant to Section 4.03 which continues unremedied
until 3:00 p.m. ________ time on the Business Day immediately
following the Master Servicer Remittance Date.
If a Master Servicer Event of Default described in clauses (i) through (vi) of
this Section shall occur, then, and in each and every such case, so long as such
Master Servicer Event of Default shall not have been remedied, the Depositor or
the Trustee may, and at the written direction of the Holders of Certificates
entitled to at least ___% of Voting Rights, the Trustee shall, by notice in
writing to the Master Servicer (and to the Depositor if given by the Trustee or
to the Trustee if given by the Depositor), terminate all of the rights and
obligations of the Master Servicer in its capacity as Master Servicer under this
Agreement, to the extent permitted by law, and in and to the Mortgage Loans and
the proceeds thereof. If a Master Servicer Event of Default described in clause
(vii) hereof shall occur, the Trustee shall, by notice in writing to the Master
Servicer and the Depositor, terminate all of the rights and obligations of the
Master Servicer in its capacity as Master Servicer under this Agreement and in
and to the Mortgage Loans and the proceeds thereof. On or after the receipt by
the Master Servicer of such written notice, all authority and power of the
Master Servicer under this Agreement, whether with respect to the Certificates
(other than as a Holder of any Certificate) or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section
and, without limitation, the Trustee is hereby authorized and empowered, as
attorney-in-fact or otherwise, to execute and deliver on behalf of and at the
expense of the Master Servicer, any and all documents and other instruments and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents, or
otherwise. The Master Servicer agrees, at its sole cost and expense, promptly
(and in any event no later than ten Business Days subsequent to such notice) to
provide the Trustee with all documents and records requested by it to enable it
to assume the Master Servicer's functions under this Agreement, and to cooperate
with the Trustee in effecting the termination of the Master Servicer's
responsibilities and rights under this Agreement, including, without limitation,
the transfer within one Business Day to the Trustee for administration by it of
all cash amounts which at the time shall be or should have been credited by the
Master Servicer to the Collection Account held by or on behalf of the Master
Servicer, the Distribution Account or any REO Account or Servicing Account held
by or on behalf of the Master Servicer or thereafter be received with respect to
the Mortgage Loans or any REO Property serviced by the Master Servicer
(provided, however, that the Master Servicer shall continue to be entitled to
receive all amounts accrued or owing to it under this Agreement on or prior to
the date of such termination, whether in respect of P&I Advances or otherwise,
and shall continue to be entitled to the benefits of Section 6.03,
notwithstanding any such termination, with respect to events occurring prior to
such termination). For purposes of this Section 7.01, the Trustee shall not be
deemed to
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have knowledge of a Master Servicer Event of Default unless a Responsible
Officer of the Trustee assigned to and working in the Trustee's Corporate Trust
Office has actual knowledge thereof or unless written notice of any event which
is in fact such a Master Servicer Event of Default is received by the Trustee
and such notice references the Certificates, REMIC I or this Agreement.
The Trustee shall be entitled to be reimbursed by the Master Servicer
(or by the Trust Fund if the Master Servicer is unable to fulfill its
obligations hereunder) for all costs associated with the transfer of servicing
from the predecessor servicer, including without limitation, any costs or
expenses associated with the complete transfer of all servicing data and the
completion, correction or manipulation of such servicing data as may be required
by the Trustee to correct any errors or insufficiencies in the servicing data or
otherwise to enable the Trustee to service the Mortgage Loans properly and
effectively.
SECTION 7.02. Trustee to Act; Appointment of Successor.
(a) On and after the time the Master Servicer receives a notice of
termination, the Trustee shall be the successor in all respects to the Master
Servicer in its capacity as Master Servicer under this Agreement and the
transactions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto and arising thereafter
placed on the Master Servicer (except for any representations or warranties of
the Master Servicer under this Agreement, the responsibilities, duties and
liabilities contained in Section 2.03(c) its obligation to deposit amounts in
respect of losses pursuant to Section 3.12) by the terms and provisions hereof
including, without limitation, the Master Servicer's obligations to make P&I
Advances pursuant to Section 4.03; provided, however, that if the Trustee is
prohibited by law or regulation from obligating itself to make advances
regarding delinquent mortgage loans, then the Trustee shall not be obligated to
make P&I Advances pursuant to Section 4.03; and provided further, that any
failure to perform such duties or responsibilities caused by the Master
Servicer's failure to provide information required by Section 7.01 shall not be
considered a default by the Trustee as successor to the Master Servicer
hereunder; provided, however, it is understood and acknowledged by the parties
that there will be a period of transition (not to exceed 90 days) before the
servicing transfer is fully effected. As compensation therefor, the Trustee
shall be entitled to the Servicing Fee and all funds relating to the Mortgage
Loans to which the Master Servicer would have been entitled if it had continued
to act hereunder (other than amounts which were due or would become due to the
Master Servicer prior to its termination or resignation). Notwithstanding the
above and subject to the next paragraph, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if it is prohibited
by law from making advances regarding delinquent mortgage loans, or if the
Holders of Certificates entitled to at least ___% of the Voting Rights so
request in writing to the Trustee, promptly appoint or petition a court of
competent jurisdiction to appoint, an established mortgage loan servicing
institution acceptable to each Rating Agency and having a net worth of not less
than $---------- as the successor to the Master Servicer under this Agreement in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Master Servicer under this Agreement. No appointment of a successor to
the Master Servicer under this Agreement shall be effective until the assumption
by the successor of all of the Master Servicer's responsibilities, duties and
liabilities hereunder. In connection with such appointment and assumption
described herein, the Trustee may make such arrangements for the compensation of
such successor out of payments on Mortgage Loans
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as it and such successor shall agree; provided, however, that no such
compensation shall be in excess of that permitted the Master Servicer as such
hereunder. The Depositor, the Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. Pending appointment of a successor to the Master Servicer under this
Agreement, the Trustee shall act in such capacity as hereinabove provided.
Upon removal or resignation of the Master Servicer, the Trustee,
with the cooperation of the Depositor, (x) shall solicit bids for a successor
Master Servicer as described below and (y) pending the appointment of a
successor Master Servicer as a result of soliciting such bids, shall serve as
Master Servicer of the Mortgage Loans serviced by such predecessor Master
Servicer. The Trustee shall solicit, by public announcement, bids from housing
and home finance institutions, banks and mortgage servicing institutions meeting
the qualifications set forth above (including the Trustee or any affiliate
thereof). Such public announcement shall specify that the successor Master
Servicer shall be entitled to the servicing compensation agreed upon between the
Trustee, the successor Master Servicer and the Depositor; provided, however,
that no such fee shall exceed the Servicing Fee. Within thirty days after any
such public announcement, the Trustee, with the cooperation of the Depositor,
shall negotiate in good faith and effect the sale, transfer and assignment of
the servicing rights and responsibilities hereunder to the qualified party
submitting the highest satisfactory bid as to the price they will pay to obtain
such servicing. The Trustee upon receipt of the purchase price shall pay such
purchase price to the Master Servicer being so removed, after deducting from any
sum received by the Trustee from the successor to the Master Servicer in respect
of such sale, transfer and assignment all costs and expenses of any public
announcement and of any sale, transfer and assignment of the servicing rights
and responsibilities reasonably incurred hereunder. After such deductions, the
remainder of such sum shall be paid by the Trustee to the Master Servicer at the
time of such sale.
(b) If the Master Servicer fails to remit to the Trustee for
distribution to the Certificateholders any payment required to be made under the
terms of the Certificates and this Agreement (for purposes of this Section
7.02(b), a "Remittance") because the Master Servicer is the subject of a
proceeding under the federal Bankruptcy Code and the making of such Remittance
is prohibited by Section 362 of the federal Bankruptcy Code, the Trustee shall
upon notice of such prohibition, regardless of whether it has received a notice
of termination under Section 7.01, advance the amount of such Remittance by
depositing such amount in the Distribution Account on the related Distribution
Date. The Trustee shall be obligated to make such advance only if (i) such
advance, in the good faith judgment of the Trustee, can reasonably be expected
to be ultimately recoverable from Stayed Funds and (ii) the Trustee is not
prohibited by law from making such advance or obligating itself to do so. Upon
remittance of the Stayed Funds to the Trustee or the deposit thereof in the
Distribution Account by the Master Servicer, a trustee in bankruptcy or a
federal bankruptcy court, the Trustee may recover the amount so advanced,
without interest, by withdrawing such amount from the Distribution Account;
however, nothing in this Agreement shall be deemed to affect the Trustee's
rights to recover from the Master Servicer's own funds interest on the amount of
any such advance. If the Trustee at any time makes an advance under this
Subsection which it later determines in its good faith judgment will not be
ultimately recoverable from the Stayed Funds with respect to which such advance
was made, the Trustee shall be entitled to reimburse itself for such
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advance, without interest, by withdrawing from the Distribution Account, out of
amounts on deposit therein, an amount equal to the portion of such advance
attributable to the Stayed Funds.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination of the Master Servicer pursuant to
Section 7.01 above or any appointment of a successor to the Master Servicer
pursuant to Section 7.02 above, the Trustee shall give prompt written notice
thereof to Certificateholders at their respective addresses appearing in the
Certificate Register.
(b) Not later than the later of 60 days after the occurrence of
any event, which constitutes or which, with notice or lapse of time or both,
would constitute a Master Servicer Event of Default or five days after a
Responsible Officer of the Trustee becomes aware of the occurrence of such an
event, the Trustee shall transmit by mail to all Holders of Certificates notice
of each such occurrence, unless such default or Master Servicer Event of Default
shall have been cured or waived.
SECTION 7.04. Waiver of Master Servicer Events of Default.
The Holders representing at least ____% of the Voting Rights
evidenced by all Classes of Certificates affected by any default or Master
Servicer Event of Default hereunder may waive such default or Master Servicer
Event of Default; provided, however, that a default or Master Servicer Event of
Default under clause (i) or (vii) of Section 7.01 may be waived only by all of
the Holders of the Regular Certificates. Upon any such waiver of a default or
Master Servicer Event of Default, such default or Master Servicer Event of
Default shall cease to exist and shall be deemed to have been remedied for every
purpose hereunder. No such waiver shall extend to any subsequent or other
default or Master Servicer Event of Default or impair any right consequent
thereon except to the extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of a Master Servicer Event of
Default and after the curing of all Master Servicer Events of Default which may
have occurred, undertakes to perform such duties and only such duties as are
specifically set forth in this Agreement. During a Master Servicer Event of
Default, the Trustee shall exercise such of the rights and powers vested in it
by this Agreement, and use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the conduct
of such person's own affairs. Any permissive right of the Trustee enumerated in
this Agreement shall not be construed as a duty.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. If any such instrument is found
not to conform to the requirements of this Agreement in a material manner, the
Trustee shall take such action as it deems appropriate to have the instrument
corrected, and if the instrument is not corrected to the Trustee's satisfaction,
the Trustee will provide notice thereof to the Certificateholders.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided,
however, that:
(i) Prior to the occurrence of a Master Servicer Event of
Default, and after the curing of all such Master Servicer Events
of Default which may have occurred, the duties and obligations of
the Trustee shall be determined solely by the express provisions
of this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall
be read into this Agreement against the Trustee and, in the
absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee that conform to
the requirements of this Agreement;
(ii) The Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or
Responsible Officers of the Trustee, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent
facts; and
(iii) The Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good
faith in accordance with the direction of the Holders of
Certificates entitled to at least ____% of the Voting Rights
relating to the time, method and place of conducting any
proceeding for any remedy available to the
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Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
(a) Except as otherwise provided in Section 8.01:
(i) The Trustee may request and rely upon and shall be protected
in acting or refraining from acting upon any resolution, Officers'
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document reasonably
believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder
in good faith and in accordance with such Opinion of Counsel;
(iii) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in
relation hereto at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligation, upon the occurrence of a Master Servicer Event of
Default (which has not been cured or waived), to exercise such of
the rights and powers vested in it by this Agreement, and to use
the same degree of care and skill in their exercise as a prudent
person would exercise or use under the circumstances in the
conduct of such person's own affairs;
(iv) The Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it
to be authorized or within the discretion or rights
or powers conferred upon it by this Agreement;
(v) Prior to the occurrence of a Master Servicer Event of
Default hereunder and after the curing of all Master Servicer
Events of Default which may have occurred, the Trustee shall not
be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond
or other paper or document, unless requested in writing to do so
by the Holders of Certificates entitled to at least ____% of the
Voting Rights; provided, however, that if the payment within a
reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably
assured to the Trustee by such Certificateholders, the Trustee may
require reasonable indemnity against such expense, or liability
from such Certificateholders as a condition to taking any such
action;
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(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys; and
(vii) The Trustee shall not be personally liable for any loss
resulting from the investment of funds held in the Collection
Account at the direction of the Master Servicer pursuant to
Section 3.12.
(b) All rights of action under this Agreement or under any of the
Certificates, enforceable by the Trustee, may be enforced by it without the
possession of any of the Certificates, or the production thereof at the trial or
other proceeding relating thereto, and any such suit, action or proceeding
instituted by the Trustee shall be brought in its name for the benefit of all
the Holders of such Certificates, subject to the provisions of this Agreement.
SECTION 8.03. Trustee Not Liable for Certificates or
Mortgage Loans.
The recitals contained herein and in the Certificates (other than
the signature of the Trustee, the authentication of the Certificate Registrar on
the Certificates, the acknowledgments of the Trustee contained in Article II and
the representations and warranties of the Trustee in Section 8.12) shall be
taken as the statements of the Depositor and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations or
warranties as to the validity or sufficiency of this Agreement (other than as
specifically set forth in Section 8.12) or of the Certificates (other than the
signature of the Trustee and authentication of the Certificate Registrar on the
Certificates) or of any Mortgage Loan or related document. The Trustee shall not
be accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor or the Master Servicer in respect
of the Mortgage Loans or deposited in or withdrawn from the Collection Account
by the Master Servicer, other than any funds held by or on behalf of the Trustee
in accordance with Section 3.10.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual capacity or any other capacity may
become the owner or pledgee of Certificates with the same rights it would have
if it were not Trustee.
SECTION 8.05. Trustee's Fees and Expenses.
(a) The Trustee shall withdraw from the Distribution Account on
each Distribution Date and pay to itself the Trustee Fee and, to the extent that
the funds therein are at anytime insufficient for such purpose, the Depositor
shall pay such fees. The Trustee, or any director, officer, employee or agent of
the Trustee, shall be indemnified by REMIC I and held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trustee, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the Trustee's
performance in accordance with the provisions of this Agreement) incurred by the
Trustee in connection with any claim or legal action or any pending or
threatened claim or legal action arising out of or in connection with the
acceptance or administration of its obligations and duties under this Agreement,
other than any loss, liability or
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expense (i) resulting from the Master Servicer's actions or omissions in
connection with this Agreement and the Mortgage Loans, (ii) that constitutes a
specific liability of the Trustee pursuant to Section 10.01(c) or (iii) any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder or as a result of a breach of the
Trustee's obligations under Article X hereof. It is understood by the parties
hereto that a "claim" as used in the preceding sentence includes any claim for
indemnification made by the Custodian under Section 3.2 of the Custodial
Agreement. Any amounts payable to the Trustee, or any director, officer,
employee or agent of the Trustee, in respect of the indemnification provided by
this paragraph (a), or pursuant to any other right of reimbursement from the
Trust Fund that the Trustee, or any director, officer, employee or agent of the
Trustee, may have hereunder in its capacity as such, may be withdrawn by the
Trustee from the Distribution Account at any time.
(b) The Master Servicer agrees to indemnify the Trustee from, and
hold it harmless against, any loss, liability or expense resulting from a breach
of the Master Servicer's obligations and duties under this Agreement. Such
indemnity shall survive the termination or discharge of this Agreement and the
resignation or removal of the Trustee. Any payment hereunder made by the Master
Servicer to the Trustee shall be from the Master Servicer's own funds, without
reimbursement from the Trust Fund therefor.
(c) The Trustee shall pay any annual rating agency fees of DCR,
Moody's and S&P for ongoing surveillance from its own funds without right of
reimbursement.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or an
association (other than the Depositor, the Seller, the Mortgage Loan Transferor,
the Master Servicer or any Affiliate of the foregoing) organized and doing
business under the laws of any state or the United States of
America,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $50,000,000 and subject to supervision or
examination by federal or state authority. If such corporation or association
publishes reports of conditions at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section the combined capital and surplus of such corporation or
association shall be deemed to be its combined capital and surplus as set forth
in its most recent report of conditions so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, the Trustee shall resign immediately in the manner and with the effect
specified in Section 8.07.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the
trust hereby created by giving written notice thereof to the Depositor, the
Master Servicer and the Certificateholders. Upon receiving such notice of
resignation, the Depositor shall promptly appoint a successor trustee by written
instrument, in duplicate, which instrument shall be delivered to the resigning
Trustee and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the
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Master Servicer by the Depositor. If no successor trustee shall have been so
appointed and have accepted appointment within ___ days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor
trustee.
If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06 and shall fail to resign after
written request therefor by the Depositor, or if at any time the Trustee shall
become incapable of acting, or shall be adjudged bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Depositor may remove the Trustee and appoint a successor trustee by written
instrument, in duplicate, which instrument shall be delivered to the Trustee so
removed and to the successor trustee. A copy of such instrument shall be
delivered to the Certificateholders and the Master Servicer by the Depositor.
The Holders of Certificates entitled to at least ___% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Depositor, one complete set to the Trustee so removed
and one complete set to the successor so appointed. A copy of such instrument
shall be delivered to the Certificateholders and the Master Servicer by the
Depositor.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 8.08.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as trustee
herein. The predecessor trustee shall deliver to the successor trustee all
Mortgage Files and related documents and statements, as well as all moneys, held
by it hereunder (other than any Mortgage Files at the time held by a Custodian,
which Custodian shall become the agent of any successor trustee hereunder), and
the Depositor and the predecessor trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.06 and the appointment of such
successor trustee shall not result in a downgrading of any Class of Certificates
by either Rating Agency, as evidenced by a letter from each Rating Agency.
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Upon acceptance of appointment by a successor trustee as provided
in this Section, the Depositor shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Depositor fails to mail such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Depositor.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation or association into which the Trustee may be
merged or converted or with which it may be consolidated or any corporation or
association resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or association succeeding to the
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation or association shall be eligible under the provisions
of Section 8.06, without the execution or filing of any paper or any further act
on the part of any of the parties hereto, anything herein to the contrary
notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of REMIC I or property securing the same may at the time be located, the Master
Servicer and the Trustee acting jointly shall have the power and shall execute
and deliver all instruments to appoint one or more Persons approved by the
Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of REMIC I, and to
vest in such Person or Persons, in such capacity, such title to REMIC I, or any
part thereof, and, subject to the other provisions of this Section 8.10, such
powers, duties, obligations, rights and trusts as the Master Servicer and the
Trustee may consider necessary or desirable. If the Master Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, or in case a Master Servicer Event of Default shall have
occurred and be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 8.06
hereunder and no notice to Holders of Certificates of the appointment of
co-trustee(s) or separate trustee(s) shall be required under Section 8.08
hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed by the Trustee (whether as
Trustee hereunder or as successor to the Master Servicer hereunder), the Trustee
shall be incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of title to
REMIC I or any portion thereof in any such jurisdiction) shall be exercised and
performed by such separate trustee or co-trustee at the direction of the
Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them.
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Every instrument appointing any separate trustee or co-trustee shall refer to
this Agreement and the conditions of this Article VIII. Each separate trustee
and co-trustee, upon its acceptance of the trust conferred, shall be vested with
the estates or property specified in its instrument of appointment, either
jointly with the Trustee or separately, as may be provided therein, subject to
all the provisions of this Agreement, specifically including every provision of
this Agreement relating to the conduct of, affecting the liability of, or
affording protection to, the Trustee. Every such instrument shall be filed with
the Trustee.
Any separate trustee or co-trustee may, at any time, constitute
the Trustee, its agent or attorney-in-fact, with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 8.11. Appointment of Custodians.
The Trustee may, with the consent of the Depositor and the Master
Servicer, appoint one or more Custodians to hold all or a portion of the
Mortgage Files as agent for the Trustee, by entering into a Custodial Agreement.
The appointment of any Custodian may at any time be terminated and a substitute
Custodian appointed therefor upon the reasonable request of the Master Servicer
to the Trustee, the consent to which shall not be unreasonably withheld. The
Trustee shall pay any and all fees and expenses of any Custodian in accordance
with each Custodial Agreement. The Trustee initially appoints the Custodian as
Custodian, and the Depositor and the Master Servicer consent to such
appointment. Subject to Article VIII hereof, the Trustee agrees to comply with
the terms of each Custodial Agreement and to enforce the terms and provisions
thereof against the Custodian for the benefit of the Certificateholders having
an interest in any Mortgage File held by such Custodian. Each Custodian shall be
a depository institution or trust company subject to supervision by federal or
state authority, shall have combined capital and surplus of at least
$___________ and shall be qualified to do business in the jurisdiction in which
it holds any Mortgage File. Each Custodial Agreement may be amended only as
provided in Section 11.01. In no event shall the appointment of any Custodian
pursuant to a Custodial Agreement diminish the obligations of the Trustee
hereunder.
SECTION 8.12. Appointment of Office or Agency.
The Trustee will appoint an office or agency in the City of New
York where the Certificates may be surrendered for registration of transfer or
exchange, and presented for final distribution, and where notices and demands to
or upon the Trustee in respect of the Certificates and
this Agreement may be served.
SECTION 8.13. Representations and Warranties of the Trustee.
The Trustee hereby represents and warrants to the Master Servicer
and the Depositor, as of the Closing Date, that:
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(i) The Trustee is a national banking association duly organized,
validly existing and in good standing under the laws of the United
States.
(ii) The execution and delivery of this Agreement by the Trustee,
and the performance and compliance with the terms of this Agreement by
the Trustee, will not violate the Trustee's charter or bylaws or
constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, or result in the breach of,
any material agreement or other instrument to which it is a party or
which is applicable to it or any of its assets.
(iii) The Trustee has the full power and authority to enter into
and consummate all transactions contemplated by this Agreement, has
duly authorized the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by the Master Servicer and the Depositor, constitutes a valid,
legal and binding obligation of the Trustee, enforceable against the
Trustee in accordance with the terms hereof, subject to (A) applicable
bankruptcy, insolvency, receivership, reorganization, moratorium and
other laws affecting the enforcement of creditors' rights generally,
and (B) general principles of equity, regardless of whether such
enforcement is considered in a proceeding in equity or at law.
(v) The Trustee is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the
terms of this Agreement will not constitute a violation of, any law,
any order or decree of any court or arbiter, or any order, regulation
or demand of any federal, state or local governmental or regulatory
authority, which violation, in the Trustee's good faith and reasonable
judgment, is likely to affect materially and adversely either the
ability of the Trustee to perform its obligations under this Agreement
or the financial condition of the Trustee.
(vi) No litigation is pending or, to the best of the Trustee's
knowledge, threatened against the Trustee which would prohibit the
Trustee from entering into this Agreement or, in the Trustee's good
faith reasonable judgment, is likely to materially and adversely affect
either the ability of the Trustee to perform its obligations under this
Agreement or the financial condition of the Trustee.
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ARTICLE IX
TERMINATION
SECTION 9.01 Termination Upon Repurchase or Liquidation
of All Mortgage Loans.
(a) Subject to Section 9.02, the respective obligations and
responsibilities under this Agreement of the Depositor, the Master Servicer and
the Trustee (other than the obligations of the Master Servicer to the Trustee
pursuant to Section 8.05 and of the Master Servicer to provide for and the
Trustee to make payments in respect of the REMIC I Regular Interests, the REMIC
II Regular Interests or the Classes of Certificates as hereinafter set forth)
shall terminate upon payment to the Certificateholders and the deposit of all
amounts held by or on behalf of the Trustee and required hereunder to be so paid
or deposited on the Distribution Date coinciding with or following the earlier
to occur of (i) the purchase by the Terminator (as defined below) of all
Mortgage Loans and each REO Property remaining in REMIC I and (ii) the final
payment or other liquidation (or any advance with respect thereto) of the last
Mortgage Loan or REO Property remaining in REMIC I; provided, however, that in
no event shall the trust created hereby continue beyond the expiration of 21
years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date hereof. The purchase by the Terminator of all Mortgage Loans
and each REO Property remaining in REMIC I shall be at a price (the "Termination
Price") equal to the greater of (A) the aggregate Purchase Price of all the
Mortgage Loans included in REMIC I, plus the appraised value of each REO
Property, if any, included in REMIC I, such appraisal to be conducted by an
appraiser mutually agreed upon by the Terminator and the Trustee in their
reasonable discretion and (B) the aggregate fair market value of all of the
assets of REMIC I (as determined by the Terminator and the Trustee, as of the
close of business on the third Business Day next preceding the date upon which
notice of any such termination is furnished to Certificateholders pursuant to
the third paragraph of this Section 9.01); provided, however, that in the event
the Majority Class CE Certificateholder is the Terminator, the purchase by the
Majority Class CE Certificateholder of all Mortgage Loans and each REO Property
remaining in REMIC I shall be at the price designated in clause (A) above.
(b) The Majority Class CE Certificateholder shall have the right,
and to the extent the Majority Class CE Certificateholder does not exercise such
right, the Master Servicer, shall have the right (the party exercising such
right, the "Terminator"), to purchase all of the Mortgage Loans and each REO
Property remaining in REMIC I pursuant to clause (i) of the preceding paragraph
no later than the Determination Date in the month immediately preceding the
Distribution Date on which the Certificates will be retired; provided, however,
that the Terminator may elect to purchase all of the Mortgage Loans and each REO
Property remaining in REMIC I pursuant to clause (i) above only if the aggregate
Stated Principal Balance of the Mortgage Loans and each REO Property remaining
in the Trust Fund at the time of such election and any amounts on deposit in the
Pre-Funding Account is reduced to less than ____% of the sum of the aggregate
Stated Principal Balance of the Initial Mortgage Loans as of the Cut-off Date
and the Original Pre-Funded Amount. By acceptance of the Residual Certificates,
the Holders of the Residual Certificates agree, in connection with any
termination hereunder, to assign and transfer any amounts in excess of par, and
to the extent received in respect of such termination, to pay any such amounts
to the Holders of the Class CE Certificates.
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(c) Notice of the liquidation of the REMIC I Regular Interests
shall be given promptly by the Trustee by letter to Certificateholders mailed
(a) in the event such notice is given in connection with the purchase of the
Mortgage Loans and each REO Property by the Terminator, not earlier than the
15th day and not later than the 25th day of the month next preceding the month
of the final distribution on the Certificates or (b) otherwise during the month
of such final distribution on or before the Determination Date in such month, in
each case specifying (i) the Distribution Date upon which the Trust Fund will
terminate and final payment in respect of the REMIC I Regular Interests, the
REMIC II Regular Interests and the Certificates will be made upon presentation
and surrender of the related Certificates at the office of the Trustee therein
designated, (ii) the amount of any such final payment, (iii) that no interest
shall accrue in respect of the REMIC I Regular Interests, the REMIC II Regular
Interests or the Certificates from and after the Interest Accrual Period
relating to the final Distribution Date therefor and (iv) that the Record Date
otherwise applicable to such Distribution Date is not applicable, payments being
made only upon presentation and surrender of the Certificates at the office of
the Trustee. The Trustee shall give such notice to the Certificate Registrar at
the time such notice is given to Certificateholders. In the event such notice is
given in connection with the purchase of all of the Mortgage Loans and each REO
Property remaining in REMIC I by the Terminator, the Terminator shall deliver to
the Trustee for deposit in the Distribution Account not later than the last
Business Day of the month next preceding the month of the final distribution on
the Certificates an amount in immediately available funds equal to the
above-described purchase price. Upon certification to the Trustee by a Servicing
Officer of the making of such final deposit, the Trustee shall promptly release
or cause to be released to the Terminator the Mortgage Files for the remaining
Mortgage Loans, and the Trustee shall execute all assignments, endorsements and
other instruments necessary to effectuate such transfer.
(d) Upon presentation of the Certificates by the
Certificateholders on the final Distribution Date, the Trustee shall distribute
to each Certificateholder so presenting and surrendering its Certificates the
amount otherwise distributable on such Distribution Date in accordance with
Section 4.01 in respect of the Certificates so presented and surrendered. Any
funds not distributed to any Holder or Holders of Certificates being retired on
such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust by
the Trustee and credited to the account of the appropriate non-tendering Holder
or Holders. If any Certificates as to which notice has been given pursuant to
this Section 9.01 shall not have been surrendered for cancellation within six
months after the time specified in such notice, the Trustee shall mail a second
notice to the remaining non-tendering Certificateholders to surrender their
Certificates for cancellation in order to receive the final distribution with
respect thereto. If within one year after the second notice all such
Certificates shall not have been surrendered for cancellation, the Trustee
shall, directly or through an agent, mail a final notice to remaining related
non-tendering Certificateholders concerning surrender of their Certificates. The
costs and expenses of maintaining the funds in trust and of contacting such
Certificateholders shall be paid out of the assets remaining in the trust funds.
If within one year after the final notice any such Certificates shall not have
been surrendered for cancellation, the Trustee shall pay to Salomon Smith Barney
Inc. all such amounts, and all rights of non-tendering Certificateholders in or
to such amounts shall thereupon cease. No interest shall accrue or be payable to
any Certificateholder on any amount held in trust by the Trustee as a result of
such Certificateholder's failure to surrender its Certificate(s) for final
payment thereof in accordance with this Section 9.01.
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Immediately following the deposit of funds in trust hereunder in
respect of the Certificates, the Trust Fund shall terminate.
SECTION 9.02 Additional Termination Requirements.
(a) In the event that the Terminator purchases all the Mortgage
Loans and each REO Property or the final payment on or other liquidation of the
last Mortgage Loan or REO Property remaining in REMIC I pursuant to Section
9.01, the Trust Fund shall be terminated in accordance
with the following additional requirements:
(i) The Trustee shall specify the first day in the 90-day
liquidation period in a statement attached to REMIC I's, REMIC
II's and REMIC III's final Tax Return pursuant to Treasury
regulation Section 1.860F-1 and shall satisfy all requirements of
a qualified liquidation under Section 860F of the Code and any
regulations thereunder, as evidenced by an Opinion of Counsel
obtained at the expense of the Terminator;
(ii) During such 90-day liquidation period, and at or prior to
the time of making of the final payment on the Certificates, the
Trustee shall sell all of the assets of REMIC I to the Terminator
for cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trustee shall distribute or credit, or cause to
be distributed or credited, to the Holders of the Residual
Certificates all cash on hand in the Trust Fund (other than cash
retained to meet claims), and the Trust Fund shall terminate at
that time.
(b) At the expense of the applicable Terminator (or in the event
of termination under Section 9.01(a)(ii), at the expense of the Trustee), the
Trustee shall prepare or cause to be prepared the documentation required in
connection with the adoption of a plan of liquidation of each of
REMIC I, REMIC II and REMIC III pursuant to this Section 9.02.
(c) By their acceptance of Certificates, the Holders thereof
hereby agree to authorize the Trustee to specify the 90-day liquidation period
for each of REMIC I, REMIC II and REMIC III, which authorization shall be
binding upon all successor Certificateholders.
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ARTICLE X
REMIC PROVISIONS
SECTION 10.01. REMIC Administration.
(a) The Trustee shall elect to treat each of REMIC I, REMIC II and
REMIC III as a REMIC under the Code and, if necessary, under applicable state
law. Each such election will be made on Form 1066 or other appropriate federal
tax or information return or any appropriate state return for the taxable year
ending on the last day of the calendar year in which the Certificates are
issued. For the purposes of the REMIC election in respect of REMIC I, the REMIC
I Regular Interests shall be designated as the Regular Interests in REMIC I and
the Class R-I Certificates shall be designated as the Residual Interests in
REMIC I. The REMIC II Regular Interests shall be designated as the Regular
Interests in REMIC II and the Class R-II Certificates shall be designated as the
Residual Interests in REMIC II. The Class A Certificates, the Mezzanine
Certificates, the Class CE Certificates and the Class P Certificates shall be
designated as the Regular Interests in REMIC III and the Class R-III
Certificates shall be designated as the Residual Interests in REMIC III. The
Trustee shall not permit the creation of any "interests" in REMIC I, REMIC II or
REMIC III (within the meaning of Section 860G of the Code) other than the REMIC
I Regular Interests, the REMIC II Regular Interests and the interests
represented by the Certificates.
(b) The Closing Date is hereby designated as the "Startup Day" of
REMIC I, REMIC II and REMIC III within the meaning of Section 860G(a)(9) of the
Code.
(c) The Trustee shall pay out of its own funds, without any right
of reimbursement, any and all expenses relating to any tax audit of the Trust
Fund (including, but not limited to, any professional fees or any administrative
or judicial proceedings with respect to any of REMIC I, REMIC II or REMIC III
that involve the Internal Revenue Service or state tax authorities), other than
the expense of obtaining any tax related Opinion of Counsel except as specified
herein. The Trustee, as agent for all of REMIC I's, REMIC II's and REMIC III's
tax matters person, shall (i) act on behalf of the Trust Fund in relation to any
tax matter or controversy involving any of REMIC I, REMIC II or REMIC III and
(ii) represent the Trust Fund in any administrative or judicial proceeding
relating to an examination or audit by any governmental taxing authority with
respect thereto. The holder of the largest Percentage Interest of each Class of
Residual Certificates shall be designated, in the manner provided under Treasury
regulations section 1.860F-4(d) and Treasury regulations section
301.6231(a)(7)-1, as the tax matters person of the related REMIC created
hereunder. By their acceptance thereof, the holder of the largest Percentage
Interest of the Residual Certificates hereby agrees to irrevocably appoint the
Trustee or an Affiliate as its agent to perform all of the duties of the tax
matters person for the Trust Fund.
(d) The Trustee shall prepare, sign and file all of the Tax
Returns in respect of each REMIC created hereunder. The expenses of preparing
and filing such returns shall be borne by the Trustee without any right of
reimbursement therefor. The Master Servicer shall provide on a timely basis to
the Trustee or its designee such information with respect to the assets of the
Trust Fund as
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is in its possession and reasonably required by the Trustee to enable it to
perform its obligations under this Article.
(e) The Trustee shall perform on behalf of each of REMIC I, REMIC
II and REMIC III all reporting and other tax compliance duties that are the
responsibility of such REMIC under the Code, the REMIC Provisions or other
compliance guidance issued by the Internal Revenue Service or any state or local
taxing authority. Among its other duties, as required by the Code, the REMIC
Provisions or other such compliance guidance, the Trustee shall provide (i) to
any Transferor of a Residual Certificate such information as is necessary for
the application of any tax relating to the transfer of a Residual Certificate to
any Person who is not a Permitted Transferee, (ii) to the Certificateholders
such information or reports as are required by the Code or the REMIC Provisions
including reports relating to interest, original issue discount and market
discount or premium (using the Prepayment Assumption as required) and (iii) to
the Internal Revenue Service the name, title, address and telephone number of
the person who will serve as the representative of REMIC I, REMIC II and REMIC
III. The Master Servicer shall provide on a timely basis to the Trustee such
information with respect to the assets of the Trust Fund, including, without
limitation, the Mortgage Loans, as is in its possession and reasonably required
by the Trustee to enable it to perform its obligations under this subsection. In
addition, the Depositor shall provide or cause to be provided to the Trustee,
within ten (10) days after the Closing Date, all information or data that the
Trustee reasonably determines to be relevant for tax purposes as to the
valuations and issue prices of the Certificates, including, without limitation,
the price, yield, prepayment assumption and projected cash flow of the
Certificates.
(f) The Trustee shall take such action and shall cause each REMIC
created hereunder to take such action as shall be necessary to create or
maintain the status thereof as a REMIC under the REMIC Provisions (and the
Master Servicer shall assist it, to the extent reasonably requested by it). The
Trustee shall not take any action, cause the Trust Fund to take any action or
fail to take (or fail to cause to be taken) any action that, under the REMIC
Provisions, if taken or not taken, as the case may be, could (i) endanger the
status of REMIC I, REMIC II or REMIC III as a REMIC or (ii) result in the
imposition of a tax upon the Trust Fund (including but not limited to the tax on
prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax
on contributions to a REMIC set forth in Section 860G(d) of the Code) (either
such event, an "Adverse REMIC Event") unless the Trustee has received an Opinion
of Counsel, addressed to the Trustee (at the expense of the party seeking to
take such action but in no event at the expense of the Trustee) to the effect
that the contemplated action will not, with respect to any of REMIC I, REMIC II
or REMIC III, endanger such status or result in the imposition of such a tax,
nor shall the Master Servicer take or fail to take any action (whether or not
authorized hereunder) as to which the Trustee has advised it in writing that it
has received an Opinion of Counsel to the effect that an Adverse REMIC Event
could occur with respect to such action. In addition, prior to taking any action
with respect to REMIC I, REMIC II or REMIC III or the respective assets of each,
or causing REMIC I, REMIC II or REMIC III to take any action, which is not
contemplated under the terms of this Agreement, the Master Servicer will consult
with the Trustee or its designee, in writing, with respect to whether such
action could cause an Adverse REMIC Event to occur with respect to REMIC I,
REMIC II or REMIC III, and the Master Servicer shall not take any such action or
cause either REMIC I, REMIC II or REMIC III to take any such action as to which
the Trustee has advised it in writing that an Adverse REMIC Event
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could occur. The Trustee may consult with counsel to make such written advice,
and the cost of same shall be borne by the party seeking to take the action not
permitted by this Agreement, but in no event shall such cost be an expense of
the Trustee. At all times as may be required by the Code, the Trustee will
ensure that substantially all of the assets of both REMIC I and REMIC II will
consist of "qualified mortgages" as defined in Section 860G(a)(3) of the Code
and "permitted investments" as defined in Section 860G(a)(5) of the Code.
(g) In the event that any tax is imposed on "prohibited
transactions" of any REMIC created hereunder as defined in Section 860F(a)(2) of
the Code, on the "net income from foreclosure property" of such REMIC as defined
in Section 860G(c) of the Code, on any contributions to any such REMIC after the
Startup Day therefor pursuant to Section 860G(d) of the Code, or any other tax
is imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the Trustee pursuant to Section 10.03 hereof,
if such tax arises out of or results from a breach by the Trustee of any of its
obligations under this Article X, (ii) to the Master Servicer pursuant to
Section 10.03 hereof, if such tax arises out of or results from a breach by the
Master Servicer of any of its obligations under Article III or this Article X,
or otherwise (iii) against amounts on deposit in the Distribution Account and
shall be paid by withdrawal therefrom.
(h) On or before ________ of each calendar year, commencing
______________, the Trustee shall deliver to the Master Servicer and each Rating
Agency a Certificate from a Responsible Officer of the Trustee stating the
Trustee's compliance with this Article X.
(i) The Trustee shall, for federal income tax purposes, maintain
books and records with respect to each of REMIC I, REMIC II and REMIC III on a
calendar year and on an accrual basis.
(j) Following the Startup Day, the Trustee shall not accept any
contributions of assets to any of REMIC I, REMIC II or REMIC III other than in
connection with any Qualified Substitute Mortgage Loan delivered in accordance
with Section 2.03 unless it shall have received an Opinion of Counsel to the
effect that the inclusion of such assets in the Trust Fund will not cause the
related REMIC to fail to qualify as a REMIC at any time that any Certificates
are outstanding or subject such REMIC to any tax under the REMIC Provisions or
other applicable provisions of federal, state and local law or ordinances.
(k) Neither the Trustee nor the Master Servicer shall enter into
any arrangement by which REMIC I, REMIC II or REMIC III will receive a fee or
other compensation for services nor permit any such REMIC to receive any income
from assets other than "qualified mortgages" as defined in Section 860G(a)(3) of
the Code or "permitted investments" as defined in Section 860G(a)(5) of the
Code.
SECTION 10.02. Prohibited Transactions and Activities.
None of the Depositor, the Master Servicer or the Trustee shall
sell, dispose of or substitute for any of the Mortgage Loans (except in
connection with (i) the foreclosure of a Mortgage Loan, including but not
limited to, the acquisition or sale of a Mortgaged Property acquired by deed in
lieu of foreclosure, (ii) the bankruptcy of REMIC I, (iii) the termination of
REMIC I pursuant to
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Article IX of this Agreement, (iv) a substitution pursuant to Article II of this
Agreement or (v) a purchase of Mortgage Loans pursuant to Article II or III of
this Agreement), nor acquire any assets for any of REMIC I, REMIC II or REMIC
III (other than REO Property acquired in respect of a defaulted Mortgage Loan),
nor sell or dispose of any investments in the Collection Account or the
Distribution Account for gain, nor accept any contributions to any of REMIC I,
REMIC II or REMIC III after the Closing Date (other than a Qualified Substitute
Mortgage Loan delivered in accordance with Section 2.03), unless it has received
an Opinion of Counsel, addressed to the Trustee (at the expense of the party
seeking to cause such sale, disposition, substitution, acquisition or
contribution but in no event at the expense of the Trustee) that such sale,
disposition, substitution, acquisition or contribution will not (a) affect
adversely the status of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
cause any of REMIC I, REMIC II or REMIC III to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 10.03. Master Servicer and Trustee Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the Depositor
and the Master Servicer for any taxes and costs including, without limitation,
any reasonable attorneys fees imposed on or incurred by the Trust Fund, the
Depositor or the Master Servicer, as a result of a breach of the
Trustee's covenants set forth in this Article X.
(b) The Master Servicer agrees to indemnify the Trust Fund, the
Depositor and the Trustee for any taxes and costs including, without limitation,
any reasonable attorneys' fees imposed on or incurred by the Trust Fund, the
Depositor or the Trustee, as a result of a breach of the Master
Servicer's covenants set forth in Article III or this Article X.
<PAGE>
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ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.01. Amendment.
This Agreement or any Custodial Agreement may be amended from
time to time by the Depositor, the Master Servicer, the Trustee and, if
applicable, the Custodian without the consent of any of the Certificateholders,
(i) to cure any ambiguity or defect, (ii) to correct, modify or supplement any
provisions herein (including to give effect to the expectations of
Certificateholders), or in any Custodial Agreement, or (iii) to make any other
provisions with respect to matters or questions arising under this Agreement or
in any Custodial Agreement which shall not be inconsistent with the provisions
of this Agreement or such Custodial Agreement, provided that such action shall
not, as evidenced by an Opinion of Counsel delivered to the Trustee, adversely
affect in any material respect the interests of any Certificateholder. No
amendment shall be deemed to adversely affect in any material respect the
interests of any Certificateholder who shall have consented thereto, and no
Opinion of Counsel shall be required to address the effect of any such amendment
on any such consenting Certificateholder.
This Agreement or any Custodial Agreement may also be amended
from time to time by the Depositor, the Master Servicer and the Trustee with the
consent of the Holders of Certificates entitled to at least ___% of the Voting
Rights for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or any Custodial Agreement
or of modifying in any manner the rights of the Holders of Certificates;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the Holder
of such Certificate, (ii) adversely affect in any material respect the interests
of the Holders of any Class of Certificates in a manner, other than as described
in (i), without the consent of the Holders of Certificates of such Class
evidencing at least ____% of the Voting Rights allocated to such Class, or (iii)
modify the consents required by the immediately preceding clauses (i) and (ii)
without the consent of the Holders of all Certificates then outstanding.
Notwithstanding any other provision of this Agreement, for purposes of the
giving or withholding of consents pursuant to this Section 11.01, Certificates
registered in the name of the Depositor or the Master Servicer or any Affiliate
thereof shall be entitled to Voting Rights with respect to matters affecting
such Certificates.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel to the effect that such amendment will
not result in the imposition of any tax on any of REMIC I, REMIC II or REMIC III
pursuant to the REMIC Provisions or cause any of REMIC I, REMIC II or REMIC III
to fail to qualify as a REMIC at any time that any Certificates are outstanding.
Promptly after the execution of any such amendment the Trustee
shall furnish a copy of such amendment to each Certificateholder.
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It shall not be necessary for the consent of Certificateholders
under this Section 11.01 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
The cost of any Opinion of Counsel to be delivered pursuant to
this Section 11.01 shall be borne by the Person seeking the related amendment,
but in no event shall such Opinion of Counsel be an expense of the Trustee.
The Trustee may, but shall not be obligated to enter into any
amendment pursuant to this Section that affects its rights, duties and
immunities under this Agreement or otherwise.
SECTION 11.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Master Servicer at the expense of the Certificateholders, but
only upon direction of the Trustee accompanied by an Opinion of Counsel to the
effect that such recordation materially and beneficially affects the interests
of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement
as herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 11.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate
to terminate this Agreement or the Trust Fund, nor entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of the
parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
expressly provided for herein) or in any manner otherwise control the operation
and management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of any of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
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No Certificateholder shall have any right by virtue of any
provision of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless (i)
such Holder previously shall have given to the Trustee a written notice of
default and of the continuance thereof, as hereinbefore provided, and (ii) the
Holders of Certificates entitled to at least 25% of the Voting Rights shall have
made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs, expenses
and liabilities to be incurred therein or thereby, and the Trustee, for 15 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatsoever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 11.04. Governing Law.
This Agreement shall be construed in accordance with the laws of
the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance
with such laws.
SECTION 11.05. Notices.
All directions, demands and notices hereunder shall be in writing
and shall be deemed to have been duly given when received if personally
delivered at or mailed by first class mail, postage prepaid, or by express
delivery service or delivered in any other manner specified herein, to (a) in
the case of the Depositor, _________________________, Attention: ______________
(telecopy number ______________), or such other address or telecopy number as
may hereafter be furnished to the Master Servicer and the Trustee in writing by
the Depositor, (b) in the case of the Master Servicer, Attention:
_______________ (telecopy number: ______________), or such other address or
telecopy number as may hereafter be furnished to the Trustee and the Depositor
in writing by the Master Servicer and (c) in the case of the Trustee,
___________________, Attention: ____________________ (telecopy number
______________), with a copy to the Trustee at _________________________,
Attention: ________________________ (telecopy number ___________), or such other
address or telecopy number as may hereafter be furnished to the Master Servicer
and the Depositor in writing by the Trustee. Any notice required or permitted to
be given to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register. Any
notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given when mailed, whether or not the
Certificateholder receives such notice. A copy of any notice required to be
telecopied hereunder also shall be mailed to the appropriate party in the manner
set forth above.
<PAGE>
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SECTION 11.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 11.07. Notice to Rating Agencies.
The Trustee shall use its best efforts promptly to provide notice
to the Rating Agencies with respect to each of the following of which it has
actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Master Servicer Event of Default that
has not been cured or waived;
3. The resignation or termination of the Master Servicer or the
Trustee;
4. The repurchase or substitution of Mortgage Loans pursuant to
or as contemplated by Section 2.03;
5. The final payment to the Holders of any Class of Certificates;
6. Any change in the location of the Collection Account or the
Distribution Account;
7. Any event that would result in the inability of the Trustee,
were it to succeed as Master Servicer, to make advances
regarding delinquent Mortgage Loans; and
8. The filing of any claim under the Master Servicer's blanket
bond and errors and omissions insurance policy required by
Section 3.14 or the cancellation or material modification of
coverage under any such instrument.
In addition, the Trustee shall promptly furnish to each Rating
Agency copies of each report to Certificateholders described in Section 4.02 and
the Master Servicer, as required pursuant to Section 3.20 and Section 3.21,
shall promptly furnish to each Rating Agency copies of the
following:
1. Each annual statement as to compliance described in Section
3.20; and
2. Each annual independent public accountants' servicing report
described in Section 3.21.
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Any such notice pursuant to this Section 11.07 shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by first class mail, postage prepaid, or by express delivery service to Duff &
Phelps Credit Rating Company, 17 State Street, New York, New York 10004, Moody's
Investors Service, 99 Church Street, New York, New York 10007 and to Standard &
Poor's, a division of the McGraw-Hill Companies, Inc., 25 Broadway, New York,
New York 10004, or such other addresses as the Rating Agencies may designate in
writing to the parties hereto.
SECTION 11.08. Article and Section References.
All article and section references used in this Agreement, unless
otherwise provided, are to articles and sections in this Agreement.
SECTION 11.09. Grant of Security Interest.
It is the express intent of the parties hereto that the conveyance
of the Mortgage Loans by the Depositor to the Trustee be, and be construed as, a
sale of the Mortgage Loans by the Depositor and not a pledge of the Mortgage
Loans by the Depositor to secure a debt or other obligation of the Depositor or
the Mortgage Loan Transferor. However, in the event that, notwith standing the
aforementioned intent of the parties, the Mortgage Loans are held to be property
of the Depositor or the Mortgage Loan Transferor, then, (a) it is the express
intent of the parties that such conveyance be deemed a pledge of the Mortgage
Loans by the Depositor to the Trustee to secure a debt or other obligation of
the Depositor or the Mortgage Loan Transferor and (b)(1) this Agreement shall
also be deemed to be a security agreement within the meaning of Articles 8 and 9
of the Uniform Commercial Code as in effect from time to time in the State of
New York; (2) the conveyance provided for in Section 2.01 hereof shall be deemed
to be a grant by the Mortgage Loan Transferor and the Depositor to the Trustee
of a security interest in all of the Mortgage Loan Transferor's and the
Depositor's right, title and interest in and to the Mortgage Loans and all
amounts payable to the holders of the Mortgage Loans in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property, including
without limitation all amounts, other than investment earnings, from time to
time held or invested in the Collection Account and the Distribution Account,
whether in the form of cash, instruments, securities or other property; (3) the
obligations secured by such security agreement shall be deemed to be all of the
Depositor's obligations under this Agreement, including the obligation to
provide to the Certificateholders the benefits of this Agreement relating to the
Mortgage Loans and the Trust Fund; and (4) notifications to persons holding such
property, and acknowledgments, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Trustee for the purpose of perfecting such security interest under
applicable law. Accordingly, the Depositor hereby grants to the Trustee a
security interest in the Mortgage Loans and all other property described in
clause (2) of the preceding sentence, for the purpose of securing to the Trustee
the performance by the Depositor of the obliga tions described in clause (3) of
the preceding sentence. Notwithstanding the foregoing, the parties hereto intend
the conveyance pursuant to Section 2.01 and the transfer pursuant to the
Mortgage
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Loan Purchase Agreement to be a true, absolute and unconditional sale of the
Mortgage Loans and assets constituting the Trust Fund by the Depositor to the
Trustee.
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized, in each case as of the day and year first above
written.
AMERIQUEST MORTGAGE SECURITIES INC.,
as Depositor
By:
------------------------------------
Name:
Title:
[NAME OF MASTER SERVICER],
as Master Servicer
By:
------------------------------------
Name:
Title:
[NAME OF TRUSTEE],
as Trustee
By:
------------------------------------
Name:
Title:
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On the __th day of _____________, before me, a notary public in
and for said State, personally appeared ___________, known to me to be
___________________of ____________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
------------------------------
Notary Public
[Notarial Seal]
Exhibit 4.2
NEW CENTURY MORTGAGE SECURITIES, INC.
Depositor
[NAME OF MASTER SERVICER]
Master Servicer and Servicer
[NAME OF SERVICER]
Servicer
[NAME OF TRUSTEE]
Trustee
and
[NAME OF TRUST ADMINISTRATOR]
Trust Administrator
-----------------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of ____________ 1, _____
-----------------------------------------
Mortgage Pass-Through Certificates
Series 199_-__
<PAGE>
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
ARTICLE I
DEFINITIONS
1.01. Defined Terms...........................................................5
1.02. Allocation of Certain Interest Shortfalls..............................51
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
2.01. Conveyance of the Mortgage Loans.......................................53
2.02. Acceptance of REMIC I by Trustee.......................................55
2.03. Repurchase or Substitution of Mortgage Loans by the Originators, the
Seller or the Depositor................................................57
2.04. Representations and Warranties of the Depositor........................60
2.05. Representations, Warranties and Covenants of the Servicers.............62
2.06. Issuance of the Class R-I Certificates.................................65
2.07. Conveyance of the REMIC I Regular Interests; Acceptance of REMIC II by
the Trustee............................................................66
2.08. Issuance of Class R-II Certificates....................................66
2.09. Conveyance of REMIC II Regular Interests; Acceptance of REMIC III by
the Trustee............................................................66
2.10. Issuance of REMIC III Certificates.....................................67
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
3.01. Servicers to Act as Servicers..........................................68
3.02. Sub-Servicing Agreements Between Servicer and Sub-Servicers............70
3.03. Successor Sub-Servicers................................................72
3.04. Liability of the Servicer..............................................72
3.05. No Contractual Relationship Between Sub-Servicers and the Trust
Administrator, the Trustee or Certificateholders.......................72
3.06. Assumption or Termination of Sub-Servicing Agreements by Trust
Administrator..........................................................73
3.07. Collection of Certain Mortgage Loan Payments...........................73
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3.08. Sub-Servicing Accounts.................................................74
3.09. Collection of Taxes, Assessments and Similar Items; Servicing
Accounts ..............................................................74
3.10. Collection Account and Distribution Account............................75
3.11. Withdrawals from the Collection Account and Distribution Account.......78
3.12. Investment of Funds in the Collection Account, the Expense Account
and the Distribution Account...........................................80
3.13. [intentionally omitted]................................................81
3.14. Maintenance of Hazard Insurance and Errors and Omissions and Fidelity
Coverage...............................................................81
3.15. Enforcement of Due-On-Sale Clauses; Assumption Agreements..............83
3.16. Realization Upon Defaulted Mortgage Loans..............................84
3.17. Trustee and Trust Administrator to Cooperate; Release of Mortgage
File...................................................................86
3.18. Servicing Compensation.................................................88
3.19. Reports to the Trust Administrator and the Trustee; Collection
Account Statements.....................................................89
3.20. Statement as to Compliance.............................................89
3.21. Independent Public Accountants' Servicing Report.......................89
3.22. Access to Certain Documentation........................................90
3.23. Title, Management and Disposition of REO Property......................90
3.24. Obligations of the Servicer in Respect of Prepayment Interest
Shortfall..............................................................93
3.25. Expense Account........................................................94
3.26. Obligations of the Servicer in Respect of Mortgage Rates and Monthly
Payments...............................................................94
3.27. Solicitations..........................................................94
ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
4.01. Distributions..........................................................96
4.02. Statements to Certificateholders......................................102
4.03. Remittance Reports; P&I Advances......................................105
4.04. Allocation of Realized Losses.........................................107
4.05. Compliance with Withholding Requirements..............................109
4.06. Exchange Commission; Additional Information...........................109
ARTICLE V
THE CERTIFICATES
5.01. The Certificates......................................................111
5.02. Registration of Transfer and Exchange of Certificates.................113
5.03. Mutilated, Destroyed, Lost or Stolen Certificates.....................117
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5.04. Persons Deemed Owners.................................................118
5.05. Certain Available Information.........................................118
ARTICLE VI
THE DEPOSITOR AND THE SERVICERS
6.01. Liability of the Depositor and the Servicers..........................120
6.02. Merger or Consolidation of the Depositor or the Servicers.............120
6.03. Limitation on Liability of the Depositor, the Servicers and Others....120
6.04. Limitation on Resignation of the Servicers............................121
6.05. Rights of the Depositor in Respect of the Servicers...................122
ARTICLE VII
DEFAULT
7.01. Servicer Events of Default............................................123
7.02. Master Servicer, Trust Administrator or Trustee to Act; Appointment
of Successor..........................................................126
7.03. Notification to Certificateholders....................................128
7.04. Waiver of Servicer Events of Default..................................128
ARTICLE VIII
CONCERNING THE TRUSTEE AND THE TRUST ADMINISTRATOR
8.01. Duties of Trustee and Trust Administrator.............................129
8.02. Certain Matters Affecting the Trustee and the Trust Administrator.....130
8.03. Neither Trustee nor Trust Administrator Liable for Certificates or
Mortgage Loans........................................................131
8.04. Trustee and Trust Administrator May Own Certificates..................132
8.05. Trustee's and Trust Administrator's Fees and Expenses.................132
8.06. Eligibility Requirements for Trustee and Trust Administrator..........133
8.07. Resignation and Removal of the Trustee and the Trust Administrator....133
8.08. Successor Trustee or Trust Administrator..............................134
8.09. Merger or Consolidation of Trustee or Trust Administrator.............135
8.10. Appointment of Co-Trustee or Separate Trustee.........................135
8.11. Appointment of Office or Agency.......................................136
8.12. Representations and Warranties........................................137
ARTICLE IX
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CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
9.01. Rights of the Certificate Insurer To Exercise Rights of Class A
Certificateholders....................................................138
9.02. Trustee and the Trust Administrator To Act Solely with Consent of
the Certificate Insurer...............................................138
9.03. Trust Fund and Accounts Held for Benefit of the Certificate Insurer...139
9.04. Claims Upon the Policy; Policy Payments Account.......................139
9.05 Effect of Payments by the Certificate Insurer; Subrogation............141
9.06. Notices to the Certificate Insurer....................................141
9.07. Third-Party Beneficiary...............................................141
9.08. Trust Administrator to Hold the Policy................................142
ARTICLE X
TERMINATION
10.01 Termination Upon Repurchase or Liquidation of All Mortgage Loans......143
10.02 Additional Termination Requirements...................................145
ARTICLE XI
REMIC PROVISIONS
11.01. REMIC Administration..................................................147
11.02. Prohibited Transactions and Activities................................150
11.03. Master Servicer, Servicers, Trustee and Trust
Administrator Indemnification.........................................150
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.01. Amendment.............................................................152
12.02. Recordation of Agreement; Counterparts................................153
12.03. Limitation on Rights of Certificateholders............................153
12.04. Governing Law.........................................................154
12.05. Notices...............................................................154
12.06. Severability of Provisions............................................155
12.07. Notice to Rating Agencies and the Certificate Insurer.................155
12.08. Article and Section References........................................157
12.09. Grant of Security Interest............................................157
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Exhibits
Exhibit A-1 Form of Class A-1 Certificate
Exhibit A-2 Form of Class A-2 Certificate
Exhibit A-3 Form of Class A-3 Certificate
Exhibit A-4 Form of Class A-4 Certificate
Exhibit A-5 Form of Class A-5 Certificate
Exhibit A-6 Form of Class A-6 Certificate
Exhibit A-7 Form of Class A-7 Certificate
Exhibit A-8 Form of Class CE Certificate
Exhibit A-9 Form of Class P Certificate
Exhibit A-10 Form of Class R-I Certificate
Exhibit A-11 Form of Class R-II Certificate
Exhibit A-12 Form of Class R-III Certificate
Exhibit B Form of Financial Guaranty Insurance Policy
Exhibit C-1 Form of Trust Administrator's Initial Certification
Exhibit C-2 Form of Trust Administrator's Interim Certification
Exhibit C-3 Form of Trust Administrator's Final Certification
Exhibit D Form of Mortgage Loan Purchase Agreements
Exhibit E-1 Request for Release
Exhibit E-2 Request for Release Mortgage Loans paid in full
Exhibit F-1 Form of Transferor Representation Letter and Form of Transferee
Representation Letter in Connection with Transfer of the Class CE
Certificates or Class P Certificates Pursuant to Rule 144A Under
the 1933 Act
Exhibit F-2 Form of Transfer Affidavit and Agreement and Form of Transferor
Affidavit in Connection with Transfer of Residual Certificates
Exhibit G Form of Certification with respect to ERISA and the Code
Exhibit H Form of Report Pursuant to Section 4.06
Exhibit I Form of Lost Note Affidavit
Schedule 1 Mortgage Loan Schedule
Schedule 2 Prepayment Charge Schedule
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This Pooling and Servicing Agreement, is dated and effective as of
December 1, 1998, among NEW CENTURY MORTGAGE SECURITIES, INC. as Depositor,
[Name of Master Servicer] as Master Servicer and Servicer, OPTION ONE MORTGAGE
CORPORATION as Servicer, [Name of Trustee] as Trustee and U.S. BANK NATIONAL
ASSOCIATION as Trust Administrator.
PRELIMINARY STATEMENT:
The Depositor intends to sell pass-through certificates to be issued
hereunder in multiple classes, which in the aggregate will evidence the entire
beneficial ownership interest in each REMIC (as defined herein) created
hereunder. The Trust Fund will consist of a segregated pool of assets comprising
of the Mortgage Loans and certain other related assets subject to this
Agreement.
As provided herein, the Trustee will elect to treat the segregated
pool of assets consisting of the Mortgage Loans and certain other related assets
(other than the Servicer Prepayment Charge Payment Amount) subject to this
Agreement as a REMIC for federal income tax purposes, and such segregated pool
of assets will be designated as "REMIC I." The Class R-I Certificates will be
the sole class of "residual interests" in REMIC I for purposes of the REMIC
Provisions (as defined herein). The following table irrevocably sets forth the
designation, the REMIC I Remittance Rate, the initial Uncertificated Balance
and, solely for purposes of satisfying Treasury regulation Section
1.860G-1(a)(4)(iii), the "latest possible maturity date" for each of the REMIC I
Regular Interests (as defined herein). None of the REMIC I Regular Interests
will be certificated.
REMIC I Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
- ----------- --------------- ---------------------- ----------------
I-LT1 Variable(2)
I-LT2 Variable(2)
I-LT3 Variable(2)
I-LT4 Variable(2)
I-LT5 Variable(2)
I-LT6 Variable(2)
I-LT7 Variable(2)
I-LT8 Variable(2)
I-LT9 Variable(2)
I-LTP (3)
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____________________
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date" for each REMIC I Regular Interest.
(2) Calculated in accordance with the definition of "REMIC I Remittance Rate"
herein.
(3) The REMIC I Regular Interest I-LTP will not accrue interest.
As provided herein, the Trustee will elect to treat the segregated
pool of assets consisting of the REMIC I Regular Interests as a REMIC for
federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC II." The Class R-II Certificates will evidence the sole
class of "residual interests" in REMIC II for purposes of the REMIC Provisions.
The following table irrevocably sets forth the designation, the REMIC II
Remittance Rate, the initial Uncertificated Balance and, solely for purposes of
satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible
maturity date" for each of the REMIC II Regular Interests. None of the REMIC II
Regular Interests will be certificated.
REMIC II Initial Latest Possible
Designation Remittance Rate Uncertificated Balance Maturity Date(1)
- ----------- --------------- ---------------------- ----------------
II-LT1 Variable(2)
II-LT2 % per annum
II-LT3 % per annum
II-LT4 % per annum
II-LT5 % per annum
II-LT6 % per annum
II-LT7 % per annum(3)
II-LT8 % per annum
II-LT9 Variable(2)
II-LTP (4)
II-LT2S Variable(2) (5)
II-LT3S Variable(2) (5)
II-LT4S Variable(2) (5)
II-LT5S Variable(2) (5)
II-LT6S Variable(2) (5)
II-LT7S Variable(2) (5)
II-LT8S Variable(2) (5)
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___________________
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loan with the latest maturity date has been designated as
the "latest possible maturity date" for each REMIC II Regular Interest.
(2) Calculated in accordance with the definition of "REMIC II Remittance Rate"
herein.
(3) Subject to the Net WAC Pass-Through Rate.
(4) The REMIC II Regular Interest II-LTP will not accrue interest.
(5) This REMIC II Regular Interest has no Uncertificated Principal Balance but
will accrue interest at the related REMIC II Remittance Rate on the related
Uncertificated Notional Amount, which is equal to the Uncertificated
Balance of the Uncertificated Corresponding Component.
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As provided herein, the Trustee will elect to treat the segregated
pool of assets consisting of the REMIC II Regular Interests as a REMIC for
federal income tax purposes, and such segregated pool of assets will be
designated as "REMIC III." The Class R-III Certificates will evidence the sole
class of "residual interests" in REMIC III for purposes of the REMIC Provisions.
The following table irrevocably sets forth the designation, the Pass-Through
Rate, the initial aggregate Certificate Principal Balance and, solely for
purposes of satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the
"latest possible maturity date" for the indicated Classes of Certificates.
Initial Aggregate Latest Possible
Designation Pass-Through Rate Certificate Principal Balance Maturity Date(1)
- ----------- ----------------- ----------------------------- ----------------
Class A-1 %per annum
Class A-2 % per annum
Class A-3 % per annum
Class A-4 % per annum
Class A-5 % per annum
Class A-6 % per annum(2)
Class A-7 % per annum
Class CE Variable(3)
Class P (5)
____________________
(1) Solely for purposes of Section 1.860G-1(a)(4)(iii) of the Treasury
regulations, the Distribution Date immediately following the maturity date
for the Mortgage Loans with the latest maturity date has been designated as
the "latest possible maturity date" for each Class of Certificates.
(2) Subject to the Net WAC Pass-Through Rate.
(3) Calculated in accordance with the definition of "Pass-Through Rate" herein.
(4) The Class CE Certificates will accrue interest at their variable
Pass-Through Rate on the Notional Amount of the Class CE Certificates
outstanding from time to time which shall equal the Uncertificated Balance
of the REMIC II Regular Interests (other than the Uncertificated Balance of
REMIC II Regular Interest II-LTP). The Class CE Certificates will not
accrue interest on their Certificate Principal Balance.
(5) The Class P Certificates will not accrue interest.
As of the Cut-off Date, the Original Mortgage Loans had an aggregate
Scheduled Principal Balance equal to $______________.
In consideration of the mutual agreements herein contained, the
Depositor, the Master Servicer, the Servicers, the Trustee and the Trust
Administrator agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, including, without limitation, in the
Preliminary Statement hereto, the following words and phrases, unless the
context otherwise requires, shall have the meanings specified in this Article.
Unless otherwise specified, all calculations described herein shall be made on
the basis of a 360-day year consisting of twelve 30-day months.
"Accepted Servicing Practices": The servicing standards set forth in
Section 3.01.
"Accrued Certificate Interest": With respect to any Class A
Certificate or Class CE Certificate and each Distribution Date, interest accrued
during the related Interest Accrual Period at the Pass-Through Rate for such
Certificate for such Distribution Date on the Certificate Principal Balance, in
the case of the Class A Certificates, or on the Notional Amount, in the case of
the Class CE Certificate, of such Certificate immediately prior to such
Distribution Date. The Class P Certificates are not entitled to distributions in
respect of interest and, accordingly, will not accrue interest. All
distributions of interest on the Class A Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class A Certificate,
shall be reduced by an amount equal to the portion allocable to such Certificate
pursuant to Section 1.02 hereof of the aggregate amount of any Relief Act
Interest Shortfall, if any, for such Distribution Date. Accrued Certificate
Interest with respect to each Distribution Date, as to any Class CE Certificate,
shall be reduced by an amount equal to the portion allocable to such Certificate
pursuant to Section 1.02 hereof of the sum of (a) the aggregate Prepayment
Interest Shortfall, if any, for such Distribution Date to the extent not covered
by payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief
Act Interest Shortfall, if any, for such Distribution Date. In addition, Accrued
Certificate Interest with respect to each Distribution Date, as to any Class CE
Certificate, shall be reduced by an amount equal to the portion allocable to
such Class CE Certificate of Realized Losses, if any, pursuant to Section 4.04
hereof.
"Administration Fee": The amount payable to the Trustee on each
Distribution Date pursuant to Section 8.05 as compensation for all services
rendered by it in the execution of the trust hereby created and in the exercise
and performance of any of the powers and duties of the Trustee hereunder, which
amount shall equal one twelfth of the product of (i) the Administration Fee
Rate, multiplied by (ii) the aggregate Scheduled Principal Balance of the
Mortgage Loans and any REO Properties as of the second preceding Due Date (or,
in the case of the initial Distribution Date, as of the Cut-off Date). The fee
payable to the Trust Administrator for all services rendered by it in the
execution of the trust hereby created and in the exercise and performance of any
of the powers and duties of the Trust Administrator hereunder will be paid by
the Trustee out of the Administration Fee.
"Administration Fee Rate": ______% per annum.
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"Affiliate": With respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Pooling and Servicing Agreement and all amendments
hereof and supplements hereto.
"Annual Loss Percentage": With respect to any Distribution Date, a
fraction, expressed as a percentage, the numerator of which is the aggregate of
all Realized Losses for the twelve months ending on the last day of the
preceding month and the denominator of which is the aggregate Stated Principal
Balance of the Mortgage Loans and REO Properties as of the first day of the
twelfth preceding calendar month.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
"Available Distribution Amount": With respect to any Distribution
Date, an amount equal to (1) the sum of (a) the aggregate of the amounts on
deposit in the Collection Account and Distribution Account as of the close of
business on the related Determination Date, (b) the aggregate of any amounts
received in respect of an REO Property withdrawn from any REO Account and
deposited in the Distribution Account for such Distribution Date pursuant to
Section 3.23, (c) the aggregate of any amounts deposited in the Distribution
Account by the Servicers in respect of Prepayment Interest Shortfalls for such
Distribution Date pursuant to Section 3.24, (d) the aggregate of any P&I
Advances made by the Servicers for such Distribution Date pursuant to Section
4.03, (e) the aggregate of any advances made by the Master Servicer, the Trust
Administrator or the Trustee, as applicable, for such Distribution Date pursuant
to Section 7.02(b) and (f) with respect to the initial Distribution Date, the
Initial Deposit, reduced (to not less than zero), by (2) the sum of (x) the
portion of the amount described in clause (1)(a) above that represents (i)
Monthly Payments on the Mortgage Loans received from a Mortgagor on or prior to
the Determination Date but due during any Due Period subsequent to the related
Due Period, (ii) Principal Prepayments on the Mortgage Loans received after the
related Prepayment Period (together with any interest payments received with
such Principal Prepayments to the extent they represent the payment of interest
accrued on the Mortgage Loans during a period subsequent to the related
Prepayment Period), (iii) Liquidation Proceeds and Insurance Proceeds received
in respect of the Mortgage Loans after the related Prepayment Period, (iv)
amounts reimbursable or payable to the Depositor, either Servicer, the Master
Servicer, the Trustee, either Originator, the Trust Administrator, the Seller or
any Sub-Servicer pursuant to Section 3.11 or Section 3.12 or otherwise payable
in respect of extraordinary Trust Fund expenses, (v) Stayed Funds, (vi) the
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amount of the Certificate Insurer Premium payable from the Distribution Account
to the Expense Account pursuant to Section 3.25(b) for payment to the
Certificate Insurer, the Administration Fee payable from the Distribution
Account pursuant to Section 8.05 and the Master Servicing Fee payable from the
Distribution Account pursuant to Section 3.11(b)(3), (vii) amounts deposited in
the Collection Account or the Distribution Account in error and (viii) the
amount of any Prepayment Charges collected by the Servicers in connection with
the Principal Prepayment of any of the Mortgage Loans and any Servicer
Prepayment Charge Payment Amount, and (y) amounts reimbursable to the Master
Servicer, the Trustee or the Trust Administrator, as applicable, for an advance
made pursuant to Section 7.02(b) which advance the Master Servicer, the Trustee
or Trust Administrator, as applicable, has determined to be nonrecoverable from
the Stayed Funds in respect of which it was made.
"Balloon Loan": Any Mortgage Loan that provided on the date of
origination for an amortization schedule extending beyond its stated maturity
date.
"Balloon Payment": With respect to any Balloon Loan, as of any date of
determination, the Monthly Payment payable on the stated maturity date of such
Mortgage Loan.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11 of the
United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a Realized Loss
resulting from a Deficient Valuation or Debt Service Reduction.
"Book-Entry Certificate": The Class A Certificates for so long as the
Certificates of such Class shall be registered in the name of the Depository or
its nominee.
"Book-Entry Custodian": The custodian appointed pursuant to Section
5.01.
"Business Day": Any day other than a Saturday, a Sunday or a day on
which banking or savings and loan institutions in the State of __________, the
State of ________, the State of ____________ or in the city in which the
Corporate Trust Office of the Trust Administrator or the Corporate Trust Office
of the Trustee is located, are authorized or obligated by law or executive order
to be closed.
"Cash-Out Refinancing": With respect to a Mortgage Loan serviced by
___________, a Refinanced Mortgage Loan the proceeds of which are more than a
nominal amount in excess of the principal balance of any existing first mortgage
or subordinate mortgage on the related Mortgaged Property and related closing
costs. With respect to a Mortgage Loan serviced by __________, a Refinanced
Mortgage Loan, the proceeds of which were more than the greater of (a) $1,000 or
(b) 1% of the principal balance of an existing first mortgage on the related
Mortgaged Property and the principal balance of any existing subordinate
mortgages on the related Mortgaged Property, in either case, in excess of the
principal balance of an existing first mortgage on the related Mortgaged
Property, the principal balance of any existing subordinate mortgages on the
related Mortgaged Property and related closing costs, and were used to satisfy
such existing
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first mortgage, or any such subordinate mortgages, to pay related closing costs
and to provide to the Mortgagor more than $1,000 or the amount calculated in
clause (b) above, as applicable, in addition thereto. Notwithstanding the
foregoing, with respect to __________, any Refinanced Mortgage Loan with a
Loan-to-Value Ratio less than or equal to 80% that was used for the purpose of
debt consolidation is considered a Cash-Out Refinancing.
"Certificate": Any one of the Depositor's Mortgage Pass-Through
Certificates, Series 199_-___, Class A-1, Class A-2, Class A-3, Class A-4, Class
A-5, Class A-6, Class A-7, Class CE, Class P, Class R-I, Class R-II or Class
R-III, issued under this Agreement.
"Certificate Factor": With respect to any Class of Regular
Certificates as of any Distribution Date, a fraction, expressed as a decimal
carried to six places, the numerator of which is the aggregate Certificate
Principal Balance (or the Notional Amount, in the case of the Class CE
Certificates) of such Class of Certificates on such Distribution Date (after
giving effect to any distributions of principal and allocations of Realized
Losses in reduction of the Certificate Principal Balance (or the Notional
Amount, in the case of the Class CE Certificates) of such Class of Certificates
to be made on such Distribution Date), and the denominator of which is the
initial aggregate Certificate Principal Balance (or the Notional Amount, in the
case of the Class CE Certificates) of such Class of Certificates as of the
Closing Date.
"Certificate Insurer": _________________________________, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.
"Certificate Insurer Default": The existence and continuance of any of
the following:
(a) The Certificate Insurer fails to make a payment required
under the Policy in accordance with its terms; or
(b)(i) the Certificate Insurer (A) files any petition or
commences any case or proceeding under any provision or chapter of the
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization,
(B) makes a general assignment for the benefit of its creditors, or
(C) has an order for relief entered against it under the Bankruptcy
Code or any other similar federal or state law relating to insolvency,
bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or
(ii) a court of competent jurisdiction, the New York Department
of Insurance or other competent regulatory authority enters a final
and nonappealable order, judgment or decree (A) appointing a
custodian, trustee, agent or receiver for the Certificate Insurer or
for all or any material portion of its property or (B) authorizing the
taking of possession by a custodian, trustee, agent or receiver of the
Certificate Insurer (or the taking of possession of all or any
material portion of the property of the Certificate Insurer).
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"Certificate Insurer Premium": The Policy premium payable pursuant to
Section 3.25(b) hereof.
"Certificate Insurer Premium Rate": ____% per annum.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register and the Certificate
Insurer to the extent of Cumulative Insurance Payments, except that a
Disqualified Organization or a Non-United States Person shall not be a Holder of
a Residual Certificate for any purposes hereof and, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or either Servicer or any Affiliate thereof shall be
deemed not to be outstanding and the Voting Rights to which it is entitled shall
not be taken into account in determining whether the requisite percentage of
Voting Rights necessary to effect any such consent has been obtained, except as
otherwise provided in Section 12.01. The Trustee and the Trust Administrator may
conclusively rely upon a certificate of the Depositor or either Servicer in
determining whether a Certificate is held by an Affiliate thereof. All
references herein to "Holders" or "Certificateholders" shall reflect the rights
of Certificate Owners as they may indirectly exercise such rights through the
Depository and participating members thereof, except as otherwise specified
herein; provided, however, that the Trustee and the Trust Administrator shall be
required to recognize as a "Holder" or "Certificateholder" only the Person in
whose name a Certificate is registered in the Certificate Register.
"Certificate Owner": With respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Certificate as reflected on the books
of the Depository or on the books of a Depository Participant or on the books of
an indirect participating brokerage firm for which a Depository Participant acts
as agent.
"Certificate Principal Balance": With respect to each Class A
Certificate or Class P Certificate as of any date of determination, the
Certificate Principal Balance of such Certificate on the Distribution Date
immediately prior to such date of determination, minus all distributions
allocable to principal made thereon and Realized Losses allocated thereto on
such immediately prior Distribution Date (or, in the case of any date of
determination up to and including the first Distribution Date, the initial
Certificate Principal Balance of such Certificate, as stated on the face
thereof). With respect to each Class CE Certificate as of any date of
determination, an amount equal to the Percentage Interest evidenced by such
Certificate times the excess, if any, of (A) the then aggregate Uncertificated
Balances of the REMIC II Regular Interests over (B) the then aggregate
Certificate Principal Balances of the Class A Certificates and the Class P
Certificates then outstanding.
"Certificate Register": The register maintained pursuant to Section
5.02.
"Class": Collectively, all of the Certificates bearing the same class
designation.
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"Class A Certificate": Any Class A-1 Certificate, Class A-2
Certificate, Class A-3 Certificate, Class A-4 Certificate, Class A-5
Certificate, Class A-6 Certificate or Class A-7 Certificate.
"Class A-1 Certificate": Any one of the Class A-1 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-1 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-2 Certificate": Any one of the Class A-2 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-2 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-3 Certificate": Any one of the Class A-3 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-3 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-4 Certificate": Any one of the Class A-4 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-4 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-5 Certificate": Any one of the Class A-5 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-5 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-6 Certificate": Any one of the Class A-6 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-6 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class A-7 Certificate": Any one of the Class A-7 Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-7 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class CE Certificate": Any one of the Class CE Certificates executed,
authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-8 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
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"Class P Certificate": Any one of the Class P Certificates executed,
authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-9 and evidencing a Regular
Interest in REMIC III for purposes of the REMIC Provisions.
"Class R-I Certificate": Any one of the Class R-I Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-10 and evidencing the
Residual Interest in REMIC I for purposes of the REMIC Provisions.
"Class R-II Certificate": Any one of the Class R-II Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-11 and evidencing the
Residual Interest in REMIC II for purposes of the REMIC Provisions.
"Class R-III Certificates": Any one of the Class R-III Certificates
executed, authenticated and delivered by the Trustee or the Trust Administrator,
substantially in the form annexed hereto as Exhibit A-12 and evidencing the
Residual Interest in REMIC III for purposes of the REMIC Provisions.
"Closing Date": _________________.
"Code": The Internal Revenue Code of 1986.
"Collection Account": Each of the accounts created and maintained, or
caused to be created and maintained, by each Servicer pursuant to Section
3.10(a), which shall be entitled as appropriate, "New Century Mortgage
Corporation, as Servicer for Firstar Bank Milwaukee, N.A., as Trustee, in trust
for (A) the registered holders of Salomon Brothers Mortgage Securities VII,
Inc., Mortgage Pass-Through Certificates, Series 1998-NC7 and (B) Financial
Security Assurance Inc." or "Option One Mortgage Corporation, as Servicer for
Firstar Bank Milwaukee, N.A., as Trustee, in trust for (A) the registered
holders of Salomon Brothers Mortgage Securities VII, Inc., Mortgage Pass-Through
Certificates, Series 1998-NC7 and (B) Financial Security Assurance Inc." The
Collection Account must be an Eligible Account.
"Commission": The Securities and Exchange Commission.
"Corporate Trust Office": The principal corporate trust office of the
Trust Administrator or the Trustee, as the case may be, at which at any
particular time its corporate trust business in connection with this Agreement
shall be administered, which office, with respect to the Trust Administrator, at
the date of the execution of this instrument is located at
________________________________________, or at such other address as the Trust
Administrator may designate from time to time by notice to the
Certificateholders, the Depositor, each Servicer, the Trustee and the
Certificate Insurer and, with respect to the Trustee, at the date of the
execution of this instrument is located at ____________________________________,
or such other address as the Trustee may designate from time to time by notice
to the Certificateholders, the Depositor, each Servicer, the Trust Administrator
and the Certificate Insurer.
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"Corresponding Certificate": With respect to REMIC I Regular Interest
I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I
Regular Interest I- LT5, REMIC I Regular Interest I-LT6, REMIC I Regular
Interest I-LT7, REMIC I Regular Interest I-LT8 and REMIC I Regular Interest
I-LTP, the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates, Class A-4 Certificates, Class A-5 Certificates, Class A-6
Certificates, Class A-7 Certificates and Class P Certificates, respectively.
With respect to REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT5,
REMIC II Regular Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II
Regular Interest II-LT8 and REMIC II Regular Interest II-LTP, the Class A-1
Certificates, Class A-2 Certificates, Class A-3 Certificates, Class A-4
Certificates, Class A-5 Certificates, Class A-6 Certificates, Class A-7
Certificates and Class P Certificates, respectively.
"Cumulative Insurance Payments": As of any time of determination, the
aggregate of all Insurance Payments previously made by the Certificate Insurer
under the Policy plus interest thereon from the date such amount became due
until paid in full, at a rate of interest calculated as provided in the
Insurance Agreement minus all payments previously made to the Certificate
Insurer pursuant to Section 4.01 hereof as reimbursement for such amounts.
"Cumulative Loss Percentage": With respect to any Distribution Date,
the percentage equivalent of a fraction, the numerator of which is the aggregate
amount of Realized Losses incurred from the Cut-off Date to the last day of the
preceding calendar month and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans as of the Cut-off Date.
"Cut-off Date": With respect to each Original Mortgage Loan, December
1, 1998. With respect to all Qualified Substitute Mortgage Loans, their
respective dates of substitution. References herein to the "Cut-off Date," when
used with respect to more than one Mortgage Loan, shall be to the respective
Cut-off Dates for such Mortgage Loans.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient Valuation.
"Deficiency Amount": With respect to the Class A Certificates as of
any Distribution Date, the sum of (i) any shortfall in the amounts available in
the Distribution Account to pay the Interest Distribution Amount on such
Certificates for the related Interest Accrual Period, (ii) the excess, if any,
of (a) the aggregate Certificate Principal Balances of the Class A Certificates
then outstanding over (b) the aggregate Stated Principal Balances of the
Mortgage Loans and REO Properties then outstanding, and (iii) without
duplication of the amount specified in clause (ii), the aggregate Certificate
Principal Balances of the Class A Certificates to the extent unpaid on the final
Distribution Date or earlier termination of the Trust Fund pursuant to the terms
of this Agreement.
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"Deficiency Event": The inability of the Trust Administrator to make
the Guaranteed Distribution on any Distribution Date due to a shortage of funds
for such purpose then held in the Distribution Account and the failure of the
Certificate Insurer to pay in full a claim made in accordance with the Policy
with respect to such Distribution Date.
"Deficient Valuation": With respect to any Mortgage Loan, a valuation
of the related Mortgaged Property by a court of competent jurisdiction in an
amount less than the then outstanding principal balance of the Mortgage Loan,
which valuation results from a proceeding initiated under the Bankruptcy Code.
"Definitive Certificates": As defined in Section 5.01(b).
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced by
a Qualified Substitute Mortgage Loan.
"Delinquency Percentage": As of the last day of the related Due
Period, the percentage equivalent of a fraction, the numerator of which is the
aggregate Stated Principal Balance of all Mortgage Loans that, as of the last
day of the previous calendar month, are 60 or more days delinquent, are in
foreclosure, have been converted to REO Properties or have been discharged by
reason of bankruptcy, and the denominator of which is the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties as of the last day of
the previous calendar month; provided, however, that any Mortgage Loan purchased
by the Master Servicer (or by Option One) pursuant to Section 3.16(c) shall not
be included in either the numerator or the denominator for purposes of
calculating the Delinquency Percentage.
"Depositor": Salomon Brothers Mortgage Securities VII, Inc., a
Delaware corporation, or its successor in interest.
"Depository": The Depository Trust Company, or any successor
Depository hereafter named. The nominee of the initial Depository, for purposes
of registering those Certificates that are to be Book-Entry Certificates, is
CEDE & Co. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
"Depository Institution": Any depository institution or trust company,
including the Trustee and the Trust Administrator, that (a) is incorporated
under the laws of the United States of America or any State thereof, (b) is
subject to supervision and examination by federal or state banking authorities
and (c) has outstanding unsecured commercial paper or other short-term unsecured
debt obligations (or, in the case of a depository institution that is the
principal subsidiary of a holding company, such holding company has unsecured
commercial paper or other short-term unsecured debt obligations) that are rated
P-1 by Moody's and A-1 by S&P (or comparable ratings if Moody's and S&P are not
the Rating Agencies).
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"Depository Participant": A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Determination Date": With respect to each Distribution Date, the 15th
day of the calendar month in which such Distribution Date occurs or, if such
15th day is not a Business Day, the Business Day immediately preceding such 15th
day.
"Directly Operate": With respect to any REO Property, the furnishing
or rendering of services to the tenants thereof, the management or operation of
such REO Property, the holding of such REO Property primarily for sale to
customers, the performance of any construction work thereon or any use of such
REO Property in a trade or business conducted by REMIC I other than through an
Independent Contractor; provided, however, that the Trustee (or the related
Servicer on behalf of the Trustee) shall not be considered to Directly Operate
an REO Property solely because the Trustee (or the related Servicer on behalf of
the Trustee) establishes rental terms, chooses tenants, enters into or renews
leases, deals with taxes and insurance, or makes decisions as to repairs or
capital expenditures with respect to such REO Property.
"Disqualified Organization": Any of the following: (i) the United
States, any State or political subdivision thereof, any possession of the United
States, or any agency or instrumentality of any of the foregoing (other than an
instrumentality which is a corporation if all of its activities are subject to
tax and, except for Freddie Mac, a majority of its board of directors is not
selected by such governmental unit), (ii) any foreign government, any
international organization, or any agency or instrumentality of any of the
foregoing, (iii) any organization (other than certain farmers' cooperatives
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code (including the tax imposed by Section 511 of the Code on
unrelated business taxable income), (iv) rural electric and telephone
cooperatives described in Section 1381(a)(2)(C) of the Code, (v) an "electing
large partnership" and (vi) any other Person so designated by the Trustee or the
Trust Administrator based upon an Opinion of Counsel that the holding of an
Ownership Interest in a Residual Certificate by such Person may cause any of
REMIC I, REMIC II or REMIC III or any Person having an Ownership Interest in any
Class of Certificates (other than such Person) to incur a liability for any
federal tax imposed under the Code that would not otherwise be imposed but for
the Transfer of an Ownership Interest in a Residual Certificate to such Person.
The terms "United States," "State" and "international organization" shall have
the meanings set forth in Section 7701 of the Code or successor provisions.
"Distribution Account": The trust account or accounts created and
maintained by the Trust Administrator pursuant to Section 3.10(b), which shall
be entitled "U.S. Bank National Association, as Trust Administrator for Firstar
Bank Milwaukee, N.A., as Trustee, in trust for (A) the registered holders of
Salomon Brothers Mortgage Securities VII, Inc., Mortgage Pass- Through
Certificates, Series 1998-NC7 and (B) Financial Security Assurance Inc." The
Distribution Account must be an Eligible Account.
"Distribution Date": The 25th day of any month, or if such 25th day is
not a Business Day, the Business Day immediately following such 25th day,
commencing in ____________________.
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"Due Date": With respect to each Distribution Date, the first day of
the calendar month in which such Distribution Date occurs, which is generally
the day of the month on which the Monthly Payment is due on a Mortgage Loan,
exclusive of any days of grace.
"Due Period": With respect to any Distribution Date, the period
commencing on the second day of the month immediately preceding the month in
which such Distribution Date occurs and ending on the related Due Date.
"Eligible Account": Any of (i) an account or accounts maintained with
a Depository Institution, (ii) an account or accounts the deposits in which are
fully insured by the FDIC or (iii) a trust account or accounts maintained with
the corporate trust department of a federal or state chartered depository
institution or trust company acting in its fiduciary capacity. Eligible Accounts
may bear interest.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
"Estate in Real Property": A fee simple estate in a parcel of land.
"Excess Overcollateralized Amount": With respect to the Class A
Certificates and any Distribution Date, the excess, if any, of (i) the
Overcollateralized Amount for such Distribution Date over (ii) the Required
Overcollateralized Amount for such Distribution Date.
"Expense Account": The account established and maintained pursuant to
Section 3.25.
"Expense Adjusted Mortgage Rate": With respect to any Mortgage Loan or
REO Property, the then applicable Mortgage Rate thereon minus the sum of (i) the
Administration Fee Rate, (ii) the Servicing Fee Rate and (iii) the Master
Servicing Fee Rate.
"Fannie Mae": Fannie Mae, formally known as the Federal National
Mortgage Association ("FNMA"), or any successor thereto.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"Final Recovery Determination": With respect to any defaulted Mortgage
Loan or any REO Property (other than a Mortgage Loan or REO Property purchased
by the related Originator, the Seller, the Depositor, the Majority Class CE
Certificateholder, the related Servicer, the Master Servicer or the Certificate
Insurer pursuant to or as contemplated by Section 2.03, Section 3.16(c) or
Section 10.01), a determination made by the related Servicer that all Insurance
Proceeds, Liquidation Proceeds and other payments or recoveries which such
Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. Each Servicer shall
maintain records, prepared by a Servicing Officer, of each Final Recovery
Determination made thereby.
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"Freddie Mac": Freddie Mac, formally known as the Federal Home Loan
Mortgage Corporation ("FHLMC"), or any successor thereto.
"Guaranteed Distribution": As defined in the Policy.
"Independent": When used with respect to any specified Person, any
such Person who (a) is in fact independent of the Depositor, the Seller, each
Servicer, each Originator and their respective Affiliates, (b) does not have any
direct financial interest in or any material indirect financial interest in the
Depositor, the Seller, either Originator, either Servicer or any Affiliate
thereof, and (c) is not connected with the Depositor, the Seller, either
Originator, either Servicer or any Affiliate thereof as an officer, employee,
promoter, underwriter, trustee, trust administrator, partner, director or Person
performing similar functions; provided, however, that a Person shall not fail to
be Independent of the Depositor, the Seller, either Originator, either Servicer
or any Affiliate thereof merely because such Person is the beneficial owner of
1% or less of any class of securities issued by the Depositor, the Seller,
either Originator, either Servicer or any Affiliate thereof, as the case may be.
"Independent Contractor": Either (i) any Person (other than the
Servicers) that would be an "independent contractor" with respect to REMIC I
within the meaning of Section 856(d)(3) of the Code if REMIC I were a real
estate investment trust (except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35% or more of any Class of Certificates), so long as REMIC I does
not receive or derive any income from such Person and provided that the
relationship between such Person and REMIC I is at arm's length, all within the
meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person
(including either Servicer) if the Trustee and the Trust Administrator have
received an Opinion of Counsel to the effect that the taking of any action in
respect of any REO Property by such Person, subject to any conditions therein
specified, that is otherwise herein contemplated to be taken by an Independent
Contractor will not cause such REO Property to cease to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code (determined
without regard to the exception applicable for purposes of Section 860D(a) of
the Code), or cause any income realized in respect of such REO Property to fail
to qualify as Rents from Real Property.
"Initial Deposit": $________ in cash to be deposited by the Depositor
with the Trust Administrator on or before the Closing Date, which represents
with respect to each Mortgage Loan having a first payment date due in
______________, interest accrued at the Net Mortgage Rate for each such Mortgage
Loan for the initial Interest Accrual Period.
"Insurance Agreement": The Insurance and Indemnity Agreement, dated as
of _________________, among the Depositor, the Seller, the Servicers and the
Certificate Insurer, as amended or supplemented in accordance with the
provisions thereof.
"Insurance Payment": Any payment made by the Certificate Insurer under
the Policy with respect to the Class A Certificates.
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"Insurance Proceeds": Proceeds of any title policy, hazard policy or
other insurance policy covering a Mortgage Loan, to the extent such proceeds are
not to be applied to the restoration of the related Mortgaged Property or
released to the Mortgagor in accordance with the procedures that the related
Servicer would follow in servicing mortgage loans held for its own account,
subject to the terms and conditions of the related Mortgage Note and Mortgage.
"Interest Accrual Period": With respect to any Distribution Date and
the Class A Certificates, the Class CE Certificates, the REMIC I Regular
Interests (other than REMIC I Regular Interest I-LTP) and the REMIC II Regular
Interests (other than REMIC II Regular Interest II-LTP), the one-month period
ending on the last day of the calendar month preceding the month in which such
Distribution Date occurs.
"Interest Distribution Amount": With respect to any Distribution Date
and any Class of Class A Certificates and any Class CE Certificates, the
aggregate Accrued Certificate Interest on the Certificates of such Class for
such Distribution Date, plus with respect to each Class of Class A Certificates
any undistributed Interest Distribution Amounts from any previous Distribution
Date for which no Insurance Payment relating to such Interest Distribution
Amounts has been previously paid to Holders of each Class of Class A
Certificates.
"Late Collections": With respect to any Mortgage Loan and any Due
Period, all amounts received subsequent to the Determination Date immediately
following such Due Period, whether as late payments of Monthly Payments or as
Insurance Proceeds, Liquidation Proceeds or otherwise, which represent late
payments or collections of principal and/or interest due (without regard to any
acceleration of payments under the related Mortgage and Mortgage Note) but
delinquent for such Due Period and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of the
following events: (i) such Mortgage Loan is paid in full; (ii) a Final Recovery
Determination is made as to such Mortgage Loan; or (iii) such Mortgage Loan is
removed from REMIC I by reason of its being purchased, sold or replaced pursuant
to or as contemplated by Section 2.03, Section 3.16(c) or Section 10.01. With
respect to any REO Property, either of the following events: (i) a Final
Recovery Determination is made as to such REO Property; or (ii) such REO
Property is removed from REMIC I by reason of its being purchased pursuant to
Section 10.01.
"Liquidation Proceeds": The amount (other than Insurance Proceeds or
amounts received in respect of the rental of any REO Property prior to REO
Disposition) received by the applicable Servicer in connection with (i) the
taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage
Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the
repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by Section 2.03, Section 3.16(c), Section 3.23 or Section
10.01.
"Loan-to-Value Ratio": As of any date of determination, the fraction,
expressed as a percentage, the numerator of which is the principal balance of
the related Mortgage Loan at such date (and the principal balance of any related
first-lien Mortgage Loan, with respect to any
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second-lien Mortgage Loan) and the denominator of which is the Value of the
related Mortgaged Property.
"Lockout Certificates": The Class A-7 Certificates.
"Lockout Certificate Percentage": For each Distribution Date, the
percentage equal to the aggregate Certificate Principal Balance of the Class A-7
Certificates immediately prior to such Distribution Date divided by the sum of
the aggregate Certificate Principal Balances of the Class A Certificates
immediately prior to such Distribution Date.
"Lockout Distribution Percentage": With respect to any Distribution
Date, the percentage indicated below:
Distribution Date Lockout Distribution Percentage
- ------------------------------- ------------------------------------------
___________ through ___________ __%
___________ through ___________ __% of the Lockout Certificate Percentage
___________ through ___________ __% of the Lockout Certificate Percentage
___________ through ___________ ___% of the Lockout Certificate Percentage
___________ and thereafter the lesser of (x) ___% of the Lockout
Certificate Percentage and (y) ___%
Notwithstanding the foregoing, if the Certificate Principal Balances of the
Class A Certificates (other than the Lockout Certificates) have been reduced to
zero, the Lockout Distribution Percentage will be equal to ____%.
"Majority Class CE Certificateholder": Any single Holder or group of
Holders of Class CE Certificates representing a greater than 50% Percentage
Interest in such Class.
"Master Servicer": ___________________ or any successor master
servicer appointed as herein provided, in its capacity as Master Servicer
hereunder.
"Master Servicing Fee": With respect to each Mortgage Loan and for any
calendar month, an amount equal to one month's interest (or in the event of any
payment of interest which accompanies a Principal Prepayment in full or in part
made by the Mortgagor during such calendar month, interest for the number of
days covered by such payment of interest) at the applicable Master Servicing Fee
Rate on the same principal amount on which interest on such Mortgage Loan
accrues for such calendar month.
"Master Servicing Fee Rate": With respect to each Mortgage Loan
identified on Part A of Schedule 1 hereto ____% per annum. With respect to each
Mortgage Loan identified on Part B of Schedule 1 hereto ____% per annum.
"Maximum I-LT9 Uncertificated Interest Deferral Amount": With respect
to any Distribution Date, the excess of (i) accrued interest at the REMIC I
Remittance Rate applicable to REMIC I Regular Interest I-LT9 for such
Distribution Date on a balance equal to the Uncertificated Balance of REMIC I
Regular Interest I-LT9 minus the REMIC I Overcollateralized Amount, in each case
for such Distribution Date, over (ii) Uncertificated Interest on REMIC II
Regular Interest II-LT2, REMIC II
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Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular Interest
II-LT7 and REMIC II Regular Interest II-LT8 for such Distribution Date.
"Monthly Payment": With respect to any Mortgage Loan, the scheduled
monthly payment of principal and interest on such Mortgage Loan which is payable
by the related Mortgagor from time to time under the related Mortgage Note,
determined: (a) after giving effect to (i) any Deficient Valuation and/or Debt
Service Reduction with respect to such Mortgage Loan and (ii) any reduction in
the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the related Servicer pursuant to Section 3.07; and (c) on the assumption that
all other amounts, if any, due under such Mortgage Loan are paid when due.
["Moody's": Moody's Investors Service, Inc. or its successor in
interest.]
"Mortgage": The mortgage, deed of trust or other instrument creating a
first lien or a second lien on, or first priority or second priority security
interest in, a Mortgaged Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan transferred and assigned to the
Trustee and delivered to the Trust Administrator pursuant to Section 2.01 or
Section 2.03(d) of this Agreement, as held from time to time as a part of the
Trust Fund, the Mortgage Loans so held being identified in the Mortgage Loan
Schedule.
"Mortgage Loan Purchase Agreements": The agreement among the
Depositor, the Seller and __________________, in its capacity as an Originator,
regarding the transfer of certain of the Mortgage Loans by the Seller to or at
the direction of the Depositor (the "___________ Mortgage Loan Purchase
Agreement") and the agreement among the Depositor, the Seller and __________, in
its capacity as an Originator, regarding the transfer of certain of the Mortgage
Loans by the Seller to or at the direction of the Depositor (the "__________
Mortgage Loan Purchase Agreement"), each substantially in the form of Exhibit D
annexed hereto.
"Mortgage Loan Schedule": As of any date, the list of Mortgage Loans
included in REMIC I on such date, attached hereto as Schedule 1. The Mortgage
Loan Schedule shall set forth the following information with respect to each
Mortgage Loan:
(i) the Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the state
and zip code;
(iv) a code indicating whether the Mortgaged Property is
owner-occupied;
(v) the type of Residential Dwelling constituting the Mortgaged
Property;
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(vi) the original months to maturity;
(vii) the stated remaining months to maturity from the Cut-off Date
based on the original amortization schedule;
(viii) the Loan-to-Value Ratio at origination;
(ix) the Mortgage Rate in effect immediately following the Cut-off
Date;
(x) the date on which the first Monthly Payment was due on the
Mortgage Loan;
(xi) the stated maturity date;
(xii) the amount of the Monthly Payment at origination;
(xiii) the amount of the Monthly Payment due on the first Due Date after
the Cut-off Date;
(xiv) the last Due Date on which a Monthly Payment was actually applied
to the unpaid Stated Principal Balance;
(xv) the original principal amount of the Mortgage Loan;
(xvi) the Scheduled Principal Balance of the Mortgage Loan as of the
close of business on the Cut-off Date;
(xvii) [intentionally omitted];
(xviii) [intentionally omitted];
(xix) a code indicating the purpose of the Mortgage Loan (I.E., purchase
financing, Rate/Term Refinancing, Cash-Out Refinancing);
(xx) [intentionally omitted];
(xxi) [intentionally omitted];
(xxii) the Mortgage Rate at origination;
(xxiii) [intentionally omitted];
(xxiv) a code indicating the documentation program (I.E., Full
Documentation, Limited Documentation, Stated Income
Documentation);
(xxv) [intentionally omitted];
(xxvi) [intentionally omitted];
(xxvii) the risk grade;
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(xxviii) [intentionally omitted];
(xxix) [intentionally omitted];
(xxx) [intentionally omitted];
(xxxi) the Value of the Mortgaged Property;
(xxxii) the sale price of the Mortgaged Property, if applicable;
(xxxiii) the actual unpaid principal balance of the Mortgage Loan as of the
Cut-off Date;
(xxxiv) the type and term of the related Prepayment Charge;
(xxxv) [intentionally omitted];
(xxxvi) [intentionally omitted];
(xxxvii) [intentionally omitted];
(xxxviii)[intentionally omitted];
(xxxix) [intentionally omitted];
(xl) the program code;
(xli) whether the Mortgage Loan is a first or second lien Mortgage Loan.
The Mortgage Loan Schedule shall be divided into two parts, Part A
includes the Mortgage Loans initially serviced by New Century and Part B
includes the Mortgage Loans initially serviced by Option One. Each part of the
Mortgage Loan Schedule shall set forth the following information with respect to
the Mortgage Loans in the aggregate as of the Cut-Off Date: (1) the number of
Mortgage Loans; (2) the current principal balance of the Mortgage Loans; (3) the
weighted average Mortgage Rate of the Mortgage Loans; and (4) the weighted
average maturity of the Mortgage Loans. The Mortgage Loan Schedule shall be
amended from time to time by the Depositor in accordance with the provisions of
this Agreement. With respect to any Qualified Substitute Mortgage Loan, the
Cut-off Date shall refer to the related Cut-off Date for such Mortgage Loan,
determined in accordance with the definition of Cut-off Date herein.
"Mortgage Note": The original executed note or other evidence of the
indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Pool": The pool of Mortgage Loans, identified on Schedule 1
from time to time, and any REO Properties acquired in respect thereof.
"Mortgage Rate": With respect to each Mortgage Loan, the annual rate
at which interest accrues on such Mortgage Loan from time to time in accordance
with the provisions of the related Mortgage Note.
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"Mortgaged Property": The underlying property securing a Mortgage
Loan, including any REO Property, consisting of an Estate in Real Property
improved by a Residential Dwelling.
"Mortgagor": The obligor on a Mortgage Note.
"Net Monthly Excess Cashflow": With respect to any Distribution Date,
the sum of (i) any Overcollateralization Reduction Amount for such Distribution
Date and (ii) the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the sum for such Distribution Date of (A) the
Interest Distribution Amounts payable to the holders of the Class A Certificates
and (B) the sum of the amounts described in clauses (b)(i) through (iii) of the
definition of Principal Distribution Amount.
"Net Monthly Excess Spread": With respect to any Distribution Date,
the excess of (x) the Available Distribution Amount for such Distribution Date
over (y) the sum for such Distribution Date of (A) the Interest Distribution
Amount payable to the holders of the Class A Certificates and (B) the sum of the
amounts described in clauses (b)(i) through (iii) of the definition of Principal
Distribution Amount.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the related
REO Property) as of any date of determination, a per annum rate of interest
equal to the then applicable Mortgage Rate for such Mortgage Loan minus the
Servicing Fee Rate.
"Net WAC Pass-Through Rate": With respect to REMIC II Regular Interest
II-LT7 and the Class A-6 Certificates and any Distribution Date, a per annum
rate equal to the fraction, expressed as a percentage, the numerator of which is
(i) an amount equal to (A) 1/12 of the aggregate Scheduled Principal Balance of
the then outstanding Mortgage Loans and REO Properties multiplied by the
weighted average of the Expense Adjusted Mortgage Rates on such Mortgage Loans
and REO Properties minus (B) the amount of the Certificate Insurer Premium
payable to the Certificate Insurer with respect to the Policy for such
Distribution Date, and the denominator of which is (ii) an amount equal to 1/12
of the aggregate Scheduled Principal Balance of the then outstanding Mortgage
Loans and REO Properties.
"New Lease": Any lease of REO Property entered into on behalf of REMIC
I, including any lease renewed or extended on behalf of REMIC I, if REMIC I has
the right to renegotiate the terms of such lease.
"Nonrecoverable P&I Advance": Any P&I Advance previously made or
proposed to be made in respect of a Mortgage Loan or REO Property that, in the
good faith business judgment of the related Servicer, will not or, in the case
of a proposed P&I Advance, would not be ultimately recoverable from related Late
Collections, Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or
REO Property as provided herein.
"Nonrecoverable Servicing Advance": Any Servicing Advance previously
made or proposed to be made in respect of a Mortgage Loan or REO Property that,
in the good faith business judgment of the related Servicer, will not or, in the
case of a proposed Servicing Advance, would not be ultimately recoverable from
related Late Collections, Insurance Proceeds or Liquidation Proceeds on such
Mortgage Loan or REO Property as provided herein.
"Non-United States Person": Any Person other than a United States
Person.
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"Notional Amount": With respect to the Class CE Certificates and any
Distribution Date, the Uncertificated Balance of the REMIC II Regular Interests
(other than the Uncertificated Balance of REMIC II Regular Interest II-LTP) for
such Distribution Date.
"Officers' Certificate": A certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), and by the Treasurer, the Secretary, or one of the
assistant treasurers or assistant secretaries of related Servicer, the related
Originator, the Seller or the Depositor, as applicable.
"Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be salaried counsel for the Depositor or either Servicer, acceptable
to the Trustee and the Certificate Insurer, if such opinion is delivered to the
Trustee, or acceptable to the Trust Administrator and the Certificate Insurer,
if such opinion is to be delivered to the Trust Administrator, except that any
opinion of counsel relating to (a) the qualification of any of REMIC I, REMIC II
or REMIC III as a REMIC or (b) compliance with the REMIC Provisions must be an
opinion of Independent counsel.
"Original Mortgage Loan": Any of the Mortgage Loans included in REMIC
I as of the Closing Date.
"Originators": ___________, or its successor in interest, in its
capacity as an Originator under the _____________ Mortgage Loan Purchase
Agreement, and __________, or its successor in interest, in its capacity as an
Originator under the __________ Mortgage Loan Purchase Agreement.
"Overcollateralized Amount": With respect to any Distribution Date,
the excess, if any, of (a) the aggregate Stated Principal Balances of the
Mortgage Loans and REO Properties immediately following such Distribution Date
over (b) the sum of the aggregate Certificate Principal Balances of the Class A
Certificates and the Class P Certificates as of such Distribution Date (after
taking into account the payment of the amounts described in clauses (b)(i)
through (iv) of the definition of Principal Distribution Amount on such
Distribution Date).
"Overcollateralization Deficiency Amount": With respect to any
Distribution Date, the excess, if any, of (a) the Required Overcollateralized
Amount applicable to such Distribution Date over (b) the Overcollateralized
Amount applicable to such Distribution Date prior to taking into account the
payment of any Overcollateralization Increase Amount on such Distribution Date.
"Overcollateralization Increase Amount": With respect to any
Distribution Date, the lesser of (a) the Overcollateralization Deficiency Amount
as of such Distribution Date (after taking into account the payment of the
Principal Distribution Amount on such Distribution Date, exclusive of the
payment of any Overcollateralization Increase Amount) and (b) the amount of
Accrued Certificate Interest payable on the Class CE Certificates on such
Distribution Date as reduced by any Cumulative Insurance Payments or Realized
Losses allocated thereto with respect to such Distribution Date pursuant to
Section 4.04.
"Overcollateralization Reduction Amount": With respect to any
Distribution Date, an amount equal to the lesser of (a) the Excess
Overcollateralized Amount and (b) the sum of the amounts available for
distribution specified in clauses (b)(i) through (iii) of the definition of
Principal Distribution Amount.
"Overcollateralization Percentage": With respect to any Distribution
Date, the percentage equivalent of a fraction, the numerator of which is the
Overcollateralized Amount, and the denominator
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of which is the aggregate Stated Principal Balance of the Mortgage Loans and REO
Properties as of the last day of the related Due Period.
"Ownership Interest": As to any Certificate, any ownership or security
interest in such Certificate, including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.
"Pass-Through Rate": With respect to:
(i) the Class A-1 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(ii) the Class A-2 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(iii) the Class A-3 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(iv) the Class A-4 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(v) the Class A-5 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(vi) the Class A-6 Certificates, for any Distribution Date, the lesser
of (i) a fixed rate equal to _____% per annum and (ii) the Net
WAC Pass-Through Rate for such Distribution Date;
(vii) the Class A-7 Certificates, for any Distribution Date, a fixed
rate equal to _______% per annum;
(viii) the Class CE Certificates, for any Distribution Date, a rate
per annum equal to the percentage equivalent of a fraction, the
numerator of which is the sum of the amounts calculated pursuant
to clauses (a) through (j) below, and the denominator of which is
the Uncertificated Balance of the REMIC II Regular Interests
(other than the Uncertificated Balance of REMIC II Regular
Interest II-LTP). For purposes of calculating the Pass-Through
Rate for the Class CE Certificates, the numerator is equal to the
sum of the following components:
(a) the REMIC II Remittance Rate for REMIC II Regular
Interest II- LT1 minus two (2) times the weighted average of the
REMIC II Remittance Rates for REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II
Regular Interest II- LT8 and REMIC II Regular Interest II-LT9,
with the rate on REMIC II Regular Interest II-LT9 equal to zero
for the purpose of this calculation, applied to an amount equal
to the Uncertificated Balance of REMIC II Regular Interest
II-LT1;
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(b) the weighted average of the REMIC II Remittance Rates
for REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
Interest II-LT5, REMIC II Regular Interest II-LT6, REMIC II
Regular Interest II-LT7 and REMIC II Regular Interest II-LT8
minus two (2) times the weighted average of the REMIC II
Remittance Rates for REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC
II Regular Interest II-LT5, REMIC II Regular Interest II-LT6,
REMIC II Regular Interest II-LT7, REMIC II Regular Interest
II-LT8 and REMIC II Regular Interest II-LT9, with the rate on
REMIC II Regular Interest II-LT9 equal to zero for the purpose of
this calculation, applied to an amount equal to the sum of the
Uncertificated Balances of REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest II-
LT4, REMIC II Regular Interest II-LT5, REMIC II Regular Interest
II-LT6, REMIC II Regular Interest II-LT7 and REMIC II Regular
Interest II-LT8;
(c) the REMIC II Remittance Rate for REMIC II Regular
Interest II- LT9 minus two (2) times the weighted average of the
REMIC II Remittance Rates for REMIC II Regular Interest II-LT2,
REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II
Regular Interest II- LT8 and REMIC II Regular Interest II-LT9,
with the rate on REMIC II Regular Interest II-LT9 equal to zero
for the purpose of this calculation, applied to an amount equal
to the Uncertificated Balance of REMIC II Regular Interest
II-LT9; and
(d) 100% of the interest on REMIC II Regular Interest
II-LT2S;
(e) 100% of the interest on REMIC II Regular Interest
II-LT3S;
(f) 100% of the interest on REMIC II Regular Interest
II-LT4S;
(g) 100% of the interest on REMIC II Regular Interest
II-LT5S;
(h) 100% of the interest on REMIC II Regular Interest
II-LT6S;
(i) 100% of the interest on REMIC II Regular Interest
II-LT7S; and
(j) 100% of the interest on REMIC II Regular Interest
II-LT8S.
"Percentage Interest": With respect to any Class of Certificates
(other than the Residual Certificates), the undivided percentage ownership in
such Class evidenced by such Certificate, expressed as a percentage, the
numerator of which is the initial Certificate Principal Balance represented by
such Certificate and the denominator of which is the aggregate initial
Certificate Principal Balance of all of the Certificates of such Class. The
Class A Certificates are issuable only in minimum Percentage Interests
corresponding to minimum initial Certificate Principal Balances of $10,000 and
integral multiples of $1.00 in excess thereof. The Class P Certificates are
issuable only in Percentage Interests corresponding to initial Certificate
Principal Balances of $20 and integral multiples thereof. The Class CE
Certificates are issuable only in minimum Percentage Interests corresponding to
minimum initial Certificate Principal Balances of $10,000 and integral multiples
of $1.00 in excess thereof; provided, however, that a single Certificate of
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such Class of Certificates may be issued having a Percentage Interest
corresponding to the remainder of the aggregate initial Certificate Principal
Balance of such Class or to an otherwise authorized denomination for such Class
plus such remainder. With respect to any Residual Certificate, the undivided
percentage ownership in such Class evidenced by such Certificate, as set forth
on the face of such Certificate. The Residual Certificates are issuable in
minimum Percentage Interests of 20%.
"Permitted Investments": Any one or more of the following obligations
or securities acquired at a purchase price of not greater than par, regardless
of whether issued by the Depositor, either Servicer, the Trustee, the Trust
Administrator or any of their respective Affiliates:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided such obligations are backed by
the full faith and credit of the United States; provided, however, that any
obligation of, or guaranteed by, Freddie Mac or Fannie Mae, other than a
senior debt or a mortgage participation or pass-through certificate
guaranteed by Freddie Mac or Fannie Mae shall be a Permitted Investment
only if, at the time of investment, such investment is acceptable to the
Certificate Insurer;
(ii) demand and time deposits in, certificates of deposit of, or
bankers' acceptances issued by, any Depository Institution;
(iii) repurchase obligations with respect to any security
described in clause (i) above entered into with a Depository Institution
(acting as principal);
(iv) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United States
of America or any state thereof and that are rated by each Rating Agency
that rates such securities in its highest long-term unsecured rating
categories at the time of such investment or contractual commitment
providing for such investment;
(v) commercial paper (including both non-interest-bearing
discount obligations and interest-bearing obligations payable on demand or
on a specified date not more than 30 days after the date of acquisition
thereof) that is rated by each Rating Agency that rates such securities in
its highest short-term unsecured debt rating available at the time of such
investment;
(vi) units of money market funds that have been rated "P-1" by
Moody's and "AAAm" by S&P; and
(viii) if previously confirmed in writing to the Trustee and the
Trust Administrator, any other demand, money market or time deposit, or any
other obligation, security or investment, as may be acceptable to the
Rating Agencies and the Certificate Insurer as a permitted investment of
funds backing securities having ratings equivalent to its highest initial
rating of the Class A Certificates;
provided, however, that no instrument described hereunder shall evidence either
the right to receive (a) only interest with respect to the obligations
underlying such instrument or (b) both principal and interest payments derived
from obligations underlying such instrument and the interest and principal
payments with respect to such instrument provide a yield to maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations.
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"Permitted Transferee": Any Transferee of a Residual Certificate other
than a Disqualified Organization or Non-United States Person.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"P&I Advance": As to any Mortgage Loan or REO Property, any advance
made by the related Servicer in respect of any Distribution Date pursuant to
Section 4.03.
"Plan": Any employee benefit plan or certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans and bank collective investment funds and insurance company general or
separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA and Section 4975 of the Code.
"Policy": The Financial Guaranty Insurance Policy (No. 50752-N) issued
by the Certificate Insurer relating to the Class A Certificates, including any
endorsements thereto, attached hereto as Exhibit B.
"Policy Payments Account": The account established pursuant to Section
9.04 hereof.
"Premium Supplement": As defined in the Insurance Agreement.
"Prepayment Assumption": A ___% Prepayment Vector. The Prepayment
Assumption is used solely for determining the accrual of original issue discount
on the Certificates for federal income tax purposes. A ___% Prepayment Vector
assumes that the outstanding balance of a pool of mortgage loans prepays at a
rate of ____% CPR in the first month of the life of such pool, such rate
increasing by an additional approximate ____% CPR (precisely 20/11, expressed as
a percentage) each month thereafter through the eleventh month of the life of
such pool, and such rate thereafter remaining at __% CPR for the remainder of
the life of such pool. A CPR (or Constant Prepayment Rate) represents an
annualized constant assumed rate of prepayment each month of a pool of mortgage
loans relative to its outstanding principal balance for the life of such pool.
"Prepayment Charge": With respect to any Prepayment Period, any
prepayment premium, penalty or charge payable by a Mortgagor in connection with
any Principal Prepayment on a Mortgage Loan pursuant to the terms of the related
Mortgage Note (other than any Servicer Prepayment Charge Payment Amount).
"Prepayment Charge Schedule": As of any date, the list of Prepayment
Charges on the Mortgage Loans included in REMIC I on such date, attached hereto
as Schedule 2 (including the Prepayment Charge Summary attached thereto). The
Prepayment Charge Schedule shall set forth the following information with
respect to each Prepayment Charge:
(i) the Mortgage Loan identifying number;
(ii) a code indicating the type of Prepayment Charge;
(iii) the state of origination of the related Mortgage Loan;
(iv) the date on which the first monthly payment was due on the related
Mortgage Loan;
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(v) the term of the related Mortgage Loan; and
(vi) the principal balance of the related Mortgage Loan as of the Cut-off
Date.
The Prepayment Charge Schedule shall be amended from time to time by
the Depositor in accordance with the provisions of this Agreement.
"Prepayment Interest Shortfall": With respect to any Distribution
Date, for each Mortgage Loan that was during the related Prepayment Period the
subject of a Principal Prepayment in full or in part that was applied by the
related Servicer to reduce the outstanding principal balance of such loan on a
date preceding the Due Date in the succeeding Prepayment Period, an amount equal
to interest at the applicable Net Mortgage Rate on the amount of such Principal
Prepayment for the number of days commencing on the date on which the prepayment
is applied and ending on the last day of the related Prepayment Period. The
obligations of the Servicers in respect of any Prepayment Interest Shortfall are
set forth in Section 3.24.
"Prepayment Period": With respect to any Distribution Date, the
calendar month preceding the calendar month in which such Distribution Date
occurs.
"Principal Distribution Amount": With respect to any Distribution
Date, the lesser of:
(a) the excess of the Available Distribution Amount over the amount
payable on the Class A Certificates pursuant to Section
4.01(a)(2)(i); and
(b) the sum of:
(i) the principal portion of each Monthly Payment on the Mortgage
Loans due during the related Due Period, whether or not received
on or prior to the related Determination Date;
(ii) the Stated Principal Balance of any Mortgage Loan that was
purchased during the related Prepayment Period pursuant to or as
contemplated by Section 2.03, Section 3.16(c) or Section 10.01
and the amount of any shortfall deposited in the Collection
Account in connection with the substitution of a Deleted Mortgage
Loan pursuant to Section 2.03 during the related Prepayment
Period;
(iii) the principal portion of all other unscheduled collections
(including, without limitation, Principal Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Principal Amortization)
received during the related Prepayment Period, net of any portion
thereof that represents a recovery of principal for which an
advance was made by the related Servicer pursuant to Section 4.03
in respect of a preceding Distribution Date;
(iv) the principal portion of any Realized Losses incurred or
deemed to have been incurred on the Mortgage Loans in the
calendar month preceding such Distribution Date and the principal
portion of any Realized Losses allocated to the Class A
Certificates on previous Distribution Dates but not paid under
the Policy due to a Certificate Insurer Default and not
previously paid pursuant to Section
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4.01(a)(2)(iii)(b), in each case from Accrued Certificate
Interest on the Class CE Certificates for such Distribution Date;
and
(v) the amount of any Overcollateralization Increase Amount for
such Distribution Date;
minus:
(vi) the amount of any Overcollateralization Reduction Amount for
such Distribution Date.
"Principal Prepayment": Any payment of principal made by the Mortgagor
on a Mortgage Loan which is received in advance of its scheduled Due Date and
which is not accompanied by an amount of interest representing the full amount
of scheduled interest due on any Due Date in any month or months subsequent to
the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan or REO Property to
be purchased pursuant to or as contemplated by Section 2.03, Section 3.16(c) or
Section 10.01, and as confirmed by an Officers' Certificate from the related
Servicer or the Master Servicer to the Trustee and the Trust Administrator, an
amount equal to the sum of (i) 100% of the Stated Principal Balance thereof as
of the date of purchase (or such other price as provided in Section 10.01), (ii)
in the case of (x) a Mortgage Loan, accrued interest on such Stated Principal
Balance at the applicable Net Mortgage Rate in effect from time to time from the
Due Date as to which interest was last covered by a payment by the Mortgagor or
an advance by the related Servicer, which payment or advance had as of the date
of purchase been distributed pursuant to Section 4.01, through the end of the
calendar month in which the purchase is to be effected and (y) an REO Property,
the sum of (1) accrued interest on such Stated Principal Balance at the
applicable Net Mortgage Rate in effect from time to time from the Due Date as to
which interest was last covered by a payment by the Mortgagor or an advance by
the related Servicer through the end of the calendar month immediately preceding
the calendar month in which such REO Property was acquired, plus (2) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such purchase is to be effected, net of the total of all
net rental income, Insurance Proceeds, Liquidation Proceeds and P&I Advances
that as of the date of purchase had been distributed as or to cover REO Imputed
Interest pursuant to Section 4.01, (iii) any unreimbursed Servicing Advances and
P&I Advances (including Nonrecoverable P&I Advances and Nonrecoverable Servicing
Advances) and any unpaid Servicing Fees allocable to such Mortgage Loan or REO
Property, (iv) any amounts previously withdrawn from the Collection Account in
respect of such Mortgage Loan or REO Property pursuant to Section 3.11(a)(ix)
and Section 3.16(b), and (v) in the case of a Mortgage Loan required to be
purchased pursuant to Section 2.03, expenses reasonably incurred or to be
incurred by the related Servicer, the Trustee or the Trust Administrator in
respect of the breach or defect giving rise to the purchase obligation.
"Qualified Substitute Mortgage Loan": A mortgage loan substituted for
a Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on
the date of such substitution, (i) have an outstanding principal balance, after
application of all scheduled payments of principal and interest due during or
prior to the month of substitution, not in excess of the Scheduled Principal
Balance of the Deleted Mortgage Loan as of the Due Date in the calendar month
during which the substitution occurs, (ii) have a Mortgage Rate not less than
(and not more than one percentage point in excess of) the Mortgage Rate of the
Deleted Mortgage Loan, (iii) [reserved], (iv) [reserved], (v) [reserved], (vi)
[reserved], (vii) have a remaining term to maturity not greater than (and not
more than one year less than) that of the Deleted
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Mortgage Loan, (viii) have the same Due Date as the Due Date on the Deleted
Mortgage Loan, (ix) have a Loan-to-Value Ratio as of the date of substitution
equal to or lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as
of such date, (x) have a risk grading determined by the related Originator at
least equal to the risk grading assigned on the Deleted Mortgage Loan and (xi)
conform to each representation and warranty set forth in Section 6 of the
related Mortgage Loan Purchase Agreement applicable to the Deleted Mortgage
Loan. In the event that one or more mortgage loans are substituted for one or
more Deleted Mortgage Loans, the amounts described in clause (i) hereof shall be
determined on the basis of aggregate principal balances, the Mortgage Rates
described in clause (ii) hereof shall be determined on the basis of weighted
average Mortgage Rates, the terms described in clause (vii) hereof shall be
determined on the basis of weighted average remaining term to maturity, the
Loan-to-Value Ratios described in clause (ix) hereof shall be satisfied as to
each such mortgage loan, the risk gradings described in clause (x) hereof shall
be satisfied as to each such mortgage loan and, except to the extent otherwise
provided in this sentence, the representations and warranties described in
clause (xi) hereof must be satisfied as to each Qualified Substitute Mortgage
Loan or in the aggregate, as the case may be.
"Rate/Term Refinancing": With respect to Mortgage Loan serviced by
___________, a Refinanced Mortgage Loan, the proceeds of which are not more than
a nominal amount in excess of the existing first mortgage loan and any
subordinate mortgage loan on the related Mortgaged Property and related closing
costs, and were used exclusively (except for such nominal amount) to satisfy the
then existing first mortgage loan and any subordinate mortgage loan of the
Mortgagor on the related Mortgaged Property and to pay related closing costs.
With respect to a Mortgage Loan serviced by _______________, a Refinanced
Mortgage Loan, the proceeds of which were not more than the greater of (a)
$1,000 or (b) 1% of the principal balance of an existing first mortgage on the
related Mortgaged Property and the principal balance of any existing subordinate
mortgages on the related Mortgaged Property, in either case, in excess of the
principal balance of an existing first mortgage on the related Mortgaged
Property, the principal balance of any existing subordinate mortgages on the
related Mortgaged Property and related closing costs, and were used to satisfy
such existing first mortgage, or any such subordinate mortgages, to pay related
closing costs and to provide to the Mortgagor not more than $1,000 or the amount
calculated in clause (b) above, as applicable, in addition thereto.
Notwithstanding the foregoing, with respect to ______________, any Refinanced
Mortgage Loan with a Loan-to-Value Ratio greater than 80% that was used for the
purpose of debt consolidation is considered a Rate/Term Refinancing.
"Rating Agency or Rating Agencies": [Moody's] and [S&P] or their
successors. If such agencies or their successors are no longer in existence,
"Rating Agencies" shall be such nationally recognized statistical rating
agencies, or other comparable Persons, designated by the Depositor and the
Certificate Insurer, notice of which designation shall be given to the Trustee,
the Trust Administrator and each Servicer.
"Realized Loss": With respect to each Mortgage Loan as to which a
Final Recovery Determination has been made, an amount (not less than zero) equal
to (i) the unpaid principal balance of such Mortgage Loan as of the commencement
of the calendar month in which the Final Recovery Determination was made, plus
(ii) accrued interest from the Due Date as to which interest was last paid by
the Mortgagor through the end of the calendar month in which such Final Recovery
Determination was made, calculated in the case of each calendar month during
such period (A) at an annual rate equal to the annual rate at which interest was
then accruing on such Mortgage Loan and (B) on a principal amount equal to the
Stated Principal Balance of such Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) any amounts
previously withdrawn from the Collection Account in respect of such Mortgage
Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus (iv) the
proceeds, if any, received in respect of such Mortgage Loan during the calendar
month in which such Final
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Recovery Determination was made, net of amounts that are payable therefrom to
the related Servicer with respect to such Mortgage Loan pursuant to Section
3.11(a)(iii).
With respect to any REO Property as to which a Final Recovery
Determination has been made, an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property on behalf of REMIC I, plus (ii) accrued
interest from the Due Date as to which interest was last paid by the Mortgagor
in respect of the related Mortgage Loan through the end of the calendar month
immediately preceding the calendar month in which such REO Property was
acquired, calculated in the case of each calendar month during such period (A)
at an annual rate equal to the annual rate at which interest was then accruing
on the related Mortgage Loan and (B) on a principal amount equal to the Stated
Principal Balance of the related Mortgage Loan as of the close of business on
the Distribution Date during such calendar month, plus (iii) REO Imputed
Interest for such REO Property for each calendar month commencing with the
calendar month in which such REO Property was acquired and ending with the
calendar month in which such Final Recovery Determination was made, plus (iv)
any amounts previously withdrawn from the Collection Account in respect of the
related Mortgage Loan pursuant to Section 3.11(a)(ix) and Section 3.16(b), minus
(v) the aggregate of all P&I Advances and Servicing Advances (in the case of
Servicing Advances, without duplication of amounts netted out of the rental
income, Insurance Proceeds and Liquidation Proceeds described in clause (vi)
below) made by the related Servicer in respect of such REO Property or the
related Mortgage Loan for which such Servicer has been or, in connection with
such Final Recovery Determination, will be reimbursed pursuant to Section 3.23
out of rental income, Insurance Proceeds and Liquidation Proceeds received in
respect of such REO Property, minus (vi) the total of all net rental income,
Insurance Proceeds and Liquidation Proceeds received in respect of such REO
Property that has been, or in connection with such Final Recovery Determination,
will be transferred to the Distribution Account pursuant to Section 3.23.
With respect to each Mortgage Loan which has become the subject of a
Deficient Valuation, the difference between the principal balance of the
Mortgage Loan outstanding immediately prior to such Deficient Valuation and the
principal balance of the Mortgage Loan as reduced by the Deficient Valuation.
With respect to each Mortgage Loan which has become the subject of a
Debt Service Reduction, the portion, if any, of the reduction in each affected
Monthly Payment attributable to a reduction in the Mortgage Rate imposed by a
court of competent jurisdiction. Each such Realized Loss shall be deemed to have
been incurred on the Due Date for each affected Monthly Payment.
"Record Date": With respect to each Distribution Date and any
Book-Entry Certificate, the Business Day immediately preceding such Distribution
Date. With respect to each Distribution Date and any other Certificates,
including any Definitive Certificates, the last Business Day of the month
immediately preceding the month in which such Distribution Date occurs.
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of which were
not used to purchase the related Mortgaged Property.
"Regular Certificate": Any Class A Certificate, Class CE Certificate
or Class P Certificate.
"Regular Interest": A "regular interest" in a REMIC within the meaning
of Section 860G(a)(1) of the Code.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
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"Relief Act Interest Shortfall": With respect to any Distribution Date
and any Mortgage Loan, any reduction in the amount of interest collectible on
such Mortgage Loan for the most recently ended calendar month as a result of the
application of the Relief Act.
"REMIC": A "real estate mortgage investment conduit" within the
meaning of Section 860D of the Code.
"REMIC I": The segregated pool of assets subject hereto, constituting
the primary trust created hereby and to be administered hereunder, with respect
to which a REMIC election is to be made, consisting of: (i) such Mortgage Loans
and Prepayment Charges as from time to time are subject to this Agreement,
together with the Mortgage Files relating thereto, and together with all
collections thereon and proceeds thereof; (ii) any REO Property, together with
all collections thereon and proceeds thereof; (iii) the Trustee's rights with
respect to the Mortgage Loans under all insurance policies required to be
maintained pursuant to this Agreement and any proceeds thereof; (iv) the
Depositor's rights under the Mortgage Loan Purchase Agreements (including any
security interest created thereby); (v) the Collection Account (other than any
amounts representing any Servicer Prepayment Charge Payment Amount), the
Distribution Account (other than any amounts representing any Servicer
Prepayment Charge Payment Amount), the Expense Account and any REO Account, and
such assets that are deposited therein from time to time and any investments
thereof, together with any and all income, proceeds and payments with respect
thereto. Notwithstanding the foregoing, however, REMIC I specifically excludes
the Policy and all payments and other collections of principal and interest due
on the Mortgage Loans on or before the Cutoff Date and all Prepayment Charges
payable in connection with Principal Prepayments made before the Cut-off Date.
"REMIC I Interest Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to (a) the product of (i) the aggregate
Stated Principal Balance of the Mortgage Loans and REO Properties then
outstanding and (ii) the REMIC I Remittance Rate for REMIC I Regular Interest I-
LT1 minus two (2) times the weighted average of the REMIC II Remittance Rates
for REMIC II Regular Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II
Regular Interest II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular
Interest II-LT6, REMIC II Regular Interest II-LT7, REMIC II Regular Interest
II-LT8 and REMIC II Regular Interest II-LT9, with the rate on REMIC II Regular
Interest II-LT9 equal to zero for purposes of this calculation, divided by (b)
12.
"REMIC I Overcollateralized Amount": With respect to any date of
determination, (i) ____% of the aggregate Uncertificated Balances of the REMIC I
Regular Interests minus (ii) the aggregate of the Uncertificated Balances of
REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6,
REMIC I Regular Interest I-LT7 and REMIC I Regular Interest I-LT8, in each case
as of such date of determination.
"REMIC I Principal Loss Allocation Amount": With respect to any
Distribution Date, an amount equal to the product of (i) the aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties then outstanding and
(ii) 1 minus a fraction, the numerator of which is two times the aggregate of
the Uncertificated Balances of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5,
REMIC I Regular Interest I-LT6, REMIC I Regular Interest I-LT7 and REMIC I
Regular Interest I-LT8 and the denominator of which is the sum of the
Uncertificated Balances of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5,
REMIC I Regular Interest I-LT6, REMIC I Regular Interest I-LT7, REMIC I Regular
Interest I-LT8 and REMIC I Regular Interest I-LT9.
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"REMIC I Regular Interest": Any of the ten separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
"regular interest" in REMIC I. Each REMIC I Regular Interest (other than REMIC I
Regular Interest I-LTP, with respect to interest) shall accrue interest at the
related REMIC I Remittance Rate in effect from time to time, and shall be
entitled to distributions of principal, subject to the terms and conditions
hereof, in an aggregate amount equal to its initial Uncertificated Balance as
set forth in the Preliminary Statement hereto. The designations for the
respective REMIC I Regular Interests are set forth in the Preliminary Statement
hereto.
"REMIC I Regular Interest I-LT1": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT1 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT2": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT2 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT3": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT3 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT4": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT4 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT5": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT5 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT6": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT6 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
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"REMIC I Regular Interest I-LT7": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT7 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT8": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT8 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LT9": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LT9 shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be entitled to distributions of principal, subject to the terms and
conditions hereof, in an aggregate amount equal to its initial Uncertificated
Balance as set forth in the Preliminary Statement hereto.
"REMIC I Regular Interest I-LTP": One of the separate non-certificated
beneficial ownership interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LTP shall be entitled to
any Prepayment Charges collected by the Servicers and to a distribution of
principal, subject to the terms and conditions hereof, in an aggregate amount
equal to its initial Uncertificated Balance as set forth in the Preliminary
Statement hereto.
"REMIC I Remittance Rate": With respect to each REMIC I Regular
Interest, the weighted average of the Expense Adjusted Mortgage Rates on the
then outstanding Mortgage Loans and REO Properties.
"REMIC I Required Overcollateralized Amount": __% of the Required
Overcollateralization Amount.
"REMIC II": The segregated pool of assets consisting of all of the
REMIC I Regular Interests conveyed in trust to the Trustee, for the benefit of
REMIC III, as holder of the REMIC II Regular Interests, and the Class R-II
Certificateholders pursuant to Section 2.07, and all amounts deposited therein,
with respect to which a separate REMIC election is to be made.
"REMIC II Regular Interest": Any of the seventeen separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a "regular interest" in REMIC II. Each REMIC II Regular Interest
(other than REMIC II Regular Interest II-LTP) shall accrue interest at the
related REMIC II Remittance Rate in effect from time to time, and shall be
entitled to distributions of principal, subject to the terms and conditions
hereof, in an aggregate amount equal to its initial Uncertificated Balance as
set forth in the Preliminary Statement hereto. The designations for the
respective REMIC II Regular Interests are set forth in the Preliminary Statement
hereto.
"REMIC II Regular Interest II-LT1": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II.
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REMIC II Regular Interest II-LT1 shall accrue interest at the related REMIC II
Remittance Rate in effect from time to time, and shall be entitled to
distributions of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT3": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT4": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT5": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT6": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT7": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT7
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LT8": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II.
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REMIC II Regular Interest II-LT8 shall accrue interest at the related REMIC II
Remittance Rate in effect from time to time, and shall be entitled to
distributions of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT9": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT9
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time, and shall be entitled to distributions of principal, subject to
the terms and conditions hereof, in an aggregate amount equal to its initial
Uncertificated Balance as set forth in the Preliminary Statement hereto.
"REMIC II Regular Interest II-LTP": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LTP
shall be entitled to any Prepayment Charges collected by the Servicers and to a
distribution of principal, subject to the terms and conditions hereof, in an
aggregate amount equal to its initial Uncertificated Balance as set forth in the
Preliminary Statement hereto.
"REMIC II Regular Interest II-LT2S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT2S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT3S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT3S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT4S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT4S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT5S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT5S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT6S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT6S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Regular Interest II-LT7S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT7S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
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"REMIC II Regular Interest II-LT8S": One of the separate
non-certificated beneficial ownership interests in REMIC II issued hereunder and
designated as a Regular Interest in REMIC II. REMIC II Regular Interest II-LT8S
shall accrue interest at the related REMIC II Remittance Rate in effect from
time to time on its related Uncertificated Notional Amount.
"REMIC II Remittance Rate": With respect to REMIC II Regular Interest
II-LT1 and REMIC II Regular Interest II-LT9, the weighted average of the Expense
Adjusted Mortgage Rates on the then outstanding Mortgage Loans and REO
Properties minus, with respect to REMIC II Regular Interest II-LT1, the product
of (A) two times the sum of the Uncertificated Balances of REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular II-LT5, REMIC II Regular Interest II-LT6, REMIC II
Regular Interest II-LT7 and REMIC II Regular Interest II- LT8 divided by the sum
of the Uncertificated Balances of REMIC II Regular Interest II-LT2, REMIC II
Regular Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular
II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular Interest II-LT7,
REMIC II Regular Interest II-LT8 and REMIC II Regular Interest II-LT9 and (B)
the Certificate Insurer Premium Rate. With respect to each of REMIC II Regular
Interest II-LT2, REMIC II Regular Interest II-LT3, REMIC II Regular Interest
II-LT4, REMIC II Regular Interest II-LT5, REMIC II Regular Interest II-LT6 and
REMIC II Regular Interest II-LT8, a fixed rate per annum equal to the related
REMIC II Remittance Rate as set forth in the Preliminary Statement hereto. With
respect to REMIC II Regular Interest II-LT7, the lesser of (i) the related fixed
rate per annum equal to the related REMIC II Remittance Rate as set forth in the
Preliminary Statement hereto and (ii) the Net WAC Pass-Through Rate. With
respect to REMIC II Regular Interest II-LT2S, REMIC II Regular Interest II-LT3S,
REMIC II Regular Interest II-LT4S, REMIC II Regular Interest II-LT5S, REMIC II
Regular Interest II-LT6S, REMIC II Regular Interest II-LT7S and REMIC II Regular
Interest II-LT8S, a rate per annum equal to excess of the REMIC I Remittance
Rate for the related Uncertificated Corresponding Component over the REMIC II
Remittance Rate for REMIC II Regular Interest II-LT2, REMIC II Regular Interest
II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest II-LT5,
REMIC II Regular Interest II-LT6, REMIC II Regular Interest II-LT7 and REMIC II
Regular Interest II- LT8, respectively.
"REMIC III": The segregated pool of assets consisting of all of the
REMIC II Regular Interests conveyed in trust to the Trustee, for the benefit of
the REMIC III Certificateholders pursuant to Section 2.09, and all amounts
deposited therein, with respect to which a separate REMIC election is to be
made.
"REMIC III Certificate": Any Regular Certificate or Class R-III
Certificate.
"REMIC III Certificateholder": The Holder of any REMIC III
Certificate.
"REMIC Provisions": Provisions of the federal income tax law relating
to real estate mortgage investment conduits, which appear at Section 860A
through 860G of the Code, and related provisions, and proposed, temporary and
final regulations and published rulings, notices and announcements promulgated
thereunder, as the foregoing may be in effect from time to time.
"Remittance Report": A report in form and substance acceptable to the
Trust Administrator on a magnetic disk or tape prepared by the related Servicer
pursuant to Section 4.03 with such additions, deletions and modifications as
agreed to by the Trust Administrator and such Servicer.
"Rents from Real Property": With respect to any REO Property, gross
income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
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"REO Account": Each of the accounts maintained, or caused to be
maintained, by the related Servicer in respect of an REO Property pursuant to
Section 3.23.
"REO Disposition": The sale or other disposition of an REO Property on
behalf of REMIC I.
"REO Imputed Interest": As to any REO Property, for any calendar month
during which such REO Property was at any time part of REMIC I, one month's
interest at the applicable Net Mortgage Rate on the Stated Principal Balance of
such REO Property (or, in the case of the first such calendar month, of the
related Mortgage Loan, if appropriate) as of the close of business on the
Distribution Date in such calendar month.
"REO Principal Amortization": With respect to any REO Property, for
any calendar month, the excess, if any, of (a) the aggregate of all amounts
received in respect of such REO Property during such calendar month, whether in
the form of rental income, sale proceeds (including, without limitation, that
portion of the Termination Price paid in connection with a purchase of all of
the Mortgage Loans and REO Properties pursuant to Section 10.01 that is
allocable to such REO Property) or otherwise, net of any portion of such amounts
(i) payable pursuant to Section 3.23(c) in respect of the proper operation,
management and maintenance of such REO Property or (ii) payable or reimbursable
to the related Servicer pursuant to Section 3.23(d) for unpaid Servicing Fees in
respect of the related Mortgage Loan and unreimbursed Servicing Advances and P&I
Advances in respect of such REO Property or the related Mortgage Loan, over (b)
the REO Imputed Interest in respect of such REO Property for such calendar
month.
"REO Property": A Mortgaged Property acquired by the related Servicer
on behalf of REMIC I through foreclosure or deed-in-lieu of foreclosure, as
described in Section 3.23.
"Request for Release": A release signed by a Servicing Officer, in the
form of Exhibit E-1 or Exhibit E-2 attached hereto.
"Required Overcollateralized Amount": With respect to any Distribution
Date, an amount equal to $_____________ subject to the following: (i) if the
Step Up Trigger has occurred, the Required Overcollateralized Amount for such
Distribution Date will be an amount equal to the entire aggregate Stated
Principal Balance of the Mortgage Loans and REO Properties as of such
Distribution Date; (ii) if the Step Up Trigger has not occurred but the Step Up
Spread Squeeze Test is met, the Required Overcollateralized Amount for such
Distribution Date will be an amount equal to the sum of (A) the Required
Overcollateralized Amount for such Distribution Date determined as though the
Step Up Spread Squeeze Test were not met plus (B) the Spread Squeeze
Overcollateralization Increase Amount; or (iii) if neither the Step Up Trigger
has occurred nor the Step Up Spread Squeeze Test is met but the Step Down
Trigger has occurred, the Required Overcollateralized Amount for such
Distribution Date will be an amount equal to the greater of (A) ____% of the
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date
and (B) the lesser of (x) $_____________ and (y) the Stepped Down Required
Overcollateralized Percentage of the aggregate Stated Principal Balance of the
Mortgage Loans and REO Properties as of such Distribution Date.
"Residential Dwelling": Any one of the following: (i) an attached,
detached or semidetached one-family dwelling, (ii) an attached, detached or
semi-detached two- to four-family dwelling, (iii) a one-family dwelling unit in
a Fannie Mae eligible condominium project, or (iv) an attached, detached or
semi-detached one-family dwelling in a planned unit development, none of which
is a co-operative,
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mobile or in the case of a Mortgage Loan serviced by New Century, a manufactured
home (as defined in 42 United States Code, Section 5402(6)).
"Residual Certificate": Any one of the Class R-I Certificates, Class
R-II Certificates or Class R-III Certificates.
"Residual Interest": The sole class of "residual interests" in a REMIC
within the meaning of Section 860G(a)(2) of the Code.
"Responsible Officer": When used with respect to the Trustee or the
Trust Administrator, the Chairman or Vice Chairman of the Board of Directors or
Trustees, the Chairman or Vice Chairman of the Executive or Standing Committee
of the Board of Directors or Trustees, the President, the Chairman of the
Committee on Trust Matters, any vice president, any assistant vice president,
the Secretary, any assistant secretary, the Treasurer, any assistant treasurer,
the Cashier, any assistant cashier, any trust officer or assistant trust
officer, the Controller and any assistant controller or any other officer of the
Trustee or the Trust Administrator, as the case may be, customarily performing
functions similar to those performed by any of the above designated officers
and, with respect to a particular matter, to whom such matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Rolling Delinquency Percentage": With respect to any Distribution
Date, the average of the Delinquency Percentages as of the last day of each of
the three (or one or two, in the case of the first and second Distribution
Dates) preceding calendar months.
"Scheduled Principal Balance": With respect to any Mortgage Loan: (a)
as of the Cut-off Date, the outstanding principal balance of such Mortgage Loan
as of such date, net of the principal portion of all unpaid Monthly Payments, if
any, due on or before such date; (b) as of any Due Date subsequent to the
Cut-off Date up to and including the Due Date in the calendar month in which a
Liquidation Event occurs with respect to such Mortgage Loan, the Scheduled
Principal Balance of such Mortgage Loan as of the Cut-off Date, minus the sum of
(i) the principal portion of each Monthly Payment due on or before such Due Date
but subsequent to the Cut-off Date, whether or not received, (ii) all Principal
Prepayments received before such Due Date but after the Cut-off Date, (iii) the
principal portion of all Liquidation Proceeds and Insurance Proceeds received
before such Due Date but after the Cut-off Date, net of any portion thereof that
represents principal due (without regard to any acceleration of payments under
the related Mortgage and Mortgage Note) on a Due Date occurring on or before the
date on which such proceeds were received and (iv) any Realized Loss incurred
with respect thereto as a result of a Deficient Valuation occurring before such
Due Date, but only to the extent such Realized Loss represents a reduction in
the portion of principal of such Mortgage Loan not yet due (without regard to
any acceleration of payments under the related Mortgage and Mortgage Note) as of
the date of such Deficient Valuation; and (c) as of any Due Date subsequent to
the occurrence of a Liquidation Event with respect to such Mortgage Loan, zero.
With respect to any REO Property: (a) as of any Due Date subsequent to the date
of its acquisition on behalf of the Trust Fund up to and including the Due Date
in the calendar month in which a Liquidation Event occurs with respect to such
REO Property, an amount (not less than zero) equal to the Scheduled Principal
Balance of the related Mortgage Loan as of the Due Date in the calendar month in
which such REO Property was acquired, minus the aggregate amount of REO
Principal Amortization, if any, in respect of such REO Property for all
previously ended calendar months; and (b) as of any Due Date subsequent to the
occurrence of a Liquidation Event with respect to such REO Property, zero.
"Seller":_____________________, or its successor in interest, in its
capacity as seller under the Mortgage Loan Purchase Agreements.
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"Servicer Prepayment Charge Payment Amount": The amounts payable by
the Servicers in respect of any waived Prepayment Charges pursuant to Section
2.05 or Section 3.01.
"Servicers": ____________ or any successor servicer appointed as
herein provided, in its capacity as servicer hereunder with respect to the
Mortgage Loans identified on Part A of Schedule 1 hereto and the Prepayment
Charges identified on Part A of Schedule 2 hereto and ____________ or any
successor servicer appointed as herein provided, in its capacity as servicer
hereunder with respect to the Mortgage Loans identified on Part B of Schedule 1
hereto and the Prepayment Charges identified on Part B of Schedule 2 hereto.
References to "related Servicer", "applicable Servicer" and similar terms shall
mean the Servicer only with respect to the Mortgage Loans and Prepayment Charges
on the applicable part of Schedule 1 and Schedule 2 attached hereto.
"Servicer Event of Default": One or more of the events described in
Section 7.01.
"Servicer Remittance Date": With respect to any Distribution Date,
____ p.m. _____________ time on the 18th day of the calendar month in which such
Distribution Date occurs or, if such 18th day is not a Business Day, the
Business Day immediately succeeding such 18th day.
"Servicing Account": The account or accounts created and maintained
pursuant to Section 3.09.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by either Servicer in connection with a default, delinquency
or other unanticipated event by such Servicer in the performance of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, in respect of a
particular Mortgage Loan, (iii) the management (including reasonable fees in
connection therewith) and liquidation of any REO Property, and (iv) the
performance of its obligations under Section 3.01, Section 3.09, Section 3.14,
Section 3.16 and Section 3.23. Neither Servicer shall be required to make any
Servicing Advance in respect of a Mortgage Loan or REO Property that, in the
good faith business judgment of such Servicer, would not be ultimately
recoverable from related Insurance Proceeds or Liquidation Proceeds on such
Mortgage Loan or REO Property as provided herein.
"Servicing Fee": With respect to each Mortgage Loan and for any
calendar month, an amount equal to one month's interest (or in the event of any
payment of interest which accompanies a Principal Prepayment in full or in part
made by the Mortgagor during such calendar month, interest for the number of
days covered by such payment of interest) at the applicable Servicing Fee Rate
on the same principal amount on which interest on such Mortgage Loan accrues for
such calendar month. A portion of such Servicing Fee may be retained by any
Sub-Servicer as its servicing compensation.
"Servicing Fee Rate": ____% per annum.
"Servicing Officer": Any officer of the applicable Servicer involved
in, or responsible for, the administration and servicing of Mortgage Loans,
whose name and specimen signature appear on a list of Servicing Officers
furnished by such Servicer to the Trust Administrator, the Trustee, the
Certificate Insurer and the Depositor on the Closing Date, as such list may from
time to time be amended.
"Single Certificate": With respect to any Class of Certificates (other
than the Class P Certificates and the Residual Certificates), a hypothetical
Certificate of such Class evidencing a Percentage Interest for such Class
corresponding to an initial Certificate Principal Balance or Notional Amount of
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$1,000. With respect to the Class P Certificates and the Residual Certificates,
a hypothetical Certificate of such Class evidencing a 100% Percentage Interest
in such Class.
"Spread Squeeze Condition": The Spread Squeeze Condition will be met
with respect to any Distribution Date on or after which the aggregate Stated
Principal Balance of the Mortgage Loans and each REO Property remaining in the
Trust Fund is reduced to less than ___% of the aggregate Stated Principal
Balance of the Mortgage Loans as of the Cut-off Date, if the Spread Squeeze
Percentage for such Distribution Date is less than ____%.
"Spread Squeeze Overcollateralization Increase Amount": For any
Distribution Date on which the Step Up Spread Squeeze Test is met, an amount
determined as follows:
(a) if the Spread Squeeze Condition is met for such Distribution Date,
the Spread Squeeze Overcollateralization Increase Amount for such
Distribution Date shall be equal to the product obtained by multiplying (i)
three, (ii) the excess, if any, of ____% over the Spread Squeeze Percentage
for such Distribution Date and (iii) the aggregate Stated Principal Balance
of the Mortgage Loans as of the Cut-off Date; or
(b) if the Spread Squeeze Condition is not met for such Distribution
Date, the Spread Squeeze Overcollateralization Increase Amount for such
Distribution Date shall be equal to (A) the Spread Squeeze
Overcollateralization Increase Amount for the most recent Distribution Date
for which the Spread Squeeze Condition was met minus (B) the product
obtained by multiplying (i) one sixth of the amount determined under clause
(A) above and (ii) the number of consecutive Distribution Dates through and
including the current Distribution Date for which the Spread Squeeze
Condition was not met.
"Spread Squeeze Percentage": With respect to any Distribution Date,
the percentage equivalent of a fraction, the numerator of which is the product
of 12 and the Net Monthly Excess Spread for such Distribution Date, and the
denominator of which is the aggregate Stated Principal Balance of the Mortgage
Loans and REO Properties as of such Distribution Date.
["S&P": Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or its successor in interest.]
"Startup Day": With respect to any of REMIC I, REMIC II and REMIC III,
the day designated as such pursuant to Section 11.01(b) hereof.
"Stated Principal Balance": With respect to any Mortgage Loan: (a) as
of any date of determination up to but not including the Distribution Date on
which the proceeds, if any, of a Liquidation Event with respect to such Mortgage
Loan would be distributed, the Scheduled Principal Balance of such Mortgage Loan
as of the Cut-off Date, as shown in the Mortgage Loan Schedule, minus the sum of
(i) the principal portion of each Monthly Payment due on a Due Date subsequent
to the Cut-off Date, to the extent received from the Mortgagor or advanced by
the related Servicer and distributed pursuant to Section 4.01 on or before such
date of determination, (ii) all Principal Prepayments received after the Cut-off
Date, to the extent distributed pursuant to Section 4.01 on or before such date
of determination, (iii) all Liquidation Proceeds and Insurance Proceeds applied
by the related Servicer as recoveries of principal in accordance with the
provisions of Section 3.16, to the extent distributed pursuant to Section 4.01
on or before such date of determination, and (iv) any Realized Loss incurred
with respect thereto as a result of a Deficient Valuation made during or prior
to the Prepayment Period for the most recent Distribution Date coinciding
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with or preceding such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such Mortgage Loan
would be distributed, zero. With respect to any REO Property: (a) as of any date
of determination up to but not including the Distribution Date on which the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be distributed, an amount (not less than zero) equal to the Stated Principal
Balance of the related Mortgage Loan as of the date on which such REO Property
was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was
acquired before the Distribution Date in any calendar month, the principal
portion of the Monthly Payment due on the Due Date in the calendar month of
acquisition, to the extent advanced by the related Servicer and distributed
pursuant to Section 4.01 on or before such date of determination, and (ii) the
aggregate amount of REO Principal Amortization in respect of such REO Property
for all previously ended calendar months, to the extent distributed pursuant to
Section 4.01 on or before such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Distribution Date on which
the proceeds, if any, of a Liquidation Event with respect to such REO Property
would be distributed, zero.
"Stayed Funds": If either Servicer is the subject of a proceeding
under the federal Bankruptcy Code and the making of a Remittance (as defined in
Section 7.02(b)) is prohibited by Section 362 of the federal Bankruptcy Code,
funds that are in the custody of such Servicer, a trustee in bankruptcy or a
federal bankruptcy court and should have been the subject of such Remittance
absent such prohibition.
"Step Down Cumulative Loss Test": The Step Down Cumulative Loss Test
will be met with respect to a Distribution Date as follows: (i) for the ____
through the ____ Distribution Dates, if the Cumulative Loss Percentage for such
Distribution Date is ____% or less; (ii) for the ____ through the ----
Distribution Dates, if the Cumulative Loss Percentage for such Distribution Date
is ____% or less; (iii) for the ____ through the ____ Distribution Dates, if the
Cumulative Loss Percentage for such Distribution Date is ____% or less; (iv) for
any Distribution Date after the ____ Distribution Date, if the Cumulative Loss
Percentage for such Distribution Date is ____% or less.
"Step Down Rolling Delinquency Test": The Step Down Rolling
Delinquency Test will be met with respect to a Distribution Date if the Rolling
Delinquency Percentage for such Distribution Date is __% or less.
"Step Down Rolling Loss Test": The Step Down Rolling Loss Test will be
met with respect to a Distribution Date if the Annual Loss Percentage is less
than ____%.
"Step Down Trigger": For any Distribution Date after the ____
Distribution Date, the Step Down Trigger will have occurred if each of the Step
Down Cumulative Loss Test, the Step Down Rolling Delinquency Test and the Step
Down Rolling Loss Test is met. In no event will the Step Down Trigger be deemed
to have occurred for the ____ Distribution Date or any preceding Distribution
Date.
"Stepped Down Required Overcollateralized Percentage": For any
Distribution Date for which the Step Down Trigger has occurred, a percentage
equal to (i) the percentage equivalent of a fraction, the numerator of which is
$_____________ and the denominator of which is the aggregate Stated Principal
Balance of the Mortgage Loans and REO Properties as of such Distribution Date,
minus (ii) the percentage equivalent of a fraction, the numerator of which is
the product of (A) the percentage calculated under clause (i) above minus ____%,
multiplied by (B) the number of consecutive Distribution Dates through and
including the Distribution Date for which the Stepped Down Required
Overcollateralized Percentage is being calculated, up to a maximum of six, for
which the Step Down Trigger has occurred, and the denominator of which is six.
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"Step Up Cumulative Loss Test": The Step Up Cumulative Loss Test will
be met with respect to a Distribution Date as follows: (i) for the ___ through
the ____ Distribution Dates, if the Cumulative Loss Percentage for such
Distribution Date is more than ____%; (ii) for the ____ through the ____
Distribution Dates, if the Cumulative Loss Percentage for such Distribution Date
is more than ____%; (iii) for the ____ through the ____ Distribution Dates, if
the Cumulative Loss Percentage for such Distribution Date is more than ____%;
(iv) for the ____ through the ____ Distribution Dates, if the Cumulative Loss
Percentage for such Distribution Date is more than ____%; and (v) for the ____
Distribution Date and any Distribution Date thereafter, if the Cumulative Loss
Percentage for such Distribution Date is more than ____%.
"Step Up Rolling Delinquency Test": The Step Up Rolling Delinquency
Test will be met with respect to a Distribution Date if the Rolling Delinquency
Percentage for such Distribution Date is more than ____%; provided, however,
that the Step Up Rolling Delinquency Test shall not be considered met if the
Overcollateralization Percentage is greater than or equal to the Rolling
Delinquency Percentage.
"Step Up Rolling Loss Test": The Step Up Rolling Loss Test will be met
with respect to a Distribution Date , if the Annual Loss Percentage is equal to
or more than ____%.
"Step Up Spread Squeeze Test": The Step Up Spread Squeeze Test will be
met with respect to a Distribution Date if the Spread Squeeze Condition is met
for such Distribution Date or was met for any of the five preceding Distribution
Dates.
"Step Up Trigger": For any Distribution Date, the Step Up Trigger will
have occurred if any one of the Step Up Cumulative Loss Test, the Step Up
Rolling Delinquency Test or the Step Up Rolling Loss Test is met.
"Sub-Servicer": Any Person with which either Servicer has entered into
a Sub-Servicing Agreement and which meets the qualifications of a Sub-Servicer
pursuant to Section 3.02.
"Sub-Servicing Account": An account established by a Sub-Servicer
which meets the requirements set forth in Section 3.08 and is otherwise
acceptable to the applicable Servicer.
"Sub-Servicing Agreement": The written contract between either
Servicer and a Sub- Servicer relating to servicing and administration of certain
Mortgage Loans as provided in Section 3.02.
"Substitution Shortfall Amount": As defined in Section 2.03(d).
"Tax Returns": The federal income tax return on Internal Revenue
Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust Fund due to its classification as REMICs
under the REMIC Provisions, together with any and all other information reports
or returns that may be required to be furnished to the Certificateholders or
filed with the Internal Revenue Service or any other governmental taxing
authority under any applicable provisions of federal, state or local tax laws.
"Termination Price": As defined in Section 10.01.
"Terminator": As defined in Section 10.01.
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"Transfer": Any direct or indirect transfer, sale, pledge,
hypothecation, or other form of assignment of any Ownership Interest in a
Certificate.
"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.
"Transferor": Any Person who is disposing by Transfer of any Ownership
Interest in a Certificate.
"Trust Administrator": _______________________, a national banking
association, or its successor in interest, or any successor trustee appointed as
herein provided.
"Trust Fund": Collectively, all of the assets of REMIC I, REMIC II and
REMIC III.
"Trustee": _______________________, a national banking association, or
its successor in interest, or any successor trustee appointed as herein
provided.
"Uncertificated Balance": The amount of any REMIC I Regular Interest
or REMIC II Regular Interest outstanding as of any date of determination. As of
the Closing Date, the Uncertificated Balance of each REMIC I Regular Interest
and each REMIC II Regular Interest shall equal the amount set forth in the
Preliminary Statement hereto as its initial uncertificated balance. On each
Distribution Date, the Uncertificated Balance of each REMIC I Regular Interest
and each REMIC II Regular Interest shall be reduced by all distributions of
principal made on such REMIC I Regular Interest or such REMIC II Regular
Interest, as applicable, on such Distribution Date pursuant to Section 4.01 and,
if and to the extent necessary and appropriate, shall be further reduced on such
Distribution Date by Realized Losses as provided in Section 4.04 and the
Uncertificated Balances of REMIC I Regular Interest I-LT9 and REMIC II Regular
Interest II-LT9 shall be increased by interest deferrals as provided in Section
4.01(a)(1)(A)(i) and Section 4.01(a)(1)(B)(i), respectively. The Uncertificated
Balance of each REMIC I Regular Interest and each REMIC II Regular Interest
shall never be less than zero.
"Uncertificated Corresponding Component": With respect to: REMIC II
Regular Interest II-LT1, REMIC I Regular Interest I-LT1; REMIC II Regular
Interest II-LT2 and REMIC II Regular Interest II-LT2S, REMIC I Regular Interest
I-LT2; REMIC II Regular Interest II-LT3 and REMIC II Regular Interest II-LT3S,
REMIC I Regular Interest I-LT3; REMIC II Regular Interest II-LT4 and REMIC II
Regular Interest II-LT4S, REMIC I Regular Interest I-LT4; REMIC II Regular
Interest II-LT5 and REMIC II Regular Interest II-LT5S, REMIC I Regular Interest
I-LT5; REMIC II Regular Interest II-LT6 and REMIC II Regular Interest II-LT6S,
REMIC I Regular Interest I-LT6; REMIC II Regular Interest II- LT7 and REMIC II
Regular Interest II-LT7S, REMIC I Regular Interest I-LT7; REMIC II Regular
Interest II-LT8 and REMIC II Regular Interest II-LT8S, REMIC I Regular Interest
I-LT8; REMIC II Regular Interest II-LT9, REMIC I Regular Interest I-LT9; and
REMIC II Regular Interest II-LTP, REMIC I Regular Interest I-LTP.
"Uncertificated Interest": With respect to any REMIC I Regular
Interest for any Distribution Date, one month's interest at the REMIC I
Remittance Rate applicable to such REMIC I Regular Interest for such
Distribution Date, accrued on the Uncertificated Balance thereof immediately
prior to such Distribution Date. With respect to any REMIC II Regular Interest
for any Distribution Date, one month's interest at the REMIC II Remittance Rate
applicable to such REMIC II Regular Interest for such Distribution Date, accrued
on the Uncertificated Balance thereof immediately prior to such Distribution
Date. Uncertificated Interest in respect of any REMIC I Regular Interest or any
REMIC II
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Regular Interest shall accrue on the basis of a 360-day year consisting of
twelve 30-day months. Uncertificated Interest with respect to each Distribution
Date, as to any REMIC I Regular Interest or REMIC II Regular Interest, shall be
reduced by an amount equal to the sum of (a) the aggregate Prepayment Interest
Shortfall, if any, for such Distribution Date to the extent not covered by
payments pursuant to Section 3.24 and (b) the aggregate amount of any Relief Act
Interest Shortfall, if any allocated, in each case, to such REMIC I Regular
Interest or REMIC II Regular Interest pursuant to Section 1.02. In addition,
Uncertificated Interest with respect to each Distribution Date, as to any REMIC
I Regular Interest or REMIC II Regular Interest, shall be reduced by Realized
Losses, if any, allocated to such REMIC I Regular Interest or REMIC II Regular
Interest pursuant to Section 1.02 and Section 4.04.
"Uncertificated Notional Amount": With respect to REMIC II Regular
Interest II-LT2S, REMIC II Regular Interest II-LT3S, REMIC II Regular Interest
II-LT4S, REMIC II Regular Interest II- LT5S, REMIC II Regular Interest II-LT6S,
REMIC II Regular Interest II-LT7S and REMIC II Regular Interest II-LT8S, the
Uncertificated Balance of REMIC I Regular Interest I-LT2, REMIC I Regular
Interest I-LT3, REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5,
REMIC I Regular Interest I- LT6, REMIC I Regular Interest I-LT7 and REMIC I
Regular Interest I-LT8, respectively.
"Uninsured Cause": Any cause of damage to a Mortgaged Property such
that the complete restoration of such property is not fully reimbursable by the
hazard insurance policies required to be maintained pursuant to Section 3.14.
"United States Person": 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 thereof (except, in the
case of a partnership, to the extent provided in regulations) or an estate whose
income is subject to United States federal income tax regardless of its source,
or a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust. To
the extent prescribed in regulations by the Secretary of the Treasury, which
have not yet been issued, a trust which was in existence on August 20, 1996
(other than a trust treated as owned by the grantor under subpart E of part I of
subchapter J of chapter 1 of the Code), and which was treated as a United States
person on August 20, 1996 may elect to continue to be treated as a United States
person notwithstanding the previous sentence. The term "United States" shall
have the meaning set forth in Section 7701 of the Code.
"Value": With respect to any Mortgaged Property relating to a Mortgage
Loan serviced by New Century, the lesser of (i) the lesser of (a) the value
thereof as determined by an appraisal made for the originator of the Mortgage
Loan at the time of origination of the Mortgage Loan by an appraiser who met the
minimum requirements of Fannie Mae and Freddie Mac and (b) the value thereof as
determined by a review appraisal conducted by New Century (in its capacity as an
Originator) in accordance with New Century's underwriting guidelines, and (ii)
the purchase price paid for the related Mortgaged Property by the Mortgagor with
the proceeds of the Mortgage Loan; provided, however, (A) in the case of a
Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely
upon the lesser of (1) the value determined by an appraisal made for the
originator of such Refinanced Mortgage Loan at the time of origination of such
Refinanced Mortgage Loan by an appraiser who met the minimum requirements of
Fannie Mae and Freddie Mac and (2) the value thereof as determined by a review
appraisal conducted by New Century (in its capacity as an Originator) in
accordance with New Century's underwriting guidelines, and (B) in the case of a
Mortgage Loan originated in connection with a "lease-option purchase," such
value of the Mortgaged Property is based on the lower of the value determined by
an appraisal made for the originator of such Mortgage Loan at the time of
origination or the sale price of such Mortgaged
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Property if the "lease option purchase price" was set less than 12 months prior
to origination, and is based on the value determined by an appraisal made for
the originator of such Mortgage Loan at the time of origination if the "lease
option purchase price" was set 12 months or more prior to origination. With
respect to any Mortgaged Property relating to a Mortgage Loan serviced by Option
One, the lesser of (i) the lesser of (a) the value thereof as determined by an
appraisal made for the originator of the Mortgage Loan at the time of
origination of the Mortgage Loan by an appraiser who met the minimum
requirements of Fannie Mae and Freddie Mac and (b) the value thereof as
determined by a review appraisal conducted by Option One (in its capacity as an
Originator) in the event any such review appraisal determines an appraised value
more than 10% lower than the value thereof, in the case of a Mortgage Loan with
a Loan-to--Value Ratio less than or equal to 80%, or more than 5% lower than the
value thereof, in the case of a Mortgage Loan with a Loan-to-Value Ratio greater
than 80%, as determined by the appraisal referred to in clause (i)(a) above, and
(ii) the purchase price paid for the related Mortgaged Property by the Mortgagor
with the proceeds of the Mortgage Loan; provided, however, (A) in the case of a
Refinanced Mortgage Loan, such value of the Mortgaged Property is based solely
upon the lesser of (1) the value determined by an appraisal made for the
originator of such Refinanced Mortgage Loan at the time of origination of such
Refinanced Mortgage Loan by an appraiser who met the minimum requirements of
Fannie Mae and Freddie Mac and (2) the value thereof as determined by a review
appraisal conducted by Option One (in its capacity as Originator) in the event
any such review appraisal determines an appraised value more than 10% lower than
the value thereof, in the case of a Mortgage Loan with a Loan-to--Value Ratio
less than or equal to 80%, or more than 5% lower than the value thereof, in the
case of a Mortgage Loan with a Loan-to-Value Ratio greater than 80%, as
determined by the appraisal referred to in clause (ii)(A)(1) above, and (B) in
the case of a Mortgage Loan originated in connection with a "lease-option
purchase," such value of the Mortgaged Property is based on the lower of the
value determined by an appraisal made for the originator of such Mortgage Loan
at the time of origination or the sale price of such Mortgaged Property if the
"lease option purchase price" was set less than 12 months prior to origination,
and is based on the value determined by an appraisal made for the originator of
such Mortgage Loan at the time of origination if the "lease option purchase
price" was set 12 months or more prior to origination.
"Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. With respect to any date of
determination, 98% of all Voting Rights will be allocated among the holders of
the Class A Certificates and the Class CE Certificates in proportion to the then
outstanding Certificate Principal Balances of their respective Certificates, 1%
of all Voting Rights will be allocated to the holders of the Class P
Certificates and 1/3 of 1% of all Voting Rights will be allocated among the
holders of each Class of Residual Certificates. The Voting Rights allocated to
each Class of Certificate shall be allocated among Holders of each such Class in
accordance with their respective Percentage Interests as of the most recent
Record Date.
SECTION 1.02. Allocation of Certain Interest Shortfalls.
For purposes of calculating the amount of Accrued Certificate Interest
and the amount of the Interest Distribution Amounts for the Class A Certificates
and the Class CE Certificates for any Distribution Date, (1) the aggregate
amount of any Prepayment Interest Shortfalls (to the extent not covered by
payments by the related Servicer pursuant to Section 3.24) incurred in respect
of the Mortgage Loans for any Distribution Date shall be allocated among the
Class CE Certificates on a PRO RATA basis based on, and to the extent of, one
month's interest at the then applicable respective Pass-Through Rate on the
respective Notional Amount of each such Certificate, (2) the aggregate amount of
any Relief Act Interest Shortfalls incurred in respect of the Mortgage Loans for
any Distribution Date shall be allocated first, among the Class CE Certificates
on a PRO RATA basis based on, and to the extent of, one month's interest at the
then applicable respective Pass-Through Rate on the respective Notional Amount
of each such
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Certificate and, thereafter, among the Class A Certificates on a PRO RATA basis
based on, and to the extent of, one month's interest at the then applicable
respective Pass-Through Rate on the respective Certificate Principal Balance of
each such Certificate and (3) the aggregate amount of any Realized Losses
incurred for any Distribution Date shall be allocated among the Class CE
Certificates on a PRO RATA basis based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Notional Amount of each such Certificate.
For purposes of calculating the amount of Uncertificated Interest for
the REMIC I Regular Interests for any Distribution Date, (1) the aggregate
amount of any Prepayment Interest Shortfalls (to the extent not covered by
payments by the related Servicer pursuant to Section 3.24) incurred in respect
of the Mortgage Loans for any Distribution Date shall be allocated, to
Uncertificated Interest payable to REMIC I Regular Interest I-LT1 and REMIC I
Regular Interest I-LT9 up to an aggregate amount equal to the REMIC I Interest
Loss Allocation Amount, __% and __%, respectively and (2) the aggregate amount
of any Relief Act Interest Shortfalls incurred in respect of the Mortgage Loans
for any Distribution Date shall be allocated first, to Uncertificated Interest
payable to REMIC I Regular Interest I-LT1 and REMIC I Regular Interest I-LT9 up
to an aggregate amount equal to the REMIC I Interest Loss Allocation Amount,
___% and __%, respectively, and thereafter among REMIC I Regular Interest I-LT1,
REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular
Interest I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6,
REMIC I Regular Interest I-LT7, REMIC I Regular Interest I-LT8 and REMIC I
Regular Interest I-LT9 PRO RATA based on, and to the extent of, one month's
interest at the then applicable respective Pass-Through Rate on the respective
Uncertificated Balance of each such REMIC I Regular Interest.
All Prepayment Interest Shortfalls and Relief Act Interest Shortfalls
on the REMIC II Regular Interests shall be allocated by the Trust Administrator
on each Distribution Date among the REMIC II Regular Interests in the proportion
that Prepayment Interest Shortfalls and Relief Act Interest Shortfalls are
allocated to the related Uncertificated Corresponding Component.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
SECTION 2.01. Conveyance of the Mortgage Loans.
The Depositor, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey to the Trustee
without recourse, for the benefit of the Certificateholders and the Certificate
Insurer, all the right, title and interest of the Depositor, including any
security interest therein for the benefit of the Depositor, in and to the
Mortgage Loans identified on the Mortgage Loan Schedule, the rights of the
Depositor under the Mortgage Loan Purchase Agreements, and all other assets
included or to be included in REMIC I. Such assignment includes all interest and
principal received by the Depositor or either Servicer on or with respect to the
Mortgage Loans (other than payments of principal and interest due on such
Mortgage Loans on or before the Cut-off Date).
In connection with such transfer and assignment, the Depositor does
hereby deliver to, and deposit with, the Trust Administrator, as custodian for
the Trustee (in which capacity the Trust Administrator will, unless otherwise
specified, be acting under this Article II), the following documents or
instruments with respect to each Mortgage Loan so transferred and assigned (a
"Mortgage File"):
(i) (a) with respect to each Mortgage Loan on Part A of the
Mortgage Loan Schedule, the original Mortgage Note, endorsed in the
following form: "Pay to the order of ___________________, as Trustee
under the applicable agreement, without recourse," and (b) with
respect to each Mortgage Loan on Part B of the Mortgage Loan Schedule,
the original Mortgage Note, endorsed in the following form: "Pay to
the order of _________________ as trustee," in each case, with all
prior and intervening endorsements showing a complete chain of
endorsement from the originator to the Person so endorsing to the
Trustee or _______________________, as applicable;
(ii) the original Mortgage with evidence of recording thereon,
and the original recorded power of attorney, if the Mortgage was
executed pursuant to a power of attorney, with evidence of recording
thereon;
(iii) an original Assignment of the Mortgage executed in the
following form: "____________________________, as Trustee under the
applicable agreement";
(iv) the original recorded Assignment or Assignments of the
Mortgage showing a complete chain of assignment from the originator to
the Person assigning the Mortgage to the Trustee as contemplated by
the immediately preceding clause (iii);
(v) the original or copies of each assumption, modification,
written assurance or substitution agreement, if any; and
(vi) the original lender's title insurance policy, together with
all endorsements or riders that were issued with or subsequent to the
issuance of such policy, insuring the priority of the Mortgage as a
first lien or second lien on the Mortgaged Property represented
therein as a fee interest vested in the Mortgagor, or in the event
such original
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title policy is unavailable, a written commitment or uniform binder or
preliminary report of title issued by the title insurance or escrow
company.
Within 30 Business Days following the Closing Date, _____________ will
prepare, execute and deliver to the Trust Administrator an endorsement for each
of the Mortgage Loans on Part B of the Mortgage Loan Schedule endorsing each
related Mortgage Note in the following form: "Pay to the order of
_______________________, as Trustee under the applicable agreement, without
recourse" and the endorsement provided for in Section 2.01(i)(b) will be voided
by the Trust Administrator.
The Trust Administrator, at the expense of the related Servicer, shall
promptly (within sixty Business Days following the later of the Closing Date and
the date of receipt by the Trust Administrator of the recording information for
a Mortgage, but in no event later than ninety days following the Closing Date)
submit or cause to be submitted for recording, at no expense to the Trust Fund,
the Trustee, the Trust Administrator, the Certificate Insurer or the Depositor,
in the appropriate public office for real property records, each Assignment
referred to in Sections 2.01(iii) and (iv) above. In the event that any such
Assignment is lost or returned unrecorded because of a defect therein, the
related Servicer shall promptly prepare or cause to be prepared a substitute
Assignment or cure or cause to be cured such defect, as the case may be, and
thereafter cause each such Assignment to be duly recorded.
With respect to a maximum of approximately ___% of the Original
Mortgage Loans, by outstanding principal balance of the Original Mortgage Loans
as of the Cut-off Date, if any original Mortgage Note referred to in Section
2.01(i) above cannot be located, the obligations of the Depositor to deliver
such documents shall be deemed to be satisfied upon delivery to the Trust
Administrator of a photocopy of such Mortgage Note, if available, with a lost
note affidavit substantially in the form of Exhibit I attached hereto. If any of
the original Mortgage Notes for which a lost note affidavit was delivered to the
Trust Administrator is subsequently located, such original Mortgage Note shall
be delivered to the Trust Administrator within three Business Days. If any of
the documents referred to in Sections 2.01(ii), (iii) or (iv) above has as of
the Closing Date been submitted for recording but either (x) has not been
returned from the applicable public recording office or (y) has been lost or
such public recording office has retained the original of such document, the
obligations of the Depositor to deliver such documents shall be deemed to be
satisfied upon (1) delivery to the Trust Administrator of a copy of each such
document certified by the related Originator in the case of (x) above or the
applicable public recording office in the case of (y) above to be a true and
complete copy of the original that was submitted for recording and (2) if such
copy is certified by the related Originator, delivery to the Trust Administrator
promptly upon receipt thereof of either the original or a copy of such document
certified by the applicable public recording office to be a true and complete
copy of the original. Notice shall be provided to the Trustee, the Trust
Administrator, the Certificate Insurer and the Rating Agencies by the related
Originator if delivery pursuant to clause (2) above will be made more than 180
days after the Closing Date. If the original lender's title insurance policy was
not delivered pursuant to Section 2.01(vi) above, the Depositor shall deliver or
cause to be delivered to the Trust Administrator, promptly after receipt
thereof, the original lender's title insurance policy. The Depositor shall
deliver or cause to be delivered to the Trust Administrator promptly upon
receipt thereof any other original documents constituting a part of a Mortgage
File received with respect to any Mortgage Loan, including, but not limited to,
any original documents evidencing an assumption or modification of any Mortgage
Loan.
All original documents relating to the Mortgage Loans that are not
delivered to the Trust Administrator are and shall be held by or on behalf of
the related Originator, the Seller, the Depositor or the related Servicer, as
the case may be, in trust for the benefit of the Trustee on behalf of the
Certificateholders and the Certificate Insurer. In the event that any such
original document is required
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pursuant to the terms of this Section to be a part of a Mortgage File, such
document shall be delivered promptly to the Trust Administrator. Any such
original document delivered to or held by the Depositor that is not required
pursuant to the terms of this Section to be a part of a Mortgage File, shall be
delivered promptly to the related Servicer.
The Depositor herewith delivers to the Trustee and the Trust
Administrator an executed copy of the Mortgage Loan Purchase Agreements. In
addition to the foregoing, the Depositor shall cause the Certificate Insurer to
deliver the Policy to the Trust Administrator for the benefit of the
Certificateholders.
SECTION 2.02. Acceptance of REMIC I by Trustee.
The Trust Administrator, on behalf of the Trustee, acknowledges
receipt of the Policy and, subject to the provisions of Section 2.01 and subject
to any exceptions noted on the exception report described in the next paragraph
below, the documents referred to in Section 2.01 (other than such documents
described in Section 2.01(v)) above and all other assets included in the
definition of "REMIC I" under clauses (i), (iii), (iv) and (v) (to the extent of
amounts deposited into the Distribution Account) and declares that it holds and
will hold such documents and the other documents delivered to it constituting a
Mortgage File, and that it holds or will hold all such assets and such other
assets included in the definition of "REMIC I" in trust for the exclusive use
and benefit of all present and future Certificateholders and the Certificate
Insurer.
The Trust Administrator agrees, for the benefit of the
Certificateholders and the Certificate Insurer, to review each Mortgage File on
or before the Closing Date and to certify in substantially the form attached
hereto as Exhibit C-1 that, (i) as to each Mortgage Loan listed on Part A of the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (a) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required to be delivered to it pursuant to this Agreement are in its possession,
(b) such documents have been reviewed by it and appear regular on their face and
relate to such Mortgage Loan, (c) based on its examination and only as to the
foregoing, the information set forth in the Mortgage Loan Schedule that
corresponds to items (i) through (iii), (vi), (x), (xi), (xii), (xv) and (xxii)
of the definition of "Mortgage Loan Schedule" accurately reflects information
set forth in the Mortgage File and (ii) as to each Mortgage Loan listed on Part
B of the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or
any Mortgage Loan specifically identified in the exception report annexed
thereto as not being covered by such certification), (a) the documents
constituting part of such Mortgage File described in Section 2.01(i) and (iii)
are in its possession. It is herein acknowledged that, in conducting such
review, the Trust Administrator was under no duty or obligation (i) to inspect,
review or examine any such documents, instruments, certificates or other papers
to determine whether they are genuine, enforceable, or appropriate for the
represented purpose or whether they have actually been recorded or that they are
other than what they purport to be on their face, or (ii) to determine whether
any Mortgage File should include any of the documents specified in clause (v) of
Section 2.01.
The Trust Administrator agrees, for the benefit of the
Certificateholders and the Certificate Insurer, to review each Mortgage File
within 60 days after the Closing Date and to certify in substantially the form
attached hereto as Exhibit C-2 that, as to each Mortgage Loan listed on Part B
of the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or any
Mortgage Loan specifically identified in the exception report annexed thereto as
not being covered by such certification), (a) all documents constituting part of
such Mortgage File (other than such documents described in Section 2.01(v))
required
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to be delivered to it pursuant to this Agreement are in its possession and
additionally the endorsement provided in Section 2.01(i)(b) has been voided and
replaced with an endorsement from Option One, endorsing each related Mortgage
Note in the following form: "Pay to the order of Firstar Bank Milwaukee, N.A.,
as Trustee under the applicable agreement, without recourse", (b) such documents
have been reviewed by it and appear regular on their face and relate to such
Mortgage Loan, (c) based on its examination and only as to the foregoing, the
information set forth in the Mortgage Loan Schedule that corresponds to items
(i) through (iii), (vi), (x), (xi), (xii), (xv) and (xxii) of the definition of
"Mortgage Loan Schedule" accurately reflects information set forth in the
Mortgage File. It is herein acknowledged that, in conducting such review, the
Trust Administrator was under no duty or obligation (i) to inspect, review or
examine any such documents, instruments, certificates or other papers to
determine whether they are genuine, enforceable, or appropriate for the
represented purpose or whether they have actually been recorded or that they are
other than what they purport to be on their face, or (ii) to determine whether
any Mortgage File should include any of the documents specified in clause (v) of
Section 2.01.
Prior to the first anniversary date of this Agreement the Trust
Administrator shall deliver to the Depositor, each Servicer, the Trustee and the
Certificate Insurer a final certification in the form annexed hereto as Exhibit
C-3 evidencing the completeness of the Mortgage Files, with any applicable
exceptions noted thereon, and the related Servicer shall forward a copy thereof
to any Sub-Servicer.
If in the process of reviewing the Mortgage Files and making or
preparing, as the case may be, the certifications referred to above, the Trust
Administrator finds any document or documents constituting a part of a Mortgage
File to be missing or defective in any material respect, at the conclusion of
its review the Trust Administrator shall so notify the Depositor, the applicable
Servicer, the Trustee and the Certificate Insurer. In addition, upon the
discovery by the Depositor, either Servicer, the Trust Administrator or the
Trustee of a breach of any of the representations and warranties made by either
Originator or the Seller in the Mortgage Loan Purchase Agreements in respect of
any Mortgage Loan which materially adversely affects such Mortgage Loan or the
interests of the related Certificateholders in such Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other parties
and the Certificate Insurer.
The Trust Administrator shall, at the written request and expense of
any Certificateholder, provide a written report to such Certificateholder of all
Mortgage Files released to the related Servicer for servicing purposes.
SECTION2.03. Repurchase or Substitution of Mortgage Loans by the
Originators, the Seller or the Depositor.
(a) Upon discovery or receipt of notice of any materially defective
document in, or that a document is missing from, a Mortgage File or of the
breach by either Originator or the Seller of any representation, warranty or
covenant under the Mortgage Loan Purchase Agreements in respect of any Mortgage
Loan that materially adversely affects the value of such Mortgage Loan or the
interest therein of the Certificateholders, the Trust Administrator shall
promptly notify the related Originator, the Seller, the related Servicer, the
Master Servicer, the Trustee and the Certificate Insurer of such defect, missing
document or breach and request that such Originator or the Seller, as the case
may be, deliver such missing document or cure such defect or breach within 60
days from the date such Originator or the Seller, as the case may be, was
notified of such missing document, defect or breach, and if the related
Originator or the Seller, as the case may be, does not deliver such missing
document or cure such defect or breach in all material respects during such
period, the Trustee, in accordance with Section 3.02(b), shall enforce the
obligations of such Originator or the Seller, as the case may be, under the
related Mortgage Loan Purchase
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Agreement to repurchase such Mortgage Loan from REMIC I at the Purchase Price
within 90 days after the date on which the related Originator or the Seller, as
the case may be, was notified (subject to Section 2.03(e)) of such missing
document, defect or breach, if and to the extent that such Originator or the
Seller, as the case may be, is obligated to do so under the related Mortgage
Loan Purchase Agreement. The Purchase Price for the repurchased Mortgage Loan
shall be deposited in the Collection Account and the Trust Administrator, upon
receipt of written certification from the related Servicer of such deposit,
shall release to the related Originator or the Seller, as the case may be, the
related Mortgage File and the Trustee shall execute and deliver such instruments
of transfer or assignment, in each case without recourse, as such Originator or
the Seller, as the case may be, shall furnish to it and as shall be necessary to
vest in such Originator or the Seller, as the case may be, any Mortgage Loan
released pursuant hereto and neither the Trustee nor the Trust Administrator
shall have any further responsibility with regard to such Mortgage File. In lieu
of repurchasing any such Mortgage Loan as provided above, if so provided in the
related Mortgage Loan Purchase Agreement, the related Originator or the Seller,
as the case may be, may cause such Mortgage Loan to be removed from REMIC I (in
which case it shall become a Deleted Mortgage Loan) and substitute one or more
Qualified Substitute Mortgage Loans in the manner and subject to the limitations
set forth in Section 2.03(d). It is understood and agreed that the obligation of
the related Originator or the Seller, as the case may be, to cure or to
repurchase (or to substitute for) any Mortgage Loan as to which a document is
missing, a material defect in a constituent document exists or as to which such
a breach has occurred and is continuing shall constitute the sole remedy
respecting such omission, defect or breach available to the Trustee, the
Certificateholders and the Certificate Insurer.
(b) Subject to Section 2.03(e), within 90 days of the earlier of
discovery by the Depositor or receipt of notice by the Depositor of the breach
of any representation or warranty of the Depositor set forth in Section 2.04
with respect to any Mortgage Loan, which materially adversely affects the value
of such Mortgage Loan or the interest therein of the Certificateholders, the
Depositor shall (i) cure such breach in all material respects, (ii) repurchase
the Mortgage Loan from REMIC I at the Purchase Price or (iii) remove such
Mortgage Loan from REMIC I (in which case it shall become a Deleted Mortgage
Loan) and substitute one or more Qualified Substitute Mortgage Loans in the
manner and subject to the limitations set forth in Section 2.03(d). If any such
breach is a breach of any of the representations and warranties included in
Section 2.04(a)(iv), and the Depositor is unable to cure such breach, the
Depositor shall repurchase or substitute the smallest number of Mortgage Loans
as shall be required to make such representation or warranty true and correct.
The Purchase Price for any repurchased Mortgage Loan shall be delivered to the
related Servicer for deposit in the Collection Account, and the Trust
Administrator, upon receipt of written certification from the related Servicer
of such deposit, shall at the Depositor's direction release to the Depositor the
related Mortgage File and the Trustee shall execute and deliver such instruments
of transfer or assignment furnished by the Depositor, in each case without
recourse, as the Depositor shall furnish to it and as shall be necessary to vest
in the Depositor any Mortgage Loan released pursuant hereto.
(c) Within 90 days of the earlier of discovery by the either Servicer
or receipt of notice by either Servicer of the breach of any representation,
warranty or covenant of such Servicer set forth in Section 2.05 which materially
and adversely affects the interests of the Certificateholders in any Mortgage
Loan or Prepayment Charge, such Servicer shall cure such breach in all material
respects.
(d) Any substitution of Qualified Substitute Mortgage Loans for
Deleted Mortgage Loans made pursuant to Section 2.03(a), in the case of either
Originator or the Seller, or Section 2.03(b), in the case of the Depositor, must
be effected prior to the date which is two years after the Startup Day for REMIC
I.
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As to any Deleted Mortgage Loan for which either Originator or the
Seller or the Depositor substitutes a Qualified Substitute Mortgage Loan or
Loans, such substitution shall be effected by such Originator, the Seller or the
Depositor, as the case may be, delivering to the Trust Administrator, on behalf
of the Trustee, for such Qualified Substitute Mortgage Loan or Loans, the
Mortgage Note, the Mortgage, the Assignment to the Trustee, and such other
documents and agreements, with all necessary endorsements thereon, as are
required by Section 2.01, together with an Officers' Certificate providing that
each such Qualified Substitute Mortgage Loan satisfies the definition thereof
and specifying the Substitution Shortfall Amount (as described below), if any,
in connection with such substitution. The Trust Administrator shall acknowledge
receipt for such Qualified Substitute Mortgage Loan or Loans and, within ten
Business Days thereafter, review such documents as specified in Section 2.02 and
deliver to the Depositor, the related Servicer, the Trustee and the Certificate
Insurer, with respect to such Qualified Substitute Mortgage Loan or Loans, a
certification substantially in the form attached hereto as Exhibit C-1, with any
applicable exceptions noted thereon. Within one year of the date of
substitution, the Trust Administrator shall deliver to the Depositor, the
related Servicer, the Trustee and the Certificate Insurer a certification
substantially in the form of Exhibit C-2 hereto with respect to such Qualified
Substitute Mortgage Loan or Loans, with any applicable exceptions noted thereon.
Monthly Payments due with respect to Qualified Substitute Mortgage Loans in the
month of substitution are not part of REMIC I and will be retained by the
Depositor, the related Originator or the Seller, as the case may be. For the
month of substitution, distributions to Certificateholders will reflect the
Monthly Payment due on such Deleted Mortgage Loan on or before the Due Date in
the month of substitution, and the Depositor, the related Originator or the
Seller, as the case may be, shall thereafter be entitled to retain all amounts
subsequently received in respect of such Deleted Mortgage Loan. The Depositor
shall give or cause to be given written notice to the Certificateholders that
such substitution has taken place, shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Qualified Substitute Mortgage Loan or
Loans and shall deliver a copy of such amended Mortgage Loan Schedule to the
Trustee and the Trust Administrator. Upon such substitution, such Qualified
Substitute Mortgage Loan or Loans shall constitute part of the Mortgage Pool and
shall be subject in all respects to the terms of this Agreement and, in the case
of a substitution effected by either Originator or the Seller, the related
Mortgage Loan Purchase Agreement, including, in the case of a substitution
effected by either Originator or the Seller, all applicable representations and
warranties thereof included in such Mortgage Loan Purchase Agreement, and in the
case of a substitution effected by the Depositor, all applicable representations
and warranties thereof set forth in Section 2.04, in each case as of the date of
substitution.
For any month in which the Depositor, either Originator or the Seller
substitutes one or more Qualified Substitute Mortgage Loans for one or more
Deleted Mortgage Loans, the related Servicer will determine the amount (the
"Substitution Shortfall Amount"), if any, by which the aggregate Purchase Price
of all such Deleted Mortgage Loans exceeds the aggregate of, as to each such
Qualified Substitute Mortgage Loan, the Scheduled Principal Balance thereof as
of the date of substitution, together with one month's interest on such
Scheduled Principal Balance at the applicable Net Mortgage Rate, plus all
outstanding P&I Advances and Servicing Advances (including Nonrecoverable P&I
Advances and Nonrecoverable Servicing Advances) related thereto. On the date of
such substitution, the Depositor, the related Originator or the Seller, as the
case may be, will deliver or cause to be delivered to the related Servicer for
deposit in the Collection Account an amount equal to the Substitution Shortfall
Amount, if any, and the Trust Administrator, upon receipt of the related
Qualified Substitute Mortgage Loan or Loans and certification by such Servicer
of such deposit, shall release to the Depositor, the related Originator or the
Seller, as the case may be, the related Mortgage File or Files and the Trustee
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, as the Depositor, the related Originator or the Seller,
as the case may be, shall deliver to it and as shall be necessary to vest
therein any Deleted Mortgage Loan released pursuant hereto.
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In addition, the Depositor, the related Originator or the Seller, as
the case may be, shall obtain at its own expense and deliver to the Trust
Administrator, the Trustee and the Certificate Insurer an Opinion of Counsel to
the effect that such substitution will not cause (a) any federal tax to be
imposed on any of REMIC I, REMIC II or REMIC III, including without limitation,
any federal tax imposed on "prohibited transactions" under Section 860F(a)(1) of
the Code or on "contributions after the startup date" under Section 860G(d)(1)
of the Code, or (b) any of REMIC I, REMIC II or REMIC III to fail to qualify as
a REMIC at any time that any Certificate is outstanding.
(e) Upon discovery by the Depositor, either Originator, the Seller,
either Servicer, the Trustee, the Trust Administrator or the Certificate Insurer
that any Mortgage Loan does not constitute a "qualified mortgage" within the
meaning of Section 860G(a)(3) of the Code, the party discovering such fact shall
within two Business Days give written notice thereof to the Trustee, the Trust
Administrator, the Master Servicer, the related Servicer and the Certificate
Insurer. In connection therewith, the related Originator, the Seller or the
Depositor shall repurchase or, subject to the limitations set forth in Section
2.03(d), substitute one or more Qualified Substitute Mortgage Loans for the
affected Mortgage Loan within 90 days of the earlier of discovery or receipt of
such notice with respect to such affected Mortgage Loan. Such repurchase or
substitution shall be made by (i) the related Originator or the Seller, as the
case may be, if the affected Mortgage Loan's status as a non-qualified mortgage
is or results from a breach of any representation, warranty or covenant made by
such Originator or the Seller under the related Mortgage Loan Purchase
Agreement, or (ii) the Depositor, if the affected Mortgage Loan's status as a
non-qualified mortgage is a breach of any representation or warranty of the
Depositor set forth in Section 2.04, or if its status as a non-qualified
mortgage is a breach of no representation or warranty. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.03(a),
if made by either Originator or the Seller, or Section 2.03(b), if made by the
Depositor. The Trustee and the Trust Administrator shall reconvey to the
Depositor, the related Originator or the Seller, as the case may be, the
Mortgage Loan to be released pursuant hereto in the same manner, and on the same
terms and conditions, as it would a Mortgage Loan repurchased for breach of a
representation or warranty.
SECTION 2.04. Representations and Warranties of the Depositor.
(a) The Depositor hereby represents and warrants to the Trust
Administrator and the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date or as of such other date
specifically provided herein:
(i) The information set forth in the Mortgage Loan Schedule for
the Original Mortgage Loans is complete, true and correct in all
material respects at the date or dates respecting which such
information is furnished;
(ii) Except with respect to approximately ____% of the Original
Mortgage Loans which were 30 days or more but less than 60 days
delinquent in their Monthly Payment as of ____________ and with
respect to approximately ____% of the Original Mortgage Loans which
were ___ days or more but less than ___ days delinquent in their
Monthly Payments as of _____________, in each case, by outstanding
principal balance of the Original Mortgage Loans as of the Cut-off
Date, as of ____________, the Monthly Payment due under each Original
Mortgage Loan is not ___ or more days delinquent in payment and has
not been ___ or more days delinquent in payment more than once in the
twelve month period prior to ______________ (assuming that a "rolling"
30 day delinquency is considered to be delinquent only once);
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(iii) Each Original Mortgage Loan had an original term to
maturity of not greater than 30 years; except with respect to
approximately _____% of the Original Mortgage Loans, by outstanding
principal balance of the Original Mortgage Loans as of the Cut-off
Date which are Balloon Loans, each Original Mortgage Loan is a
fixed-rate mortgage loan with payments generally due on the first day
of each month and each such Mortgage Loan is fully amortizing;;
(iv) (A) No more than approximately _____%, approximately _____%,
approximately ____%, approximately _____%, approximately ____%,
approximately ____%, approximately ____% and approximately ____% of
the Original Mortgage Loans, by outstanding principal balance of the
Original Mortgage Loans as of the Cut-off Date, will be secured by
Mortgaged Properties located in __________, _______, _____, ----,
________, _______, ____________ and __________, respectively, and no
more than ____% of the Original Mortgage Loans, by outstanding
principal balance of the Original Mortgage Loans as of the Cut-off
Date, will be secured by Mortgaged Properties located in any other
state; (B) as of the Cut-off Date, no more than approximately ____% of
the Original Mortgage Loans, by outstanding principal balance of the
Original Mortgage Loans as of the Cut-off Date, are secured by
Mortgaged Properties located in any one __________ zip code area, and
no more than approximately _____% of the Original Mortgage Loans, by
outstanding principal balance of the Original Mortgage Loans as of the
Cut-off Date, are secured by units in two- to four-family dwellings,
condominiums, town houses, planned unit developments or manufactured
housing and; (C) at least approximately _____% of the Original
Mortgage Loans, by outstanding principal balance of the Original
Mortgage Loans as of the Cut-off Date, are secured by real property
with a single family residence erected thereon;
(v) If the Mortgaged Property securing an Original Mortgage Loan
is identified in the Federal Register by the Federal Emergency
Management Agency ("FEMA") as having special flood hazards, as of the
Closing Date, such Mortgaged Property is covered by a flood insurance
policy that met the requirements of FEMA at the time such policy was
issued;
(vi) With respect to each Original Mortgage Loan, the
Loan-to-Value Ratio was less than or equal to ______% at the
origination of such Original Mortgage Loan; and
(vii) With respect to at least approximately _____% of the
Original Mortgage Loans by outstanding principal balance as of the
Cut-off Date, at the time that such Mortgage Loan was made, the
Mortgagor represented that the Mortgagor would occupy the Mortgaged
Property as the Mortgagor's primary residence. With respect to
approximately _____% of the Original Mortgage Loans by outstanding
principal balance as of the Cut-off Date, at the time that such
Mortgage Loan was made, the Mortgagor represented that the Mortgagor
would occupy the Mortgaged Property as the Mortgagor's secondary
residence or that the Mortgaged Property would be an investor
property.
(b) It is understood and agreed that the representations and
warranties set forth in this Section 2.04 shall survive delivery of the Mortgage
Files to the Trust Administrator and shall inure to the benefit of the
Certificateholders and the Certificate Insurer notwithstanding any restrictive
or qualified endorsement or assignment. Upon discovery by any of the Depositor,
either Servicer, the Trustee or the Trust Administrator of a breach of any of
the foregoing representations and warranties which materially
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and adversely affects the value of any Mortgage Loan, Prepayment Charge or the
interests therein of the Certificateholders and the Certificate Insurer, the
party discovering such breach shall give prompt written notice to the other
parties, and in no event later than two Business Days from the date of such
discovery. It is understood and agreed that the obligations of the Depositor set
forth in Section 2.03(b) to cure, substitute for or repurchase a Mortgage Loan
constitute the sole remedies available to the Certificateholders or to the Trust
Administrator or the Trustee on their behalf respecting a breach of the
representations and warranties contained in this Section 2.04.
SECTION 2.05. Representations, Warranties and Covenants of the
Servicers.
Each Servicer hereby represents, warrants and covenants to the Trust
Administrator and the Trustee, for the benefit of each of the Trustee, the Trust
Administrator, the Certificateholders, the Certificate Insurer, the Master
Servicer and to the Depositor that as of the Closing Date or as of such date
specifically provided herein:
(i) Such Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of
__________ and is duly authorized and qualified to transact any and
all business contemplated by this Agreement to be conducted by such
Servicer in any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such
qualification and, in any event, is in compliance with the doing
business laws of any such State, to the extent necessary to ensure its
ability to enforce each Mortgage Loan and to service the Mortgage
Loans in accordance with the terms of this Agreement;
(ii) Such Servicer has the full power and authority to conduct
its business as presently conducted by it and to execute, deliver and
perform, and to enter into and consummate, all transactions
contemplated by this Agreement. Such Servicer has duly authorized the
execution, delivery and performance of this Agreement, has duly
executed and delivered this Agreement, and this Agreement, assuming
due authorization, execution and delivery by the Depositor, the Trust
Administrator, the Trustee and the other Servicer, constitutes a
legal, valid and binding obligation of such Servicer, enforceable
against it in accordance with its terms except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally
and by general principles of equity;
(iii) The execution and delivery of this Agreement by such
Servicer, the servicing of the Mortgage Loans by such Servicer
hereunder, the consummation by such Servicer of any other of the
transactions herein contemplated, and the fulfillment of or compliance
with the terms hereof are in the ordinary course of business of such
Servicer and will not (A) result in a breach of any term or provision
of the charter or by-laws of such Servicer or (B) conflict with,
result in a breach, violation or acceleration of, or result in a
default under, the terms of any other material agreement or instrument
to which such Servicer is a party or by which it may be bound, or any
statute, order or regulation applicable to such Servicer of any court,
regulatory body, administrative agency or governmental body having
jurisdiction over such Servicer; and such Servicer is not a party to,
bound by, or in breach or violation of any indenture or other
agreement or instrument, or subject to or in violation of any statute,
order or regulation of any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which
materially and adversely affects or, to such Servicer's knowledge,
would in the future
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materially and adversely affect, (x) the ability of such Servicer to
perform its obligations under this Agreement or (y) the business,
operations, financial condition, properties or assets of such Servicer
taken as a whole;
(iv) Such Servicer is a HUD approved mortgagee pursuant to
Section 203 of the National Housing Act. No event has occurred,
including but not limited to a change in insurance coverage, that
would make such Servicer unable to comply with HUD eligibility
requirements or that would require notification to HUD;
(v) Such Servicer does not believe, nor does it have any reason
or cause to believe, that it cannot perform each and every covenant
made by it and contained in this Agreement;
(vi) With respect to each Mortgage Loan serviced by it, such
Servicer, or Sub- Servicer, if any, is in possession of a complete
Mortgage File, except for such documents as have been delivered to the
Trust Administrator;
(vii) No litigation is pending against such Servicer that would
materially and adversely affect the execution, deliver or
enforceability of this Agreement or the ability of such Servicer to
service the Mortgage Loans or to perform any of its other obligations
hereunder in accordance with the terms hereof;
(viii) There are no actions or proceedings against, or
investigations known to it of, such Servicer before any court,
administrative or other tribunal (A) that might prohibit its entering
into this Agreement, (B) seeking to prevent the consummation of the
transactions contemplated by this Agreement or (C) that might prohibit
or materially and adversely affect the performance by such Servicer of
its obligations under, or validity or enforceability of, this
Agreement;
(ix) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery
and performance by such Servicer of, or compliance by such Servicer
with, this Agreement or the consummation by it of the transactions
contemplated by this Agreement, except for such consents, approvals,
authorizations or orders, if any, that have been obtained prior to the
Closing Date;
(x) With respect to ___________, the information set forth in the
applicable part of the Prepayment Charge Schedule (including the
applicable part of the prepayment charge summary attached thereto) is
complete, true and correct in all material respects on the date or
dates when such information is furnished and each Prepayment Charge is
permissible and enforceable in accordance with its terms (except to
the extent that the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, receivership and other similar
laws relating to creditors' rights generally or the collectability
thereof may be limited due to acceleration in connection with a
foreclosure) under applicable state law and with respect to __________
the information set forth in the applicable part of the Prepayment
Charge Schedule (including the applicable part of the prepayment
charge summary attached thereto) is complete, true and correct in all
material respects, and each Prepayment Charge is permissible,
enforceable and collectible under applicable state law subject to
bankruptcy and equitable enforcement limitations;
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(xi) The related Servicer will not waive any Prepayment Charge
unless it is waived in accordance with the standard set forth in
Section 3.01; and
(xii) The related Servicer's computer and other systems used in
servicing mortgage loans will be modified and maintained to operate in
a manner such that at all times, including on and after January 1,
2000, (i) such Servicer can service the Mortgage Loans in accordance
with the terms of this Agreement if necessary and (ii) such Servicer
can operate its business in the same manner as it is operating on the
date hereof; provided that such Servicer's ability to meet the
requirements of this representation may be limited in circumstances
where it relies (after reasonable due diligence in inquiring into and
obtaining reasonable compliance representations) on third party
systems which are incompatible with those of such Servicer on or after
January 1, 2000.
It is understood and agreed that the representations, warranties and
covenants set forth in this Section 2.05 shall survive delivery of the Mortgage
Files to the Trust Administrator and shall inure to the benefit of the Trust
Administrator, the Trustee, the Depositor, the Certificateholders and the
Certificate Insurer. Upon discovery by any of the Depositor, either Servicer,
the Trust Administrator or the Trustee of a breach of any of the foregoing
representations, warranties and covenants which materially and adversely affects
the value of any Mortgage Loan, Prepayment Charge or the interests therein of
the Certificateholders and the Certificate Insurer, the party discovering such
breach shall give prompt written notice (but in no event later than two Business
Days following such discovery) to the Trust Administrator, the Trustee and the
Certificate Insurer. Subject to Section 7.01, unless such breach shall not be
susceptible of cure within 90 days, the obligation of each Servicer set forth in
Section 2.03(c) to cure breaches shall constitute the sole remedy against the
related Servicer available to the Certificateholders, the Depositor or the Trust
Administrator and the Trustee on behalf of the Certificateholders respecting a
breach of the representations, warranties and covenants contained in this
Section 2.05. Notwithstanding the foregoing, within 90 days of the earlier of
discovery by the related Servicer or receipt of notice by such Servicer of the
breach of the representation or covenant of such Servicer set forth in Sections
2.05(x) or 2.05(xi) above which materially and adversely affects the interests
of the Holders of the Class P Certificates in any Prepayment Charge, such
Servicer shall remedy such breach as follows: (a) if the representation made by
the related Servicer in Section 2.05(x) above is breached and a Principal
Prepayment has occurred in the applicable Prepayment Period, such Servicer must
pay the amount of the scheduled Prepayment Charge, for the benefit of the holder
of the Class P Certificate, by depositing such amount into the Collection
Account, net of any amount previously collected by such Servicer and paid by
such Servicer, for the benefit of the Holders of the Class P Certificates, in
respect of such Prepayment Charge; and (b) if any of the covenants made by the
related Servicer in Section 2.05(xi) above is breached, such Servicer must pay
the amount of such waived Prepayment Charge, for the benefit of the holders of
the Class P Certificates, by depositing such amount into the Collection Account.
The foregoing shall not, however, limit any remedies available to the
Certificateholders, the Depositor, the Trust Administrator or the Trustee on
behalf of the Certificateholders, pursuant to the related Mortgage Loan Purchase
Agreement signed by the related Servicer in its capacity as Originator,
respecting a breach of the representations, warranties and covenants of such
Servicer in its capacity as Originator contained in such Mortgage Loan Purchase
Agreement.
SECTION 2.06. Issuance of the Class R-I Certificates.
The Trustee acknowledges the assignment to it of the Mortgage Loans
and the delivery to it (or the Trust Administrator on its behalf) of the
Mortgage Files, subject to the provisions of Section 2.01 and Section 2.02,
together with the assignment to it of all other assets included in REMIC I, the
receipt of which is hereby acknowledged. Concurrently with such assignment and
delivery and in exchange
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therefor, the Trust Administrator, pursuant to the written request of the
Depositor executed by an officer of the Depositor, has executed, authenticated
and delivered to or upon the order of the Depositor, the Class R-I Certificates
in authorized denominations. The interests evidenced by the Class R-I
Certificates, together with the REMIC I Regular Interests, constitute the entire
beneficial ownership interest in REMIC I. The rights of the Class R-I
Certificateholders and REMIC II (as holder of the REMIC I Regular Interests) to
receive distributions from the proceeds of REMIC I in respect of the Class R-I
Certificates and the REMIC I Regular Interests, respectively, and all ownership
interests evidenced or constituted by the Class R-I Certificates and the REMIC I
Regular Interests, shall be as set forth in this Agreement.
SECTION 2.07. Conveyance of the REMIC I Regular Interests; Acceptance
of REMIC II by the Trustee.
The Depositor, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey to the Trustee,
without recourse all the right, title and interest of the Depositor in and to
the REMIC I Regular Interests for the benefit of the Class R-II and REMIC III
Certificateholders. The Trustee acknowledges receipt of the REMIC I Regular
Interests and declares that it holds and will hold the same in trust for the
exclusive use and benefit of all present and future Class R-II
Certificateholders and REMIC III Certificateholders. The rights of the Class
R-II Certificateholders and REMIC III (as holder of the REMIC II Regular
Interests) to receive distributions from the proceeds of REMIC II in respect of
the Class R-II Certificates and REMIC II Regular Interests, respectively, and
all ownership interests evidenced or constituted by the Class R-II Certificates
and the REMIC II Regular Interests, shall be as set forth in this Agreement.
SECTION 2.08. Issuance of Class R-II Certificates.
The Trustee acknowledges the assignment to it of the REMIC I Regular
Interests and, concurrently therewith and in exchange therefor, pursuant to the
written request of the Depositor executed by an officer of the Depositor, the
Trust Administrator has executed, authenticated and delivered to or upon the
order of the Depositor, the Class R-II Certificates in authorized denominations.
The interests evidenced by the Class R-II Certificates, together with the REMIC
II Regular Interests, constitute the entire beneficial ownership interest in
REMIC II.
SECTION 2.09. Conveyance of REMIC II Regular Interests; Acceptance of
REMIC III by the Trustee.
The Depositor, concurrently with the execution and delivery hereof,
does hereby transfer, assign, set over and otherwise convey to the Trustee,
without recourse all the right, title and interest of the Depositor in and to
the REMIC II Regular Interests for the benefit of the REMIC III
Certificateholders and the Certificate Insurer. The Trustee acknowledges receipt
of the REMIC II Regular Interests and declares that it holds and will hold the
same in trust for the exclusive use and benefit of all present and future REMIC
III Certificateholders and the Certificate Insurer. The rights of the REMIC III
Certificateholders to receive distributions from the proceeds of REMIC III in
respect of the REMIC III Certificates, and all ownership interests evidenced or
constituted by the REMIC III Certificates, shall be as set forth in this
Agreement.
SECTION 2.10. Issuance of REMIC III Certificates.
The Trustee acknowledges the assignment to it of the REMIC II Regular
Interests and, concurrently therewith and in exchange therefor, pursuant to the
written request of the Depositor executed
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by an officer of the Depositor, the Trust Administrator has executed,
authenticated and delivered to or upon the order of the Depositor, the REMIC III
Certificates in authorized denominations evidencing the entire
beneficial ownership interest in REMIC III.
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ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Servicers to Act as Servicers.
(a) Unless otherwise specified, all references to actions to be taken
or previously taken by "the Servicer" under this Article III or any other
provision of this Agreement with respect to a Mortgage Loan or Mortgage Loans or
with respect to an REO Property or REO Properties shall be only to actions to be
taken or previously taken by each Servicer with respect to a Mortgage Loan or
Mortgage Loans serviced by such Servicer or with respect to an REO Property or
REO Properties administered by such Servicer. Furthermore, unless otherwise
specified, all references to actions to be taken or previously taken by "the
Servicer" under this Article III or any other provision of this Agreement with
respect to "the Collection Account" or "the Servicing Account" shall be only to
actions to be taken or previously taken by each Servicer with respect to the
Collection Account or the Servicing Account to be established and maintained by
such Servicer. Consistent with the foregoing, but only insofar as the context so
permits, this Article III is to be read with respect to each Servicer as if such
Servicer alone was servicing and administering its respective Mortgage Loans
hereunder.
(b) The Servicer shall service and administer the Mortgage Loans on
behalf of the Trustee and in the best interests of and for the benefit of the
Certificateholders and the Certificate Insurer (as determined by the Servicer in
its reasonable judgment) in accordance with the terms of this Agreement and the
respective Mortgage Loans and, to the extent consistent with such terms, in the
same manner in which it services and administers similar mortgage loans for its
own portfolio, giving due consideration to customary and usual standards of
practice of mortgage lenders and loan servicers administering similar mortgage
loans but without regard to:
(i) any relationship that the Servicer, any Sub-Servicer or any
Affiliate of the Servicer or any Sub-Servicer may have with the
related Mortgagor;
(ii) the ownership or non-ownership of any Certificate by the
Servicer or any Affiliate of the Servicer;
(iii) the Servicer's obligation to make P&I Advances or Servicing
Advances; or
(iv) the Servicer's or any Sub-Servicer's right to receive
compensation for its services hereunder or with respect to any
particular transaction.
To the extent consistent with the foregoing, ___________, as Servicer (a) shall
seek to maximize the timely and complete recovery of principal and interest on
the Mortgage Notes and (b) shall waive (or permit a subservicer to waive) a
Prepayment Charge only under the following circumstances: (i) such waiver is
standard and customary in servicing similar Mortgage Loans and (ii) either (A)
such waiver would, in the reasonable judgement of the ____________, as Servicer,
maximize recovery of total proceeds taking into account the value of such
Prepayment Charge and the related Mortgage Loan and, if such waiver is made in
connection with a refinancing of the related Mortgage Loan, such refinancing is
related to a default or a reasonably foreseeable default or (B) such waiver is
made in connection with a refinancing of the related Mortgage Loan unrelated to
a default or a reasonably foreseeable default where (x) the related mortgagor
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has stated to ____________, as Servicer or an applicable subservicer an
intention to refinance the related Mortgage Loan and (y) ____________, as
Servicer has concluded in its reasonable judgement that the waiver of such
Prepayment Charge would induce such mortgagor to refinance with ____________. If
a Prepayment Charge is waived as permitted by meeting the standards described in
clauses (i) and (ii)(B) above, then ____________, in its capacity as Servicer is
required to pay the amount of such waived Prepayment Charge, for the benefit of
the Holders of the Class P Certificates, by depositing such amount into the
Collection Account together with and at the time that the amount prepaid on the
related Mortgage Loan is required to be deposited into the Collection Account.
To the extent consistent with the foregoing, ____________, as Servicer (a) shall
seek to maximize the timely and complete recovery of principal and interest on
the Mortgage Notes and (b) shall only waive (or permit a subservicer to waive) a
Prepayment Charge or part of a Prepayment Charge if such waiver would maximize
recovery of total proceeds taking into account the value of such Prepayment
Charge and the related Mortgage Loan, and doing so is standard and customary in
servicing similar Mortgage Loans. ____________, as Servicer, may waive a
Prepayment Charge on any Mortgage Loan if the related Mortgagor has chosen to
refinance such Mortgage Loan through the same lender; provided, however,
____________, as Servicer, must pay the amount of the waived Prepayment Charge,
for the benefit of the Holders of the Class P Certificates, by depositing such
amount into the Collection Account together with and at the time that the amount
prepaid on the related Mortgage Loan is required to be deposited into the
Collection Account. Notwithstanding any other provisions of this Agreement, any
payments made by ____________ in respect of any waived Prepayment Charges
pursuant to clauses (i) and (ii)(B) above or any payments made by ____________
in respect of any waived Prepayment Charges pursuant to the preceding sentence
shall be deemed to be paid outside of the Trust Fund. Subject only to the
above-described servicing standards and the terms of this Agreement and of the
respective Mortgage Loans, the Servicer shall have full power and authority,
acting alone or through Sub-Servicers as provided in Section 3.02, to do or
cause to be done any and all things in connection with such servicing and
administration which it may deem necessary or desirable. Without limiting the
generality of the foregoing, the Servicer in its own name or in the name of a
Sub-Servicer is hereby authorized and empowered by the Trustee when the Servicer
believes it appropriate in its best judgment in accordance with the servicing
standards set forth above, to execute and deliver, on behalf of the
Certificateholders and the Trustee, and upon notice to the Trustee and the Trust
Administrator, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge, and all other comparable instruments, with
respect to the Mortgage Loans and the Mortgaged Properties and to institute
foreclosure proceedings or obtain a deed-in-lieu of foreclosure so as to convert
the ownership of such properties, and to hold or cause to be held title to such
properties, on behalf of the Trustee and Certificateholders. The Servicer shall
service and administer the Mortgage Loans in accordance with applicable state
and federal law and shall provide to the Mortgagors any reports required to be
provided to them thereby. The Servicer shall also comply in the performance of
this Agreement with all reasonable rules and requirements of each insurer under
any standard hazard insurance policy. Subject to Section 3.17, the Trustee shall
execute, at the written request of the Servicer, and furnish to the Servicer and
any Sub-Servicer any special or limited powers of attorney and other documents
necessary or appropriate to enable the Servicer or any Sub-Servicer to carry out
their servicing and administrative duties hereunder and the Trustee shall not be
liable for the actions of the Servicer or any Sub-Servicers under such powers of
attorney.
Subject to Section 3.09 hereof, in accordance with the standards of
the preceding paragraph, the Servicer shall advance or cause to be advanced
funds as necessary for the purpose of effecting the timely payment of taxes and
assessments on the Mortgaged Properties, which advances shall be Servicing
Advances reimbursable in the first instance from related collections from the
Mortgagors pursuant to Section 3.09, and further as provided in Section 3.11.
Any cost incurred by the Servicer or by Sub-Servicers in effecting the timely
payment of taxes and assessments on a Mortgaged Property shall
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not, for the purpose of calculating distributions to Certificateholders, be
added to the unpaid principal balance of the related Mortgage Loan,
notwithstanding that the terms of such Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary, the
Servicer may not make any future advances with respect to a Mortgage Loan
(except as provided in Section 4.03) and the Servicer shall not (i) permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Rate, reduce or increase the principal balance (except for reductions resulting
from actual payments of principal) or change the final maturity date on such
Mortgage Loan (unless, as provided in Section 3.07, the Mortgagor is in default
with respect to the Mortgage Loan or such default is, in the judgment of the
Servicer, reasonably foreseeable) or (ii) permit any modification, waiver or
amendment of any term of any Mortgage Loan that would both (A) effect an
exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or
Treasury regulations promulgated thereunder) and (B) cause any of REMIC I, REMIC
II or REMIC III to fail to qualify as a REMIC under the Code or the imposition
of any tax on "prohibited transactions" or "contributions after the startup
date" under the REMIC Provisions.
The Servicer may delegate its responsibilities under this Agreement;
provided, however, that no such delegation shall release the Servicer from the
responsibilities or liabilities arising under this Agreement.
SECTION 3.02. Sub-Servicing Agreements Between Servicer and
Sub-Servicers.
(a) The Servicer may enter into Sub-Servicing Agreements with
Sub-Servicers for the servicing and administration of the Mortgage Loans;
provided, however, that any Sub-Servicer shall be acceptable to the Certificate
Insurer and provided such agreements would not result in a withdrawal or a
downgrading by any Rating Agency of the rating or any shadow rating on any Class
of Certificates. The Trust Administrator and the Trustee are hereby authorized
to acknowledge, at the request of the Servicer, any Sub-Servicing Agreement that
meets the requirements applicable to Sub-Servicing Agreements set forth in this
Agreement and that is otherwise permitted under this Agreement.
Each Sub-Servicer shall be (i) authorized to transact business in the
state or states where the related Mortgaged Properties it is to service are
situated, if and to the extent required by applicable law to enable the
Sub-Servicer to perform its obligations hereunder and under the Sub-Servicing
Agreement and (ii) a Freddie Mac or Fannie Mae approved mortgage servicer. Each
Sub-Servicing Agreement must impose on the Sub-Servicer requirements conforming
to the provisions set forth in Section 3.08 and provide for servicing of the
Mortgage Loans consistent with the terms of this Agreement. The Servicer will
examine each Sub-Servicing Agreement and will be familiar with the terms
thereof. The terms of any Sub- Servicing Agreement will not be inconsistent with
any of the provisions of this Agreement. The Servicer and the Sub-Servicers may
enter into and make amendments to the Sub-Servicing Agreements or enter into
different forms of Sub-Servicing Agreements; provided, however, that any such
amendments or different forms shall be consistent with and not violate the
provisions of this Agreement, and that no such amendment or different form shall
be made or entered into which could be reasonably expected to be materially
adverse to the interests of the Certificateholders without the consent of the
Certificate Insurer and the Holders of Certificates entitled to at least 66% of
the Voting Rights; provided, further, that the consent of the Holders of
Certificates entitled to at least 66% of the Voting Rights shall not be required
(i) to cure any ambiguity or defect in a Sub-Servicing Agreement, (ii) to
correct, modify or supplement any provisions of a Sub-Servicing Agreement, or
(iii) to make any other provisions with respect to matters or questions arising
under a Sub-Servicing Agreement, which, in each case, shall not be inconsistent
with the provisions of this Agreement. Any variation without the consent of the
Certificate Insurer and the Holders of Certificates entitled to at least 66% of
the Voting Rights from the provisions set forth in Section 3.08
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relating to insurance or priority requirements of Sub-Servicing Accounts, or
credits and charges to the Sub- Servicing Accounts or the timing and amount of
remittances by the Sub-Servicers to the Servicer, are conclusively deemed to be
inconsistent with this Agreement and therefore prohibited. The Servicer shall
deliver to the Trustee, the Trust Administrator and the Certificate Insurer
copies of all Sub-Servicing Agreements, and any amendments or modifications
thereof, promptly upon the Servicer's execution and delivery of such
instruments.
(b) As part of its servicing activities hereunder, the Servicer, for
the benefit of the Trustee, the Certificateholders and the Certificate Insurer,
shall enforce the obligations of each Sub- Servicer under the related
Sub-Servicing Agreement and of the related Originator and the Seller under the
related Mortgage Loan Purchase Agreement, including, without limitation, any
obligation to make advances in respect of delinquent payments as required by a
Sub-Servicing Agreement, or to purchase a Mortgage Loan on account of missing or
defective documentation or on account of a breach of a representation, warranty
or covenant, as described in Section 2.03(a). Such enforcement, including,
without limitation, the legal prosecution of claims, termination of
Sub-Servicing Agreements, and the pursuit of other appropriate remedies, shall
be in such form and carried out to such an extent and at such time as the
Servicer, in its good faith business judgment, would require were it the owner
of the related Mortgage Loans. The Servicer shall pay the costs of such
enforcement at its own expense, and shall be reimbursed therefor only (i) from a
general recovery resulting from such enforcement, to the extent, if any, that
such recovery exceeds all amounts due in respect of the related Mortgage Loans,
or (ii) from a specific recovery of costs, expenses or attorneys' fees against
the party against whom such enforcement is directed. Enforcement of the related
Mortgage Loan Purchase Agreement against the related Originator shall be
effected by the Servicer to the extent it is not the related Originator, and
otherwise by the Trustee in accordance with the foregoing provisions of this
paragraph.
SECTION 3.03. Successor Sub-Servicers.
The Servicer or the Certificate Insurer shall be entitled to terminate
any Sub-Servicing Agreement and the rights and obligations of any Sub-Servicer
pursuant to any Sub-Servicing Agreement in accordance with the terms and
conditions of such Sub-Servicing Agreement. In the event of termination of any
Sub-Servicer, all servicing obligations of such Sub-Servicer shall be assumed
simultaneously by the Servicer without any act or deed on the part of such
Sub-Servicer or the Servicer, and the Servicer either shall service directly the
related Mortgage Loans or shall enter into a Sub-Servicing Agreement with a
successor Sub-Servicer which qualifies under Section 3.02.
Any Sub-Servicing Agreement shall include the provision that such
agreement may be immediately terminated by the Master Servicer, the Trust
Administrator (if the Master Servicer is the Servicer), the Trustee (if the
Trust Administrator is acting as Servicer) or the Certificate Insurer without
fee, in accordance with the terms of this Agreement, in the event that the
Servicer (or the Master Servicer or Trust Administrator, if such party is then
acting as Servicer) shall, for any reason, no longer be the Servicer (including
termination due to a Servicer Event of Default).
SECTION 3.04. Liability of the Servicer.
Notwithstanding any Sub-Servicing Agreement or the provisions of this
Agreement relating to agreements or arrangements between the Servicer and a
Sub-Servicer or reference to actions taken through a Sub-Servicer or otherwise,
the Servicer shall remain obligated and primarily liable to the Trustee, the
Certificateholders and the Certificate Insurer for the servicing and
administering of the Mortgage Loans in accordance with the provisions of Section
3.01 without diminution of such obligation
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or liability by virtue of such Sub-Servicing Agreements or arrangements or by
virtue of indemnification from the Sub-Servicer and to the same extent and under
the same terms and conditions as if the Servicer alone were servicing and
administering the Mortgage Loans. The Servicer shall be entitled to enter into
any agreement with a Sub-Servicer for indemnification of the Servicer by such
Sub-Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
SECTION 3.05. No Contractual Relationship Between Sub-Servicers
and the Trust Administrator, the Trustee or
Certificateholders.
Any Sub-Servicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Sub-Servicer
in its capacity as such shall be deemed to be between the Sub-Servicer and the
Servicer alone, and the Trust Administrator, the Trustee, Certificateholders or
the Certificate Insurer shall not be deemed parties thereto and shall have no
claims, rights, obligations, duties or liabilities with respect to the
Sub-Servicer except as set forth in Section 3.06. The Servicer shall be solely
liable for all fees owed by it to any Sub-Servicer, irrespective of whether the
Servicer's compensation pursuant to this Agreement is sufficient to pay such
fees.
SECTION 3.06. Assumption or Termination of Sub-Servicing Agreements by
Trust Administrator.
In the event the Servicer shall for any reason no longer be the
servicer (including by reason of the occurrence of a Servicer Event of Default),
the Master Servicer (or if the Master Servicer is the departing Servicer, the
Trust Administrator or its designee) shall thereupon assume all of the rights
and obligations of the Servicer under each Sub-Servicing Agreement that the
Servicer may have entered into, unless the Master Servicer (or if the Master
Servicer is the departing Servicer, the Trust Administrator or the Trustee) or
the Certificate Insurer elects to terminate any Sub-Servicing Agreement in
accordance with its terms as provided in Section 3.03. Upon such assumption, the
Master Servicer (or the Trust Administrator, its designee or the successor
servicer for the Trust Administrator appointed pursuant to Section 7.02) shall
be deemed, subject to Section 3.03, to have assumed all of the departing
Servicer's interest therein and to have replaced the departing Servicer as a
party to each Sub-Servicing Agreement to the same extent as if each
Sub-Servicing Agreement had been assigned to the assuming party, except that (i)
the departing Servicer shall not thereby be relieved of any liability or
obligations under any Sub- Servicing Agreement that arose before it ceased to be
the Servicer and (ii) none of the Master Servicer, the Trust Administrator, its
designee or any successor Servicer shall be deemed to have assumed any liability
or obligation of the Servicer that arose before it ceased to be the Servicer.
The Servicer at its expense shall, upon request of the Master Servicer
(or if the Master Servicer is the departing Servicer, the Trust Administrator),
deliver to the assuming party all documents and records relating to each
Sub-Servicing Agreement and the Mortgage Loans then being serviced and an
accounting of amounts collected and held by or on behalf of it, and otherwise
use its best efforts to effect the orderly and efficient transfer of the
Sub-Servicing Agreements to the assuming party.
SECTION 3.07. Collection of Certain Mortgage Loan Payments.
The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any applicable insurance policies, follow such collection
procedures as it would follow with respect to mortgage loans comparable to the
Mortgage Loans and held for its own account. Consistent with the foregoing, the
Servicer may in its discretion (i) waive
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any late payment charge or, if applicable, any penalty interest, or (ii) extend
the due dates for the Monthly Payments due on a Mortgage Note for a period of
not greater than 180 days; provided, however, that any extension pursuant to
clause (ii) above shall not affect the amortization schedule of any Mortgage
Loan for purposes of any computation hereunder, except as provided below. In the
event of any such arrangement pursuant to clause (ii) above, the Servicer shall
make timely advances on such Mortgage Loan during such extension pursuant to
Section 4.03 and in accordance with the amortization schedule of such Mortgage
Loan without modification thereof by reason of such arrangement. Notwithstanding
the foregoing, in the event that any Mortgage Loan is in default or, in the
judgment of the Servicer, such default is reasonably foreseeable, the Servicer,
consistent with the standards set forth in Section 3.01, may also waive, modify
or vary any term of such Mortgage Loan (including modifications that would
change the Mortgage Rate, forgive the payment of principal or interest or extend
the final maturity date of such Mortgage Loan), accept payment from the related
Mortgagor of an amount less than the Stated Principal Balance in final
satisfaction of such Mortgage Loan (such payment, a "Short Pay-off"), or consent
to the postponement of strict compliance with any such term or otherwise grant
indulgence to any Mortgagor (any and all such waivers, modifications, variances,
forgiveness of principal or interest, postponements, or indulgences collectively
referred to herein as "forbearance"), provided, however, that in no event shall
the Servicer grant any such forbearance (other than as permitted by the second
sentence of this Section) with respect to any one Mortgage Loan more than once
in any 12 month period or more than three times over the life of such Mortgage
Loan. The Servicer's analysis supporting any forbearance and the conclusion that
any forbearance meets the standards of Section 3.01 (including the standard that
such forbearance will maximize the timely and complete recovery of principal and
interest on the Mortgage Notes) shall be reflected in writing in the Mortgage
File and shall be provided to the Certificate Insurer upon request.
SECTION 3.08. Sub-Servicing Accounts.
In those cases where a Sub-Servicer is servicing a Mortgage Loan
pursuant to a Sub- Servicing Agreement, the Sub-Servicer will be required to
establish and maintain one or more accounts (collectively, the "Sub-Servicing
Account"). The Sub-Servicing Account shall be an Eligible Account and shall
comply with all requirements of this Agreement relating to the Collection
Account. The Sub-Servicer shall deposit in the clearing account in which it
customarily deposits payments and collections on mortgage loans in connection
with its mortgage loan servicing activities on a daily basis, and in no event
more than one Business Day after the Sub-Servicer's receipt thereof, all
proceeds of Mortgage Loans received by the Sub-Servicer less its servicing
compensation to the extent permitted by the Sub-Servicing Agreement, and shall
thereafter deposit such amounts in the Sub-Servicing Account, in no event more
than two Business Days after the receipt of such amounts. The Sub-Servicer shall
thereafter deposit such proceeds in the Collection Account or remit such
proceeds to the Servicer for deposit in the Collection Account not later than
two Business Days after the deposit of such amounts in the Sub-Servicing
Account. For purposes of this Agreement, the Servicer shall be deemed to have
received payments on the Mortgage Loans when the Sub-Servicer receives such
payments.
SECTION 3.09. Collection of Taxes, Assessments and Similar Items;
Servicing Accounts.
The Servicer shall establish and maintain, or cause to be established
and maintained, one or more accounts (the "Servicing Accounts"), into which all
collections from the Mortgagors (or related advances from Sub-Servicers) for the
payment of taxes, assessments, hazard insurance premiums and comparable items
for the account of the Mortgagors ("Escrow Payments") shall be deposited and
retained. Servicing Accounts shall be Eligible Accounts. The Servicer shall
deposit in the clearing account in which it customarily deposits payments and
collections on mortgage loans in connection with its mortgage loan
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servicing activities on a daily basis, and in no event more than one Business
Day after the Servicer's receipt thereof, all Escrow Payments collected on
account of the Mortgage Loans and shall thereafter deposit such Escrow Payments
in the Servicing Accounts, in no event more than two Business Days after the
receipt of such Escrow Payments, all Escrow Payments collected on account of the
Mortgage Loans for the purpose of effecting the timely payment of any such items
as required under the terms of this Agreement. Withdrawals of amounts from a
Servicing Account may be made only to (i) effect payment of taxes, assessments,
hazard insurance premiums, and comparable items in a manner and at a time that
assures that the lien priority of the Mortgage is not jeopardized (or, with
respect to the payment of taxes, in a manner and at a time that avoids the loss
of the Mortgaged Property due to a tax sale or the foreclosure as a result of a
tax lien); (ii) reimburse the Servicer (or a Sub-Servicer to the extent provided
in the related Sub- Servicing Agreement) out of related collections for any
advances made pursuant to Section 3.01 (with respect to taxes and assessments)
and Section 3.14 (with respect to hazard insurance); (iii) refund to Mortgagors
any sums as may be determined to be overages; (iv) pay interest, if required and
as described below, to Mortgagors on balances in the Servicing Account; or (v)
clear and terminate the Servicing Account at the termination of the Servicer's
obligations and responsibilities in respect of the Mortgage Loans under this
Agreement in accordance with Article X. The Servicer will be responsible for the
administration of the Servicing Accounts and will be obligated to make advances
to such accounts when and as necessary to avoid the lapse of insurance coverage
on the Mortgaged Property, or which the Servicer knows, or in the exercise of
the required standard of care of the Servicer hereunder should know, is
necessary to avoid the loss of the Mortgaged Property due to a tax sale or the
foreclosure as a result of a tax lien. If any such payment has not been made and
the Servicer receives notice of a tax lien with respect to the Mortgage being
imposed, the Servicer will, within 10 business days of such notice, advance or
cause to be advanced funds necessary to discharge such lien on the Mortgaged
Property. As part of its servicing duties, the Servicer or Sub-Servicers shall
pay to the Mortgagors interest on funds in the Servicing Accounts, to the extent
required by law and, to the extent that interest earned on funds in the
Servicing Accounts is insufficient, to pay such interest from its or their own
funds, without any reimbursement therefor.
SECTION 3.10. Collection Account and Distribution Account.
(a) On behalf of the Trust Fund, the Servicer shall establish and
maintain, or cause to be established and maintained, one or more accounts (such
account or accounts, the "Collection Account"), held in trust for the benefit of
the Trustee, the Certificateholders and the Certificate Insurer. On behalf of
the Trust Fund, the Servicer shall deposit or cause to be deposited in the
clearing account in which it customarily deposits payments and collections on
mortgage loans in connection with its mortgage loan servicing activities on a
daily basis, and in no event more than one Business Day after the Servicer's
receipt thereof, and shall thereafter deposit in the Collection Account, in no
event more than two Business Days after the Servicer's receipt thereof, as and
when received or as otherwise required hereunder, the following payments and
collections received or made by it subsequent to the Cut-off Date (other than in
respect of principal or interest on the related Mortgage Loans due on or before
the Cut-off Date), or payments (other than Principal Prepayments) received by it
on or prior to the Cut-off Date but allocable to a Due Period subsequent
thereto:
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the related
Servicing Fee) on each Mortgage Loan;
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(iii) all Insurance Proceeds and Liquidation Proceeds (other than
proceeds collected in respect of any particular REO Property and
amounts paid in connection with a purchase of Mortgage Loans and REO
Properties pursuant to Section 10.01);
(iv) any amounts required to be deposited pursuant to Section
3.12 in connection with any losses realized on Permitted Investments
with respect to funds held in the Collection Account;
(v) any amounts required to be deposited by the Servicer pursuant
to the second paragraph of Section 3.14(a) in respect of any blanket
policy deductibles;
(vi) all proceeds of any Mortgage Loan repurchased or purchased
in accordance with Section 2.03 or Section 10.01;
(vii) all amounts required to be deposited in connection with
shortfalls in principal amount of Qualified Substitute Mortgage Loans
pursuant to Section 2.03; and
(viii) all Prepayment Charges collected by the Servicer in
connection with the Principal Prepayment of any of the Mortgage Loans.
The foregoing requirements for deposit in the Collection Accounts
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, payments in the nature of late payment charges,
ancillary income and assumption fees, or insufficient funds charges need not be
deposited by the Servicer in the Collection Account and may be retained by the
Servicer as additional compensation. In the event the Servicer shall deposit in
the Collection Account any amount not required to be deposited therein, it may
at any time withdraw such amount from the Collection Account, any provision
herein to the contrary notwithstanding.
(b) On behalf of the Trust Fund, the Trust Administrator, as agent for
the Trustee, shall establish and maintain one or more accounts (such account or
accounts, the "Distribution Account"), held in trust for the benefit of the
Trustee, the Certificateholders and the Certificate Insurer. On behalf of the
Trust Fund, the Servicer shall deliver to the Trust Administrator in immediately
available funds for deposit in the Distribution Account on or before 5:00 p.m.
New York time (i) on the Servicer Remittance Date, that portion of the Available
Distribution Amount (calculated without regard to the references in clause (2)
of the definition thereof to amounts that may be withdrawn from the Distribution
Account) for the related Distribution Date then on deposit in the Collection
Account and the amount of all Prepayment Charges collected by the Servicer in
connection with the Principal Prepayment of any of the Mortgage Loans then on
deposit in the Collection Account, and (ii) on each Business Day as of the
commencement of which the balance on deposit in the Collection Account exceeds
$75,000 following any withdrawals pursuant to the next succeeding sentence, the
amount of such excess, but only if the Collection Account constitutes an
Eligible Account solely pursuant to clause (ii) of the definition of "Eligible
Account." If the balance on deposit in the Collection Account exceeds $75,000 as
of the commencement of business on any Business Day and the Collection Account
constitutes an Eligible Account solely pursuant to clause (ii) of the definition
of "Eligible Account," the Servicer shall, on or before 5:00 p.m. New York time
on such Business Day, withdraw from the Collection Account any and all amounts
payable or reimbursable to the Depositor, the Servicer, the Trustee, the Trust
Administrator, either Originator, the Seller or any Sub- Servicer pursuant to
Section 3.11 and shall pay such amounts to the Persons entitled thereto.
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(c) Funds in the Collection Account and the Distribution Account may
be invested in Permitted Investments in accordance with the provisions set forth
in Section 3.12. The Servicer shall give notice to the Trustee, the Trust
Administrator and the Certificate Insurer of the location of the Collection
Account maintained by it when established and prior to any change thereof. The
Trust Administrator shall give notice to the Servicer, the Depositor, the
Trustee and the Certificate Insurer of the location of the Distribution Account
when established and prior to any change thereof.
(d) Funds held in the Collection Account at any time may be delivered
by the Servicer to the Trust Administrator for deposit in an account (which may
be the Distribution Account and must satisfy the standards for the Distribution
Account as set forth in the definition thereof) and for all purposes of this
Agreement shall be deemed to be a part of the Collection Account; provided,
however, that the Trustee and the Trust Administrator shall have the sole
authority to withdraw any funds held pursuant to this subsection (d). In the
event the Servicer shall deliver to the Trust Administrator for deposit in the
Distribution Account any amount not required to be deposited therein, it may at
any time request that the Trust Administrator withdraw such amount from the
Distribution Account and remit to it any such amount, any provision herein to
the contrary notwithstanding. In addition, the Servicer, with respect to items
(i) through (v) below, shall deliver to the Trust Administrator from time to
time for deposit, and the Trust Administrator, with respect to items (i) through
(vi) below, shall so deposit, in the Distribution Account:
(i) any P&I Advances, as required pursuant to Section 4.03;
(ii) any amounts required to be deposited pursuant to Section
3.23(d) or (f) in connection with any REO Property;
(iii) any amounts to be paid in connection with a purchase of
Mortgage Loans and REO Properties pursuant to Section 10.01;
(iv) any amounts required to be deposited pursuant to Section
3.24 in connection with any Prepayment Interest Shortfall;
(v) any Stayed Funds, as soon as permitted by the federal
bankruptcy court having jurisdiction in such matters; and
(vi) any amounts required to be transferred from the Policy
Payments Account pursuant to Section 9.04(b) on any Distribution Date.
(e) Promptly upon receipt of any Stayed Funds, whether from the
Servicer, a trustee in bankruptcy, federal bankruptcy court or other source, the
Trust Administrator shall deposit such funds in the Distribution Account,
subject to withdrawal thereof pursuant to Section 7.02(b) or as otherwise
permitted hereunder.
(f) The Servicer shall deposit in the Collection Account any amounts
required to be deposited pursuant to Section 3.12(b) in connection with losses
realized on Permitted Investments with respect to funds held in the Collection
Account.
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SECTION 3.11. Withdrawals from the Collection Account and Distribution
Account.
(a) The Servicer shall, from time to time, make withdrawals from the
Collection Account for any of the following purposes or as described in Section
4.03:
(i) to remit to the Trust Administrator for deposit in the
Distribution Account the amounts required to be so remitted pursuant
to Section 3.10(b) or permitted to be so remitted pursuant to the
first sentence of Section 3.10(d);
(ii) subject to Section 3.16(d), to reimburse the Servicer for
P&I Advances, but only to the extent of amounts received which
represent Late Collections (net of the related Servicing Fees) of
Monthly Payments, Liquidation Proceeds and Insurance Proceeds on
Mortgage Loans with respect to which such P&I Advances were made in
accordance with the provisions of Section 4.03;
(iii) subject to Section 3.16(d), to pay the Servicer or any
Sub-Servicer (a) any unpaid Servicing Fees, (b) any unreimbursed
Servicing Advances with respect to each Mortgage Loan, but only to the
extent of any Late Collections, Liquidation Proceeds and Insurance
Proceeds received with respect to such Mortgage Loan, and (c) any
Nonrecoverable Servicing Advances with respect to the final
liquidation of a Mortgage Loan, but only to the extent that Late
Collections, Liquidation Proceeds and Insurance Proceeds received with
respect to such Mortgage Loan are insufficient to reimburse the
Servicer or any Sub-Servicer for Servicing Advances;
(iv) to pay to the Servicer as servicing compensation (in
addition to the Servicing Fee) on the Servicer Remittance Date any
interest or investment income earned on funds deposited in the
Collection Account;
(v) to pay to the Servicer, the Master Servicer, the Depositor,
each Originator or the Seller, as the case may be, with respect to
each Mortgage Loan that has previously been purchased or replaced
pursuant to Section 2.03 or Section 3.16(c) all amounts received
thereon subsequent to the date of purchase or substitution, as the
case may be;
(vi) to reimburse the Servicer for any P&I Advance previously
made which the Servicer has determined to be a Nonrecoverable P&I
Advance in accordance with the provisions of Section 4.03;
(vii) to reimburse the Servicer or the Depositor for expenses
incurred by or reimbursable to the Servicer or the Depositor, as the
case may be, pursuant to Section 6.03;
(viii) to reimburse the Servicer, the Trustee or the Trust
Administrator, as the case may be, for expenses reasonably incurred in
connection with any breach or defect giving rise to the purchase
obligation under Section 2.03 or Section 2.04 of this Agreement,
including any expenses arising out of the enforcement of the purchase
obligation;
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(ix) to pay, or to reimburse the Servicer for Servicing Advances
in respect of, expenses incurred in connection with any Mortgage Loan
pursuant to Section 3.16(b); and
(x) to clear and terminate the Collection Account pursuant to
Section 10.01.
The Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account, to the extent held by or on behalf of
it, pursuant to subclauses (ii), (iii), (iv), (v), (vi), (viii) and (ix) above.
The Servicer shall provide written notification to the Trust Administrator, on
or prior to the next succeeding Servicer Remittance Date, upon making any
withdrawals from the Collection Account pursuant to subclauses (vi) and (vii)
above; provided that an Officer's Certificate in the form described under
Section 4.03(d) shall suffice for such written notification to the Trust
Administrator in respect hereof.
(b) The Trust Administrator shall, from time to time, make withdrawals
from the Distribution Account, for any of the following purposes, without
priority:
(i) to make distributions to Certificateholders and the
Certificate Insurer in accordance with Section 4.01;
(ii) to pay to itself and the Trustee amounts to which each is
entitled pursuant to Section 8.05;
(iii) to pay to the Master Servicer on each Distribution Date the
Master Servicing Fee and as servicing compensation any interest or
investment income earned on funds deposited in the Distribution
Account pursuant to Section 3.12(c);
(iv) to reimburse itself pursuant to Section 7.02;
(v) to pay any amounts in respect of taxes pursuant to Section
11.01(g)(iii); and
(vi) to clear and terminate the Distribution Account pursuant to
Section 10.01.
Notwithstanding the foregoing, the Trust Administrator shall be
entitled to withdraw amounts from the Distribution Account to transfer funds to
the Expense Account on the Business Day immediately preceding each Distribution
Date pursuant to Section 3.25(b) prior to any payments to Certificateholders and
the Certificate Insurer pursuant to Section 4.01.
SECTION 3.12. Investment of Funds in the Collection Account, the
Expense Account and the Distribution Account.
(a) The Servicer may direct any depository institution maintaining the
Collection Account (for purposes of this Section 3.12, an "Investment Account"),
and the Master Servicer may direct any depository institution maintaining the
Distribution Account and the Expense Account (each, for purposes of this Section
3.12, an "Investment Account"), to invest the funds (other than the Initial
Deposit) in such Investment Account in one or more Permitted Investments bearing
interest or sold at a discount, and maturing, unless payable on demand, (i) no
later than the Business Day immediately preceding the date on which such funds
are required to be withdrawn from such account pursuant to this Agreement, if a
Person other than the Trust Administrator is the obligor thereon, and (ii) no
later than the date on which
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such funds are required to be withdrawn from such account pursuant to this
Agreement, if the Trust Administrator is the obligor thereon. All such Permitted
Investments shall be held to maturity, unless payable on demand. Any investment
of funds in an Investment Account shall be made in the name of the Trust
Administrator (in its capacity as such), as agent for the Trustee, or in the
name of a nominee of the Trust Administrator. The Trust Administrator shall be
entitled to sole possession (except with respect to investment direction of
funds held in the Collection Account, the Distribution Account and the Expense
Account and any income and gain realized thereon) over each such investment, and
any certificate or other instrument evidencing any such investment shall be
delivered directly to the Trust Administrator or its agent, together with any
document of transfer necessary to transfer title to such investment to the Trust
Administrator or its nominee. In the event amounts on deposit in an Investment
Account are at any time invested in a Permitted Investment payable on demand,
the Trust Administrator shall:
(x) consistent with any notice required to be given thereunder,
demand that payment thereon be made on the last day such
Permitted Investment may otherwise mature hereunder in an amount
equal to the lesser of (1) all amounts then payable thereunder
and (2) the amount required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder promptly upon
determination by a Responsible Officer of the Trust Administrator
that such Permitted Investment would not constitute a Permitted
Investment in respect of funds thereafter on deposit in the
Investment Account.
(b) All income and gain realized from the investment of funds
deposited in the Collection Account and any REO Account held by or on behalf of
the Servicer shall be for the benefit of the Servicer and shall be subject to
its withdrawal in accordance with Section 3.11 or Section 3.23, as applicable.
The Servicer shall deposit in the Collection Account or any REO Account, as
applicable, the amount of any loss of principal incurred in respect of any such
Permitted Investment made with funds in such accounts immediately upon
realization of such loss.
(c) All income and gain realized from the investment of funds
deposited in the Distribution Account and the Expense Account held by or on
behalf of the Master Servicer shall be for the benefit of the Master Servicer
and shall be subject to its withdrawal by the Trustee or the Trust Administrator
for distribution in accordance with Section 3.11 or Section 3.25, as applicable.
The Master Servicer shall deposit in the Distribution Account and the Expense
Account, as applicable, the amount of any loss of principal incurred in respect
of any such Permitted Investment made with funds in such accounts immediately
upon realization of such loss.
(d) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may and, subject to Section 8.01 and Section 8.02(v),
upon the request of the Certificate Insurer or the Holders of Certificates
representing more than 50% of the Voting Rights allocated to any Class of
Certificates, shall take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
proceedings.
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SECTION 3.13. [intentionally omitted]
SECTION 3.14. Maintenance of Hazard Insurance and Errors and Omissions
and Fidelity Coverage.
(a) The Servicer shall cause to be maintained for each Mortgage Loan
fire insurance with extended coverage on the related Mortgaged Property in an
amount which is at least equal to the lesser of the current principal balance of
such Mortgage Loan and the amount necessary to fully compensate for any damage
or loss to the improvements that are a part of such property on a replacement
cost basis, in each case in an amount not less than such amount as is necessary
to avoid the application of any coinsurance clause contained in the related
hazard insurance policy. The Servicer shall also cause to be maintained fire
insurance with extended coverage on each REO Property in an amount which is at
least equal to the lesser of (i) the maximum insurable value of the improvements
which are a part of such property and (ii) the outstanding principal balance of
the related Mortgage Loan at the time it became an REO Property. The Servicer
will comply in the performance of this Agreement with all reasonable rules and
requirements of each insurer under any such hazard policies. Any amounts to be
collected by the Servicer under any such policies (other than amounts to be
applied to the restoration or repair of the property subject to the related
Mortgage or amounts to be released to the Mortgagor in accordance with the
procedures that the Servicer would follow in servicing loans held for its own
account, subject to the terms and conditions of the related Mortgage and
Mortgage Note) shall be deposited in the Collection Account, subject to
withdrawal pursuant to Section 3.11, if received in respect of a Mortgage Loan,
or in the REO Account, subject to withdrawal pursuant to Section 3.23, if
received in respect of an REO Property. Any cost incurred by the Servicer in
maintaining any such insurance shall not, for the purpose of calculating
distributions to Certificateholders and the Certificate Insurer, be added to the
unpaid principal balance of the related Mortgage Loan, notwithstanding that the
terms of such Mortgage Loan so permit. It is understood and agreed that no
earthquake or other additional insurance is to be required of any Mortgagor
other than pursuant to such applicable laws and regulations as shall at any time
be in force and as shall require such additional insurance. If the Mortgaged
Property or REO Property is at any time in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards and flood insurance has been made available, the Servicer will cause to
be maintained a flood insurance policy in respect thereof. Such flood insurance
shall be in an amount equal to the lesser of (i) the unpaid principal balance of
the related Mortgage Loan and (ii) the maximum amount of such insurance
available for the related Mortgaged Property under the national flood insurance
program (assuming that the area in which such Mortgaged Property is located is
participating in such program).
In the event that the Servicer shall obtain and maintain a blanket
policy with an insurer having a General Policy Rating of A:X or better in Best's
Key Rating Guide (or such other rating that is comparable to such rating)
insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first two sentences of this Section 3.14, it being understood and agreed that
such policy may contain a deductible clause, in which case the Servicer shall,
in the event that there shall not have been maintained on the related Mortgaged
Property or REO Property a policy complying with the first two sentences of this
Section 3.14, and there shall have been one or more losses which would have been
covered by such policy, deposit to the Collection Account from its own funds the
amount not otherwise payable under the blanket policy because of such deductible
clause. In connection with its activities as administrator and servicer of the
Mortgage Loans, the Servicer agrees to prepare and present, on behalf of itself,
the Trustee, Certificateholders and the Certificate Insurer, claims under any
such blanket policy in a timely fashion in accordance with the terms of such
policy.
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(b) The Servicer shall keep in force during the term of this Agreement
a policy or policies of insurance covering errors and omissions for failure in
the performance of the Servicer's obligations under this Agreement, which policy
or policies shall be in such form and amount that would meet the requirements of
Fannie Mae or Freddie Mac if it were the purchaser of the Mortgage Loans, unless
the Servicer has obtained a waiver of such requirements from Fannie Mae or
Freddie Mac. The Servicer shall also maintain a fidelity bond in the form and
amount that would meet the requirements of Fannie Mae or Freddie Mac, unless the
Servicer has obtained a waiver of such requirements from Fannie Mae or Freddie
Mac. The Servicer shall be deemed to have complied with this provision if an
Affiliate of the Servicer has such errors and omissions and fidelity bond
coverage and, by the terms of such insurance policy or fidelity bond, the
coverage afforded thereunder extends to the Servicer. Any such errors and
omissions policy and fidelity bond shall by its terms not be cancelable without
thirty days' prior written notice to the Trustee and the Trust Administrator.
The Servicer shall also cause each Sub-Servicer to maintain a policy of
insurance covering errors and omissions and a fidelity bond which would meet
such requirements.
SECTION 3.15. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
The Servicer will, to the extent it has knowledge of any conveyance or
prospective conveyance of any Mortgaged Property by any Mortgagor (whether by
absolute conveyance or by contract of sale, and whether or not the Mortgagor
remains or is to remain liable under the Mortgage Note and/or the Mortgage),
exercise its rights to accelerate the maturity of such Mortgage Loan under the
"due-on-sale" clause, if any, applicable thereto; provided, however, that the
Servicer shall not be required to take such action if in its sole business
judgment the Servicer believes it is not in the best interests of the Trust Fund
and shall not exercise any such rights if prohibited by law from doing so. If
the Servicer reasonably believes it is unable under applicable law to enforce
such "due-on-sale" clause, or if any of the other conditions set forth in the
proviso to the preceding sentence apply, the Servicer will enter into an
assumption and modification agreement from or with the person to whom such
property has been conveyed or is proposed to be conveyed, pursuant to which such
person becomes liable under the Mortgage Note and, to the extent permitted by
applicable state law, the Mortgagor remains liable thereon. The Servicer is also
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as the Mortgagor and becomes liable under the Mortgage
Note, provided that no such substitution shall be effective unless such person
satisfies the underwriting criteria of the Servicer and has a credit risk rating
at least equal to that of the original Mortgagor. In connection with any
assumption or substitution, the Servicer shall apply such underwriting standards
and follow such practices and procedures as shall be normal and usual in its
general mortgage servicing activities and as it applies to other mortgage loans
owned solely by it. The Servicer shall not take or enter into any assumption and
modification agreement, however, unless (to the extent practicable in the
circumstances) it shall have received confirmation, in writing, of the continued
effectiveness of any applicable hazard insurance policy. Any fee collected by
the Servicer in respect of an assumption, modification or substitution of
liability agreement shall be retained by the Servicer as additional servicing
compensation. In connection with any such assumption, no material term of the
Mortgage Note (including but not limited to the related Mortgage Rate and the
amount of the Monthly Payment) may be amended or modified, except as otherwise
required pursuant to the terms thereof. The Servicer shall notify the Trustee
and the Trust Administrator that any such substitution, modification or
assumption agreement has been completed by forwarding to the Trust Administrator
(with a copy to the Trustee) the executed original of such substitution,
modification or assumption agreement, which document shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
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Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or by the terms of the Mortgage Note or any
assumption which the Servicer may be restricted by law from preventing, for any
reason whatever. For purposes of this Section 3.15, the term "assumption" is
deemed to also include a sale (of the Mortgaged Property) subject to the
Mortgage that is not accompanied by an assumption or substitution of liability
agreement.
SECTION 3.16. Realization Upon Defaulted Mortgage Loans.
(a) The Servicer shall use its best efforts, consistent with Accepted
Servicing Practices, to foreclose upon or otherwise comparably convert the
ownership of properties securing such of the Mortgage Loans (including selling
any such Mortgage Loans other than converting the ownership of the related
properties) as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to
Section 3.07. The Servicer shall be responsible for all costs and expenses
incurred by it in any such proceedings; provided, however, that such costs and
expenses will be recoverable as Servicing Advances by the Servicer as
contemplated in Section 3.11 and Section 3.23. The foregoing is subject to the
provision that, in any case in which Mortgaged Property shall have suffered
damage from an Uninsured Cause, the Servicer shall not be required to expend its
own funds toward the restoration of such property unless it shall determine in
its discretion that such restoration will increase the proceeds of liquidation
of the related Mortgage Loan after reimbursement to itself for such expenses.
(b) Notwithstanding the foregoing provisions of this Section 3.16 or
any other provision of this Agreement, with respect to any Mortgage Loan as to
which the Servicer has received actual notice of, or has actual knowledge of,
the presence of any toxic or hazardous substance on the related Mortgaged
Property, the Servicer shall not, on behalf of the Trustee, either (i) obtain
title to such Mortgaged Property as a result of or in lieu of foreclosure or
otherwise, or (ii) otherwise acquire possession of, or take any other action
with respect to, such Mortgaged Property, if, as a result of any such action,
the Trustee, the Trust Administrator, the Trust Fund, the Certificateholders or
the Certificate Insurer would be considered to hold title to, to be a
"mortgagee-in-possession" of, or to be an "owner" or "operator" of such
Mortgaged Property within the meaning of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
or any comparable law, unless the Servicer has also previously determined, based
on its reasonable judgment and a report prepared by a Person who regularly
conducts environmental audits using customary industry standards, that:
(1) such Mortgaged Property is in compliance with applicable
environmental laws or, if not, that it would be in the best economic
interest of the Trust Fund to take such actions as are necessary to
bring the Mortgaged Property into compliance therewith; and
(2) there are no circumstances present at such Mortgaged Property
relating to the use, management or disposal of any hazardous
substances, hazardous materials, hazardous wastes, or petroleum-based
materials for which investigation, testing, monitoring, containment,
clean-up or remediation could be required under any federal, state or
local law or regulation, or that if any such materials are present for
which such action could be required, that it would be in the best
economic interest of the Trust Fund to take such actions with respect
to the affected Mortgaged Property.
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The cost of the environmental audit report contemplated by this
Section 3.16 shall be advanced by the Servicer, subject to the Servicer's right
to be reimbursed therefor from the Collection Account as provided in Section
3.11(a)(ix), such right of reimbursement being prior to the rights of
Certificateholders to receive any amount in the Collection Account received in
respect of the affected Mortgage Loan or other Mortgage Loans.
If the Servicer determines, as described above, that it is in the best
economic interest of the Trust Fund to take such actions as are necessary to
bring any such Mortgaged Property into compliance with applicable environmental
laws, or to take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials, hazardous wastes or
petroleum-based materials affecting any such Mortgaged Property, then the
Servicer shall take such action as it deems to be in the best economic interest
of the Trust Fund; provided that any amounts disbursed by the Servicer pursuant
to this Section 3.16(b) shall constitute Servicing Advances, subject to Section
4.03(d). The cost of any such compliance, containment, cleanup or remediation
shall be advanced by the Servicer, subject to the Servicer's right to be
reimbursed therefor from the Collection Account as provided in Section
3.11(a)(iii) and (a)(ix), such right of reimbursement being prior to the rights
of Certificateholders to receive any amount in the Collection Account received
in respect of the affected Mortgage Loan or other Mortgage Loans.
(c) The Master Servicer may at its option purchase from REMIC I any
Mortgage Loan or related REO Property that is 90 days or more delinquent, which
the Master Servicer determines in good faith will otherwise become subject to
foreclosure proceedings (evidence of such determination to be delivered in
writing to the Trust Administrator, the Trustee and the Certificate Insurer
prior to purchase), at a price equal to the Purchase Price; provided, however,
that (i) the Master Servicer shall purchase any such Mortgage Loans or related
REO Properties on the basis of delinquency, purchasing the most delinquent
Mortgage Loans or related REO Properties first and (ii) after it has purchased
5% of the Mortgage Loans and related REO Properties (including any Mortgage
Loans or related REO Properties purchased by ____________ as provided below), by
aggregate Stated Principal Balance of the Mortgage Loans as of the Cut-off Date,
pursuant to clause (i) above, the Master Servicer must also obtain the consent
of the Certificate Insurer prior to any further purchases, provided that failure
of the Certificate Insurer to respond within five Business Days following actual
receipt of any such request for consent by the Master Servicer shall be deemed
to constitute consent to the additional purchases identified in such request for
consent. The Purchase Price for any Mortgage Loan or related REO Property
purchased hereunder shall be deposited in the Distribution Account, and the
Trust Administrator, upon receipt of such deposit, shall release or cause to be
released to the Master Servicer the related Mortgage File and the Trustee shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as the Master Servicer shall furnish and as shall be necessary
to vest in the Master Servicer title to any Mortgage Loan or related REO
Property released pursuant hereto. Notwithstanding the foregoing, prior to
purchasing any Mortgage Loan or related REO Property on Part B of Schedule 1
attached hereto pursuant to this Section 3.16(c), the Master Servicer must give
____________ the right of first refusal to purchase such Mortgage Loan or
related REO Property by written notice; and if ____________ does not exercise
such right within 10 Business Days after receipt of such written notice, the
Master Servicer may purchase such Mortgage Loan or related REO Property. If
____________ purchases such Mortgage Loan or related REO Property, the Purchase
Price shall be deposited in the Distribution Account by ____________, and the
Trust Administrator, upon receipt of such deposit, shall release or cause to be
released to ____________ the related Mortgage File and shall execute and deliver
such instruments of transfer or assignment, in each case without recourse, as
____________ shall furnish and as shall be necessary to vest in ____________
title to any Mortgage Loan or related REO Property released pursuant hereto.
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(d) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan,
will be applied in the following order of priority: FIRST, to reimburse the
Servicer or any Sub-Servicer for any related unreimbursed Servicing Advances and
P&I Advances, pursuant to Section 3.11(a)(ii) or (a)(iii); SECOND, to accrued
and unpaid interest on the Mortgage Loan, to the date of the Final Recovery
Determination, or to the Due Date prior to the Distribution Date on which such
amounts are to be distributed if not in connection with a Final Recovery
Determination; and THIRD, as a recovery of principal of the Mortgage Loan. If
the amount of the recovery so allocated to interest is less than the full amount
of accrued and unpaid interest due on such Mortgage Loan, the amount of such
recovery will be allocated by the Servicer as follows: FIRST, to unpaid
Servicing Fees; and SECOND, to the balance of the interest then due and owing.
The portion of the recovery so allocated to unpaid Servicing Fees shall be
reimbursed to the Servicer or any Sub-Servicer pursuant to Section 3.11(a)(iii).
SECTION 3.17. Trustee and Trust Administrator to Cooperate; Release of
Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the receipt by
the Servicer of a notification that payment in full shall be escrowed in a
manner customary for such purposes, the Servicer will notify or cause to be
notified the Trust Administrator by a certification in the form of Exhibit E-2
(which certification shall include a statement to the effect that all amounts
received or to be received in connection with such payment which are required to
be deposited in the Collection Account pursuant to Section 3.10 have been or
will be so deposited) of a Servicing Officer and shall request delivery to it of
the Mortgage File. Upon receipt of such certification and request, the Trust
Administrator shall, within five Business Days, release and send by overnight
mail, at the expense of the Servicer, the related Mortgage File to the Servicer.
The Trust Administrator agrees to indemnify the Servicer, out of its own funds,
for any loss, liability or expense (other than special, indirect, punitive or
consequential damages which will not be paid by the Trust Administrator)
incurred by the Servicer as a proximate result of the Trust Administrator's
breach of its obligations pursuant to this Section 3.17. No expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Collection Account or the Distribution Account. The Trust
Administrator will provide to the Certificate Insurer and the Trustee an updated
listing of any Mortgage Files released pursuant to this Section 3.17(a) on March
30, June 30, September 30 and December 30 of each year, beginning in March 1999
and as otherwise requested by the Certificate Insurer or the Trustee.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any insurance policy relating to the Mortgage Loans, the Trust Administrator
shall, upon any request made by or on behalf of the Servicer and delivery to the
Trust Administrator of a Request for Release in the form of Exhibit E-l, release
the related Mortgage File to the Servicer, and the Trustee shall, at the
direction of the Servicer, execute such documents as shall be necessary to the
prosecution of any such proceedings. Such Request for Release shall obligate the
Servicer to return each and every document previously requested from the
Mortgage File to the Trust Administrator when the need therefor by the Servicer
no longer exists, unless the Mortgage Loan has been liquidated and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Collection Account or the Mortgage File or such document has been delivered to
an attorney, or to a public trustee or other public official as required by law,
for purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property either judicially or non-judicially, and
the Servicer has delivered, or caused to be delivered, to the Trust
Administrator an additional Request for Release certifying as to such
liquidation or action or proceedings. Upon the request of the Trust
Administrator, the Trustee or the Certificate Insurer, the Servicer shall
provide notice to the Trust
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Administrator, the Trustee and the Certificate Insurer of the name and address
of the Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery. Upon receipt of a certificate of a
Servicing Officer stating that such Mortgage Loan was liquidated and that all
amounts received or to be received in connection with such liquidation that are
required to be deposited into the Collection Account have been so deposited, or
that such Mortgage Loan has become an REO Property, any outstanding Requests for
Release with respect to such Mortgage Loan shall be released by the Trust
Administrator to the Servicer or its designee.
(c) Upon written certification of a Servicing Officer, the Trustee
shall execute and deliver to the Servicer or the Sub-Servicer, as the case may
be, and upon the request of the Certificate Insurer the Servicer shall deliver
or cause to be delivered to the Certificate Insurer copies of, any court
pleadings, requests for trustee's sale or other documents necessary to the
foreclosure or trustee's sale in respect of a Mortgaged Property or to any legal
action brought to obtain judgment against any Mortgagor on the Mortgage Note or
Mortgage or to obtain a deficiency judgment, or to enforce any other remedies or
rights provided by the Mortgage Note or Mortgage or otherwise available at law
or in equity. Each such certification shall include a request that such
pleadings or documents be executed by the Trustee and a statement as to the
reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate or otherwise affect the lien
of the Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.
SECTION 3.18. Servicing Compensation.
As compensation for the activities of the Master Servicer hereunder,
the Master Servicer shall be entitled to the Master Servicing Fee with respect
to each Mortgage Loan payable solely from payments of interest in respect of
such Mortgage Loan. As compensation for the activities of the Servicer
hereunder, the Servicer shall be entitled to the Servicing Fee with respect to
each Mortgage Loan payable solely from payments of interest in respect of such
Mortgage Loan, subject to Section 3.24. In addition, the Servicer shall be
entitled to recover unpaid Servicing Fees out of Insurance Proceeds or
Liquidation Proceeds to the extent permitted by Section 3.11(a)(iii) and out of
amounts derived from the operation and sale of an REO Property to the extent
permitted by Section 3.23. The right to receive the Servicing Fee may not be
transferred in whole or in part except in connection with the transfer of all of
the Servicer's responsibilities and obligations under this Agreement; provided,
however, that the Servicer may pay from the Servicing Fee any amounts due to a
Sub-Servicer pursuant to a Sub-Servicing Agreement entered into under Section
3.02.
Additional servicing compensation in the form of assumption fees,
ancillary income and late payment charges, insufficient funds charges or
otherwise (subject to Section 3.24 and other than Prepayment Charges) shall be
retained by the Servicer only to the extent such fees or charges are received by
the Servicer. The Servicer shall also be entitled pursuant to Section
3.11(a)(iv) to withdraw from the Collection Account and pursuant to Section
3.23(b) to withdraw from any REO Account, as additional servicing compensation,
interest or other income earned on deposits therein, subject to Section 3.12 and
Section 3.24. The Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder (including premiums for
the insurance required by Section 3.14, to the extent such premiums are not paid
by the related Mortgagors or by a Sub-Servicer and servicing compensation of
each Sub-Servicer) and shall not be entitled to reimbursement therefor except as
specifically provided herein.
The Master Servicer shall be entitled pursuant to Section 3.11 to be
paid by the Trust Administrator from the Distribution Account, pursuant to
Section 3.25 to be paid by the Trust
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Administrator from the Expense Account, as additional servicing compensation,
interest or other income earned on deposits therein, subject to Section 3.12.
The Servicer shall be required to pay all expenses incurred by it in connection
with its servicing activities hereunder (including to the extent provided herein
in Section 8.05, the fees and expenses of the Trustee and the Trust
Administrator) and shall not be entitled to reimbursement therefor except as
specifically provided herein.
SECTION 3.19. Reports to the Trust Administrator and the Trustee;
Collection Account Statements.
Not later than twenty days after each Distribution Date, the Servicer
shall forward, upon request, to the Trust Administrator, the Trustee, the
Certificate Insurer and the Depositor the most current available bank statement
for the Collection Account. Copies of such statement shall be provided by the
Trust Administrator to any Certificateholder and to any Person identified to the
Trust Administrator as a prospective transferee of a Certificate, upon request
at the expense of the requesting party, provided such statement is delivered by
the Servicer to the Trust Administrator.
SECTION 3.20. Statement as to Compliance.
The Servicer will deliver to the Trust Administrator, the Trustee, the
Certificate Insurer and the Depositor not later than 90 days following the end
of the fiscal year of the Servicer, commencing in _____, which as of the Closing
Date ends on the last day in December with respect to ______________ and ends on
the last day of _______ with respect to ___________, an Officers' Certificate
stating, as to each signatory thereof, that (i) a review of the activities of
the Servicer during the preceding year and of performance under this Agreement
has been made under such officers' supervision and (ii) to the best of such
officers' knowledge, based on such review, the Servicer has fulfilled all of its
obligations under this Agreement throughout such year, or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof. Copies of any such
statement shall be provided by the Trust Administrator to any Certificateholder
and to any Person identified to the Trust Administrator as a prospective
transferee of a Certificate, upon request at the expense of the requesting
party, provided such statement is delivered by the Servicer to the Trust
Administrator.
SECTION 3.21. Independent Public Accountants' Servicing Report.
Not later than 90 days following the end of each fiscal year of the
Servicer, commencing in ____, the Servicer, at its expense, shall cause a
nationally recognized firm of independent certified public accountants to
furnish to the Servicer a report stating that (i) it has obtained a letter of
representation regarding certain matters from the management of the Servicer
which includes an assertion that the Servicer has complied with certain minimum
residential mortgage loan servicing standards, identified in the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America, with respect to the servicing of residential mortgage
loans during the most recently completed fiscal year and (ii) on the basis of an
examination conducted by such firm in accordance with standards established by
the American Institute of Certified Public Accountants, such representation is
fairly stated in all material respects, subject to such exceptions and other
qualifications that may be appropriate. In rendering its report such firm may
rely, as to matters relating to the direct servicing of residential mortgage
loans by Sub-Servicers, upon comparable reports of firms of independent
certified public accountants rendered on the basis of examinations conducted in
accordance with the same standards (rendered within one year of such report)
with respect to those Sub-Servicers. Immediately upon receipt of such report,
the Servicer shall furnish a copy of such report to the Trust Administrator, the
Trustee, the Certificate Insurer and each Rating Agency. Copies of such
statement shall be provided by the Trust
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Administrator to any Certificateholder upon request at the Servicer's expense,
provided that such statement is delivered by the Servicer to the Trust
Administrator.
SECTION 3.22. Access to Certain Documentation.
The Servicer shall provide to the Office of Thrift Supervision, the
FDIC, and any other federal or state banking or insurance regulatory authority
that may exercise authority over any Certificateholder, access to the
documentation regarding the Mortgage Loans required by applicable laws and
regulations. Such access shall be afforded without charge, but only upon
reasonable request and during normal business hours at the offices of the
Servicer designated by it. In addition, access to the documentation regarding
the Mortgage Loans will be provided to any Certificateholder, the Certificate
Insurer, the Trustee, the Trust Administrator and to any Person identified to
the Servicer as a prospective transferee of a Certificate, upon reasonable
request during normal business hours at the offices of the Servicer designated
by it at the expense of the Person requesting such access.
SECTION 3.23. Title, Management and Disposition of REO Property.
(a) The deed or certificate of sale of any REO Property shall be taken
in the name of the Trustee, or its nominee, in trust for the benefit of the
Certificateholders and the Certificate Insurer. The Servicer, on behalf of REMIC
I, shall either sell any REO Property within three years after REMIC I acquires
ownership of such REO Property for purposes of Section 860G(a)(8) of the Code or
request from the Internal Revenue Service, no later than 60 days before the day
on which the three-year grace period would otherwise expire, an extension of the
three-year grace period, unless the Servicer shall have delivered to the Trust
Administrator and the Trustee an Opinion of Counsel, addressed to the Trust
Administrator, the Trustee, the Certificate Insurer and the Depositor, to the
effect that the holding by REMIC I of such REO Property subsequent to three
years after its acquisition will not result in the imposition on REMIC I, REMIC
II or REMIC III of taxes on "prohibited transactions" thereof, as defined in
Section 860F of the Code, or cause any of REMIC I, REMIC II or REMIC III to fail
to qualify as a REMIC under Federal law at any time that any Certificates are
outstanding. The Servicer shall manage, conserve, protect and operate each REO
Property for the Certificateholders solely for the purpose of its prompt
disposition and sale in a manner which does not cause such REO Property to fail
to qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code or result in the receipt by REMIC I, REMIC II or REMIC III of any
"income from non-permitted assets" within the meaning of Section 860F(a)(2)(B)
of the Code, or any "net income from foreclosure property" which is subject to
taxation under the REMIC Provisions.
(b) The Servicer shall separately account for all funds collected and
received in connection with the operation of any REO Property and shall
establish and maintain, or cause to be established and maintained, with respect
to REO Properties an account held in trust for the Trustee for the benefit of
the Certificateholders and the Certificate Insurer (the "REO Account"), which
shall be an Eligible Account. The Servicer shall be permitted to allow the
Collection Account to serve as the REO Account, subject to separate ledgers for
each REO Property. The Servicer shall be entitled to retain or withdraw any
interest income paid on funds deposited in the REO Account.
(c) The Servicer shall have full power and authority, subject only to
the specific requirements and prohibitions of this Agreement, to do any and all
things in connection with any REO Property as are consistent with the manner in
which the Servicer manages and operates similar property owned by the Servicer
or any of its Affiliates, all on such terms and for such period as the Servicer
deems to be in the best interests of Certificateholders. In connection
therewith, the Servicer shall deposit, or
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cause to be deposited in the clearing account in which it customarily deposits
payments and collections on mortgage loans in connection with its mortgage loan
servicing activities on a daily basis, and in no event more than one Business
Day after the Servicer's receipt thereof, and shall thereafter deposit in the
REO Account, in no event more than two Business Days after the Servicer's
receipt thereof, all revenues received by it with respect to an REO Property and
shall withdraw therefrom funds necessary for the proper operation, management
and maintenance of such REO Property including, without limitation:
(i) all insurance premiums due and payable in respect of such REO
Property;
(ii) all real estate taxes and assessments in respect of such REO
Property that may result in the imposition of a lien thereon; and
(iii) all costs and expenses necessary to maintain such REO
Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Servicer shall advance from
its own funds such amount as is necessary for such purposes if, but only if, the
Servicer would make such advances if the Servicer owned the REO Property and if
in the Servicer's judgment, the payment of such amounts will be recoverable from
the rental or sale of the REO Property.
Notwithstanding the foregoing, none of the Servicer, the Trust
Administrator or the Trustee shall:
(i) authorize the Trust Fund to enter into, renew or extend any
New Lease with respect to any REO Property, if the New Lease by its
terms will give rise to any income that does not constitute Rents from
Real Property;
(ii) authorize any amount to be received or accrued under any New
Lease other than amounts that will constitute Rents from Real
Property;
(iii) authorize any construction on any REO Property, other than
the completion of a building or other improvement thereon, and then
only if more than ten percent of the construction of such building or
other improvement was completed before default on the related Mortgage
Loan became imminent, all within the meaning of Section 856(e)(4)(B)
of the Code; or
(iv) authorize any Person to Directly Operate any REO Property on
any date more than 90 days after its date of acquisition by the Trust
Fund;
unless, in any such case, the Servicer has obtained an Opinion of Counsel,
provided to the Trust Administrator, the Trustee and the Certificate Insurer, to
the effect that such action will not cause such REO Property to fail to qualify
as "foreclosure property" within the meaning of Section 860G(a)(8) of the Code
at any time that it is held by REMIC I, in which case the Servicer may take such
actions as are specified in such Opinion of Counsel.
The Servicer may contract with any Independent Contractor for the
operation and management of any REO Property, provided that:
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(i) the terms and conditions of any such contract shall not be
inconsistent herewith;
(ii) any such contract shall require, or shall be administered to
require, that the Independent Contractor pay all costs and expenses
incurred in connection with the operation and management of such REO
Property, including those listed above and remit all related revenues
(net of such costs and expenses) to the Servicer as soon as
practicable, but in no event later than thirty days following the
receipt thereof by such Independent Contractor;
(iii) none of the provisions of this Section 3.23(c) relating to
any such contract or to actions taken through any such Independent
Contractor shall be deemed to relieve the Servicer of any of its
duties and obligations to the Trustee on behalf of the
Certificateholders and the Certificate Insurer with respect to the
operation and management of any such REO Property; and
(iv) the Servicer shall be obligated with respect thereto to the
same extent as if it alone were performing all duties and obligations
in connection with the operation and management of such REO Property.
The Servicer shall be entitled to enter into any agreement with any Independent
Contractor performing services for it related to its duties and obligations
hereunder for indemnification of the Servicer by such Independent Contractor,
and nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer shall be solely liable for all fees owed by it to
any such Independent Contractor, irrespective of whether the Servicer's
compensation pursuant to Section 3.18 is sufficient to pay such fees; provided,
however, that to the extent that any payments made by such Independent
Contractor would constitute Servicing Advances if made by the Servicer, such
amounts shall be reimbursable as Servicing Advances made by the Servicer.
(d) In addition to the withdrawals permitted under Section 3.23(c),
the Servicer may from time to time make withdrawals from the REO Account for any
REO Property: (i) to pay itself or any Sub-Servicer unpaid Servicing Fees in
respect of the related Mortgage Loan; and (ii) to reimburse itself or any
Sub-Servicer for unreimbursed Servicing Advances and P&I Advances made in
respect of such REO Property or the related Mortgage Loan. On the Servicer
Remittance Date, the Servicer shall withdraw from each REO Account maintained by
it and deposit into the Distribution Account in accordance with Section
3.10(d)(ii), for distribution on the related Distribution Date in accordance
with Section 4.01, the income from the related REO Property received during the
prior calendar month, net of any withdrawals made pursuant to Section 3.23(c) or
this Section 3.23(d).
(e) Subject to the time constraints set forth in Section 3.23(a), each
REO Disposition shall be carried out by the Servicer at such price and upon such
terms and conditions as the Servicer shall deem necessary or advisable, as shall
be normal and usual in its Accepted Servicing Practices.
(f) The proceeds from the REO Disposition, net of any amount required
by law to be remitted to the Mortgagor under the related Mortgage Loan and net
of any payment or reimbursement to the Servicer or any Sub-Servicer as provided
above, shall be deposited in the Distribution Account in accordance with Section
3.10(d)(ii) on the Servicer Remittance Date in the month following the receipt
thereof for distribution on the related Distribution Date in accordance with
Section 4.01. Any REO
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Disposition shall be for cash only (unless changes in the REMIC Provisions made
subsequent to the Startup Day allow a sale for other consideration).
(g) The Servicer shall file information returns with respect to the
receipt of mortgage interest received in a trade or business, reports of
foreclosures and abandonments of any Mortgaged Property and cancellation of
indebtedness income with respect to any Mortgaged Property as required by
Sections 6050H, 6050J and 6050P of the Code, respectively. Such reports shall be
in form and substance sufficient to meet the reporting requirements imposed by
such Sections 6050H, 6050J and 6050P of the Code.
SECTION 3.24. Obligations of the Servicer in Respect of Prepayment
Interest Shortfalls.
The Servicer shall deliver to the Trust Administrator for deposit into
the Distribution Account on or before 5:00 p.m. New York time on the Servicer
Remittance Date from its own funds an amount equal to the lesser of (i) the
aggregate of the Prepayment Interest Shortfalls for the related Distribution
Date resulting from full or partial Principal Prepayments during the related
Prepayment Period and (ii) the aggregate Servicing Fee for the related
Prepayment Period. Any amounts paid by the Servicer pursuant to this Section
3.24 shall not be reimbursed by REMIC I.
SECTION 3.25. Expense Account.
(a) On behalf of the Trust Fund, the Trust Administrator, as agent for
the Trustee, shall establish and maintain in its name, for the benefit of the
Trustee, the Certificateholders and the Certificate Insurer, the Expense
Account. The Expense Account shall be an Eligible Account, and funds on deposit
therein shall be held separate and apart from, and shall not be commingled with,
any other moneys, including, without limitation, other moneys of the Trust
Administrator held pursuant to this Agreement.
(b) On the Business Day immediately preceding each Distribution Date,
the Trust Administrator shall withdraw from the Distribution Account and deposit
into the Expense Account an amount equal to 1/12 of the Certificate Insurer
Premium Rate on the Certificate Principal Balance of the Class A Certificates
for such Distribution Date.
(c) The Trust Administrator shall make withdrawals from the Expense
Account to pay the Certificate Insurer Premium on each Distribution Date.
(d) Funds in the Expense Account may be invested in Permitted
Investments in accordance with the provisions set forth in Section 3.12. Any
earnings on such amounts shall be payable to the Master Servicer on each
Distribution Date as additional servicing compensation. The Trust Administrator
shall give notice to the Depositor, the Trustee and the Certificate Insurer of
the location of the Expense Account on the Closing Date and prior to any change
thereof.
(e) Upon termination of the Trust Fund in accordance with Section
10.01, any amounts remaining in the Expense Account following the payment of all
unpaid Certificate Insurer Premiums shall be released to the Master Servicer as
additional servicing compensation.
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SECTION 3.26. Obligations of the Servicer in Respect of Mortgage Rates
and Monthly Payments.
In the event that a shortfall in any collection on or liability with
respect to any Mortgage Loan results from or is attributable to adjustments to
Mortgage Rates, Monthly Payments or Stated Principal Balances that were made by
the Servicer in a manner not consistent with the terms of the related Mortgage
Note and this Agreement, the Servicer, upon discovery or receipt of notice
thereof, immediately shall deliver to the Trust Administrator for deposit in the
Distribution Account from its own funds the amount of any such shortfall and
shall indemnify and hold harmless the Trust Fund, the Trust Administrator, the
Trustee, the Certificate Insurer, the Depositor and any successor servicer in
respect of any such liability. Such indemnities shall survive the termination or
discharge of this Agreement. Notwithstanding the foregoing, this Section 3.26
shall not limit the ability of the Servicer to seek recovery of any such amounts
from the related Mortgagor under the terms of the related Mortgage Note, as
permitted by law.
SECTION 3.27. Solicitations.
From and after the Closing Date, the ____________ agrees that it will
not take any action or permit or cause any action to be taken by any of its
agents and Affiliates, or by any independent contractors or independent mortgage
brokerage companies on ____________'s behalf, to personally, by telephone or
mail, solicit the Mortgagor under any Mortgage Loan for the purpose of
refinancing such Mortgage Loan, nor will ____________ purchase any loan to a
Mortgagor secured by a Mortgaged Property, in whole or in part; provided, that
____________ may solicit any Mortgagor for whom ____________ has received a
request for verification of mortgage from an originator of mortgage loan
products similar to the Mortgage Loans that indicates that such Mortgagor
intends to refinance his or her Mortgage Loan, a request for demand for pay-off
or a Mortgagor initiated a written or verbal communication with ____________
indicating a desire to prepay the related Mortgage Loan; provided further, it is
understood and agreed that promotions undertaken by ____________ or any of its
Affiliates which (i) concern optional insurance products or other additional
products or (ii) are directed to the general public at large, including, without
limitation, mass mailings based on commercially acquired mailing lists,
newspaper, radio and television advertisements shall not constitute solicitation
under this Section 3.27.
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ARTICLE IV
PAYMENTS TO CERTIFICATEHOLDERS
SECTION 4.01. Distributions.
(a)(1)(A) On each Distribution Date, the following amounts, in the
following order of priority, shall be distributed by REMIC I to REMIC II on
account of the REMIC I Regular Interests:
(i) to the Holders of REMIC I Regular Interests (other than REMIC
I Regular Interest I-LTP), in an amount equal to (A) the
Uncertificated Interest for such Distribution Date, plus (B) any
amounts in respect thereof remaining unpaid from previous Distribution
Dates. Amounts payable as Uncertificated Interest in respect of REMIC
I Regular Interest I-LT9 shall be reduced when the REMIC I
Overcollateralized Amount is less than the REMIC I Required
Overcollateralized Amount, by the lesser of (x) the amount of such
difference and (y) the Maximum I-LT9 Uncertificated Interest Deferral
Amount; and
(ii) on each Distribution Date, to the Holders of REMIC I Regular
Interests, in an amount equal to the remainder of the Available
Distribution Amount for such Distribution Date after the distributions
made pursuant to clause (i) above, allocated as follows (except as
provided below):
(a) to the Holders of the REMIC I Regular Interest I-LTP, on
the Distribution Date immediately following the expiration of the
latest Prepayment Charge term as identified on the Mortgage Loan
Schedule and each Distribution Date thereafter until $____ has
been distributed pursuant to this clause;
(b) to the Holders of the REMIC I Regular Interest I-LT1,
_____% of the amount remaining after application of clause (a),
until the Uncertificated Balance of such REMIC I Regular Interest
is reduced to zero and any remaining amounts to the Holders of
the Class R-I Certificates;
(c) to the Holders of the REMIC I Regular Interest I-LT2,
REMIC I Regular Interest I-LT3, REMIC I Regular Interest I-LT4,
REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6,
REMIC I Regular Interest I-LT7 and REMIC I Regular Interest
I-LT8, ____% of the amount remaining after application of clause
(a), in the same proportion as principal payments are allocated
to the related Corresponding Certificate, until the
Uncertificated Balances of such REMIC I Regular Interests are
reduced to zero, and any remaining amounts to the Holders of the
Class R-I Certificates;
(d) to the Holders of the REMIC I Regular Interest I-LT9,
_____% of the amount remaining after application of clause (a),
until the Uncertificated Balance of such REMIC I Regular Interest
is reduced to zero and any remaining amounts to the Holders of
the Class R-I Certificates;
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provided, however, that _____% and ____% of any principal payments that are
attributable to a Overcollateralization Reduction Amount shall be allocated to
Holders of the REMIC I Regular Interest I- LT1 and REMIC I Regular Interest
I-LT9, respectively.
(B) On each Distribution Date, the following amounts shall be
distributed by REMIC II to REMIC III on account of the REMIC II Regular
Interests:
(i) any amounts paid as either Uncertificated Interest paid or
accrued to the REMIC I Regular Interests (other than REMIC I Regular
Interest I-LTP) shall be deemed to have been paid to the related
Uncertificated Corresponding Component in REMIC II in accordance with
the REMIC II Remittance Rates and any amounts deferred on REMIC I
Regular Interest I-LT9 pursuant to Section 4.01(A)(1)(A) shall be
deemed to have been deferred with respect to REMIC II Regular Interest
II-LT9; and
(ii) any amounts paid as principal on the REMIC I Regular
Interests shall be deemed to have been paid to the related
Uncertificated Corresponding Component in REMIC II in accordance with
the same priorities and conditions.
(2) On each Distribution Date, the Trust Administrator shall withdraw
from the Distribution Account an amount equal to the Available Distribution
Amount (other than any amount in the Distribution Account that was transferred
from the Policy Payments Account to the Distribution Account pursuant to Section
9.04) and distribute to the Certificateholders the following amounts, in the
following order of priority:
(i) (a) to the Holders of the Class A Certificates, in an amount
(allocable among such Certificates PRO RATA in accordance with the
respective amounts payable as to each pursuant to this clause (i))
equal to the aggregate of the Interest Distribution Amounts for such
Distribution Date for such Certificates;
(ii) to the Holders of the Class A Certificates, in an amount
equal to the Principal Distribution Amount (except for any portion
thereof consisting of any Overcollateralization Increase Amount and
any amount payable pursuant to clause (iii) below), in the priorities
and amounts set forth in Section 4.01(a)(3) below, until the
Certificate Principal Balances of such Certificates have been reduced
to zero;
(iii) to the Holders of the Class A Certificates in the
priorities and amounts set forth in Section 4.01(a)(3) below, payable
from Net Monthly Excess Cashflow (exclusive of any
Overcollateralization Reduction Amount), in an amount equal to (a) the
principal portion of any Realized Losses incurred or deemed to have
been incurred on the Mortgage Loans, applied to reduce the Certificate
Principal Balances of such Certificates until the aggregate
Certificate Principal Balance of such Certificates is reduced to zero,
plus (b) the principal portion of any Realized Losses allocated to
such Certificates on previous Distribution Dates but not paid under
the Policy due to a Certificate Insurer Default and not previously
paid pursuant to this clause (iii)(b);
(iv) to the Certificate Insurer, payable from Net Monthly Excess
Cashflow, to reimburse the Certificate Insurer for claims under the
Policy, to the extent of Cumulative Insurance Payments;
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(v) to the Holders of the Class A Certificates in the priorities
and amounts set forth in Section 4.01(a)(3) below, payable from Net
Monthly Excess Cashflow, in an amount equal to the portion of the
Principal Distribution Amount consisting of any Overcollateralization
Increase Amount, applied to reduce the Certificate Principal Balances
of such Certificates, until the aggregate Certificate Principal
Balances of such Certificates is reduced to zero;
(vi) to the Holders of the Class A Certificates, payable from Net
Monthly Excess Cashflow, in an amount equal to any Relief Act
Shortfalls that were allocated pursuant to Section 1.02;
(vii) to the Certificate Insurer, payable from Net Monthly Excess
Cashflow, any amounts remaining due to the Insurer under the terms of
the Insurance Agreement (including any Premium Supplement);
(viii) to the Holders of the Class CE Certificates, payable from
Net Monthly Excess Cashflow, the Interest Distribution Amount and any
Overcollateralization Reduction Amount for such Distribution Date; and
(ix) to the Holders of the Class R-III Certificates, any
remaining amounts; provided that if such Distribution Date is the
Distribution Date immediately following the expiration of the latest
Prepayment Charge term as identified on the Mortgage Loan Schedule or
any Distribution Date thereafter, then any such remaining amounts will
be distributed FIRST, to the Holders of the Class P Certificates,
until the Certificate Principal Balance thereof has been reduced to
zero; and SECOND, to the Holders of the Class R-III Certificates.
(3) On each Distribution Date, the aggregate distributions made on
such date in respect of the Class A Certificates pursuant to Section
4.01(a)(2)(ii), (a)(2)(iii) or (a)(2)(v) above shall be applied among the
various Classes thereof in the following order of priority:
FIRST, to the holders of the Lockout Certificates, the Lockout
Distribution Percentage of the Principal Distribution Amount, until
the Certificate Balance of such Class has been reduced to zero;
SECOND, to the holders of the Class A-1 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
THIRD, to the holders of the Class A-2 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
FOURTH, to the holders of the Class A-3 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
FIFTH, to the holders of the Class A-4 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
SIXTH, to the holders of the Class A-5 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
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SEVENTH, to the holders of the Class A-6 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero;
and
EIGHTH, to the holders of the Lockout Certificates until the
Certificate Principal Balance of such Class has been reduced to zero.
Notwithstanding the foregoing priorities, if a Certificate Insurer Default
exists, the sequential nature of distributions of principal among the Class
A Certificates will be disregarded and distributions allocable to principal
will be paid on each succeeding Distribution Date to holders of the Class A
Certificates on a PRO RATA basis, based on the Certificate Principal
Balances thereof.
(b) On each Distribution Date, the Trust Administrator shall withdraw
any amounts then on deposit in the Distribution Account that represent
Prepayment Charges collected by either Servicer in connection with the Principal
Prepayment of any of the Mortgage Loans or any Servicer Prepayment Charge
Payment Amount, and shall distribute such amounts to the Holders of the Class P
Certificates. Such distributions shall not be applied to reduce the Certificate
Principal Balance of the Class P Certificates.
(c) In addition to making the distributions required pursuant to
Section 4.01(a)(2), on each Distribution Date for which there exists a
Deficiency Amount, the Trust Administrator shall withdraw from the Distribution
Account any amount therein that was transferred from the Policy Payments Account
to the Distribution Account pursuant to Section 9.04 and distribute to the
Holders of the Class A Certificates (i) an amount equal to any amount required
to be paid to such Class pursuant to Section 4.01(a)(2)(i) for such Distribution
Date remaining unpaid after giving effect to all distributions made pursuant to
Section 4.01(a)(2) for such Distribution Date, (ii) an amount equal to the
principal portion of any Realized Losses allocated to such Class on such
Distribution Date after giving effect to all distributions made pursuant to
Section 4.01(a)(2) for such Distribution Date and (iii) without duplication, any
other amount constituting a Deficiency Amount.
(c) Each Holder of a Class A Certificate, by its acceptance of such
Certificate, hereby agrees that, in the event any distribution is made to any
Holder of a Class A Certificate from amounts paid under the Policy, (i) the
Certificate Insurer shall be subrogated in the manner herein provided to the
rights of the Holder of such Class A Certificate to receive from amounts on
deposit in the Distribution Account the distributions allocable to principal and
interest that would have been distributable to such Holder if no such
distribution to such Holder had been made from amounts paid under the Policy;
and (ii) in addition to the rights of the Holders of the Class A Certificates
that the Certificate Insurer may exercise in accordance with the provisions of
Section 9.01, the Certificate Insurer may exercise any option, vote, right,
power or the like with respect to each Class A Certificate for which Cumulative
Insurance Payments are outstanding.
(d) All distributions made with respect to each Class of Certificates
on each Distribution Date shall be allocated PRO RATA among the outstanding
Certificates in such Class based on their respective Percentage Interests.
Payments in respect of each Class of Certificates on each Distribution Date will
be made to the Holders of the respective Class of record on the related Record
Date (except as otherwise provided in Section 4.01(f) or Section 10.01
respecting the final distribution on such Class), based on the aggregate
Percentage Interest represented by their respective Certificates, and shall be
made by wire transfer of immediately available funds to the account of any such
Holder at a bank or other entity having appropriate facilities therefor, if such
Holder shall have so notified the Trust Administrator in writing at least five
Business Days prior to the Record Date immediately prior to such Distribution
Date
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and is the registered owner of Certificates having an initial aggregate
Certificate Principal Balance that is in excess of the lesser of (i) $5,000,000
or (ii) two-thirds of the initial Certificate Principal Balance of such Class of
Certificates, or otherwise by check mailed by first class mail to the address of
such Holder appearing in the Certificate Register. The final distribution on
each Certificate will be made in like manner, but only upon presentment and
surrender of such Certificate at the Corporate Trust Office or such other
location specified in the notice to Certificateholders of such final
distribution. Payments to the Certificate Insurer on any Distribution Date will
be made by wire transfer of immediately available funds to the account
designated by the Certificate Insurer under the Premium Letter (as defined in
the Insurance Agreement).
Each distribution with respect to a Book-Entry Certificate shall be
paid to the Depository, as Holder thereof, and the Depository shall be
responsible for crediting the amount of such distribution to the accounts of its
Depository Participants in accordance with its normal procedures. Each
Depository Participant shall be responsible for disbursing such distribution to
the Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. None of the Trust Administrator,
the Trustee, the Depositor or the Servicers shall have any responsibility
therefor except as otherwise provided by this Agreement or applicable law.
(e) The rights of the Certificateholders to receive distributions in
respect of the Certificates, and all interests of the Certificateholders in such
distributions, shall be as set forth in this Agreement. None of the Holders of
any Class of Certificates, the Trust Administrator, the Trustee or the Servicers
shall in any way be responsible or liable to the Holders of any other Class of
Certificates in respect of amounts properly previously distributed on the
Certificates.
(f) Except as otherwise provided in Section 10.01, whenever the Trust
Administrator expects that the final distribution with respect to any Class of
Certificates will be made on the next Distribution Date, the Trust Administrator
shall, no later than three (3) days before the related Distribution Date, mail
to each Holder on such date of such Class of Certificates and the Certificate
Insurer a notice to the effect that:
(i) the Trust Administrator expects that the final distribution with
respect to such Class of Certificates will be made on such Distribution
Date but only upon presentation and surrender of such Certificates at the
office of the Trust Administrator therein specified, and
(ii) no interest shall accrue on such Certificates from and after the
end of the related Interest Accrual Period.
Any funds not distributed to any Holder or Holders of Certificates of such Class
on such Distribution Date because of the failure of such Holder or Holders to
tender their Certificates shall, on such date, be set aside and held in trust by
the Trust Administrator and credited to the account of the appropriate
non-tendering Holder or Holders. If any Certificates as to which notice has been
given pursuant to this Section 4.01(f) shall not have been surrendered for
cancellation within six months after the time specified in such notice, the
Trust Administrator shall mail a second notice to the remaining non-tendering
Certificateholders to surrender their Certificates for cancellation in order to
receive the final distribution with respect thereto. If within one year after
the second notice all such Certificates shall not have been surrendered for
cancellation, the Trust Administrator shall, directly or through an agent, (i)
mail a final notice to the remaining non-tendering Certificateholders concerning
surrender of their Certificates and (ii) pay to the Certificate Insurer any
amount of such funds which were paid by the Certificate Insurer under the Policy
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but shall continue to hold any remaining funds for the benefit of non-tendering
Certificateholders, and all liability of the Certificate Insurer with respect to
such funds shall thereupon cease. The costs and expenses of maintaining the
funds in trust and of contacting such Certificateholders shall be paid out of
the assets remaining in such trust fund. If within one year after the final
notice any such Certificates shall not have been surrendered for cancellation,
the Trust Administrator shall pay to Salomon Smith Barney Inc. all such amounts,
and all rights of non-tendering Certificateholders in or to such amounts shall
thereupon cease. No interest shall accrue or be payable to any Certificateholder
on any amount held in trust by the Trust Administrator as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 4.01(f). Any such amounts held in trust
by the Trust Administrator shall be held in an Eligible Account and the Trust
Administrator may direct any depository institution maintaining such account to
invest the funds in one or more Permitted Investments. All income and gain
realized from the investment of funds deposited in such accounts held in trust
by the Trust Administrator shall be for the benefit of the Trust Administrator;
provided, however, that the Trust Administrator shall deposit in such account
the amount of any loss of principal incurred in respect of any such Permitted
Investment made with funds in such accounts immediately upon the realization of
such loss.
(g) Notwithstanding anything to the contrary herein, (i) in no event
shall the Certificate Principal Balance of a Class A Certificate be reduced more
than once in respect of any particular amount both (a) allocated to such
Certificate in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed to the Holder of such Certificate in reduction of the Certificate
Principal Balance thereof pursuant to this Section 4.01 from Net Monthly Excess
Cashflow or from amounts paid under the Policy and (ii) in no event shall the
Uncertificated Balance of a REMIC I Regular Interest be reduced more than once
in respect of any particular amount both (a) allocated to such REMIC I Regular
Interest in respect of Realized Losses pursuant to Section 4.04 and (b)
distributed on such REMIC I Regular Interest in reduction of the Uncertificated
Balance thereof pursuant to this Section 4.01.
SECTION 4.02. Statements to Certificateholders.
On each Distribution Date, the Trust Administrator shall prepare and
forward by mail to each Holder of the Regular Certificates, a statement as to
the distributions made on such Distribution Date setting forth:
(i) the amount of the distribution made on such Distribution Date
to the Holders of the Certificates of each Class allocable to
principal, and the amount of the distribution made on such
Distribution Date to the Holders of the Class P Certificates allocable
to Prepayment Charges;
(ii) the amount of the distribution made on such Distribution
Date to the Holders of the Certificates of each Class allocable to
interest;
(iii) the aggregate Servicing Fee received by each Servicer and
the aggregate Master Servicing Fee received by the Master Servicer
during the related Due Period and such other customary information as
the Trust Administrator deems necessary or desirable, or which a
Certificateholder reasonably requests, to enable Certificateholders to
prepare their tax returns;
(iv) the Guaranteed Distribution for such Distribution Date and
the respective portions thereof allocable to principal and interest;
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(v) the amount of any Insurance Payment made to the Class A
Certificates on such Distribution Date, the amount of any
reimbursement payment made to the Certificate Insurer on such
Distribution Date pursuant to Section 4.01(a)(2)(iv) and the amount of
Cumulative Insurance Payments after giving effect to any such
Insurance Payment to the Class A Certificateholders or any such
reimbursement payment to the Certificate Insurer;
(vi) the aggregate amount of P&I Advances for such Distribution
Date;
(vii) the aggregate Stated Principal Balance of the Mortgage
Loans and any REO Properties as of the close of business on such
Distribution Date;
(viii) the number, aggregate principal balance, weighted average
remaining term to maturity and weighted average Mortgage Rate of the
Mortgage Loans as of the related Due Date;
(ix) the number and aggregate unpaid principal balance of
Mortgage Loans (a) delinquent 30 to 59 days, (b) delinquent 60 to 89
days, (c) delinquent 90 or more days, in each case, as of the last day
of the preceding calendar month, (d) as to which foreclosure
proceedings have been commenced and (e) with respect to which the
related Mortgagor has filed for protection under applicable bankruptcy
laws, with respect to whom bankruptcy proceedings are pending or with
respect to whom bankruptcy protection is in force;
(x) with respect to any Mortgage Loan that became an REO Property
during the preceding calendar month, the loan number of such Mortgage
Loan, the unpaid principal balance and the Stated Principal Balance of
such Mortgage Loan as of the date it became an REO Property;
(xi) the book value of any REO Property as of the close of
business on the last Business Day of the calendar month preceding the
Distribution Date;
(xii) the aggregate amount of Principal Prepayments made during
the related Prepayment Period;
(xiii) the aggregate amount of Realized Losses incurred during
the related Prepayment Period (or, in the case of Bankruptcy Losses
allocable to interest, during the related Due Period), separately
identifying whether such Realized Losses constituted Bankruptcy Losses
and the aggregate amount of Realized Losses incurred since the Closing
Date;
(xiv) the aggregate amount of extraordinary Trust Fund expenses
withdrawn from the Collection Account or the Distribution Account for
such Distribution Date;
(xv) the aggregate Certificate Principal Balance of each Class of
Certificates, after giving effect to the distributions, and
allocations of Realized Losses, made on such Distribution Date,
separately identifying any reduction thereof due to allocations of
Realized Losses;
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(xvi) the Certificate Factor for each such Class of Certificates
applicable to such Distribution Date;
(xvii) the Interest Distribution Amounts in respect of each Class
of Class A Certificates and the Class CE Certificates for such
Distribution Date and, in the case of each Class of Class A
Certificates, the portion thereof, if any, paid under the Policy or
(in the event of a Deficiency Event) remaining unpaid following the
distributions made in respect of the Class A Certificates on such
Distribution Date and, in the case of the Class A Certificates or the
Class CE Certificates, separately identifying any reduction thereof
due to allocations of Realized Losses, Prepayment Interest Shortfalls
and Relief Act Interest Shortfalls;
(xviii) the aggregate amount of any Prepayment Interest Shortfall
for such Distribution Date, to the extent not covered by payments by
the Servicers pursuant to Section 3.24;
(xix) the aggregate amount of Relief Act Interest Shortfalls for
such Distribution Date;
(xx) the Required Overcollateralized Amount for such Distribution
Date;
(xxi) the Overcollateralization Increase Amount, if any, for such
Distribution Date;
(xxii) the Overcollateralization Reduction Amount, if any, for
such Distribution Date; and
(xxiii) the Pass-Through Rate applicable to the Class CE
Certificates for such Distribution Date.
In the case of information furnished pursuant to subclauses (i)
through (iii) above, the amounts shall be expressed as a dollar amount per
Single Certificate of the relevant Class.
Within a reasonable period of time after the end of each calendar
year, the Trust Administrator shall furnish to each Person who at any time
during the calendar year was a Holder of a Regular Certificate a statement
containing the information set forth in subclauses (i) through (iii) above,
aggregated for such calendar year or applicable portion thereof during which
such person was a Certificateholder. Such obligation of the Trust Administrator
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trust Administrator pursuant to
any requirements of the Code as from time to time are in force.
On each Distribution Date, the Trust Administrator shall forward to
the Depositor, the Trustee, to each Holder of a Residual Certificate, the
Certificate Insurer and to the Servicers, a copy of the reports forwarded to the
Regular Certificateholders on such Distribution Date and a statement setting
forth the amounts, if any, actually distributed with respect to the Residual
Certificates, respectively, on such Distribution Date.
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Within a reasonable period of time after the end of each calendar
year, the Trust Administrator shall furnish to each Person who at any time
during the calendar year was a Holder of a Residual Certificate a statement
setting forth the amount, if any, actually distributed with respect to the
Residual Certificates, as appropriate, aggregated for such calendar year or
applicable portion thereof during which such Person was a Certificateholder.
The Trust Administrator shall, upon request, furnish to each
Certificateholder, during the term of this Agreement, such periodic, special, or
other reports or information, whether or not provided for herein, as shall be
reasonable with respect to the Certificateholder, or otherwise with respect to
the purposes of this Agreement, all such reports or information to be provided
at the expense of the Certificateholder in accordance with such reasonable and
explicit instructions and directions as the Certificateholder may provide. For
purposes of this Section 4.02, the Trust Administrator's duties are limited to
the extent that the Trust Administrator receives timely reports as required from
the Servicers.
On each Distribution Date the Trust Administrator shall provide
Bloomberg Financial Markets, L.P. ("Bloomberg") CUSIP level factors for each
class of Certificates as of such Distribution Date, using a format and media
mutually acceptable to the Trust Administrator and Bloomberg.
SECTION 4.03. Remittance Reports; P&I Advances.
(a) On the Business Day following each Determination Date, each
Servicer shall deliver to the Trust Administrator, the Trustee and the
Certificate Insurer by telecopy (or by such other means as such Servicer, the
Trust Administrator, the Trustee or the Certificate Insurer, as the case may be,
may agree from time to time) a Remittance Report with respect to the related
Distribution Date. On the same date, the related Servicer shall forward to the
Trust Administrator by overnight mail or internet mail an electronic file
containing the information set forth in such Remittance Report with respect to
the related Distribution Date. The Trust Administrator hereby agrees to forward
a copy of the Remittance Report received from Option One in electronic format to
the Master Servicer by the Business Day following its receipt thereof. Such
Remittance Reports will include (i) the amount of P&I Advances to be made by the
related Servicer in respect of the related Distribution Date, the aggregate
amount of P&I Advances outstanding after giving effect to such P&I Advances, and
the aggregate amount of Nonrecoverable P&I Advances in respect of such
Distribution Date and (ii) such other information with respect to the Mortgage
Loans as the Trust Administrator may reasonably require to perform the
calculations necessary to make the distributions contemplated by Section 4.01
and to prepare the statements to Certificateholders contemplated by Section
4.02. Not later than the close of business on the third Business Day prior to
the Distribution Date, the Trust Administrator shall deliver or cause to be
delivered to the Certificate Insurer, in addition to the information provided on
the Remittance Report, a report setting forth (i) the Guaranteed Distribution
for such Distribution Date, separately identifying the portions thereof
allocable to principal and interest; (ii) the Available Distribution Amount for
such Distribution Date; (iii) whether the Available Distribution Amount expected
to be on deposit in the Distribution Account on such Distribution Date will be
sufficient to cover the Guaranteed Distribution and, if not, the amount of the
shortfall; (iv) with respect to any reimbursement to be made to the Certificate
Insurer on such Distribution Date pursuant to Section 4.01(a)(2)(iv), the
amount, if any, allocable to principal and the amount allocable to interest; and
(v) Cumulative Insurance Payments after giving effect to the distributions to be
made on such Distribution Date. The Trust Administrator shall not be responsible
(except with regard to any information regarding the Prepayment Charges to the
extent set forth below) to recompute, recalculate or verify any information
provided to it by the Servicers. Notwithstanding the foregoing, in connection
with any Principal Prepayment on any Mortgage Loan listed on Schedule 2 hereto,
the Trust Administrator shall verify that the related Prepayment Charge was
delivered to the Trust Administrator for deposit in the Distribution
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Account in the amount set forth on such Schedule 2 or that such Prepayment
Charge was waived in accordance with the terms hereof.
(b) The amount of P&I Advances to be made by each Servicer for any
Distribution Date shall equal, subject to Section 4.03(d), the sum of (i) the
aggregate amount of Monthly Payments (with each interest portion thereof net of
the related Servicing Fee), due on the related Due Date in respect of the
Mortgage Loans (other than with respect to any Balloon Loan with a delinquent
Balloon Payment as described in clause (iii) below), which Monthly Payments were
delinquent as of the close of business on the related Determination Date, plus
(ii) with respect to each REO Property (other than with respect to any REO
Property relating to a Balloon Loan with a Delinquent Balloon Payment as
described in clause (iv) below), which REO Property was acquired during or prior
to the related Prepayment Period and as to which REO Property an REO Disposition
did not occur during the related Prepayment Period, an amount equal to the
excess, if any, of the REO Imputed Interest on such REO Property for the most
recently ended calendar month, over the net income from such REO Property
transferred to the Distribution Account pursuant to Section 3.23 for
distribution on such Distribution Date, plus (iii) with respect to each Balloon
Loan with a delinquent Balloon Payment, an amount equal to the assumed monthly
principal and interest payment (with each interest portion thereof net of the
related Servicing Fee) that would have been due on the related Due Date based on
the original principal amortization schedule for such Balloon Loan assuming such
Mortgage Loan was not a Balloon Loan, plus (iv) with respect to each REO
Property relating to a Balloon Loan with a delinquent Balloon Payment, which REO
Property was acquired during or prior to the related Prepayment Period and as to
which REO Property an REO Disposition did not occur during the related
Prepayment Period, an amount equal to the excess, if any, of the assumed monthly
principal and interest payment (with each interest portion thereof net of the
related Servicing Fee) that would have been due on the related Due Date based on
the original principal amortization schedule for the related Balloon Loan
assuming such Mortgage Loan was not a Balloon Loan, over the net income from
such REO Property transferred to the Distribution Account pursuant to Section
3.23 for distribution on such Distribution Date.
On or before 5:00 p.m. New York time on the Servicer Remittance Date,
each Servicer shall remit in immediately available funds to the Trust
Administrator for deposit in the Distribution Account an amount equal to the
aggregate amount of P&I Advances, if any, to be made in respect of the Mortgage
Loans and REO Properties for the related Distribution Date either (i) from its
own funds or (ii) from the Collection Account, to the extent of funds held
therein for future distribution (in which case it will cause to be made an
appropriate entry in the records of Collection Account that amounts held for
future distribution have been, as permitted by this Section 4.03, used by such
Servicer in discharge of any such P&I Advance) or (iii) in the form of any
combination of (i) and (ii) aggregating the total amount of P&I Advances to be
made by such Servicer with respect to the Mortgage Loans and REO Properties. Any
amounts held for future distribution and so used shall be appropriately
reflected in the related Servicer's records and replaced by the such Servicer by
deposit in the Collection Account on or before any future Servicer Remittance
Date to the extent that the Available Distribution Amount for the related
Distribution Date (determined without regard to P&I Advances to be made on the
Servicer Remittance Date) shall be less than the total amount that would be
distributed to the Classes of Certificateholders pursuant to Section 4.01 on
such Distribution Date if such amounts held for future distributions had not
been so used to make P&I Advances. The Trust Administrator will provide notice
to the Trustee, the applicable Servicer and the Certificate Insurer by telecopy
by the close of business on the Business Day immediately following the Servicer
Remittance Date in the event that the amount remitted by such Servicer to the
Trust Administrator on such date is less than the P&I Advances required to be
made by such Servicer for the related Distribution Date.
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(c) The obligation of each Servicer to make such P&I Advances is
mandatory, notwithstanding any other provision of this Agreement but subject to
(d) below, and, with respect to any Mortgage Loan or REO Property, shall
continue until a Final Recovery Determination in connection therewith or the
removal thereof from the Trust Fund pursuant to any applicable provision of this
Agreement, except as otherwise provided in this Section.
(d) Notwithstanding anything herein to the contrary, no P&I Advance or
Servicing Advance shall be required to be made hereunder by either Servicer if
such P&I Advance or Servicing Advance would, if made, constitute a
Nonrecoverable P&I Advance or Nonrecoverable Servicing Advance, respectively.
The determination by either Servicer that it has made a Nonrecoverable P&I
Advance or a Nonrecoverable Servicing Advance or that any proposed P&I Advance
or Servicing Advance, if made, would constitute a Nonrecoverable P&I Advance or
Nonrecoverable Servicing Advance, respectively, shall be evidenced by an
Officers' Certificate of such Servicer delivered to the Depositor, the Trust
Administrator, the Trustee and the Certificate Insurer.
(e) If, at the close of business on the third Business Day prior to
any Distribution Date, the funds on deposit in the Distribution Account are less
than the Guaranteed Distribution for such Distribution Date, the Trust
Administrator shall give notice by telephone or telecopy of the amount of such
deficiency, confirmed in writing in the form set forth as Exhibit A to the
Endorsement of the Policy, to the Certificate Insurer and the Fiscal Agent (as
defined in the Policy), if any, at or before 10:00 a.m., New York time, on the
second Business Day prior to such Distribution Date.
SECTION 4.04. Allocation of Realized Losses.
(a) Prior to each Determination Date, each Servicer shall determine as
to each Mortgage Loan and REO Property: (i) the total amount of Realized Losses,
if any, incurred in connection with any Final Recovery Determinations made
during the related Prepayment Period; (ii) whether and the extent to which such
Realized Losses constituted Bankruptcy Losses; and (iii) the respective portions
of such Realized Losses allocable to interest and allocable to principal. Prior
to each Determination Date, each Servicer shall also determine as to each
Mortgage Loan: (i) the total amount of Realized Losses, if any, incurred in
connection with any Deficient Valuations made during the related Prepayment
Period; and (ii) the total amount of Realized Losses, if any, incurred in
connection with Debt Service Reductions in respect of Monthly Payments due
during the related Due Period. The information described in the two preceding
sentences that is to be supplied by the Servicers shall be evidenced by an
Officers' Certificate delivered to the Trust Administrator, the Trustee and the
Certificate Insurer by the related Servicer prior to the Determination Date
immediately following the end of (i) in the case of Bankruptcy Losses allocable
to interest, the Due Period during which any such Realized Loss was incurred,
and (ii) in the case of all other Realized Losses, the Prepayment Period during
which any such Realized Loss was incurred.
(b) All Realized Losses on the Mortgage Loans allocated to any REMIC
II Regular Interest pursuant to Section 4.04(c) on the Mortgage Loans shall be
allocated by the Trust Administrator on each Distribution Date as follows:
first, to Net Monthly Excess Cashflow; second, to the Class CE Certificates,
until the Certificate Principal Balance thereof has been reduced to zero; and
third, among the Class A Certificates on a PRO RATA basis. All Realized Losses
to be allocated to the Certificate Principal Balances of all Classes on any
Distribution Date shall be so allocated after the actual distributions to be
made on such date as provided above. All references above to the Certificate
Principal Balance of any Class of Certificates shall be to the Certificate
Principal Balance of such Class immediately prior to the relevant Distribution
Date, before reduction thereof by any Realized Losses, in each case to be
allocated to such Class of Certificates, on such Distribution Date. No
allocations of Realized Losses pursuant to this
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Section 4.04 shall affect any liability of the Certificate Insurer with respect
to such amounts under the Policy.
Any allocation of Realized Losses to a Class A Certificate on any
Distribution Date shall be made by reducing the Certificate Principal Balance
thereof by the amount so allocated; any allocation of Realized Losses to a Class
CE Certificate shall be made by reducing the amount otherwise payable in respect
thereof pursuant to Section 4.01(a)(2)(viii). No allocations of any Realized
Losses shall be made to the Certificate Principal Balance of the Class P
Certificates.
As used herein, an allocation of a Realized Loss on a "PRO RATA basis"
among two or more specified Classes of Certificates means an allocation on a PRO
RATA basis, among the various Classes so specified, to each such Class of
Certificates on the basis of their then outstanding Certificate Principal
Balances prior to giving effect to distributions to be made on such Distribution
Date. All Realized Losses and all other losses allocated to a Class of
Certificates hereunder will be allocated among the Certificates of such Class in
proportion to the Percentage Interests evidenced thereby.
(c) All Realized Losses on the Mortgage Loans shall be allocated by
the Trust Administrator on each Distribution Date to the following REMIC I
Regular Interests in the specified percentages, as follows: first, to
Uncertificated Interest payable to the REMIC I Regular Interest I-LT1 and REMIC
I Regular Interest I-LT9 up to an aggregate amount equal to the REMIC I Interest
Loss Allocation Amount, 98% and 2%, respectively; second, to the Uncertificated
Balances of the REMIC I Regular Interest I-LT1 and REMIC I Regular Interest
I-LT9 up to an aggregate amount equal to the REMIC I Principal Loss Allocation
Amount, 98% and 2%, respectively; third, 98% to the Uncertificated Balance of
REMIC I Regular Interest I-LT1, 1% to the Uncertificated Balances of REMIC I
Regular Interest I-LT2, REMIC I Regular Interest I-LT3, REMIC I Regular Interest
I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular Interest I-LT6, REMIC I
Regular Interest I-LT7 and REMIC I Regular Interest I-LT8 on a PRO RATA basis
and 1% to REMIC I Regular Interest I-LT9.
(d) All Realized Losses on the REMIC II Regular Interests shall be
allocated by the Trust Administrator on each Distribution Date among the REMIC
II Regular Interests in the proportion that Realized Losses are allocated to the
related Uncertificated Corresponding Component; Realized Losses allocated to
principal on REMIC I Regular Interest I-LT2, REMIC I Regular Interest I-LT3,
REMIC I Regular Interest I-LT4, REMIC I Regular Interest I-LT5, REMIC I Regular
Interest I-LT6, REMIC I Regular Interest I-LT7 and REMIC I Regular Interest
I-LT8 shall be allocated to REMIC II Regular Interest II-LT2, REMIC II Regular
Interest II-LT3, REMIC II Regular Interest II-LT4, REMIC II Regular Interest
II-LT5, REMIC II Regular Interest II-LT6, REMIC II Regular Interest II-LT7 and
REMIC II Regular Interest II-LT8, respectively.
As used herein, an allocation of a Realized Loss on a "PRO RATA basis"
among the REMIC I Regular Interests (other than REMIC I Regular Interest I-LTP)
means an allocation on a PRO RATA basis among the REMIC I Regular Interests
(other than REMIC I Regular Interest I-LTP) on the basis of their then
outstanding Uncertificated Balances, in each case prior to giving effect to
distributions to be made on such Distribution Date.
SECTION 4.05. Compliance with Withholding Requirements .
Notwithstanding any other provision of this Agreement, the Trust
Administrator shall comply with all federal withholding requirements respecting
payments to Certificateholders of interest or original issue discount that the
Trust Administrator reasonably believes are applicable under the Code. The
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consent of Certificateholders shall not be required for such withholding. In the
event the Trust Administrator does withhold any amount from interest or original
issue discount payments or advances thereof to any Certificateholder pursuant to
federal withholding requirements, the Trust Administrator shall indicate the
amount withheld to such Certificateholders.
SECTION 4.06. Exchange Commission; Additional Information.
Within 15 days after each Distribution Date, the Trust Administrator
shall file with the Commission via the Electronic Data Gathering and Retrieval
System, a Form 8-K with a copy of the statement to Certificateholders for such
Distribution Date as an exhibit thereto. Prior to _________________, the Trust
Administrator shall file a Form 15 Suspension Notification with respect to the
Trust Fund, if applicable. Prior to ______________, the Trust Administrator
shall file a Form 10-K, substantially in the form attached hereto as Exhibit H,
with respect to the Trust Fund. The Depositor hereby grants to the Trust
Administrator a limited power of attorney to execute and file each such document
on behalf of the Depositor. Such power of attorney shall continue until the
earlier of (i) receipt by the Trust Administrator from the Depositor of written
termination of such power of attorney and (ii) the termination of the Trust
Fund. Upon request, the Trust Administrator shall deliver to the Depositor a
copy of any Form 8-K or Form 10-K filed pursuant to this Section 4.06.
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ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
(a) The Certificates in the aggregate will represent the entire
beneficial ownership interest in the Mortgage Loans and all other assets
included in REMIC I.
The Certificates will be substantially in the forms annexed hereto as
Exhibits A-1 through A-12. The Certificates of each Class will be issuable in
registered form only, in denominations of authorized Percentage Interests as
described in the definition thereof. Each Certificate will share ratably in all
rights of the related Class.
Upon original issue, the Certificates shall be executed by the
Trustee, and authenticated and delivered by the Trustee or the Trust
Administrator to or upon the order of the Depositor. The Certificates shall be
executed by manual or facsimile signature on behalf of the Trustee or the Trust
Administrator by an authorized signatory. Certificates bearing the manual or
facsimile signatures of individuals who were at any time the proper officers of
the Trustee or the Trust Administrator shall bind the Trustee or the Trust
Administrator, as applicable, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificates. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form provided herein
executed by the Trustee or the Trust Administrator by manual signature, and such
certificate of authentication shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
(b) The Class A Certificates shall initially be issued as one or more
Certificates held by the Book-Entry Custodian or, if appointed to hold such
Certificates as provided below, the Depository and registered in the name of the
Depository or its nominee and, except as provided below, registration of such
Certificates may not be transferred by the Trust Administrator except to another
Depository that agrees to hold such Certificates for the respective Certificate
Owners with Ownership Interests therein. The Certificate Owners shall hold their
respective Ownership Interests in and to such Certificates through the
book-entry facilities of the Depository and, except as provided below, shall not
be entitled to definitive, fully registered Certificates ("Definitive
Certificates") in respect of such Ownership Interests. All transfers by
Certificate Owners of their respective Ownership Interests in the Book-Entry
Certificates shall be made in accordance with the procedures established by the
Depository Participant or brokerage firm representing such Certificate Owner.
Each Depository Participant shall only transfer the Ownership Interests in the
Book-Entry Certificates of Certificate Owners it represents or of brokerage
firms for which it acts as agent in accordance with the Depository's normal
procedures. The Trust Administrator is hereby initially appointed as the
Book-Entry Custodian and hereby agrees to act as such in accordance herewith and
in accordance with the agreement that it has with the Depository authorizing it
to act as such. The Book- Entry Custodian may, and, if it is no longer qualified
to act as such, the Book-Entry Custodian shall, appoint, by a written instrument
delivered to the Depositor, each Servicer, the Certificate Insurer, the Trustee
and, if the Trust Administrator is not the Book-Entry Custodian, the Trust
Administrator, any other transfer agent (including the Depository or any
successor Depository) to act as Book-Entry Custodian under such conditions as
the predecessor Book-Entry Custodian and the Depository or any successor
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Depository may prescribe, provided that the predecessor Book-Entry Custodian
shall not be relieved of any of its duties or responsibilities by reason of any
such appointment of other than the Depository. If the Trust Administrator
resigns or is removed in accordance with the terms hereof, the Trustee, the
successor trust administrator or, if it so elects, the Depository shall
immediately succeed to its predecessor's duties as Book-Entry Custodian. The
Depositor shall have the right to inspect, and to obtain copies of, any
Certificates held as Book-Entry Certificates by the Book-Entry Custodian.
The Trust Administrator, the Trustee, each Servicer, the Certificate
Insurer and the Depositor may for all purposes (including the making of payments
due on the Book-Entry Certificates) deal with the Depository as the authorized
representative of the Certificate Owners with respect to the Book- Entry
Certificates for the purposes of exercising the rights of Certificateholders
hereunder. The rights of Certificate Owners with respect to the Book-Entry
Certificates shall be limited to those established by law and agreements between
such Certificate Owners and the Depository Participants and brokerage firms
representing such Certificate Owners. Multiple requests and directions from, and
votes of, the Depository as Holder of the Book-Entry Certificates with respect
to any particular matter shall not be deemed inconsistent if they are made with
respect to different Certificate Owners. The Trust Administrator may establish a
reasonable record date in connection with solicitations of consents from or
voting by Certificateholders and shall give notice to the Depository of such
record date.
If (i)(A) the Depositor advises the Trust Administrator in writing
that the Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (B) the Depositor is unable to locate a
qualified successor, (ii) the Depositor at its option advises the Trust
Administrator in writing that it elects to terminate the book-entry system
through the Depository or (iii) after the occurrence of a Servicer Event of
Default, Certificate Owners representing in the aggregate not less than 51% of
the Ownership Interests of the Book-Entry Certificates advise the Trust
Administrator through the Depository, in writing, that the continuation of a
book-entry system through the Depository is no longer in the best interests of
the Certificate Owners, the Trust Administrator shall notify all Certificate
Owners, through the Depository, of the occurrence of any such event and of the
availability of Definitive Certificates to Certificate Owners requesting the
same. Upon surrender to the Trust Administrator of the Book-Entry Certificates
by the Book-Entry Custodian or the Depository, as applicable, accompanied by
registration instructions from the Depository for registration of transfer, the
Trust Administrator shall issue the Definitive Certificates. Such Definitive
Certificates will be issued in minimum denominations of $10,000, except that any
beneficial ownership that was represented by a Book-Entry Certificate in an
amount less than $10,000 immediately prior to the issuance of a Definitive
Certificate shall be issued in a minimum denomination equal to the amount
represented by such Book-Entry Certificate. None of the Depositor, the
Servicers, the Trust Administrator or the Trustee shall be liable for any delay
in the delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates all references herein to obligations imposed upon or to be
performed by the Depository shall be deemed to be imposed upon and performed by
the Trust Administrator, to the extent applicable with respect to such
Definitive Certificates, and the Trust Administrator shall recognize the Holders
of the Definitive Certificates as Certificateholders hereunder.
SECTION 5.02. Registration of Transfer and Exchange of Certificates.
(a) The Trust Administrator shall cause to be kept at one of the
offices or agencies to be appointed by the Trust Administrator in accordance
with the provisions of Section 8.11 a Certificate Register for the Certificates
in which, subject to such reasonable regulations as it may prescribe, the Trust
Administrator shall provide for the registration of Certificates and of
transfers and exchanges of Certificates as herein provided.
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(b) No transfer of any Class CE Certificate, Class P Certificate or
Residual Certificate shall be made unless that transfer is made pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), and effective registration or qualification under applicable
state securities laws, or is made in a transaction that does not require such
registration or qualification. In the event that such a transfer of a Class CE
Certificate, Class P Certificate or Residual Certificate is to be made without
registration or qualification (other than in connection with the initial
transfer of any such Certificate by the Depositor to an affiliate of the
Depositor), the Trust Administrator shall require receipt of: (i) if such
transfer is purportedly being made in reliance upon Rule 144A under the 1933
Act, written certifications from the Certificateholder desiring to effect the
transfer and from such Certificateholder's prospective transferee, substantially
in the forms attached hereto as Exhibit F-1; and (ii) in all other cases, an
Opinion of Counsel satisfactory to it that such transfer may be made without
such registration or qualification (which Opinion of Counsel shall not be an
expense of the Trust Fund or of the Depositor, the Trust Administrator, the
Trustee, each Servicer in its capacity as such, any Sub-Servicer or the
Certificate Insurer), together with copies of the written certification(s) of
the Certificateholder desiring to effect the transfer and/or such
Certificateholder's prospective transferee upon which such Opinion of Counsel is
based, if any. None of the Depositor, the Trust Administrator or the Trustee is
obligated to register or qualify any such Certificates under the 1933 Act or any
other securities laws or to take any action not otherwise required under this
Agreement to permit the transfer of such Certificates without registration or
qualification. Any Certificateholder desiring to effect the transfer of any such
Certificate shall, and does hereby agree to, indemnify the Trust Administrator,
the Trustee, the Depositor, the Servicers and the Certificate Insurer against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.
(c) No transfer of a Class CE Certificate, Class P Certificate or
Residual Certificate or any interest therein shall be made to any Plan subject
to ERISA or Section 4975 of the Code, any Person acting, directly or indirectly,
on behalf of any such Plan or any Person acquiring such Certificates with "Plan
Assets" of a Plan within the meaning of the Department of Labor regulation
promulgated at 29 C.F.R. ss. 2510.3-101 ("Plan Assets") unless the Depositor,
the Trust Administrator, the Trustee, the Certificate Insurer and the Servicers
are provided with an Opinion of Counsel which establishes to the satisfaction of
the Depositor, the Trust Administrator, the Trustee, the Certificate Insurer and
the Servicers that the purchase of such Certificates is permissible under
applicable law, will not constitute or result in any prohibited transaction
under ERISA or Section 4975 of the Code and will not subject the Depositor,
either Servicer, the Trust Administrator, the Trustee, the Certificate Insurer
or the Trust Fund to any obligation or liability (including obligations or
liabilities under ERISA or Section 4975 of the Code) in addition to those
undertaken in this Agreement, which Opinion of Counsel shall not be an expense
of the Depositor, the Servicers, the Trust Administrator, the Trustee, the
Certificate Insurer or the Trust Fund. In lieu of such Opinion of Counsel, any
prospective Transferee of such Certificates may provide a certification in the
form of Exhibit G to this Agreement (or other form acceptable to the Depositor,
the Trust Administrator, the Trustee, the Certificate Insurer and the
Servicers), which the Trust Administrator may rely upon without further inquiry
or investigation. Neither an Opinion of Counsel nor any certification will be
required in connection with the initial transfer of any such Certificate by the
Depositor to an affiliate of the Depositor (in which case, the Depositor or any
affiliate thereof shall have deemed to have represented that such affiliate is
not a Plan or a Person investing Plan Assets) and the Trust Administrator shall
be entitled to conclusively rely upon a representation (which, upon the request
of the Trust Administrator, shall be a written representation) from the
Depositor of the status of such transferee as an affiliate of the Depositor.
(d) (i) Each Person who has or who acquires any Ownership Interest in
a Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to
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be bound by the following provisions and to have irrevocably authorized the
Trust Administrator or its designee under clause (iii)(A) below to deliver
payments to a Person other than such Person and to negotiate the terms of any
mandatory sale under clause (iii)(B) below and to execute all instruments of
Transfer and to do all other things necessary in connection with any such sale.
The rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:
(A) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall be a Permitted
Transferee and shall promptly notify the Trust Administrator
of any change or impending change in its status as a
Permitted Transferee.
(B) In connection with any proposed Transfer of any
Ownership Interest in a Residual Certificate, the Trust
Administrator shall require delivery to it, and shall not
register the Transfer of any Residual Certificate until its
receipt of, an affidavit and agreement (a "Transfer
Affidavit and Agreement," in the form attached hereto as
Exhibit F-2) from the proposed Transferee, in form and
substance satisfactory to the Trust Administrator,
representing and warranting, among other things, that such
Transferee is a Permitted Transferee, that it is not
acquiring its Ownership Interest in the Residual Certificate
that is the subject of the proposed Transfer as a nominee,
trustee or agent for any Person that is not a Permitted
Transferee, that for so long as it retains its Ownership
Interest in a Residual Certificate, it will endeavor to
remain a Permitted Transferee, and that it has reviewed the
provisions of this Section 5.02(d) and agrees to be bound by
them.
(C) Notwithstanding the delivery of a Transfer
Affidavit and Agreement by a proposed Transferee under
clause (B) above, if a Responsible Officer of the Trust
Administrator who is assigned to this transaction has actual
knowledge that the proposed Transferee is not a Permitted
Transferee, no Transfer of an Ownership Interest in a
Residual Certificate to such proposed Transferee shall be
effected.
(D) Each Person holding or acquiring any Ownership
Interest in a Residual Certificate shall agree (x) to
require a transferor affidavit (a "Transferor Affidavit," in
the form attached hereto as Exhibit F-2) from any other
Person to whom such Person attempts to transfer its
Ownership Interest in a Residual Certificate and (y) not to
transfer its Ownership Interest unless it provides a
Transferor Affidavit (in the form attached hereto as Exhibit
F-2) to the Trust Administrator stating that, among other
things, it has no actual knowledge that such other Person is
not a Permitted Transferee.
(E) Each Person holding or acquiring an Ownership
Interest in a Residual Certificate, by purchasing an
Ownership Interest in such Certificate, agrees to give the
Trust Administrator written notice that it is a
"pass-through interest holder" within the meaning of
temporary Treasury regulation Section 1.67- 3T(a)(2)(i)(A)
immediately upon acquiring an Ownership Interest in a
Residual Certificate, if it is, or is holding an Ownership
Interest in a Residual Certificate on behalf of, a
"pass-through interest holder."
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(ii) The Trust Administrator will register the Transfer of any
Residual Certificate only if it shall have received the Transfer
Affidavit and Agreement and all of such other documents as shall have
been reasonably required by the Trust Administrator as a condition to
such registration. In addition, no Transfer of a Residual Certificate
shall be made unless the Trust Administrator shall have received a
representation letter from the Transferee of such Certificate to the
effect that such Transferee is a Permitted Transferee.
(iii) (A) If any purported Transferee shall become a Holder of a
Residual Certificate in violation of the provisions of this Section
5.02(d), then the last preceding Permitted Transferee shall be
restored, to the extent permitted by law, to all rights as holder
thereof retroactive to the date of registration of such Transfer of
such Residual Certificate. The Trust Administrator shall be under no
liability to any Person for any registration of Transfer of a Residual
Certificate that is in fact not permitted by this Section 5.02(d) or
for making any payments due on such Certificate to the holder thereof
or for taking any other action with respect to such holder under the
provisions of this Agreement.
(B) If any purported Transferee shall become a holder of a
Residual Certificate in violation of the restrictions in this Section
5.02(d) and to the extent that the retroactive restoration of the
rights of the holder of such Residual Certificate as described in
clause (iii)(A) above shall be invalid, illegal or unenforceable, then
the Trust Administrator shall have the right, without notice to the
holder or any prior holder of such Residual Certificate, to sell such
Residual Certificate to a purchaser selected by the Trust
Administrator on such terms as the Trust Administrator may choose.
Such purported Transferee shall promptly endorse and deliver each
Residual Certificate in accordance with the instructions of the Trust
Administrator. Such purchaser may be the Trust Administrator itself or
any Affiliate of the Trust Administrator. The proceeds of such sale,
net of the commissions (which may include commissions payable to the
Trust Administrator or its Affiliates), expenses and taxes due, if
any, will be remitted by the Trust Administrator to such purported
Transferee. The terms and conditions of any sale under this clause
(iii)(B) shall be determined in the sole discretion of the Trust
Administrator, and the Trust Administrator shall not be liable to any
Person having an Ownership Interest in a Residual Certificate as a
result of its exercise of such discretion.
(iv) The Trust Administrator shall make available to the Internal
Revenue Service and those Persons specified by the REMIC Provisions
all information necessary to compute any tax imposed (A) as a result
of the Transfer of an Ownership Interest in a Residual Certificate to
any Person who is a Disqualified Organization, including the
information described in Treasury regulations sections 1.860D-1(b)(5)
and 1.860E-2(a)(5) with respect to the "excess inclusions" of such
Residual Certificate and (B) as a result of any regulated investment
company, real estate investment trust, common trust fund, partnership,
trust, estate or organization described in Section 1381 of the Code
that holds an Ownership Interest in a Residual Certificate having as
among its record holders at any time any Person which is a
Disqualified Organization. Reasonable compensation for providing such
information may be accepted by the Trust Administrator.
(v) The provisions of this Section 5.02(d) set forth prior to
this subsection (v) may be modified, added to or eliminated, provided
that there shall have been delivered to the Trust Administrator at the
expense of the party seeking to modify, add to or eliminate any such
provision the following:
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(A) written notification from each Rating Agency to the
effect that the modification, addition to or elimination of such
provisions will not cause such Rating Agency to downgrade its
then-current ratings of any Class of Certificates; and
(B) an Opinion of Counsel, in form and substance
satisfactory to the Trust Administrator, to the effect that such
modification of, addition to or elimination of such provisions
will not cause any of REMIC I, REMIC II or REMIC III to cease to
qualify as a REMIC and will not cause any of REMIC I, REMIC II or
REMIC III, as the case may be, to be subject to an entity-level
tax caused by the Transfer of any Residual Certificate to a
Person that is not a Permitted Transferee or a Person other than
the prospective transferee to be subject to a REMIC-tax caused by
the Transfer of a Residual Certificate to a Person that is not a
Permitted Transferee.
(e) Subject to the preceding subsections, upon surrender for
registration of transfer of any Certificate at any office or agency of the Trust
Administrator maintained for such purpose pursuant to Section 8.11, the Trust
Administrator shall execute, authenticate and deliver, in the name of the
designated Transferee or Transferees, one or more new Certificates of the same
Class of a like aggregate Percentage Interest.
(f) At the option of the Holder thereof, any Certificate may be
exchanged for other Certificates of the same Class with authorized denominations
and a like aggregate Percentage Interest, upon surrender of such Certificate to
be exchanged at any office or agency of the Trust Administrator maintained for
such purpose pursuant to Section 8.11. Whenever any Certificates are so
surrendered for exchange the Trust Administrator shall execute, authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for transfer or
exchange shall (if so required by the Trust Administrator) be duly endorsed by,
or be accompanied by a written instrument of transfer in the form satisfactory
to the Trust Administrator duly executed by, the Holder thereof or his attorney
duly authorized in writing.
(g) No service charge to the Certificateholders shall be made for any
transfer or exchange of Certificates, but the Trust Administrator may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer or exchange of Certificates.
(h) All Certificates surrendered for transfer and exchange shall be
canceled and destroyed by the Trust Administrator in accordance with its
customary procedures.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trust
Administrator, or the Trust Administrator receives evidence to its satisfaction
of the destruction, loss or theft of any Certificate, and (ii) there is
delivered to each of the Trustee and the Trust Administrator such security or
indemnity as may be required by it to save it harmless, then, in the absence of
actual knowledge by the Trust Administrator or the Trustee that such Certificate
has been acquired by a bona fide purchaser, the Trustee, or the Trust
Administrator on behalf of the Trustee shall execute, and the Trustee or the
Trust Administrator shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of the same Class and of like denomination and Percentage Interest. Upon
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the issuance of any new Certificate under this Section, the Trust Administrator
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee and the Trust
Administrator) connected therewith. Any replacement Certificate issued pursuant
to this Section shall constitute complete and indefeasible evidence of ownership
in the applicable REMIC created hereunder, as if originally issued, whether or
not the lost, stolen or destroyed Certificate shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Depositor, each Servicer, the Trust Administrator, the Trustee,
the Certificate Insurer and any agent of any of them may treat the Person in
whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions pursuant to Section 4.01 and for all
other purposes whatsoever, and none of the Depositor, the Servicers, the Trust
Administrator, the Trustee or any agent of any of them shall be affected by
notice to the contrary.
SECTION 5.05. Certain Available Information.
On or prior to the date of the first sale of any Class CE Certificate,
Class P Certificate or Residual Certificate to an Independent third party, the
Depositor shall provide to the Trust Administrator ten copies of any private
placement memorandum or other disclosure document used by the Depositor in
connection with the offer and sale of such Certificate. In addition, if any such
private placement memorandum or disclosure document is revised, amended or
supplemented at any time following the delivery thereof to the Trust
Administrator, the Depositor promptly shall inform the Trust Administrator of
such event and shall deliver to the Trust Administrator ten copies of the
private placement memorandum or disclosure document, as revised, amended or
supplemented. The Trust Administrator shall maintain at its Corporate Trust
Office and shall make available free of charge during normal business hours for
review by any Holder of a Certificate or any Person identified to the Trust
Administrator as a prospective transferee of a Certificate, originals or copies
of the following items: (i) in the case of a Holder or prospective transferee of
a Class CE Certificate, Class P Certificate or Residual Certificate, the related
private placement memorandum or other disclosure document relating to such Class
of Certificates, in the form most recently provided to the Trust Administrator;
and (ii) in all cases, (A) this Agreement and any amendments hereof entered into
pursuant to Section 12.01, (B) all monthly statements required to be delivered
to Certificateholders of the relevant Class pursuant to Section 4.02 since the
Closing Date, and all other notices, reports, statements and written
communications delivered to the Certificateholders of the relevant Class
pursuant to this Agreement since the Closing Date, (C) all certifications
delivered by a Responsible Officer of the Trust Administrator since the Closing
Date pursuant to Section 11.01(h), (D) any and all Officers' Certificates
delivered to the Trust Administrator by either Servicer since the Closing Date
to evidence such Servicer's determination that any P&I Advance or Servicing
Advance was, or if made, would be a Nonrecoverable P&I Advance or Nonrecoverable
Servicing Advance, respectively, and (E) any and all Officers' Certificates
delivered to the Trust Administrator by the Servicers since the Closing Date
pursuant to Section 4.04(a). Copies and mailing of any and all of the foregoing
items will be available from the Trust Administrator upon request at the expense
of the Person requesting the same.
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ARTICLE VI
THE DEPOSITOR AND THE SERVICERS
SECTION 6.01. Liability of the Depositor and the Servicers.
The Depositor and each Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed by this Agreement and
undertaken hereunder by the Depositor and each Servicer herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the
Servicers.
Subject to the following paragraph, the Depositor will keep in full
effect its existence, rights and franchises as a corporation under the laws of
the jurisdiction of its incorporation. Subject to the following paragraph, each
Servicer will keep in full effect its existence, rights and franchises as a
corporation under the laws of the jurisdiction of its incorporation. The
Depositor and each Servicer will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, the Certificates or any of the Mortgage Loans
and to perform its respective duties under this Agreement.
The Depositor or either Servicer may be merged or consolidated with or
into any Person, or transfer all or substantially all of its assets to any
Person, in which case any Person resulting from any merger or consolidation to
which the Depositor or such Servicer shall be a party, or any Person succeeding
to the business of the Depositor or such Servicer, shall be the successor of the
Depositor or such Servicer, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor or surviving Person to such Servicer shall be qualified to service
mortgage loans on behalf of Fannie Mae or Freddie Mac; and provided further that
the Rating Agencies' ratings and shadow ratings of the Class A Certificates in
effect immediately prior to such merger or consolidation will not be qualified,
reduced or withdrawn as a result thereof (as evidenced by a letter to such
effect from the Rating Agencies).
SECTION 6.03. Limitation on Liability of the Depositor, the Servicers
and Others.
None of the Depositor, either Servicer or any of the directors,
officers, employees or agents of the Depositor or either Servicer shall be under
any liability to the Trust Fund or the Certificateholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor, either Servicer or any such person against any
breach of warranties, representations or covenants made herein, or against any
specific liability imposed on the Depositor or such Servicer pursuant hereto, or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
each Servicer and any director, officer, employee or agent of the Depositor or
such Servicer may rely in good faith on any document of any kind which, PRIMA
FACIE, is properly executed and submitted by any Person respecting any matters
arising hereunder. The Depositor, each Servicer and any director, officer,
employee or agent of the Depositor or such Servicer shall be indemnified and
held harmless by the Trust Fund against any loss, liability or expense incurred
in connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense relating to any specific
Mortgage Loan or Mortgage Loans (except as any such loss, liability or expense
shall be otherwise reimbursable pursuant to this Agreement) or any loss,
liability or expense
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incurred by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor nor either Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
unless such action is related to its respective duties under this Agreement and,
in its opinion, does not involve it in any expense or liability; provided,
however, that each of the Depositor and each Servicer may in its discretion
undertake any such action which it may deem necessary or desirable with respect
to this Agreement and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, unless the
Depositor or either Servicer acts without the consent of the Certificate Insurer
prior to a Certificate Insurer Default or without the consent of Holders of
Certificates entitled to at least 51% of the Voting Rights after a Certificate
Insurer Default, the legal expenses and costs of such action and any liability
resulting therefrom (except any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder) shall be expenses, costs and liabilities of the Trust Fund, and the
Depositor and each Servicer shall be entitled to be reimbursed therefor from the
Collection Account as and to the extent provided in Section 3.11, any such right
of reimbursement being prior to the rights of the Certificateholders to receive
any amount in the Collection Account.
SECTION 6.04. Limitation on Resignation of the Servicers.
Neither Servicer nor the Master Servicer shall resign from the
obligations and duties hereby imposed on it except upon determination that its
duties hereunder are no longer permissible under applicable law. Any such
determination pursuant to the preceding sentence permitting the resignation of
the Master Servicer or either Servicer shall be evidenced by an Opinion of
Counsel to such effect obtained at the expense of such Master Servicer or
Servicer and delivered to the Trustee and the Trust Administrator. No
resignation of the Master Servicer or either Servicer shall become effective
until the Master Servicer (if the Master Servicer is not the resigning
Servicer), the Trustee, the Trust Administrator or a successor servicer shall
have assumed such Master Servicer's or Servicer's responsibilities, duties,
liabilities (other than those liabilities arising prior to the appointment of
such successor) and obligations under this Agreement.
Except as expressly provided herein, neither Servicer nor the Master
Servicer shall assign or transfer any of its rights, benefits or privileges
hereunder to any other Person, or delegate to or subcontract with, or authorize
or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by such Master Servicer or Servicer hereunder. The
foregoing prohibition on assignment shall not prohibit either Servicer from
designating a Subservicer as payee of any indemnification amount payable to the
related Servicer hereunder; provided, however, that as provided in Section 3.06
hereof, no Subservicer shall be a third-party beneficiary hereunder and the
parties hereto shall not be required to recognize any Subservicer as an
indemnitee under this Agreement. If, pursuant to any provision hereof, the
duties of the Master Servicer or either Servicer are transferred to a successor
servicer, the entire amount of the Master Servicing Fee or Servicing Fee and
other compensation payable to such Master Servicer or Servicer pursuant hereto
shall thereafter be payable to such successor servicer.
SECTION 6.05. Rights of the Depositor in Respect of the Servicers.
The Master Servicer and each Servicer shall afford (and any
Sub-Servicing Agreement shall provide that each Sub-Servicer shall afford) the
Depositor, the Trustee, the Trust Administrator and the Certificate Insurer,
upon reasonable notice, during normal business hours, access to all records
maintained by the such Master Servicer or Servicer (and any such Sub-Servicer)
in respect of such Master Servicer's or Servicer's rights and obligations
hereunder and access to officers of such Master Servicer or
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Servicer (and those of any such Sub-Servicer) responsible for such obligations.
Upon request, the Master Servicer and each Servicer shall furnish to the
Depositor, the Trustee, the Trust Administrator and the Certificate Insurer its
(and any such Sub-Servicer's) most recent financial statements and such other
information relating to such Master Servicer's or Servicer's capacity to perform
its obligations under this Agreement as it possesses (and that any such
Sub-Servicer possesses). To the extent such information is not otherwise
available to the public, the Depositor, the Trustee, the Trust Administrator and
the Certificate Insurer shall not disseminate any information obtained pursuant
to the preceding two sentences without the Master Servicer's or the related
Servicer's written consent, except as required pursuant to this Agreement or to
the extent that it is appropriate to do so (i) in working with legal counsel,
auditors, taxing authorities or other governmental agencies or (ii) pursuant to
any law, rule, regulation, order, judgment, writ, injunction or decree of any
court or governmental authority having jurisdiction over the Depositor, the
Trustee, the Trust Administrator, the Certificate Insurer or the Trust Fund, and
in any case, the Depositor, the Trustee, the Trust Administrator or the
Certificate Insurer, as the case may be, shall use its best efforts to assure
the confidentiality of any such disseminated non-public information. The
Depositor may, but is not obligated to, enforce the obligations of the Master
Servicer and each Servicer under this Agreement and may, but is not obligated
to, perform, or cause a designee to perform, any defaulted obligation of the
Master Servicer or either Servicer under this Agreement or exercise the rights
of the Master Servicer or either Servicer under this Agreement; provided that
neither Servicer nor the Master Servicer shall be relieved of any of its
obligations under this Agreement by virtue of such performance by the Depositor
or its designee. The Depositor shall not have any responsibility or liability
for any action or failure to act by the Master Servicer or either Servicer and
is not obligated to supervise the performance of the Master Servicer or either
Servicer under this Agreement or otherwise.
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ARTICLE VII
DEFAULT
SECTION 7.01. Servicer Events of Default.
(a) "Servicer Event of Default," wherever used herein, means any one
of the following events; provided, however, that neither Servicer shall be
obligated or liable for any default by the other Servicer:
(i) any failure by the related Servicer to remit to the Trust
Administrator for distribution to the Certificateholders any payment
(other than a P&I Advance required to be made from its own funds on
any Servicer Remittance Date pursuant to Section 4.03) required to be
made under the terms of the Certificates and this Agreement which
continues unremedied for a period of one Business Day after the date
upon which written notice of such failure, requiring the same to be
remedied, shall have been given to such Servicer by the Depositor, the
Certificate Insurer, the Trustee or the Trust Administrator (in which
case notice shall be provided by telecopy), or to such Servicer, the
Depositor, the Certificate Insurer, the Trustee and the Trust
Administrator by the Holders of Certificates entitled to at least 25%
of the Voting Rights; or
(ii) any failure on the part of the related Servicer duly to
observe or perform in any material respect any other of the covenants
or agreements on the part of such Servicer contained in this
Agreement, or the breach by the related Servicer of any representation
and warranty contained in Section 2.05, which continues unremedied for
a period of 30 days after the earlier of (i) the date on which written
notice of such failure, requiring the same to be remedied, shall have
been given to the related Servicer by the Depositor, the Certificate
Insurer, the Trustee, the Trust Administrator or to the related
Servicer, the Depositor, the Certificate Insurer, the Trustee and the
Trust Administrator by the Holders of Certificates entitled to at
least 25% of the Voting Rights and (ii) actual knowledge of such
failure by a Servicing Officer of the related Servicer; or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law or the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceeding, or for the winding-up or
liquidation of its affairs, shall have been entered against the
related Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 days; or
(iv) the related Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to it or of or relating to all or substantially all of
its property; or
(v) the related Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations; or
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(vi) there shall have occurred, and the Certificate Insurer shall
have notified the related Servicer, the Trustee and the Trust
Administrator of, an event of default by such Servicer under the
Insurance Agreement, provided (except in the case of a default by such
Servicer under Section 5.01(f) of the Insurance Agreement) that no
Certificate Insurer Default exists; or
(vii) any failure of the related Servicer to make any P&I Advance
on any Servicer Remittance Date required to be made from its own funds
pursuant to Section 4.03 which continues unremedied until 5:00 p.m.
New York time on the second Business Day immediately following the
Servicer Remittance Date.
Subject to Article IX, if a Servicer Event of Default described in clauses (i)
through (vi) of this Section shall occur, then, and in each and every such case,
so long as such Servicer Event of Default shall not have been remedied, the
Depositor, the Certificate Insurer or the Trustee may (with the consent of the
Certificate Insurer), and at the written direction of the Holders of
Certificates entitled to at least 51% of Voting Rights (with the consent of the
Certificate Insurer), the Trustee shall, by notice in writing to the defaulting
Servicer (and to the Depositor, the Trust Administrator, the Master Servicer and
the Certificate Insurer if given by the Trustee or to the Trustee, the Master
Servicer and the Trust Administrator if given by the Depositor or the
Certificate Insurer), terminate all of the rights and obligations of such
Servicer in its capacity as a Servicer under this Agreement, to the extent
permitted by law, and in and to the Mortgage Loans and the proceeds thereof. In
connection with the foregoing, in the event a Servicer Event of Default has
occurred with respect to Option One, the Master Servicer has the right to
request the Certificate Insurer to terminate all of the rights and obligations
of Option One as Servicer under this Agreement; provided, however such decision
to terminate shall be solely at the discretion of the Certificate Insurer.
Subject to Article IX, if a Servicer Event of Default described in clause (vii)
hereof shall occur, the Trustee shall, by notice in writing to the defaulting
Servicer, the Certificate Insurer, the Master Servicer, the Trust Administrator
and the Depositor, terminate all of the rights and obligations of such Servicer
in its capacity as a Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof. On or after the receipt by the defaulting
Servicer of such written notice, all authority and power of such Servicer under
this Agreement, whether with respect to the Certificates (other than as a Holder
of any Certificate) or the Mortgage Loans or the Policy or otherwise, shall pass
to and be vested in the Master Servicer (or if the Master Servicer is the
defaulting Servicer, the Trust Administrator, on behalf of the Trustee) pursuant
to and under this Section, and, without limitation, the Master Servicer (or if
the Master Servicer is the defaulting Servicer, the Trust Administrator, on
behalf of the Trustee) is hereby authorized and empowered, as attorney-in-fact
or otherwise, to execute and deliver, on behalf of and at the expense of such
Servicer, any and all documents and other instruments and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement or
assignment of the Mortgage Loans and related documents, or otherwise. The
defaulting Servicer agrees promptly (and in any event no later than ten Business
Days subsequent to such notice) to provide the Master Servicer (or if the Master
Servicer is the defaulting Servicer, the Trust Administrator) with all documents
and records requested by it to enable it to assume such Servicer's functions
under this Agreement, and to cooperate with the Master Servicer or the Trust
Administrator and the Trustee, as the case may be, in effecting the termination
of such Servicer's responsibilities and rights under this Agreement, including,
without limitation, the transfer within one Business Day to the Master Servicer
(or if the Master Servicer is the defaulting Servicer, the Trust Administrator)
for administration by it of all cash amounts which at the time shall be or
should have been credited by such Servicer to the Collection Account held by or
on behalf of such Servicer, the Distribution Account, the Expense Account, the
Policy Payments Account or any REO Account or Servicing Account held by or on
behalf of such Servicer or thereafter be received with respect to the Mortgage
Loans or any REO Property serviced by
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such Servicer (provided, however, that the related Servicer shall continue to be
entitled to receive all amounts accrued or owing to it under this Agreement on
or prior to the date of such termination, whether in respect of P&I Advances or
otherwise, and shall continue to be entitled to the benefits of Section 6.03,
notwithstanding any such termination, with respect to events occurring prior to
such termination). For purposes of this Section 7.01, each of the Trustee and
the Trust Administrator shall not be deemed to have knowledge of a Servicer
Event of Default unless a Responsible Officer of the Trustee or the Trust
Administrator, as applicable, assigned to and working in the Trustee's or the
Trust Administrator's, as the case may be, Corporate Trust Office has actual
knowledge thereof or unless written notice of any event which is in fact such a
Servicer Event of Default is received by the Trustee or the Trust Administrator,
as applicable, and such notice references the Certificates, the Trust Fund or
this Agreement. Notwithstanding the foregoing, in the event the Master Servicer
is terminated as Servicer hereunder, it shall also be terminated as Master
Servicer.
Each Servicer hereby covenants and agrees to act as a Servicer under
this Agreement for an initial term, commencing on the Closing Date and ending on
______________, which term shall be extendable by the Certificate Insurer for
successive terms of three calendar months thereafter, until the termination of
the Trust Fund pursuant to Article X. Each such notice of extension (a "Servicer
Extension Notice") shall be delivered by the Certificate Insurer to the Trustee,
the Trust Administrator and the related Servicer. Each Servicer hereby agrees
that, upon its receipt of any such Servicer Extension Notice, such Servicer
shall become bound for the duration of the term covered by such Servicer
Extension Notice to continue as a Servicer subject to and in accordance with the
other provisions of this Agreement. The Trust Administrator agrees that if as of
the fifteenth (15th) day prior to the last day of any term of a Servicer the
Trust Administrator shall not have received any Servicer Extension Notice in
respect of that Servicer from the Certificate Insurer, the Trust Administrator
will within five (5) days thereafter, give written notice of such non-receipt to
the Certificate Insurer, the Trustee and the related Servicer. The failure of
the Certificate Insurer to deliver a Servicer Extension Notice by the end of a
calendar term shall result in the termination of the related Servicer (in its
capacity as Servicer and Master Servicer, in the case of the Master Servicer).
If the term of the related Servicer shall expire without the Certificate Insurer
having delivered to such Servicer a Servicer Extension Notice, but the related
Servicer shall continue without objection from the Trust Administrator, the
Trustee or the Certificate Insurer to perform the functions of servicer
hereunder (and in the absence of ground for termination under any agreement
referred to in Section 7.04), the related Servicer shall be entitled to receive
a prorated portion of the Servicing Fee specified hereunder for the time during
which it shall so act; PROVIDED, that it is understood and agreed that the
foregoing provision for payment of the prorated Servicing Fee is intended solely
to avoid unjust enrichment of the Trust Fund and does not contemplate or give
rise to any implicit renewal of such Servicer's term. The foregoing provisions
of this paragraph shall not apply to the Trust Administrator or the Trustee in
the event the Trust Administrator or the Trustee, as applicable, succeeds to the
rights and obligations of the related Servicer and the Trust Administrator or
the Trustee, as applicable, shall continue in such capacity until the earlier of
the termination of this Agreement pursuant to Article X or the appointment of a
successor servicer, but shall apply to the Master Servicer if the Master
Servicer succeeds to the rights and obligations of Option One as Servicer.
SECTION 7.02. Master Servicer, Trust Administrator or Trustee to Act;
Appointment of Successor.
(a) (1) On and after the time a defaulting Servicer receives a notice
of termination, the Master Servicer (or if the Master Servicer is the defaulting
Servicer, the Trust Administrator and in the event the Trust Administrator fails
in its obligation, the Trustee) shall be the successor in all respects to such
Servicer in its capacity as a Servicer under this Agreement and the transactions
set forth or provided
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for herein, and all the responsibilities, duties and liabilities relating
thereto and arising thereafter shall be assumed by the Master Servicer, the
Trust Administrator or the Trustee, as applicable, (except for any
representations or warranties of the such Servicer under this Agreement, the
responsibilities, duties and liabilities contained in Section 2.03(c) and the
obligation to deposit amounts in respect of losses pursuant to Section 3.12) by
the terms and provisions hereof including, without limitation, the such
Servicer's obligations to make P&I Advances pursuant to Section 4.03; provided,
however, that if the Trust Administrator or the Trustee, as applicable, is
prohibited by law or regulation from obligating itself to make advances
regarding delinquent mortgage loans, then the Trust Administrator or the
Trustee, as applicable, shall not be obligated to make P&I Advances pursuant to
Section 4.03; and provided further, that any failure to perform such duties or
responsibilities caused by such Servicer's failure to provide information
required by Section 7.01 shall not be considered a default by the Master
Servicer, the Trust Administrator or the Trustee, as applicable, as successor to
such Servicer hereunder. As compensation therefor, the Master Servicer, the
Trust Administrator or the Trustee, as applicable, shall be entitled to the
Servicing Fee and all funds relating to the Mortgage Loans to which such
defaulting Servicer would have been entitled if it had continued to act
hereunder. Notwithstanding the above and subject to Section 7.02(a)(2) below,
the Trust Administrator or the Trustee, as applicable, may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if it is prohibited
by law from making advances regarding delinquent mortgage loans or if the
Certificate Insurer or if the Holders of Certificates entitled to at least 51%
of the Voting Rights so request in writing to the Trust Administrator or the
Trustee, as applicable, promptly appoint or petition a court of competent
jurisdiction to appoint, an established mortgage loan servicing institution
selected by the Certificate Insurer and acceptable to each Rating Agency and
having a net worth of not less than $15,000,000, as the successor to such
defaulting Servicer under this Agreement in the assumption of all or any part of
the responsibilities, duties or liabilities of such Servicer under this
Agreement.
(2) No appointment of a successor to a defaulting Servicer under
this Agreement shall be effective until the assumption by the successor of all
of such Servicer's responsibilities, duties and liabilities hereunder. In
connection with such appointment and assumption described herein, the Trust
Administrator or the Trustee, as applicable, may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the applicable Servicer as such hereunder. The
Depositor, the Master Servicer, the Trustee, the Trust Administrator and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession. Pending appointment of a successor
to a defaulting Servicer under this Agreement, the Trust Administrator or the
Trustee, as applicable, shall act in such capacity as hereinabove provided.
(b) If either Servicer fails to remit to the Trust Administrator for
distribution to the Certificateholders any payment required to be made under the
terms of this Agreement (for purposes of this Section 7.02(b), a "Remittance")
because such Servicer is the subject of a proceeding under the federal
Bankruptcy Code and the making of such Remittance is prohibited by Section 362
of the federal Bankruptcy Code, the Trust Administrator shall (and in the event
the Trust Administrator fails in its obligation, the Trustee) upon notice of
such prohibition, regardless of whether it has received a notice of termination
under Section 7.01, advance the amount of such Remittance by depositing such
amount in the Distribution Account on the related Distribution Date. The Trust
Administrator or the Trustee, as applicable, shall be obligated to make such
advance only if (i) such advance, in the good faith judgment of the Trust
Administrator or the Trustee, as applicable, can reasonably be expected to be
ultimately recoverable from Stayed Funds and (ii) the Trust Administrator or the
Trustee, as applicable, is not prohibited by law from making such advance or
obligating itself to do so. Upon remittance of the Stayed Funds to the Trust
Administrator or the deposit thereof in the Distribution Account by such
Servicer, a
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trustee in bankruptcy or a federal bankruptcy court, the Trust Administrator or
the Trustee, as applicable, may recover the amount so advanced, without
interest, by withdrawing such amount from the Distribution Account; however,
nothing in this Agreement shall be deemed to affect the Trust Administrator's or
Trustee's, as applicable, rights to recover from such Servicer's own funds
interest on the amount of any such advance. If the Trust Administrator or the
Trustee, as the case may be, at any time makes an advance under this Subsection
which it later determines in its good faith judgment will not be ultimately
recoverable from the Stayed Funds with respect to which such advance was made,
the Trust Administrator or the Trustee, as applicable, shall be entitled to
reimburse itself for such advance, without interest, by withdrawing from the
Distribution Account, out of amounts on deposit therein, an amount equal to the
portion of such advance attributable to the Stayed Funds.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination of either Servicer pursuant to Section 7.01
above or any appointment of a successor to such Servicer pursuant to Section
7.02 above, the Trust Administrator shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register.
(b) Not later than the later of 60 days after the occurrence of any
event, which constitutes or which, with notice or lapse of time or both, would
constitute a Servicer Event of Default or five days after a Responsible Officer
of the Trustee or the Trust Administrator becomes aware of the occurrence of
such an event, the Trustee or the Trust Administrator shall transmit (or, in the
case of the Trustee, the Trustee shall cause the Trust Administrator to
transmit) by mail to all Holders of Certificates notice of each such occurrence,
unless such default or Servicer Event of Default shall have been cured or
waived.
SECTION 7.04. Waiver of Servicer Events of Default.
Subject to Article IX, the Holders representing at least 66% of the
Voting Rights evidenced by all Classes of Certificates affected by any default
or Servicer Event of Default hereunder, with the written consent of the
Certificate Insurer, may waive such default or Servicer Event of Default;
PROVIDED, HOWEVER, that a default or Servicer Event of Default under clause (i)
or (vi) of Section 7.01 may be waived only by all of the Holders of the Regular
Certificates with the written consent of the Certificate Insurer. Upon any such
waiver of a default or Servicer Event of Default, such default or Servicer Event
of Default shall cease to exist and shall be deemed to have been remedied for
every purpose hereunder. No such waiver shall extend to any subsequent or other
default or Servicer Event of Default or impair any right consequent thereon
except to the extent expressly so waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE AND THE TRUST ADMINISTRATOR
SECTION 8.01. Duties of Trustee and Trust Administrator.
Each of the Trustee and the Trust Administrator, prior to the
occurrence of a Servicer Event of Default and after the curing of all Servicer
Events of Default which may have occurred, undertakes to perform such duties and
only such duties as are specifically set forth in this Agreement. During a
Servicer Event of Default, each of the Trustee and the Trust Administrator shall
exercise such of the rights and powers vested in it by this Agreement, and use
the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs. Any permissive right of the Trustee or the Trust Administrator
enumerated in this Agreement shall not be construed as a duty.
Each of the Trustee and the Trust Administrator, upon receipt of all
resolutions, certificates, statements, opinions, reports, documents, orders or
other instruments furnished to it, which are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform to the requirements of this Agreement. If any
such instrument is found not to conform to the requirements of this Agreement in
a material manner, it shall take such action as it deems appropriate to have the
instrument corrected, and if the instrument is not corrected to its
satisfaction, it will provide notice thereof to the Certificateholders and the
Certificate Insurer.
No provision of this Agreement shall be construed to relieve the
Trustee or the Trust Administrator from liability for its own negligent action,
its own negligent failure to act or its own misconduct; provided, however, that:
(i) Prior to the occurrence of a Servicer Event of Default, and
after the curing of all such Servicer Events of Default which may have
occurred, the duties and obligations of each of the Trustee and the
Trust Administrator shall be determined solely by the express
provisions of this Agreement, neither the Trustee nor the Trust
Administrator shall be liable except for the performance of such
duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this
Agreement against the Trustee or the Trust Administrator and, in the
absence of bad faith on the part of the Trustee or the Trust
Administrator, as applicable, the Trustee or the Trust Administrator,
as the case may be, may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee or the Trust
Administrator, as the case may be, that conform to the requirements of
this Agreement;
(ii) Neither the Trustee nor the Trust Administrator shall be
personally liable for an error of judgment made in good faith by a
Responsible Officer or Responsible Officers of it unless it shall be
proved that it was negligent in ascertaining the pertinent facts; and
(iii) Neither the Trustee nor the Trust Administrator shall be
personally liable with respect to any action taken, suffered or
omitted to be taken by it in good faith in accordance with the
direction of the Certificate Insurer or Holders of Certificates
entitled to at least 25% of the Voting Rights relating to the time,
method and place of conducting
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any proceeding for any remedy available to it or exercising any trust
or power conferred upon it under this Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee and the Trust
Administrator.
(a) Except as otherwise provided in Section 8.01:
(i) Each of the Trustee and the Trust Administrator may request
and rely upon and shall be protected in acting or refraining from
acting upon any resolution, Officers' Certificate, certificate of
auditors or any other certificate, statement, instrument, opinion,
report, notice, request, consent, order, appraisal, bond or other
paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(ii) Each of the Trustee and the Trust Administrator may consult
with counsel and any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel;
(iii) Neither the Trustee nor the Trust Administrator shall be
under any obligation to exercise any of the trusts or powers vested in
it by this Agreement or to institute, conduct or defend any litigation
hereunder or in relation hereto at the request, order or direction of
any of the Certificateholders, pursuant to the provisions of this
Agreement, unless such Certificateholders shall have offered to the
Trustee or the Trust Administrator, as applicable, reasonable security
or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby; nothing contained herein shall, however,
relieve the Trustee or the Trust Administrator of the obligation, upon
the occurrence of a Servicer Event of Default (which has not been
cured or waived), to exercise such of the rights and powers vested in
it by this Agreement, and to use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
(iv) Neither the Trustee nor the Trust Administrator shall be
personally liable for any action taken, suffered or omitted by it in
good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Agreement;
(v) Prior to the occurrence of a Servicer Event of Default
hereunder and after the curing of all Servicer Events of Default which
may have occurred, neither the Trustee nor the Trust Administrator
shall be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing to do so by the Certificate
Insurer or by Holders of Certificates entitled to at least 25% of the
Voting Rights; provided, however, that if the payment within a
reasonable time to the Trustee or the Trust Administrator, as
applicable, of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion
of the Trustee or the Trust Administrator, as applicable, not
reasonably assured to the Trustee or the Trust Administrator, as
applicable, by such Certificateholders or the Certificate
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Insurer, the Trustee or the Trust Administrator, as applicable, may
require reasonable indemnity against such expense, or liability from
such Certificateholders or the Certificate Insurer as a condition to
taking any such action;
(vi) Each of the Trustee and the Trust Administrator may execute
any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys; and
(vii) Neither the Trustee nor the Trust Administrator shall be
personally liable for any loss resulting from the investment of funds
held in the Collection Account or the Expense Account at the direction
of the related Servicer pursuant to Section 3.12.
(b) All rights of action under this Agreement or under any of the
Certificates, enforceable by the Trustee or the Trust Administrator, may be
enforced by it without the possession of any of the Certificates, or the
production thereof at the trial or other proceeding relating thereto, and any
such suit, action or proceeding instituted by the Trustee or the Trust
Administrator shall be brought in its name for the benefit of all the Holders of
such Certificates, subject to the provisions of this Agreement.
SECTION 8.03. Neither Trustee nor Trust Administrator Liable for
Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
signature of the Trustee or the Trust Administrator, on behalf of the Trustee,
the authentication of the Trustee or the Trust Administrator on the
Certificates, the acknowledgments of the Trustee and the Trust Administrator
contained in Article II and the representations and warranties of the Trustee
and the Trust Administrator in Section 8.12) shall be taken as the statements of
the Depositor and neither the Trustee nor the Trust Administrator assumes any
responsibility for their correctness. Neither the Trustee nor the Trust
Administrator makes any representations or warranties as to the validity or
sufficiency of this Agreement (other than as specifically set forth in Section
8.12) or of the Certificates (other than the signature of the Trustee, or the
Trust Administrator on behalf of the Trustee, and authentication of the Trustee
or the Trust Administrator on the Certificates) or of any Mortgage Loan or
related document. Neither the Trustee nor the Trust Administrator shall be
accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor or either Servicer in respect of
the Mortgage Loans or deposited in or withdrawn from the Collection Account by
either Servicer, other than any funds held by or on behalf of the Trustee or the
Trust Administrator in accordance with Section 3.10.
SECTION 8.04. Trustee and Trust Administrator May Own Certificates.
Each of the Trustee and the Trust Administrator in its individual
capacity or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Trustee or Trust
Administrator, as applicable.
SECTION 8.05. Trustee's and Trust Administrator's Fees and Expenses.
The Trust Administrator shall withdraw from the Distribution Account
on each Distribution Date and pay to itself the related portion of the
Administration Fee and pay to the Trustee the related portion of the
Administration Fee and, to the extent that the funds therein are at anytime
insufficient for such purpose, the Master Servicer shall pay such fees. Each of
the Trustee and the Trust Administrator
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and any director, officer, employee or agent of the Trustee or the Trust
Administrator, as applicable, shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense (not including expenses,
disbursements and advances incurred or made by the Trustee or the Trust
Administrator, as applicable, including the compensation and the expenses and
disbursements of its agents and counsel, in the ordinary course of the Trustee's
or Trust Administrator's, as the case may be, performance in accordance with the
provisions of this Agreement) incurred by the Trustee or the Trust
Administrator, as applicable, in connection with any claim or legal action or
any pending or threatened claim or legal action arising out of or in connection
with the acceptance or administration of its obligations and duties under this
Agreement, other than any loss, liability or expense (i) resulting from any
breach of either Servicer's (and in the case of the Trustee, the Trust
Administrator's or in the case of the Trust Administrator, the Trustee's)
obligations in connection with this Agreement, (ii) that constitutes a specific
liability of the Trustee or the Trust Administrator, as applicable, pursuant to
Section 11.01(g) or (iii) any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties hereunder
or in the case of the Trust Administrator, as a result of a breach of the Trust
Administrator's obligations under Article XI hereof. Each Servicer agrees to
indemnify the Trustee and the Trust Administrator, from, and hold each harmless
against, any loss, liability or expense arising in respect of any breach by such
Servicer of its obligations in connection with this Agreement. Such indemnity
shall survive the termination or discharge of this Agreement and the resignation
or removal of the Trustee or the Trust Administrator, as the case may be. Any
payment hereunder made by either Servicer to the Trustee or the Trust
Administrator shall be from such Servicer's own funds, without reimbursement
from REMIC I therefor.
SECTION 8.06. Eligibility Requirements for Trustee and Trust
Administrator.
Each of the Trustee and the Trust Administrator hereunder shall at all
times be a corporation or an association (other than the Depositor, either
Originator, the Seller, either Servicer or any Affiliate of the foregoing)
organized and doing business under the laws of any state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 (or a member of a bank
holding company whose capital and surplus is at least $50,000,000) and subject
to supervision or examination by federal or state authority. If such corporation
or association publishes reports of conditions at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section the combined capital and surplus of such
corporation or association shall be deemed to be its combined capital and
surplus as set forth in its most recent report of conditions so published. In
case at any time the Trustee or the Trust Administrator shall cease to be
eligible in accordance with the provisions of this Section, the Trustee or the
Trust Administrator, as the case may be, shall resign immediately in the manner
and with the effect specified in Section 8.07.
SECTION 8.07. Resignation and Removal of the Trustee and the Trust
Administrator.
Either of the Trustee or the Trust Administrator may at any time
resign and be discharged from the trust hereby created by giving written notice
thereof to the Depositor, the Certificate Insurer, each Servicer and to the
Certificateholders and, if the Trustee is resigning, to the Trust Administrator,
or, if the Trust Administrator is resigning, to the Trustee. Upon receiving such
notice of resignation, the Depositor shall, with the written consent of the
Certificate Insurer, promptly appoint a successor trustee or trust administrator
(which may be the same Person in the event both the Trustee and the Trust
Administrator resign or are removed) by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee or Trust Administrator
and to the successor trustee or trust administrator, as applicable.
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A copy of such instrument shall be delivered to the Certificateholders, the
Certificate Insurer, the Trustee or Trust Administrator, as applicable, and each
Servicer by the Depositor. If no successor trustee or trust administrator shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee or Trust
Administrator, as applicable, may petition any court of competent jurisdiction
for the appointment of a successor trustee or trust administrator, as
applicable.
If at any time the Trustee or the Trust Administrator shall cease to
be eligible in accordance with the provisions of Section 8.06 and shall fail to
resign after written request therefor by the Depositor or the Certificate
Insurer (or in the case of the Trust Administrator, the Trustee), or if at any
time the Trustee or the Trust Administrator shall become incapable of acting, or
shall be adjudged bankrupt or insolvent, or a receiver of the Trustee or the
Trust Administrator or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or the Trust Administrator or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor (or in the case of the Trust Administrator, the
Trustee) may remove the Trustee or the Trust Administrator, as applicable, and
appoint a successor trustee or trust administrator (which may be the same Person
in the event both the Trustee and the Trust Administrator resign or are removed)
by written instrument, in duplicate, which instrument shall be delivered to the
Trustee or Trust Administrator, as the case may be, so removed and to the
successor trustee or trust administrator. A copy of such instrument shall be
delivered to the Certificateholders, the Certificate Insurer, the Trustee or the
Trust Administrator, as applicable, and each Servicer by the Depositor.
The Certificate Insurer or the Holders of Certificates entitled to at
least 51% of the Voting Rights, with the written consent of the Certificate
Insurer, may at any time remove the Trustee or the Trust Administrator and
appoint a successor trustee or trust administrator by written instrument or
instruments, in triplicate, signed by the Certificate Insurer or such Holders or
their attorneys-in-fact duly authorized, one complete set of which instruments
shall be delivered to the Depositor, one complete set to the Trustee or the
Trust Administrator, as the case may be, so removed and one complete set to the
successor so appointed. A copy of such instrument shall be delivered to the
Certificateholders, the Certificate Insurer and each Servicer by the Depositor.
In addition, if the Trustee has knowledge that the Trust Administrator has
breached any of its duties under this Agreement, the Trustee, with the consent
of the Certificate Insurer, may remove the Trust Administrator in the same
manner as provided in the prior sentence. For purposes of this Section, the
Trustee shall not be deemed to have knowledge of a breach by the Trust
Administrator of any of its duties hereunder, unless a Responsible Officer of
the Trustee, assigned to and working in the Trustee's Corporate Trust Office has
actual knowledge thereof or unless written notice of any event which is in fact
such a breach is received by the Trustee, and such notice references the
Certificates, the Trust Fund or this Agreement.
Any resignation or removal of the Trustee or the Trust Administrator
and appointment of a successor trustee or trust administrator, as the case may
be, pursuant to any of the provisions of this Section shall not become effective
until acceptance of appointment by the successor trustee or trust administrator
as provided in Section 8.08. Notwithstanding the foregoing, in the event the
Trust Administrator advises the Trustee that it is unable to continue to perform
its obligations pursuant to the terms of this Agreement prior to the appointment
of a successor, the Trustee shall be obligated to perform such obligations until
a new trust administrator is appointed. Such performance shall be without
prejudice to any claim by a party hereto or beneficiary hereof resulting from
the Trust Administrator's breach of its obligations hereunder.
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SECTION 8.08. Successor Trustee or Trust Administrator.
Any successor trustee or trust administrator appointed as provided in
Section 8.07 shall execute, acknowledge and deliver to the Depositor, the
Certificate Insurer, the Trustee or the Trust Administrator, as applicable, and
its predecessor trustee or trust administrator an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee or trust administrator shall become effective and such
successor trustee or trust administrator, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee or trust administrator herein. The predecessor trustee or trust
administrator shall deliver to the successor trustee or trust administrator all
Mortgage Files and related documents and statements to the extent held by it
hereunder, as well as all moneys, held by it hereunder, and the Depositor and
the predecessor trustee or trust administrator shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee or trust
administrator all such rights, powers, duties and obligations.
No successor trustee or trust administrator shall accept appointment
as provided in this Section unless at the time of such acceptance such successor
trustee or trust administrator shall be eligible under the provisions of Section
8.06 and the appointment of such successor trustee or trust administrator shall
not result in a downgrading of any Class of Certificates by either Rating
Agency, as evidenced by a letter from each Rating Agency.
Upon acceptance of appointment by a successor trustee or trust
administrator as provided in this Section, the Depositor shall mail notice of
the succession of such trustee or trust administrator hereunder to the
Certificate Insurer and to all Holders of Certificates at their addresses as
shown in the Certificate Register. If the Depositor fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee or trust
administrator, the successor trustee or trust administrator shall cause such
notice to be mailed at the expense of the Depositor.
Notwithstanding anything to the contrary contained herein, so long as
no Certificate Insurer Default has occurred and is continuing, the appointment
of any successor trustee or trust administrator pursuant to any provision of
this Agreement will be subject to the prior written consent of the Certificate
Insurer.
SECTION 8.09. Merger or Consolidation of Trustee or Trust
Administrator.
Any corporation or association into which either the Trustee or the
Trust Administrator may be merged or converted or with which it may be
consolidated or any corporation or association resulting from any merger,
conversion or consolidation to which the Trustee or the Trust Administrator, as
the case may be, shall be a party, or any corporation or association succeeding
to the business of the Trustee or the Trust Administrator, as applicable, shall
be the successor of the Trustee or the Trust Administrator, as the case may be,
hereunder, provided such corporation or association shall be eligible under the
provisions of Section 8.06, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
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SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of REMIC I or property securing the same may at the time be located, the Trustee
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Trustee to act as co-trustee or co-trustees,
jointly with the Trustee or separate trustee or separate trustees, of all or any
part of REMIC I, and to vest in such Person or Persons, in such capacity, such
title to REMIC I, or any part thereof, and, subject to the other provisions of
this Section 8.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 8.06 hereunder and no notice to Holders of Certificates of
the appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 8.08 hereof.
In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 8.10 all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in which
any particular act or acts are to be performed by the Trustee (whether as
Trustee hereunder or as successor to a defaulting Servicer hereunder), the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to REMIC I or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee at the direction
of the Trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trust conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee, or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be filed with the Trustee.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee to the extent permitted by law, without the appointment of a new or
successor trustee or co-trustee.
SECTION 8.11. Appointment of Office or Agency.
The Trust Administrator will appoint an office or agency in the City
of St. Paul, Minnesota where the Certificates may be surrendered for
registration of transfer or exchange, and presented for final distribution, and
where notices and demands to or upon the Trust Administrator in respect of the
Certificates and this Agreement may be served.
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SECTION 8.12. Representations and Warranties.
Each of the Trustee and the Trust Administrator hereby represents and
warrants to each Servicer, the Depositor, the Trustee or the Trust
Administrator, as applicable, and the Certificate Insurer, as of the Closing
Date, that:
(i) it is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of
America.
(ii) The execution and delivery of this Agreement by it, and the
performance and compliance with the terms of this Agreement by it, will not
violate its articles of association or bylaws or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material agreement or other
instrument to which it is a party or which is applicable to it or any of
its assets.
(iii) It has the full power and authority to enter into and consummate
all transactions contemplated by this Agreement, has duly authorized the
execution, delivery and performance of this Agreement, and has duly
executed and delivered this Agreement.
(iv) This Agreement, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a valid, legal and
binding obligation of it, enforceable against it in accordance with the
terms hereof, subject to (A) applicable bankruptcy, insolvency,
receivership, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally, and (B) general principles of
equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law.
(v) It is not in violation of, and its execution and delivery of this
Agreement and its performance and compliance with the terms of this
Agreement will not constitute a violation of, any law, any order or decree
of any court or arbiter, or any order, regulation or demand of any federal,
state or local governmental or regulatory authority, which violation, in
its good faith and reasonable judgment, is likely to affect materially and
adversely either the ability of it to perform its obligations under this
Agreement or its financial condition.
(vi) No litigation is pending or, to the best of its knowledge,
threatened against it, which would prohibit it from entering into this
Agreement or, in its good faith reasonable judgment, is likely to
materially and adversely affect either the ability of it to perform its
obligations under this Agreement or its financial condition.
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ARTICLE IX
CERTAIN MATTERS REGARDING THE CERTIFICATE INSURER
SECTION 9.01. Rights of the Certificate Insurer To Exercise Rights of
Class A Certificateholders.
Each of the Depositor, the Servicers, the Trust Administrator and the
Trustee, and, by accepting its Certificate, each Class A Certificateholder,
agrees that unless a Certificate Insurer Default has occurred and is continuing,
the Certificate Insurer shall have the right to exercise all rights of the Class
A Certificateholders under this Agreement (except as provided in clause (i) of
the second paragraph of Section 12.01) without any further consent of the Class
A Certificateholders, including, without limitation:
(a) the right to direct foreclosures upon Mortgage Loans upon failure
of the related Servicer to do so;
(b) the right to require the Seller or the Depositor to repurchase or
substitute for Mortgage Loans pursuant to Section 2.03;
(c) the right to give notices of breach or to terminate the rights and
obligations of either Servicer as Servicer pursuant to Section 7.01;
(d) the right to direct the actions of the Trustee and the Trust
Administrator during the continuance of a Servicer Event of Default
pursuant to Sections 7.01 and 7.02;
(e) the right to consent to or direct any waivers of Servicer Events
of Default pursuant to Section 7.04;
(f) the right to direct the Trustee and the Trust Administrator to
investigate certain matters pursuant to Section 8.02(a)(v); and
(g) the right to remove the Trustee or the Trust Administrator
pursuant to Section 8.07 hereof.
In addition, each Class A Certificateholder agrees that, unless a
Certificate Insurer Default has occurred and is continuing, the rights
specifically set forth above may be exercised by the Class A Certificateholders
only with the prior written consent of the Certificate Insurer.
SECTION 9.02. Trustee and the Trust Administrator To Act Solely with
Consent of the Certificate Insurer.
Unless a Certificate Insurer Default has occurred and is continuing,
neither the Trustee nor the Trust Administrator shall:
(a) agree to any amendment pursuant to Section 12.01; or
(b) undertake any litigation pursuant to Section 8.02(a)(iii);
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without the prior written consent of the Certificate Insurer which consent shall
not be unreasonably withheld.
SECTION 9.03. Trust Fund and Accounts Held for Benefit of the
Certificate Insurer.
The Trustee and the Trust Administrator shall hold the Trust Fund and
the Mortgage Files for the benefit of the Certificateholders and the Certificate
Insurer and all references in this Agreement (including, without limitation, in
Sections 2.01 and 2.02) and in the Certificates to the benefit of Holders of the
Certificates shall be deemed to include the Certificate Insurer. Each of the
Trustee and the Trust Administrator shall cooperate in all reasonable respects
with any reasonable request by the Certificate Insurer for action to preserve or
enforce the Certificate Insurer's rights or interests under this Agreement and
the Certificates.
Each Servicer hereby acknowledges and agrees that it shall service and
administer the related Mortgage Loans and any REO Properties, and shall maintain
the Collection Account and any REO Account, for the benefit of the
Certificateholders and for the benefit of the Certificate Insurer, and all
references in this Agreement (including, without limitation, in Sections 3.01
and 3.10) to the benefit of or actions on behalf of the Certificateholders shall
be deemed to include the Certificate Insurer. Unless a Certificate Insurer
Default has occurred and is continuing, neither Servicer shall terminate any
Sub- Servicing Agreements without cause without the prior consent of the
Certificate Insurer. Unless a Certificate Insurer Default has occurred and is
continuing, neither Servicer nor the Depositor shall undertake any litigation
pursuant to Section 6.03 (other than litigation to enforce their respective
rights hereunder) without the prior consent of the Certificate Insurer.
SECTION 9.04. Claims Upon the Policy; Policy Payments Account.
(a) If, by the close of business on the third Business Day prior to a
Distribution Date, the Trust Administrator determines that a Deficiency Amount
for any Distribution Date is greater than zero, then the Trust Administrator
shall give notice to the Certificate Insurer by telephone or telecopy of the
amount of such Deficiency Amount. Such notice of such Deficiency Amount shall be
confirmed in writing in the form set forth as Exhibit A to the Endorsement of
the Policy, to the Certificate Insurer and the Fiscal Agent (as defined in the
Policy), if any, at or before 10:00 a.m. New York time on the second Business
Day prior to such Distribution Date. Following Receipt (as defined in the
Policy) by the Certificate Insurer of such notice in such form, the Certificate
Insurer or the Fiscal Agent will pay any amount payable under the Policy on the
later to occur of (i) 12:00 noon New York time on the second Business Day
following such receipt and (ii) 12:00 noon New York time on the Distribution
Date to which such deficiency relates, as provided in the Endorsement to the
Policy.
(b) The Trust Administrator shall establish a separate special purpose
trust account for the benefit of Holders of the Class A Certificates and the
Certificate Insurer referred to herein as the "Policy Payments Account" over
which the Trust Administrator shall have exclusive control and sole right of
withdrawal. The Trust Administrator shall deposit any amount paid under the
Policy in the Policy Payments Account and distribute such amount only for
purposes of payment to Holders of Class A Certificates of the Guaranteed
Distribution for which a claim was made, and such amount may not be applied to
satisfy any costs, expenses or liabilities of either Servicer, the Master
Servicer, the Trustee, the Trust Administrator or the Trust Fund. Amounts paid
under the Policy shall be transferred to the Distribution Account in accordance
with the next succeeding paragraph and disbursed by the Trust Administrator to
Holders of Class A Certificates in accordance with Section 4.01(c) or Section
10.01, as
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applicable. It shall not be necessary for such payments to be made by checks or
wire transfers separate from the checks or wire transfers used to pay the
Guaranteed Distribution with other funds available to make such payment.
However, the amount of any payment of principal of or interest on the Class A
Certificates to be paid from funds transferred from the Policy Payments Account
shall be noted as provided in paragraph (c) below in the Certificate Register
and in the statement to be furnished to Holders of the Class A Certificates
pursuant to Section 4.02. Funds held in the Policy Payments Account shall not be
invested.
On any Distribution Date with respect to which a claim has been made
under the Policy, the amount of any funds received by the Trust Administrator as
a result of any claim under the Policy, to the extent required to make the
Guaranteed Distribution on such Distribution Date, shall be withdrawn from the
Policy Payments Account and deposited in the Distribution Account and applied by
the Trust Administrator, together with the other funds to be withdrawn from the
Distribution Account pursuant to Section 4.01(c) or Section 10.01, as
applicable, directly to the payment in full of the Guaranteed Distribution due
on the Class A Certificates. Funds received by the Trust Administrator as a
result of any claim under the Policy shall be deposited by the Trust
Administrator in the Policy Payments Account and used solely for payment to the
Holders of the Class A Certificates and may not be applied to satisfy any costs,
expenses or liabilities of the Servicers, the Trustee, the Trust Administrator
or the Trust Fund. Any funds remaining in the Policy Payments Account on the
first Business Day following a Distribution Date shall be remitted to the
Certificate Insurer, pursuant to the instructions of the Certificate Insurer, by
the end of such Business Day.
(c) The Trust Administrator shall keep a complete and accurate record
of the amount of interest and principal paid in respect of any Class A
Certificate from moneys received under the Policy. The Certificate Insurer shall
have the right to inspect such records at reasonable times during normal
business hours upon one Business Day's prior notice to the Trust Administrator.
(d) The Trustee and the Trust Administrator shall promptly notify the
Certificate Insurer and Fiscal Agent of any proceeding or the institution of any
action, of which a Responsible Officer of the Trustee or the Trust
Administrator, as applicable, has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any Guaranteed Distribution made with
respect to the Class A Certificates. Each Holder of the Class A Certificates, by
its purchase of such Certificates, the Servicers, the Trust Administrator and
the Trustee hereby agree that the Certificate Insurer (so long as no Certificate
Insurer Default has occurred and is continuing) may at any time during the
continuation of any proceeding relating to a Preference Claim direct all matters
relating to such Preference Claim, including, without limitation, (i) the
direction of any appeal of any order relating to such Preference Claim and (ii)
the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Certificate
Insurer shall be subrogated to the rights of the Master Servicer, the Servicers,
the Trustee, the Trust Administrator and each Holder of the Class A Certificates
in the conduct of any such Preference Claim, including, without limitation, all
rights of any party to an adversary proceeding action with respect to any court
order issued in connection with any such Preference Claim.
SECTION 9.05 Effect of Payments by the Certificate Insurer;
Subrogation.
Anything herein to the contrary notwithstanding, any payment with
respect to principal of or interest on any of the Class A Certificates which is
made with moneys received pursuant to the terms of the Policy shall not be
considered payment of such Class A Certificates from the Trust Fund and shall
not result in the payment of or the provision for the payment of the principal
of or interest on such
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Certificates within the meaning of Section 4.01. The Depositor, the Master
Servicer, each Servicer, the Trustee and the Trust Administrator acknowledge,
and each Holder by its acceptance of a Class A Certificate agrees, that without
the need for any further action on the part of the Certificate Insurer, the
Depositor, the Servicers, the Master Servicer, the Trustee or the Trust
Administrator (a) to the extent the Certificate Insurer makes payments, directly
or indirectly, on account of principal of or interest on any Class A
Certificates to the Holders of such Certificates, the Certificate Insurer will
be fully subrogated to the rights of such Holders to receive such principal and
interest from the Trust Fund and (b) the Certificate Insurer shall be paid such
principal and interest but only from the sources and in the manner provided
herein for the payment of such principal and interest.
The Trustee, the Trust Administrator, the Master Servicer and the
Servicers shall cooperate in all respects with any reasonable request by the
Certificate Insurer for action to preserve or enforce the Certificate Insurer's
rights or interests under this Agreement without limiting the rights or
affecting the interests of the Holders as otherwise set forth herein.
SECTION 9.06. Notices to the Certificate Insurer.
All notices, statements, reports, certificates or opinions required by
this Agreement to be sent to any other party hereto or to any of the
Certificateholders shall also be sent to the Certificate Insurer.
SECTION 9.07. Third-Party Beneficiary.
The Certificate Insurer shall be a third-party beneficiary of this
Agreement, entitled to enforce the provisions hereof as if a party hereto.
SECTION 9.08. Trust Administrator to Hold the Policy.
The Trust Administrator, on behalf of the Trustee, will hold the
Policy in trust as agent for the Holders of the Class A Certificates for the
purpose of making claims thereon and distributing the proceeds thereof. Upon the
later of (i) the date upon which the Certificate Principal Balances of the Class
A Certificates have been reduced to zero and all Guaranteed Distributions have
been made and (ii) the date the Term of the Policy (as defined in the Policy)
ends, the Trust Administrator, on behalf of the Trustee, shall surrender the
Policy to the Certificate Insurer for cancellation. Neither the Policy nor the
amounts paid on the Policy will constitute part of the Trust Fund or assets of
any REMIC created by this Agreement. Each Holder of Class A Certificates, by
accepting its Certificates, appoints the Trustee and the Trust Administrator as
attorneys-in-fact for the purpose of making claims on the Policy.
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ARTICLE X
TERMINATION
SECTION 10.01 Termination Upon Repurchase or Liquidation of All
Mortgage Loans.
(a) Subject to Section 10.02, the respective obligations and
responsibilities under this Agreement of the Depositor, the Servicers, the
Master Servicer, the Trustee and the Trust Administrator (other than the
obligations of the Servicers to the Trustee and the Trust Administrator pursuant
to Section 8.05 and of the Servicers to provide for and the Trust Administrator
to make payments in respect of the REMIC I Regular Interests, the REMIC II
Regular Interests or the Classes of Certificates as hereinafter set forth) shall
terminate upon payment to the Certificateholders and the deposit of all amounts
held by or on behalf of the Trustee and required hereunder to be so paid or
deposited on the Distribution Date coinciding with or following the earlier to
occur of (i) the purchase by the Terminator (as defined below) of all Mortgage
Loans and each REO Property remaining in REMIC I and (ii) the final payment or
other liquidation (or any advance with respect thereto) of the last Mortgage
Loan or REO Property remaining in REMIC I; provided, however, that in no event
shall the trust created hereby continue beyond the expiration of 21 years from
the death of the last survivor of the descendants of Joseph P. Kennedy, the late
ambassador of the United States to the Court of St. James, living on the date
hereof. Subject to Section 3.11 hereof, the purchase by the Terminator of all
Mortgage Loans and each REO Property remaining in REMIC I shall be at a price
(the "Termination Price") equal to the greater of (A) the aggregate Purchase
Price of all the Mortgage Loans included in REMIC I, plus the appraised value of
each REO Property, if any, included in REMIC I, such appraisal to be conducted
by an appraiser mutually agreed upon by the Terminator and the Trustee in their
reasonable discretion (and approved by the Certificate Insurer in its reasonable
discretion) and (B) the aggregate fair market value of all of the assets of
REMIC I (as determined by the Terminator, the Certificate Insurer (to the extent
the Certificate Insurer is not the Terminator) and the Trustee, as of the close
of business on the third Business Day next preceding the date upon which notice
of any such termination is furnished to Certificateholders pursuant to the third
paragraph of this Section 10.01); provided, however, that in the event the
Majority Class CE Certificateholder is the Terminator, and subject to Section
3.11 hereof, the purchase by the Majority Class CE Certificateholder of all
Mortgage Loans and each REO Property remaining in REMIC I shall be at a price
equal to the greater of: (i) the amount designated in clause (A) above or (ii)
the lesser of (x) the sum of the amount designated in clause (A) above and any
amounts due under the Insurance Agreement and (y) the amount designated in
clause (B) above.
(b) The Majority Class CE Certificateholder shall have the right and,
to the extent the Majority Class CE Certificateholder fails to exercise such
right, the Certificate Insurer shall have the right and, to the extent neither
the Majority Class CE Certificateholder nor the Certificate Insurer exercises
such right, the Master Servicer shall have the right (the party exercising such
right, the "Terminator"), to purchase all of the Mortgage Loans and each REO
Property remaining in REMIC I pursuant to clause (i) of the preceding paragraph
no later than the Determination Date in the month immediately preceding the
Distribution Date on which the Certificates will be retired; provided, however,
that the Terminator may elect to purchase all of the Mortgage Loans and each REO
Property remaining in REMIC I pursuant to clause (i) above only if the aggregate
Stated Principal Balance of the Mortgage Loans and each REO Property remaining
in the Trust Fund at the time of such election is reduced to less than 10%, in
the event the Majority Class CE Certificateholder is the Terminator, or 5%, in
the event the Master Servicer or the Certificate Insurer is the Terminator, in
each case of the aggregate Stated Principal Balance of the
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Mortgage Loans as of the Cut-off Date. By acceptance of the Class R-I
Certificates, the Holder of the Class R-I Certificates agrees, in connection
with any termination hereunder, to assign and transfer any amounts in excess of
par, and to the extent received in respect of such termination, to pay any such
amounts to the Holders of the Class CE Certificates.
(c) Notice of the liquidation of the REMIC I Regular Interests shall
be given promptly by the Trust Administrator by letter to Certificateholders and
the Certificate Insurer mailed (a) in the event such notice is given in
connection with the purchase of the Mortgage Loans and each REO Property by the
Terminator, not earlier than the 15th day and not later than the 25th day of the
month next preceding the month of the final distribution on the Certificates or
(b) otherwise during the month of such final distribution on or before the
Determination Date in such month, in each case specifying (i) the Distribution
Date upon which the Trust Fund will terminate and the final payment in respect
of the REMIC I Regular Interests, the REMIC II Regular Interests and the
Certificates will be made upon presentation and surrender of the related
Certificates at the office of the Trust Administrator therein designated, (ii)
the amount of any such final payment, (iii) that no interest shall accrue in
respect of the REMIC I Regular Interests, the REMIC II Regular Interests or the
Certificates from and after the Interest Accrual Period relating to the final
Distribution Date therefor and (iv) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Trust
Administrator. In the event such notice is given in connection with the purchase
of all of the Mortgage Loans and each REO Property remaining in REMIC I by the
Terminator, the Terminator shall deliver to the Trust Administrator for deposit
in the Distribution Account not later than the last Business Day of the month
next preceding the month of the final distribution on the Certificates an amount
in immediately available funds equal to the above-described purchase price. The
Trust Administrator shall remit to each Servicer from such funds deposited in
the Distribution Account (i) any amounts which the related Servicer would be
permitted to withdraw and retain from the Collection Account pursuant to Section
3.11 and (ii) any other amounts otherwise payable by the Trust Administrator to
the related Servicer from amounts on deposit in the Distribution Account
pursuant to the terms of this Agreement, in each case prior to making any final
distributions pursuant to Section 10.01(d) below. Upon certification to the
Trust Administrator by a Servicing Officer (a copy of which certification shall
be delivered to the Certificate Insurer) of the making of such final deposit,
the Trust Administrator shall promptly release to the Terminator the Mortgage
Files for the remaining Mortgage Loans, and the Trustee shall execute all
assignments, endorsements and other instruments necessary to effectuate such
transfer.
(d) Upon presentation of the Certificates by the Certificateholders on
the final Distribution Date, the Trust Administrator shall distribute to each
Certificateholder so presenting and surrendering its Certificates the amount
otherwise distributable on such Distribution Date in accordance with Section
4.01 in respect of the Certificates so presented and surrendered. Any funds not
distributed to any Holder or Holders of Certificates being retired on such
Distribution Date because of the failure of such Holder or Holders to tender
their Certificates shall, on such date, be set aside and held in trust and
credited to the account of the appropriate non-tendering Holder or Holders. If
any Certificates as to which notice has been given pursuant to this Section
10.01 shall not have been surrendered for cancellation within six months after
the time specified in such notice, the Trust Administrator shall mail a second
notice to the remaining non-tendering Certificateholders to surrender their
Certificates for cancellation in order to receive the final distribution with
respect thereto. If within one year after the second notice all such
Certificates shall not have been surrendered for cancellation, the Trust
Administrator shall, directly or through an agent, (i) mail a final notice to
the remaining non-tendering Certificateholders concerning surrender of their
Certificates and (ii) pay to the Certificate Insurer any amount of such funds
which were paid by the Certificate Insurer under the Policy but shall continue
to hold any remaining funds for the benefit of non-tendering Certificateholders,
and all liability of the Certificate Insurer with respect to such
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funds shall thereupon cease. The costs and expenses of maintaining the funds in
trust and of contacting such Certificateholders shall be paid out of the assets
remaining in the trust funds. If within one year after the final notice any such
Certificates shall not have been surrendered for cancellation, the Trust
Administrator shall pay to Salomon Smith Barney Inc. all such amounts, and all
rights of non-tendering Certificateholders in or to such amounts shall thereupon
cease. No interest shall accrue or be payable to any Certificateholder on any
amount held in trust by the Trust Administrator as a result of such
Certificateholder's failure to surrender its Certificate(s) for final payment
thereof in accordance with this Section 10.01. Any such amounts held in trust by
the Trust Administrator shall be held in an Eligible Account and the Trust
Administrator may direct any depository institution maintaining such account to
invest the funds in one or more Permitted Investments. All income and gain
realized from the investment of funds deposited in such accounts held in trust
by the Trust Administrator shall be for the benefit of the Trust Administrator;
provided, however, that the Trust Administrator shall deposit in such account
the amount of any loss of principal incurred in respect of any such Permitted
Investment made with funds in such accounts immediately upon the realization of
such loss.
Immediately following the deposit of funds in trust hereunder in
respect of the Certificates, the Trust Fund shall terminate.
SECTION 10.02 Additional Termination Requirements.
(a) In the event that the Terminator purchases all the Mortgage Loans
and each REO Property or the final payment on or other liquidation of the last
Mortgage Loan or REO Property remaining in REMIC I pursuant to Section 10.01 or
Section 10.02, the Trust Fund shall be terminated in accordance with the
following additional requirements:
(i) The Trustee shall specify the first day in the 90-day
liquidation period in a statement attached to REMIC I's, REMIC II's
and REMIC III's final Tax Return pursuant to Treasury regulation
Section 1.860F-1 and shall satisfy all requirements of a qualified
liquidation under Section 860F of the Code and any regulations
thereunder, as evidenced by an Opinion of Counsel obtained at the
expense of the Terminator;
(ii) During such 90-day liquidation period and, at or prior to
the time of making of the final payment on the Certificates, the
Trustee shall sell all of the assets of REMIC I to the Terminator for
cash; and
(iii) At the time of the making of the final payment on the
Certificates, the Trust Administrator shall distribute or credit, or
cause to be distributed or credited, to the Holders of the Residual
Certificates all cash on hand in the Trust Fund (other than cash
retained to meet claims), and the Trust Fund shall terminate at that
time.
(b) At the expense of the requesting Terminator (or, if the Trust Fund
is being terminated as a result of the occurrence of the event described in
clause (ii) of the first paragraph of Section 10.01, at the expense of the Trust
Administrator without the right of reimbursement from the Trust Fund), the Trust
Administrator shall prepare or cause to be prepared the documentation required
in connection with the adoption of a plan of liquidation of each of REMIC I ,
REMIC II and REMIC III pursuant to this Section 10.02.
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(c) By their acceptance of Certificates, the Holders thereof hereby
agree to authorize the Trustee to specify the 90-day liquidation period for each
of REMIC I, REMIC II and REMIC III, which authorization shall be binding upon
all successor Certificateholders.
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ARTICLE XI
REMIC PROVISIONS
SECTION 11.01. REMIC Administration.
(a) The Trustee shall elect to treat each of REMIC I, REMIC II and
REMIC III as a REMIC under the Code and, if necessary, under applicable state
law. Each such election will be made by the Master Servicer on behalf of the
Trustee on Form 1066 or other appropriate federal tax or information return or
any appropriate state return for the taxable year ending on the last day of the
calendar year in which the Certificates are issued. For the purposes of the
REMIC election in respect of REMIC I, the REMIC I Regular Interests shall be
designated as the Regular Interests in REMIC I and the Class R-I Certificates
shall be designated as the Residual Interests in REMIC I. The REMIC II Regular
Interests shall be designated as the Regular Interests in REMIC II and the Class
R-II Certificates shall be designated as the Residual Interests in REMIC II. The
Class A Certificates, the Class CE Certificates and the Class P Certificates
shall be designated as the Regular Interests in REMIC III and the Class R-III
Certificates shall be designated as the Residual Interests in REMIC III. Neither
the Trustee nor the Trust Administrator shall permit the creation of any
"interests" in REMIC I, REMIC II or REMIC III (within the meaning of Section
860G of the Code) other than the REMIC I Regular Interests, the REMIC II Regular
Interests and the interests represented by the Certificates.
(b) The Closing Date is hereby designated as the "Startup Day" of
REMIC I, REMIC II and REMIC III within the meaning of Section 860G(a)(9) of the
Code.
(c) The Master Servicer shall pay out of its own funds, without any
right of reimbursement, any and all expenses relating to any tax audit of the
Trust Fund (including, but not limited to, any professional fees or any
administrative or judicial proceedings with respect to any REMIC I, REMIC II or
REMIC III that involve the Internal Revenue Service or state tax authorities),
other than the expense of obtaining any tax related Opinion of Counsel except as
specified herein. The Master Servicer, as agent for all of REMIC I's, REMIC II's
and REMIC III's tax matters person shall (i) act on behalf of the Trust Fund in
relation to any tax matter or controversy involving any of REMIC I, REMIC II or
REMIC III and (ii) represent the Trust Fund in any administrative or judicial
proceeding relating to an examination or audit by any governmental taxing
authority with respect thereto. The holder of the largest Percentage Interest of
each Class of Residual Certificates shall be designated, in the manner provided
under Treasury regulations section 1.860F-4(d) and Treasury regulations section
301.6231(a)(7)-1, as the tax matters person of the related REMIC created
hereunder. By their acceptance thereof, the holder of the largest Percentage
Interest of each Class of Residual Certificates hereby agrees to irrevocably
appoint the Master Servicer or an Affiliate as its agent to perform all of the
duties of the tax matters person for the Trust Fund.
(d) The Master Servicer shall prepare and the Trustee shall sign and
the Trust Administrator shall file all of the Tax Returns in respect of each
REMIC created hereunder. The expenses of preparing and filing such returns shall
be borne by the Master Servicer without any right of reimbursement therefor.
(e) The Master Servicer shall perform on behalf of each of REMIC I,
REMIC II and REMIC III all reporting and other tax compliance duties that are
the responsibility of such REMIC under the Code, the REMIC Provisions or other
compliance guidance issued by the Internal Revenue Service or any state or local
taxing authority. Among its other duties, as required by the Code, the REMIC
Provisions
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or other such compliance guidance, the Master Servicer shall provide (i) to any
Transferor of a Residual Certificate such information as is necessary for the
application of any tax relating to the transfer of a Residual Certificate to any
Person who is not a Permitted Transferee, (ii) to the Certificateholders such
information or reports as are required by the Code or the REMIC Provisions
including reports relating to interest, original issue discount and market
discount or premium (using the Prepayment Assumption as required) and (iii) to
the Internal Revenue Service the name, title, address and telephone number of
the person who will serve as the representative of REMIC I, REMIC II and REMIC
III. The Depositor shall provide or cause to be provided to the Master Servicer,
within ten (10) days after the Closing Date, all information or data that the
Master Servicer reasonably determines to be relevant for tax purposes as to the
valuations and issue prices of the Certificates, including, without limitation,
the price, yield, prepayment assumption and projected cash flow of the
Certificates.
(f) The Master Servicer, each Servicer, the Trustee and the Trust
Administrator shall take such action and shall cause each REMIC created
hereunder to take such action as shall be necessary to create or maintain the
status thereof as a REMIC under the REMIC Provisions. The Master Servicer, the
Servicers, the Trustee and the Trust Administrator shall not take any action,
cause the Trust Fund to take any action or fail to take (or fail to cause to be
taken) any action that, under the REMIC Provisions, if taken or not taken, as
the case may be, could (i) endanger the status of REMIC I, REMIC II or REMIC III
as a REMIC or (ii) result in the imposition of a tax upon the Trust Fund
(including but not limited to the tax on prohibited transactions as defined in
Section 860F(a)(2) of the Code and the tax on contributions to a REMIC set forth
in Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event")
unless the Trustee and the Trust Administrator have received an Opinion of
Counsel, addressed to the Trustee, the Trust Administrator and the Certificate
Insurer (at the expense of the party seeking to take such action but in no event
at the expense of the Trust Administrator or the Trustee) to the effect that the
contemplated action will not, with respect to any of REMIC I, REMIC II or REMIC
III, endanger such status or result in the imposition of such a tax, nor shall
the Master Servicer or the Servicers take or fail to take any action (whether or
not authorized hereunder) as to which the Trustee or the Trust Administrator has
advised it in writing that it has received an Opinion of Counsel to the effect
that an Adverse REMIC Event could occur with respect to such action; provided
that the Master Servicer and the Servicers may conclusively rely on such Opinion
of Counsel and shall incur no liability for its action or failure to act in
accordance with such Opinion of Counsel. In addition, prior to taking any action
with respect to any of REMIC I, REMIC II or REMIC III or the respective assets
of each, or causing REMIC I, REMIC II or REMIC III to take any action, which is
not contemplated under the terms of this Agreement, the Master Servicer and the
Servicers will consult with the Trustee and the Trust Administrator or its
designee, in writing, with respect to whether such action could cause an Adverse
REMIC Event to occur with respect to REMIC I, REMIC II or REMIC III, and neither
the Master Servicer nor the Servicers shall take any such action or cause REMIC
I, REMIC II or REMIC III to take any such action as to which the Trustee or the
Trust Administrator has advised it in writing that an Adverse REMIC Event could
occur; provided that the Master Servicer and the Servicers may conclusively rely
on such writing and shall incur no liability for its action or failure to act in
accordance with such writing. The Trust Administrator and the Trustee may
consult with counsel to make such written advice, and the cost of same shall be
borne by the party seeking to take the action not permitted by this Agreement,
but in no event shall such cost be an expense of the Trustee or the Trust
Administrator, as applicable. At all times as may be required by the Code, the
Trust Administrator, the Trustee, the Master Servicer, or each Servicer will
ensure that substantially all of the assets of both REMIC I and REMIC II will
consist of "qualified mortgages" as defined in Section 860G(a)(3) of the Code
and "permitted investments" as defined in Section 860G(a)(5) of the Code, to the
extent such obligations are within such party's control and not otherwise
inconsistent with the terms of this Agreement.
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(g) In the event that any tax is imposed on "prohibited transactions"
of any REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on
the "net income from foreclosure property" of such REMIC as defined in Section
860G(c) of the Code, on any contributions to any such REMIC after the Startup
Day therefor pursuant to Section 860G(d) of the Code, or any other tax is
imposed by the Code or any applicable provisions of state or local tax laws,
such tax shall be charged (i) to the Trust Administrator pursuant to Section
11.03 hereof, if such tax arises out of or results from a breach by the Trust
Administrator of any of its obligations under this Article XI, (ii) to the
Trustee pursuant to Section 11.03 hereof, if such tax arises out of or results
from a breach by the Trustee of any of its obligations under this Article XI,
(iii) to the Master Servicer or the related Servicer pursuant to Section 11.03
hereof, if such tax arises out of or results from a breach by the Master
Servicer or such Servicer of any of its obligations under Article III or this
Article XI, or (iv) against amounts on deposit in the Distribution Account and
shall be paid by withdrawal therefrom.
(h) On or before April 15 of each calendar year, commencing April 15,
1999, the Master Servicer and each Servicer shall deliver to each Rating Agency
an Officer's Certificate of the Master Servicer and each Servicer stating the
Master Servicer's or such Servicer's compliance with this Article XI.
(i) The Master Servicer shall, for federal income tax purposes,
maintain books and records with respect to each of REMIC I, REMIC II and REMIC
III on a calendar year and on an accrual basis.
(j) Following the Startup Day, the Master Servicer, the Servicers, the
Trustee and the Trust Administrator shall not accept any contributions of assets
to any of REMIC I, REMIC II or REMIC III other than in connection with any
Qualified Substitute Mortgage Loan delivered in accordance with Section 2.03
unless it shall have received an Opinion of Counsel to the effect that the
inclusion of such assets in the Trust Fund will not cause the related REMIC to
fail to qualify as a REMIC at any time that any Certificates are outstanding or
subject such REMIC to any tax under the REMIC Provisions or other applicable
provisions of federal, state and local law or ordinances.
(k) None of the Trustee, the Trust Administrator, the Master Servicer
or the Servicers shall enter into any arrangement by which REMIC I, REMIC II or
REMIC III will receive a fee or other compensation for services nor permit
either REMIC to receive any income from assets other than "qualified mortgages"
as defined in Section 860G(a)(3) of the Code or "permitted investments" as
defined in Section 860G(a)(5) of the Code.
SECTION 11.02. Prohibited Transactions and Activities.
None of the Depositor, the Master Servicer, the Servicers, the Trust
Administrator or the Trustee shall sell, dispose of or substitute for any of the
Mortgage Loans (except in connection with (i) the foreclosure of a Mortgage
Loan, including but not limited to, the acquisition or sale of a Mortgaged
Property acquired by deed in lieu of foreclosure, (ii) the bankruptcy of REMIC
I, (iii) the termination of REMIC I pursuant to Article X of this Agreement,
(iv) a substitution pursuant to Article II of this Agreement or (v) a purchase
of Mortgage Loans pursuant to Article II or III of this Agreement), nor acquire
any assets for any of REMIC I, REMIC II or REMIC III (other than REO Property
acquired in respect of a defaulted Mortgage Loan), nor sell or dispose of any
investments in the Collection Account or the Distribution Account for gain, nor
accept any contributions to any of REMIC I, REMIC II or REMIC III after the
Closing Date (other than a Qualified Substitute Mortgage Loan delivered in
accordance with Section 2.03), unless it has received an Opinion of Counsel,
addressed to the Trustee, the Trust
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Administrator and the Certificate Insurer (at the expense of the party seeking
to cause such sale, disposition, substitution, acquisition or contribution but
in no event at the expense of the Trustee or the Trust Administrator) that such
sale, disposition, substitution, acquisition or contribution will not (a) affect
adversely the status of any of REMIC I, REMIC II or REMIC III as a REMIC or (b)
cause any of REMIC I, REMIC II or REMIC III to be subject to a tax on
"prohibited transactions" or "contributions" pursuant to the REMIC Provisions.
SECTION 11.03. Master Servicer, Servicers, Trustee and Trust
Administrator Indemnification.
(a) The Trustee agrees to indemnify the Trust Fund, the Depositor, the
Certificate Insurer, the Servicers and the Trust Administrator for any taxes and
costs including, without limitation, any reasonable attorneys fees imposed on or
incurred by the Trust Fund, the Depositor, the Certificate Insurer, the
Servicers or the Trust Administrator, as a result of a breach of the Trustee's
covenants set forth in this Article XI.
(b) The Trust Administrator agrees to indemnify the Trust Fund, the
Depositor, the Certificate Insurer, the Servicers and the Trustee for any taxes
and costs including, without limitation, any reasonable attorneys fees imposed
on or incurred by the Trust Fund, the Depositor, the Certificate Insurer, the
Servicers or the Trustee, as a result of a breach of the Trust Administrator's
covenants set forth in this Article XI.
(b) The Master Servicer and each Servicer, severally, agree to
indemnify the Trust Fund, the Depositor, the Certificate Insurer, the Trustee,
the Master Servicer, the other Servicer and the Trust Administrator for any
taxes and costs including, without limitation, any reasonable attorneys' fees
imposed on or incurred by the Trust Fund, the Depositor, the Certificate
Insurer, the Trustee, the Master Servicer, the other Servicer or the Trust
Administrator, as a result of a breach of the Master Servicer's or such
Servicer's covenants set forth in Article III or this Article XI.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. Amendment.
This Agreement may be amended with the consent of the Certificate
Insurer from time to time by the Depositor, the Servicers, the Master Servicer,
the Trustee and the Trust Administrator without the consent of any of the
Certificateholders, (i) to cure any ambiguity or defect, (ii) to correct, modify
or supplement any provisions herein (including to give effect to the
expectations of Certificateholders), or (iii) to make any other provisions with
respect to matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement, provided that such action
shall not, as evidenced by an Opinion of Counsel delivered to the Trustee, the
Trust Administrator and the Certificate Insurer, adversely affect in any
material respect the interests of any Certificateholder or the Certificate
Insurer, and provided further that such Opinion of Counsel shall not be
necessary if the party seeking such amendment delivers to the Trustee and the
Trust Administrator a letter from each Rating Agency stating that such amendment
would not cause a downgrade or withdrawal of the then current ratings of the
Certificates without regard to the Policy. No amendment shall be deemed to
adversely affect in any material respect the interests of any Certificateholder
who shall have consented thereto, and no Opinion of Counsel shall be required to
address the effect of any such amendment on any such consenting
Certificateholder.
This Agreement may also be amended from time to time by the Depositor,
the Servicers, the Master Servicer, the Trustee and the Trust Administrator with
the consent of the Certificate Insurer and the Holders of Certificates entitled
to at least 66% of the Voting Rights for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Holders of Certificates;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received on Mortgage Loans which are
required to be distributed on any Certificate without the consent of the Holder
of such Certificate, (ii) adversely affect in any material respect the interests
of the Holders of any Class of Certificates in a manner, other than as described
in (i), without the consent of the Holders of Certificates of such Class
evidencing at least 66% of the Voting Rights allocated to such Class, or (iii)
modify the consents required by the immediately preceding clauses (i) and (ii)
without the consent of the Certificate Insurer and the Holders of all
Certificates then outstanding. Notwithstanding any other provision of this
Agreement, for purposes of the giving or withholding of consents pursuant to
this Section 12.01, Certificates registered in the name of the Depositor, the
Master Servicer or either Servicer or any Affiliate thereof shall be entitled to
Voting Rights with respect to matters affecting such Certificates.
Notwithstanding any contrary provision of this Agreement, neither the
Trustee nor the Trust Administrator shall consent to any amendment to this
Agreement unless it shall have first received an Opinion of Counsel to the
effect that such amendment will not result in the imposition of any tax on any
of REMIC I, REMIC II or REMIC III pursuant to the REMIC Provisions or cause any
of REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC at any time that
any Certificates are outstanding. Any such amendment pursuant to the first
paragraph of this Section 12.01 shall not be deemed to adversely affect in any
material respect the interests of any Certificateholder if such change is
required by the Certificate Insurer, so long as no Certificate Insurer Default
has occurred and is continuing, and the Trustee and the Trust Administrator
receive written confirmation from each Rating Agency that such amendment will
not cause such Rating Agency to reduce the then current rating or any shadow
rating of the affected Certificates.
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<PAGE>
Promptly after the execution of any such amendment the Trust
Administrator shall furnish a copy of such amendment to each Certificateholder
and the Certificate Insurer.
It shall not be necessary for the consent of Certificateholders under
this Section 12.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee or the Trust Administrator may prescribe.
The cost of any Opinion of Counsel to be delivered pursuant to this
Section 12.01 shall be borne by the Person seeking the related amendment, but in
no event shall such Opinion of Counsel be an expense of the Trustee or Trust
Administrator.
Each of the Trustee and the Trust Administrator may, but shall not be
obligated to enter into any amendment pursuant to this Section that affects its
rights, duties and immunities under this Agreement or otherwise.
SECTION 12.02. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is subject
to recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer at the expense of the Certificateholders, but only upon
direction of the Trustee or the Trust Administrator accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
SECTION 12.03. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Fund, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of any of the
Certificates, be construed so as to constitute the Certificateholders from time
to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue of any provision
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless such Holder
previously shall have given to the Trustee a written notice of default and of
the
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<PAGE>
continuance thereof, as hereinbefore provided, and unless also the Holders of
Certificates entitled to at least 25% of the Voting Rights shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee, for 15 days
after its receipt of such notice, request and offer of indemnity, shall have
neglected or refused to institute any such action, suit or proceeding. It is
understood and intended, and expressly covenanted by each Certificateholder with
every other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatsoever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 12.04. Governing Law.
This Agreement shall be construed in accordance with the laws of the
State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
SECTION 12.05. Notices.
All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when received if personally delivered at
or mailed by first class mail, postage prepaid, or by express delivery service
or delivered in any other manner specified herein, to (a) in the case of the
Depositor, _______________________________________, Attention: ______________
(telecopy number ______________), or such other address or telecopy number as
may hereafter be furnished to the Master Servicer, the Servicers, the Trustee,
the Trust Administrator and the Certificate Insurer in writing by the Depositor,
(b) in the case of the Master Servicer, _____________________________________
(telecopy number: ______________), or such other address or telecopy number as
may hereafter be furnished to the Trustee, the Trust Administrator, the
Certificate Insurer, the Servicers and the Depositor in writing by the Master
Servicer, (c) in the case of __________________________________, Attention:
_____________ (telecopy number: ______________), or such other address or
telecopy number as may hereafter be furnished to the Trustee, the Trust
Administrator, the Certificate Insurer, the Master Servicer and the Depositor in
writing by _______________, (d) in the case of the Trust Administrator,
__________________, Attention: _________________ (telecopy number ____________),
or such other address or telecopy number as may hereafter be furnished to the
Servicers, the Master Servicer, the Certificate Insurer, the Depositor and the
Trustee in writing by the Trust Administrator, (d) in the case of the Trustee,
________________________________, Attention: ____________ (telecopy number
___________), or such other address or telecopy number as may hereafter be
furnished to the Servicers, the Master Servicer, the Certificate Insurer, the
Trust Administrator and the Depositor in writing by the Trustee and (e) in the
case of the Certificate Insurer, ____________________________, Attention:
Surveillance Department (telecopy number ____________ or ___________) or such
other address or telecopy number as may hereafter be furnished to the Trustee,
the Trust Administrator, the Depositor, the Master Servicer and the Servicers in
writing by the Certificate Insurer. In each case in which a notice or other
communication to the Certificate Insurer refers to a Servicer Event of Default
or a claim under the Policy or with respect to which failure on the part of the
Certificate Insurer to respond shall be deemed to constitute consent or
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<PAGE>
acceptance, then a copy of such notice or other communication should also be
sent to the attention of the General Counsel and the Head-Financial Guaranty
Group and shall be marked to indicate "URGENT MATERIAL ENCLOSED." Any notice
required or permitted to be given to a Certificateholder shall be given by first
class mail, postage prepaid, at the address of such Holder as shown in the
Certificate Register. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given when mailed,
whether or not the Certificateholder receives such notice. A copy of any notice
required to be telecopied hereunder also shall be mailed to the appropriate
party in the manner set forth above.
SECTION 12.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 12.07. Notice to Rating Agencies and the Certificate Insurer.
The Trust Administrator shall use its best efforts promptly to provide
notice to the Rating Agencies and the Certificate Insurer with respect to each
of the following of which it has actual knowledge:
1. Any material change or amendment to this Agreement;
2. The occurrence of any Servicer Event of Default that has not been
cured or waived;
3. The resignation or termination of either Servicer, the Trustee or
the Trust Administrator;
4. The repurchase or substitution of Mortgage Loans pursuant to or
as contemplated by Section 2.03;
5. The final payment to the Holders of any Class of Certificates;
6. Any change in the location of the Collection Account or the
Distribution Account;
7. Any event that would result in the inability of the Trust
Administrator or the Trustee, as applicable, to make advances
regarding delinquent Mortgage Loans;
8. Any Certificate Insurer Default that has not been cured; and
9. The filing of any claim under either Servicer's blanket bond and
errors and omissions insurance policy required by Section 3.14 or
the cancellation or material modification of coverage under any
such instrument.
In addition, the Trust Administrator shall promptly furnish to each
Rating Agency and the Certificate Insurer copies of each report to
Certificateholders described in Section 4.02 and the related Servicer shall
promptly furnish to each Rating Agency copies of the following:
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<PAGE>
1. Each annual statement as to compliance described in Section 3.20;
and
2. Each annual independent public accountants' servicing report
described in Section 3.21.
Any such notice pursuant to this Section 12.07 shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
first class mail, postage prepaid, or by express delivery service to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, and to
Standard & Poor's Ratings Services, 25 Broadway, New York, New York 10004, or
such other addresses as the Rating Agencies may designate in writing to the
parties hereto.
SECTION 12.08. Article and Section References.
All article and section references used in this Agreement, unless
otherwise provided, are to articles and sections in this Agreement.
SECTION 12.09. Grant of Security Interest.
It is the express intent of the parties hereto that the conveyance of
the Mortgage Loans to the Trust Administrator, on behalf of the Trustee, be, and
be construed as, a sale of the Mortgage Loans and not a pledge of the Mortgage
Loans by the Depositor to secure a debt or other obligation of the Depositor.
However, in the event that, notwithstanding the aforementioned intent of the
parties, the Mortgage Loans are held to be property of the Depositor, then, (a)
it is the express intent of the parties that such conveyance be deemed a pledge
of the Mortgage Loans by the Depositor to the Trustee to secure a debt or other
obligation of the Depositor and (b)(1) this Agreement shall also be deemed to be
a security agreement within the meaning of Articles 8 and 9 of the Uniform
Commercial Code as in effect from time to time in the State of New York; (2) the
conveyance provided for in Section 2.01 hereof shall be deemed to be a grant by
the Depositor to the Trustee of a security interest in all of the Depositor's
right, title and interest in and to the Mortgage Loans and all amounts payable
to the holders of the Mortgage Loans in accordance with the terms thereof and
all proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, instruments, securities or other property, including without limitation
all amounts, other than investment earnings, from time to time held or invested
in the Collection Account and the Distribution Account, whether in the form of
cash, instruments, securities or other property; (3) the obligations secured by
such security agreement shall be deemed to be all of the Depositor's obligations
under this Agreement, including the obligation to provide to the
Certificateholders the benefits of this Agreement relating to the Mortgage Loans
and the Trust Fund; and (4) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law.
Accordingly, the Depositor hereby grants to the Trustee a security interest in
the Mortgage Loans and all other property described in clause (2) of the
preceding sentence, for the purpose of securing to the Trustee the performance
by the Depositor of the obligations described in clause (3) of the preceding
sentence. Notwithstanding the foregoing, the parties hereto intend the
conveyance pursuant to Section 2.01 to be a true, absolute and unconditional
sale of the Mortgage Loans and assets constituting the Trust Fund by the
Depositor to the Trustee.
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<PAGE>
IN WITNESS WHEREOF, the Depositor, the Master Servicer, the Servicers,
the Trust Administrator and the Trustee have caused their names to be signed
hereto by their respective officers thereunto duly authorized, in each case as
of the day and year first above written.
NEW CENTURY MORTGAGE
SECURITIES, INC.,
as Depositor
By:__________________________________
Name:
Title:
[Name of Master Servicer]
as Master Servicer and Servicer
By:__________________________________
Name:
Title:
[Name of Servicer]
as Servicer
By:__________________________________
Name:
Title:
[Name of Trust Administartor]
as Trust Administrator
By:__________________________________
Name:
Title:
[Name of Trustee]
as Trustee
By:__________________________________
Name:
Title:
<PAGE>
STATE OF CALIFORNIA )
) ss.:
COUNTY OF ORANGE )
On the ____ day of ______________, before me, a notary public in and
for said State, personally appeared ________________, known to me to be an
______________ of New Century Mortgage Securities, Inc., one of the corporations
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On the ___ day of ________________, before me, a notary public in and
for said State, personally appeared _____________ known to me to be ___________
of ________________________, one of the corporations that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ___________ )
) ss.:
COUNTY OF __________ )
On the _____ day of ___________________, before me, a notary public in
and for said State, personally appeared ________________, known to me to be
_________________ of _________________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ____________ )
) ss.:
COUNTY OF ___________ )
On the _____ day of ________________, before me, a notary public in
and for said State, personally appeared ______________, known to me to be a
_____________ of ______________________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ___________ )
) ss.:
COUNTY OF __________ )
On the ____ day of ____________, before me, a notary public in and for
said State, personally appeared __________________, known to me to be __________
of ______________________________, one of the corporations that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
<PAGE>
STATE OF ______________ )
) ss.:
COUNTY OF __________ )
On the _____ day of _____________, before me, a notary public in and
for said State, personally appeared ____________, known to me to be a
________________ of ____________________________, one of the corporations that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
__________________________________
Notary Public
[Notarial Seal]
EXHIBIT 4.3
================================================================================
[NAME OF SERVICER],
as Servicer,
and
AMERIQUEST MORTGAGE SECURITIES INC.
as Company
----------------------
SERVICING AGREEMENT
Dated as of _______________
----------------------
Ameriquest Trust Series ____-__
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I
Definitions
Section 1.01. Definitions..................................................................1
Section 1.02. Other Definitional Provisions................................................2
Section 1.03. Interest Calculations........................................................2
ARTICLE II
Representations and Warranties
Section 2.01. Representations and Warranties Regarding the Servicer........................3
Representations and Warranties of the Company................................4
Section 2.03. Enforcement of Representations and Warranties................................4
ARTICLE III
Administration and Servicing of Mortgage Loans
Section 3.01. The Servicer.................................................................6
Section 3.02. Collection of Certain Mortgage Loan Payments.................................7
Section 3.03. Withdrawals from the Collection Account......................................9
Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses...............11
Section 3.05. Modification Agreements.....................................................12
Section 3.06. Trust Estate; Related Documents.............................................12
Section 3.07. Realization Upon Defaulted Mortgage Loans...................................13
Section 3.08. Company and Indenture Trustee to Cooperate..................................14
Section 3.09. Servicing Compensation; Payment of Certain Expenses by Servicer.............15
Section 3.10. Annual Statement as to Compliance...........................................15
Section 3.11. Annual Servicing Report.....................................................16
Section 3.12. Access to Certain Documentation and Information Regarding the
Mortgage Loans..............................................................16
Section 3.13. Maintenance of Certain Servicing Insurance Policies.........................17
Section 3.14. Information Required by the Internal Revenue Service Generally and
Reports of Foreclosures and Abandonments of Mortgaged Property..............17
Section 3.15. Optional Repurchase of Defaulted Mortgage Loans.............................17
i
<PAGE>
Page
ARTICLE IV
Servicing Certificate
Section 4.01. Statements to Securityholders...............................................18
ARTICLE V
Distribution and Payment Accounts
Section 5.01. Distribution Account........................................................20
Section 5.02. Payment Account.............................................................20
ARTICLE VI
The Servicer
Section 6.01. Liability of the Servicer...................................................22
Section 6.02. Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer................................................................22
Section 6.03. Limitation on Liability of the Servicer and Others..........................22
Section 6.04. Servicer Not to Resign......................................................23
Section 6.05. Delegation of Duties........................................................24
Section 6.06. Servicer to Pay Indenture Trustee's and Owner Trustee's Fees and
Expenses; Indemnification...................................................24
ARTICLE VII
Default
Section 7.01. Servicing Default...........................................................26
Section 7.02. Indenture Trustee to Act; Appointment of Successor..........................28
Section 7.03. Notification to Securityholders.............................................29
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. Amendment...................................................................30
Section 8.02. GOVERNING LAW...............................................................30
Section 8.03. Notices.....................................................................30
ii
<PAGE>
Page
Section 8.04. Severability of Provisions..................................................30
Section 8.05. Third-Party Beneficiaries...................................................30
Section 8.06. Counterparts................................................................31
Section 8.07. Effect of Headings and Table of Contents....................................31
Section 8.08. Termination Upon Purchase by the Servicer or Liquidation of All
Mortgage Loans..............................................................31
Section 8.09. Certain Matters Affecting the Indenture Trustee.............................31
[Section 8.10. Authority of the Administrator..............................................32
EXHIBIT A - MORTGAGE LOAN SCHEDULE..............................................................................A-1
EXHIBIT B - POWER OF ATTORNEY...................................................................................B-1
EXHIBIT C - CERTIFICATE PURSUANT TO SECTION 3.08................................................................C-1
EXHIBIT D - FORM OF REQUEST FOR RELEASE.........................................................................D-1
Schedule 1 - Mortgage Insurance Component Schedule..............................................................S-1
</TABLE>
iii
<PAGE>
This Servicing Agreement, dated as of _______________, between
[Name of Servicer], as Servicer (the "Servicer") and Ameriquest Mortgage
Securities Inc., as Company (the "Company"),
W I T N E S S E T H T H A T:
----------------------------
WHEREAS, Ameriquest Mortgage Securities Inc., will create
Ameriquest Trust Series ____-__, an owner trust (the "Issuer") under Delaware
law, and will transfer the Mortgage Loans and all of its rights under the
Mortgage Loan Purchase Agreement to the Issuer,;
WHEREAS, pursuant to the terms of a Trust Agreement dated as
of _______________ (the "Owner Trust Agreement") between the Company, as
depositor, and ______________________, as owner trustee (the "Owner Trustee"),
the Company will sell the Mortgage Collateral to Issuer in exchange for the cash
proceeds of the Securities;
WHEREAS, pursuant to the terms of the Trust Agreement between
the Depositor and the Owner Trustee, the Issuer will issue and transfer to or at
the direction of the Depositor, the Mortgage-Backed Certificates, Series ____-__
(the "Certificates");
WHEREAS, pursuant to the terms of an Indenture dated as of
_______________ (the "Indenture") between the Issuer and the Indenture Trustee,
the Issuer will issue and transfer to or at the direction of the Purchaser the
Mortgage-Backed Notes, Series ____-__ (the "Notes"), consisting of the Notes and
secured by the Mortgage Collateral;
WHEREAS, pursuant to the terms of the Mortgage Loan Purchase
Agreement, the Company will acquire the Initial Loans; and
WHEREAS, pursuant to the terms of this Servicing Agreement,
the Servicer will service the Mortgage Loans directly or through one or more
Subservicers;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Servicing
Agreement, except as otherwise expressly provided herein or unless the context
otherwise requires, capitalized terms not otherwise defined herein shall have
the meanings assigned to such terms in the Definitions contained in Appendix A
to the Indenture which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
<PAGE>
Section 1.02. OTHER DEFINITIONAL PROVISIONS. (a) All terms
defined in this Servicing Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) As used in this Servicing Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Servicing Agreement or in any such certificate or other
document, and accounting terms partly defined in this Servicing Agreement or in
any such certificate or other document, to the extent not defined, shall have
the respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this
Servicing Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Servicing Agreement or in any such
certificate or other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Servicing Agreement shall refer to this Servicing
Agreement as a whole and not to any particular provision of this Servicing
Agreement; Section and Exhibit references contained in this Servicing Agreement
are references to Sections and Exhibits in or to this Servicing Agreement unless
otherwise specified; and the term "including" shall mean "including without
limitation".
(d) The definitions contained in this Servicing Agreement are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. INTEREST CALCULATIONS. All calculations of interest
hereunder that are made in respect of the Principal Balance of a Mortgage Loan
shall be made on a daily basis using a 365-day year. All calculations of
interest on the Securities shall be made on the basis of the actual number of
days in an Interest Period and a year assumed to consist of 360 days. The
calculation of the Servicing Fee shall be made on the basis of a 360-day year
consisting of twelve 30-day months. All dollar amounts calculated hereunder
shall be rounded to the nearest penny with one-half of one penny being rounded
down.
2
<PAGE>
ARTICLE II
Representations and Warranties
Section 2.01. REPRESENTATIONS AND WARRANTIES REGARDING THE SERVICER.
The Servicer represents and warrants to Company, the Issuer and for the benefit
of the Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, [the date of the Servicing Agreement],
the Closing Date [and any Deposit Date], that:
(i) The Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
[_______] and has the corporate power to own its assets and to transact
the business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or properties owned or leased by it requires such
qualification and in which the failure to so qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Servicing Agreement and all of the
transactions contemplated under this Servicing Agreement, and has taken
all necessary corporate action to authorize the execution, delivery and
performance of this Servicing Agreement. When executed and delivered,
this Servicing Agreement will constitute the legal, valid and binding
obligation of the Servicer enforceable in accordance with its terms,
except as enforcement of such terms may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally and by the availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent
of any other Person or any consent, license, approval or authorization
from, or registration or declaration with, any governmental authority,
bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Servicing Agreement,
except for such consent, license, approval or authorization, or
registration or declaration, as shall have been obtained or filed, as
the case may be;
(iv) The execution and delivery of this Servicing
Agreement and the performance of the transactions contemplated hereby
by the Servicer will not violate any provision of any existing law or
regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or
before any court, tribunal or governmental body is currently pending,
or to the knowledge of the Servicer threatened, against the Servicer or
any of its properties or with respect to this Servicing Agreement or
the Notes or the Certificates which in the opinion of the Servicer has
a
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reasonable likelihood of resulting in a material adverse effect on the
transactions contemplated by this Servicing Agreement.
The foregoing representations and warranties shall survive any
termination of the Servicer hereunder.
Section 2.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to the Servicer for the benefit of the
Indenture Trustee, as pledgee of the Mortgage Collateral, and the
Securityholders, as of the Cut-Off Date, the Closing Date and any Deposit Date,
that:
(i) The Company is a corporation in good standing under
the laws of the State of ____________;
(ii) The Company has full power, authority and legal
right to execute and deliver this Servicing Agreement and to perform
its obligations under this Servicing Agreement, and has taken all
necessary action to authorize the execution, delivery and performance
by it of this Servicing Agreement; and
(iii) The execution and delivery by the Company of this
Servicing Agreement and the performance by the Company of its
obligations under this Servicing Agreement will not violate any
provision of any law or regulation governing the Company or any order,
writ, judgment or decree of any court, arbitrator or governmental
authority or agency applicable to the Company or any of its assets.
Such execution, delivery, authentication and performance will not
require the authorization, consent or approval of, the giving of notice
to, the filing or registration with, or the taking of any other action
with respect to, any governmental authority or agency regulating the
activities of limited liability companies. Such execution, delivery,
authentication and performance will not conflict with, or result in a
breach or violation of, any mortgage, deed of trust, lease or other
agreement or instrument to which the Company is bound.
Section 2.03. ENFORCEMENT OF REPRESENTATIONS AND WARRANTIES. The
Servicer, on behalf of and subject to the direction of the Indenture Trustee, as
pledgee of the Mortgage Collateral, or the Credit Enhancer, shall enforce the
representations and warranties of the Seller pursuant to the Mortgage Loan
Purchase Agreement. Upon the discovery by the Seller, the Servicer, the
Indenture Trustee, the Credit Enhancer, the Company or any Custodian of a breach
of any of the representations and warranties made in the Mortgage Loan Purchase
Agreement, in respect of any Mortgage Loan which materially and adversely
affects the interests of the Securityholders or the Credit Enhancer, the party
discovering such breach shall give prompt written notice to the other parties
(any Custodian being so obligated under a Custodial Agreement). The Servicer
shall promptly notify the Seller of such breach and request that, pursuant to
the terms of the Mortgage Loan Purchase Agreement, the Seller either (i) cure
such breach in all material respects within 45 days (with respect to a breach of
the representations and warranties contained in Section 3.1(a) of the Mortgage
Loan Purchase Agreement) or 90 days (with respect to a breach of the
representations and warranties contained in Section 3.1(b) of the Mortgage Loan
Purchase Agreement) from the date
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the Seller was notified of such breach or (ii) purchase such Mortgage Loan from
the Company at the price and in the manner set forth in Section 3.1(b) of the
Mortgage Loan Purchase Agreement; PROVIDED that the Seller shall, subject to the
conditions set forth in the Mortgage Loan Purchase Agreement, have the option to
substitute an Eligible Substitute Mortgage Loan or Loans for such Mortgage Loan.
In the event that the Seller elects to substitute one or more Eligible
Substitute Mortgage Loans pursuant to Section 3.1(b) of the Mortgage Loan
Purchase Agreement, the Seller shall deliver to the Company with respect to such
Eligible Substitute Mortgage Loans, the original Mortgage Note, the Mortgage,
and such other documents and agreements as are required by the Mortgage Loan
Purchase Agreement. No substitution will be made in any calendar month after the
Determination Date for such month. Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution shall not be transferred
to the Company and will be retained by the Servicer and remitted by the Servicer
to the Seller on the next succeeding Payment Date provided a payment has been
received by the Company for such month in respect of the Mortgage Loan to be
removed. The Servicer shall amend or cause to be amended the Mortgage Loan
Schedule to reflect the removal of such Mortgage Loan and the substitution of
the Eligible Substitute Mortgage Loans and the Servicer shall promptly deliver
the amended Mortgage Loan Schedule to the Owner Trustee and Indenture Trustee.
It is understood and agreed that the obligation of the Seller to cure
such breach or purchase or substitute for such Mortgage Loan as to which such a
breach has occurred and is continuing shall constitute the sole remedy
respecting such breach available to the Company and the Indenture Trustee, as
pledgee of the Mortgage Collateral, against the Seller. In connection with the
purchase of or substitution for any such Mortgage Loan by the Seller, the
Company shall assign to the Seller all of the right, title and interest in
respect of the Mortgage Loan Purchase Agreement applicable to such Mortgage
Loan. Upon receipt of the Repurchase Price, or upon completion of such
substitution, the applicable Custodian shall deliver the Mortgage Files to the
Servicer, together with all relevant endorsements and assignments.
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ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. THE SERVICER. (a) The Servicer shall service and
administer the Mortgage Loans in the same manner as would prudent institutional
mortgage lenders servicing comparable mortgage loans for their own account in
the jurisdictions where the related Mortgaged Properties are located and in a
manner consistent with the terms of this Servicing Agreement and which shall be
normal and usual in its general mortgage servicing activities and shall have
full power and authority, acting alone or through a subservicer, to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable, it being understood, however, that the Servicer
shall at all times remain responsible to the Company, the Indenture Trustee, as
pledgee of the Mortgage Collateral, and the Securityholders for the performance
of its duties and obligations hereunder in accordance with the terms hereof and
the servicing standard set forth above. Without limiting the generality of the
foregoing, the Servicer shall continue, and is hereby authorized and empowered
by the Company and the Indenture Trustee, as pledgee of the Mortgage Collateral,
to execute and deliver, on behalf of itself, the Company, the Securityholders
and the Indenture Trustee or any of them, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge and all
other comparable instruments with respect to the Mortgage Loans and with respect
to the Mortgaged Properties. The Company, the Indenture Trustee and the
Custodian, as applicable, shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. On the Closing Date, the
Company shall deliver to the Servicer a power of attorney substantially in the
form of Exhibit B hereto.
If the Mortgage relating to a Mortgage Loan did not have a lien senior
on the related Mortgaged Property as of the Cut-Off Date, then the Servicer, in
such capacity, may not consent to the placing of a lien senior to that of the
Mortgage on the related Mortgaged Property. If the Mortgage relating to a
Mortgage Loan had a lien senior to the Mortgage Loan on the related Mort gaged
Property as of the Cut-Off Date, then the Servicer, in such capacity, may
consent to the refinancing of such senior lien; PROVIDED that (i) the resulting
Combined Loan-to-Value Ratio of such Mortgage Loan is no higher than the
Combined Loan-to-Value Ratio prior to such refinancing and (ii) the interest
rate for the loan evidencing the refinanced senior lien on the date of such
refinancing is no higher than the interest rate on the loan evidencing the
existing senior lien immediately prior to the date of such refinancing.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Servicing Agreement) to the Company under this Servicing
Agreement is intended by the parties to be that of an independent contractor and
not that of a joint venturer, partner or agent.
(b) The Servicer has entered into Initial Subservicing Agreements with the
Initial Subservicers for the servicing and administration of the Mortgage Loans
and may enter into additional Subservicing Agreements with Subservicers for the
servicing and administration of certain of the Mortgage Loans.
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References in this Servicing Agreement to actions taken or to be taken by the
Servicer in servicing the Mortgage Loans include actions taken or to be taken by
a Subservicer on behalf of the Servicer and any amount received by such
Subservicer in respect of a Mortgage Loan shall be deemed to have been received
by the Servicer whether or not actually received by the Servicer. Each
Subservicing Agreement will be upon such terms and conditions as are not
inconsistent with this Servicing Agreement and as the Servicer and the
Subservicer have agreed. With the approval of the Servicer, a Subservicer may
delegate its servicing obligations to third-party servicers, but such
Subservicers will remain obligated under the related Subservicing Agreements.
The Servicer and the Subservicer may enter into amendments to the related
Subservicing Agreements; PROVIDED, HOWEVER, that any such amendments shall be
consistent with and not violate the provisions of this Servicing Agreement. The
Servicer shall be entitled to terminate any Subservicing Agreement in accordance
with the terms and conditions thereof and without any limitation by virtue of
this Servicing Agreement; PROVIDED, HOWEVER, that in the event of termination of
any Subservicing Agreement by the Servicer or the Subservicer, the Servicer
shall either act as servicer of the related Mortgage Loan or enter into a
Subservicing Agreement with a successor Subservicer which will be bound by the
terms of the related Subservicing Agreement. The Servicer shall be entitled to
enter into any agreement with a Subservicer for indemnification of the Servicer
and nothing contained in this Servicing Agreement shall be deemed to limit or
modify such indemnification.
In the event that the rights, duties and obligations of the Servicer
are terminated hereunder, any successor to the Servicer in its sole discretion
may, to the extent permitted by applicable law, terminate the existing
Subservicing Agreement with any Subservicer in accordance with the terms of the
applicable Subservicing Agreement or assume the terminated Servicer's rights and
obligations under such subservicing arrangements which termination or assumption
will not violate the terms of such arrangements.
As part of its servicing activities hereunder, the Servicer, for the
benefit of the Company, shall use reasonable efforts to enforce the obligations
of each Subservicer under the related Subservicing Agreement, to the extent that
the non-performance of any such obligation would have material and adverse
effect on a Mortgage Loan. Such enforcement, including, without limitation, the
legal prosecution of claims, termination of Subservicing Agreements and the
pursuit of other appropriate remedies, shall be in such form and carried out to
such an extent and at such time as the Servicer, in its good faith business
judgment, would require were it the owner of the related Mortgage Loans. The
Servicer shall pay the costs of such enforcement at its own expense, and shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement to the extent, if any, that such recovery exceeds all amounts due in
respect of the related Mortgage Loan or (ii) from a specific recovery of costs,
expenses or attorneys fees against the party against whom such enforcement is
directed.
Section 3.02. COLLECTION OF CERTAIN MORTGAGE LOAN PAYMENTS. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Mortgage Loans, and shall, to the extent such
procedures shall be consistent with this Servicing Agreement, follow such
collection procedures as shall be normal and usual in its general mortgage
servicing activities. Consistent with the foregoing, and without limiting the
generality of the foregoing, the Servicer may in its discretion (i) waive any
late payment charge, penalty interest or other fees which
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may be collected in the ordinary course of servicing such Mortgage Loan and (ii)
arrange with a Mortgagor a schedule for the payment of principal and interest
due and unpaid; PROVIDED such arrangement is consistent with the Servicer's
policies with respect to home equity mortgage loans; PROVIDED, FURTHER, that
notwithstanding such arrangement such Mortgage Loans will be included in the
information regarding delinquent Mortgage Loans set forth in the Servicing
Certificate. The Servicer may also extend the Due Date for payment due on a
Mortgage Loan, PROVIDED, HOWEVER, that the Servicer shall first determine that
any such waiver or extension will not adversely affect the lien of the related
Mortgage. Consistent with the terms of this Servicing Agreement, the Servicer
may also waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's determination such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Securityholders or the Credit Enhancer, PROVIDED, HOWEVER, that
the Servicer may not modify or permit any Subservicer to modify any Mortgage
Loan (including without limitation any modification that would change the
Mortgage Rate, forgive the payment of any principal or interest (unless in
connection with the liquidation of the related Mortgage Loan) or extend the
final maturity date of such Mortgage Loan) unless such Mortgage Loan is in
default or, in the judgment of the Servicer, such default is reasonably
foreseeable.
(b) The Servicer shall establish an account (the "Collection Account")
in which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it subsequent to the Cut-Off Date as to any Initial Loan or the
related Deposit Date as to any Additional Loan (other than in respect of the
payments referred to in the following paragraph) within __ Business Day[s]
following receipt thereof (or otherwise on or prior to the Closing Date),
including the following payments and collections received or made by it (without
duplication):
(i) all payments of principal of or interest on the
Mortgage Loans received by the Servicer from the respective
Subservicer, net of any portion of the interest thereof retained by the
Subservicer as Subservicing Fees;
(ii) the aggregate Repurchase Price of the Mortgage
Loans purchased by the Servicer pursuant to Section 3.15;
(iii) Net Liquidation Proceeds net of any related
Foreclosure Profit;
(iv) all proceeds of any Mortgage Loans repurchased by
the Seller pursuant to the Mortgage Loan Purchase Agreement, and all
Substitution Adjustment Amounts required to be deposited in connection
with the substitution of an Eligible Substitute Mortgage Loan pursuant
to the Mortgage Loan Purchase Agreement;
(v) insurance proceeds, other than Net Liquidation
Proceeds, resulting from any insurance policy maintained on a Mortgaged
Property; and
(vi) amounts required to be paid by the Servicer
pursuant to Section 8.08.
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PROVIDED, HOWEVER, that with respect to each Collection Period, the Servicer
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties,
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments and similar items. In the event any amount not required to be
deposited in the Collection Account is so deposited, the Servicer may at any
time withdraw such amount from the Collection Account, any provision herein to
the contrary notwithstanding. The Collection Account may contain funds that
belong to one or more trust funds created for the notes or certificates of other
series and may contain other funds respecting payments on mortgage loans
belonging to the Servicer or serviced or serviced by it on behalf of others.
Notwithstanding such commingling of funds, the Servicer shall keep records that
accurately reflect the funds on deposit in the Collection Account that have been
identified by it as being attributable to the Mortgage Loans and shall hold all
collections in the Collection Account to the extent they represent collections
on the Mortgage Loans for the benefit of the Company, the Indenture Trustee, the
Securityholders and the Credit Enhancer, as their interests may appear. The
Servicer shall remit all Foreclosure Profits to itself as additional servicing
compensation.
The Servicer may cause the institution maintaining the Collection
Account to invest any funds in the Collection Account in Eligible Investments
(including obligations of the Servicer or any of its Affiliates, if such
obligations otherwise qualify as Eligible Investments), which shall mature not
later than the Business Day next preceding the Payment Date and shall not be
sold or disposed of prior to its maturity. Except as provided above, all income
and gain realized from any such investment shall be for the benefit of the
Servicer and shall be subject to its withdrawal or order from time to time. The
amount of any losses incurred in respect of the principal amount of any such
investments shall be deposited in the Collection Account by the Servicer out of
its own funds immediately as realized.
(c) The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts meeting the requirements of an Eligible
Account, and invested in Eligible Investments, unless, all such collections are
remitted on a daily basis to the Servicer for deposit into the Collection
Account.
Section 3.03. WITHDRAWALS FROM THE COLLECTION ACCOUNT. The Servicer
shall, from time to time as provided herein, make withdrawals from the
Collection Account of amounts on deposit therein pursuant to Section 3.02 that
are attributable to the Mortgage Loans for the following purposes:
(i) to deposit in the Distribution Account, on the
Business Day prior to each Payment Date, an amount equal to the
Security Collections required to be distributed on such Payment Date;
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(ii) to the extent deposited to the Collection Account,
to reimburse itself or the related Subservicer for previously
unreimbursed expenses incurred in maintaining individual insurance
policies pursuant to Section 3.04, or Liquidation Expenses, paid
pursuant to Section 3.07 or otherwise reimbursable pursuant to the
terms of this Servicing Agreement (to the extent not payable pursuant
to Section 3.09), such withdrawal right being limited to amounts
received on particular Mortgage Loans (other than any Repurchase Price
in respect thereof) which represent late recoveries of the payments for
which such advances were made, or from related Liquidation Proceeds or
the proceeds of the purchase of such Mortgage Loan;
(iii) to pay to itself out of each payment received on
account of interest on a Mortgage Loan as contemplated by Section 3.09,
an amount equal to the related Servicing Fee (to the extent not
retained pursuant to Section 3.02), and to pay to any Subservicer any
Subservicing Fees not previously withheld by the Subservicer;
(iv) to the extent deposited in the Collection Account
to pay to itself as additional servicing compensation any interest or
investment income earned on funds deposited in the Collection Account
and Payment Account that it is entitled to withdraw pursuant to
Sections 3.02(b) and 5.01;
(v) to the extent deposited in the Collection Account,
to pay to itself as additional servicing compensation any Foreclosure
Profits;
(vi) to pay to itself or the Seller, with respect to any
Mortgage Loan or property acquired in respect thereof that has been
purchased or otherwise transferred to the Seller, the Servicer or other
entity, all amounts received thereon and not required to be distributed
to Securityholders as of the date on which the related Purchase Price
or Repur chase Price is determined;
(vii) to withdraw any other amount deposited in the
Collection Account that was not required to be deposited therein
pursuant to Section 3.02;
(viii) to pay to the Seller the amount, if any, deposited
in the Collection Account by the Indenture Trustee upon release thereof
from the Funding Account representing payments for Additional Loans;
and
(ix) after the occurrence of an Amortization Event, to
pay to the Seller, the Excluded Amount.
Since, in connection with withdrawals pursuant to clauses (iii), (iv), (vi) and
(vii), the Servicer's entitlement thereto is limited to collections or other
recoveries on the related Mortgage Loan, the Servicer shall keep and maintain
separate accounting, on a Mortgage Loan by Mortgage Loan basis, for the purpose
of justifying any withdrawal from the Collection Account pursuant to such
clauses. Notwithstanding any other provision of this Servicing Agreement, the
Servicer shall be entitled to reimburse itself for any previously unreimbursed
expenses incurred pursuant to Section 3.07 or
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otherwise reimbursable pursuant to the terms of this Servicing Agreement that
the Servicer determines to be otherwise nonrecoverable (except with respect to
any Mortgage Loan as to which the Repurchase Price has been paid), by withdrawal
from the Collection Account of amounts on deposit therein attributable to the
Mortgage Loans on any Business Day prior to the Payment Date succeeding the date
of such determination.
Section 3.04. MAINTENANCE OF HAZARD INSURANCE; PROPERTY PROTECTION
EXPENSES. The Servicer shall cause to be maintained for each Mortgage Loan
hazard insurance naming the Servicer or related Subservicer as loss payee
thereunder providing extended coverage in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan from time to time or (ii) the combined principal balance owing on
such Mortgage Loan and any mortgage loan senior to such Mortgage Loan from time
to time. The Servicer shall also cause to be maintained on property acquired
upon foreclosure, or deed in lieu of foreclosure, of any Mortgage Loan, fire
insurance with extended coverage in an amount which is at least equal to the
amount necessary to avoid the application of any co-insurance clause contained
in the related hazard insurance policy. Amounts collected by the Servicer under
any such policies (other than amounts to be applied to the restoration or repair
of the related Mortgaged Property or property thus acquired or amounts released
to the Mortgagor in accordance with the Servicer's normal servicing procedures)
shall be deposited in the Collection Account to the extent called for by Section
3.02. In cases in which any Mortgaged Property is located at any time during the
life of a Mortgage Loan in a federally designated flood area, the hazard
insurance to be maintained for the related Mortgage Loan shall include flood
insurance (to the extent available). All such flood insurance shall be in
amounts equal to the lesser of (i) the amount required to compensate for any
loss or damage to the Mortgaged Property on a replacement cost basis and (ii)
the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program). The
Servicer shall be under no obligation to require that any Mortgagor maintain
earthquake or other additional insurance and shall be under no obligation itself
to maintain any such additional insurance on property acquired in respect of a
Mortgage Loan, other than pursuant to such applicable laws and regulations as
shall at any time be in force and as shall require such additional insurance. If
the Servicer shall obtain and maintain a blanket policy consistent with its
general mortgage servicing activities insuring against hazard losses on all of
the Mortgage Loans, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with the first sentence of
this Section 3.04 and there shall have been a loss which would have been covered
by such policy, deposit in the Collection Account the amount not otherwise
payable under the blanket policy because of such deductible clause. Any such
deposit by the Servicer shall be made on the last Business Day of the Collection
Period in the month in which payments under any such policy would have been
deposited in the Collection Account. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Company, the Issuer, the Indenture Trustee and
the Securityholders, claims under any such blanket policy.
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Section 3.05. MODIFICATION AGREEMENTS. The Servicer or the related
Subservicer, as the case may be, shall be entitled to (A) execute assumption
agreements, substitution agreements, and instruments of satisfaction or
cancellation or of partial or full release or discharge, or any other document
contemplated by this Servicing Agreement and other comparable instruments with
respect to the Mortgage Loans and with respect to the Mortgaged Properties
subject to the Mortgages (and the Company shall promptly execute any such
documents on request of the Servicer) and (B) approve the granting of an
easement thereon in favor of another Person, any alteration or demolition of the
related Mortgaged Property or other similar matters, if it has determined,
exercising its good faith business judgment in the same manner as it would if it
were the owner of the related Mortgage Loan, that the security for, and the
timely and full collectability of, such Mortgage Loan would not be adversely
affected thereby. A partial release pursuant to this Section 3.05 shall be
permitted only if the Combined Loan-to-Value Ratio for such Mortgage Loan after
such partial release does not exceed the Combined Loan-to-Value Ratio for such
Mortgage Loan as of the Cut-Off Date. Any fee collected by the Servicer or the
related Subservicer for processing such request will be retained by the Servicer
or such Subservicer as additional servicing compensation.
Section 3.06. TRUST ESTATE; RELATED DOCUMENTS. (a) When required by the
provisions of this Servicing Agreement, the Company shall execute instruments to
release property from the terms of this Servicing Agreement, or convey the
Company's interest in the same, in a manner and under circumstances which are
not inconsistent with the provisions of this Servicing Agreement. No party
relying upon an instrument executed by the Company as provided in this Article
III shall be bound to ascertain the Company's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) If from time to time the Servicer shall deliver to the Company or
the related Custodian copies of any written assurance, assumption agreement or
substitution agreement or other similar agreement pursuant to Section 3.05, the
Company or the related Custodian shall check that each of such documents
purports to be an original executed copy (or a copy of the original executed
document if the original executed copy has been submitted for recording and has
not yet been returned) and, if so, shall file such documents, and upon receipt
of the original executed copy from the applicable recording office or receipt of
a copy thereof certified by the applicable recording office shall file such
originals or certified copies with the Related Documents. If any such documents
submitted by the Servicer do not meet the above qualifications, such documents
shall promptly be returned by the Company or the related Custodian to the
Servicer, with a direction to the Servicer to forward the correct documentation.
(c) Upon Company Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 3.09 of this Servicing Agreement to the effect that
a Mortgage Loan has been the subject of a final payment or a prepayment in full
and the related Mortgage Loan has been terminated or that substantially all
Liquidation Proceeds which have been determined by the Servicer in its
reasonable judgment to be finally recoverable have been recovered, and upon
deposit to the Collection Account of such final monthly payment, prepayment in
full together with accrued and unpaid interest to the date of such payment with
respect to such Mortgage Loan or, if applicable, Liquidation Proceeds, the
Company shall promptly release the Related Documents to the Servicer, along with
such documents as the Servicer or the Mortgagor may request as contemplated by
the
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Servicing Agreement to evidence satisfaction and discharge of such Mortgage
Loan. If from time to time and as appropriate for the servicing or foreclosure
of any Mortgage Loan, the Servicer requests the Company or the related Custodian
to release the Related Documents and delivers to the Company or the related
Custodian a trust receipt reasonably satisfactory to the Company or the related
Custodian and signed by a Responsible Officer of the Servicer, the Company or
the related Custodian shall release the Related Documents to the Servicer. If
such Mortgage Loans shall be liquidated and the Company or the related Custodian
receives a certificate from the Servicer as provided above, then, upon request
of the Company or the related Custodian shall release the trust receipt to the
Servicer.
Section 3.07. REALIZATION UPON DEFAULTED MORTGAGE LOANS. With respect
to such of the Mortgage Loans as come into and continue in default, the Servicer
will decide whether to foreclose upon the Mortgaged Properties securing such
Mortgage Loans or write off the unpaid principal balance of the Mortgage Loans
as bad debt; PROVIDED that if the Servicer has actual knowledge that any
Mortgaged Property is affected by hazardous or toxic wastes or substances and
that the acquisition of such Mortgaged Property would not be commercially
reasonable, then the Servicer will not cause the Company to acquire title to
such Mortgaged Property in a foreclosure or similar proceeding. In connection
with such foreclosure or other conversion, the Servicer shall follow such
practices (including, in the case of any default on a related senior mortgage
loan, the advancing of funds to correct such default) and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
mortgage servicing activities; PROVIDED that the Servicer shall not be liable in
any respect hereunder if the Servicer is acting in connection with any such
foreclosure or attempted foreclosure which is not completed or other conversion
in a manner that is consistent with the provisions of this Servicing Agreement.
The foregoing is subject to the proviso that the Servicer shall not be required
to expend its own funds in connection with any foreclosure or attempted
foreclosure which is not completed or towards the correction of any default on a
related senior mort gage loan or restoration of any property unless it shall
determine that such expenditure will increase Net Liquidation Proceeds. In the
event of a determination by the Servicer that any such expenditure previously
made pursuant to this Section 3.07 will not be reimbursable from Net Liquidation
Proceeds, the Servicer shall be entitled to reimbursement of its funds so
expended pursuant to Section 3.03.
Notwithstanding any provision of this Servicing Agreement, a Mortgage
Loan may be deemed to be finally liquidated if substantially all amounts
expected by the Servicer to be received in connection with the related defaulted
Mortgage Loan have been received; PROVIDED, HOWEVER, any subsequent collections
with respect to any such Mortgage Loan shall be deposited to the Collection
Account. For purposes of determining the amount of any Liquidation Proceeds or
Insurance Proceeds, or other unscheduled collections, the Servicer may take into
account minimal amounts of additional receipts expected to be received or any
estimated additional liquidation expenses expected to be incurred in connection
with the related defaulted Mortgage Loan.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Company and the Indenture Trustee as their interests may
appear, or to their respective nominee on behalf of Securityholders.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such
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Mortgaged Property shall (except as otherwise expressly provided herein) be
considered to be an outstanding Mortgage Loan held as an asset of the Company
until such time as such property shall be sold. Consistent with the foregoing
for purposes of all calculations hereunder, so long as such Mortgaged Property
shall be considered to be an outstanding Mortgage Loan it shall be assumed that,
notwithstanding that the indebtedness evidenced by the related Mortgage Note
shall have been discharged, such Mortgage Note in effect at the time of any such
acquisition of title before any adjustment thereto by reason of any bankruptcy
or similar proceeding or any moratorium or similar waiver or grace period will
remain in effect.
Any proceeds from foreclosure proceedings or the purchase or repurchase
of any Mortgage Loan pursuant to the terms of this Servicing Agreement, as well
as any recovery resulting from a collection of Liquidation Proceeds or Insurance
Proceeds, will be applied in the following order of priority: first, to
reimburse the Servicer or the related Subservicer in accordance with Section
3.07; second, to all Servicing Fees payable therefrom; third, to the extent of
accrued and unpaid interest on the related Mortgage Loan, at the Net Mortgage
Rate to the Due Date prior to the Payment Date on which such amounts are to be
deposited in the Payment Account; fourth, as a recovery of principal on the
Mortgage Loan; and fifth, to Foreclosure Profits.
Section 3.08. COMPANY AND INDENTURE TRUSTEE TO COOPERATE. On or before
each Payment Date, the Servicer will notify the Indenture Trustee or the
relevant Custodian, with a copy to the Company, of the termination of or the
payment in full and the termination of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification in
substantially the form attached hereto as Exhibit C (which certification shall
include a statement to the effect that all amounts received in connection with
such payment which are required to be deposited in the Collection Account
pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon receipt of payment in full, the Servicer is authorized to execute,
pursuant to the authorization contained in Section 3.01, if the assignments of
Mortgage have been recorded as required under the Mortgage Loan Purchase
Agreement, an instrument of satisfaction regarding the related Mortgage, which
instrument of satisfaction shall be recorded by the Servicer if required by
applicable law and be delivered to the Person entitled thereto. It is understood
and agreed that any expenses incurred in connection with such instrument of
satisfaction or transfer shall be reimbursed from amounts deposited in the
Collection Account. From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Indenture Trustee or the relevant
Custodian shall, upon request of the Servicer and delivery to the Indenture
Trustee or relevant Custodian, with a copy to the Company, of a Request for
Release, in the form annexed hereto as Exhibit D, signed by a Servicing Officer,
release or cause to be released the related Mortgage File to the Servicer and
the Company and Indenture Trustee shall promptly execute such documents, in the
forms provided by the Servicer, as shall be necessary for the prosecution of any
such proceedings or the taking of other servicing actions. Such trust receipt
shall obligate the Servicer to return the Mortgage File to the Indenture Trustee
or the related Custodian (as specified in such receipt) when the need therefor
by the Servicer no longer exists unless the Mortgage Loan shall be liquidated,
in which case, upon receipt of a certificate of a Servicing Officer similar to
that hereinabove specified, the trust receipt shall be released to the Servicer.
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In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the assignments of
Mortgage in accordance with the provisions of the Mortgage Loan Purchase
Agreement, the Company shall, if so requested in writing by the Servicer,
promptly execute an appropriate assignment in the form provided by the Servicer
to assign such Mortgage Loan for the purpose of collection to the Servicer (any
such assignment shall unambiguously indicate that the assignment is for the
purpose of collection only), and, upon such assignment, such assignee for
collection will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit or credit the Net
Liquidation Pro ceeds, exclusive of Foreclosure Profits, received with respect
thereto in the Collection Account. In the event that all delinquent payments due
under any such Mortgage Loan are paid by the Mortgagor and any other defaults
are cured then the assignee for collection shall promptly reassign such Mortgage
Loan to the Company and return all Related Documents to the place where the
related Mortgage File was being maintained.
In connection with the Company's obligation to cooperate as provided in
this Section 3.08 and all other provisions of this Servicing Agreement requiring
the Company to authorize or permit any actions to be taken with respect to the
Mortgage Loans, the Indenture Trustee, as pledgee of the Mortgage Collateral in
the Company, expressly agrees, on behalf of the Company, to take all such
actions on behalf of the Company and to promptly execute and return all
instruments reasonably required by the Servicer in connection therewith;
PROVIDED that if the Servicer shall request a signature of the Indenture
Trustee, on behalf of the Company, the Servicer will deliver to the Indenture
Trustee an Officer's Certificate stating that such signature is necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Servicing Agreement.
Section 3.09. SERVICING COMPENSATION; PAYMENT OF CERTAIN EXPENSES BY
SERVICER. The Servicer shall be entitled to receive the Servicing Fee in
accordance with Section 3.03 as compen sation for its services in connection
with servicing the Mortgage Loans. Moreover, additional servicing compensation
in the form of late payment charges and certain other receipts not required to
be deposited in the Collection Account as specified in Section 3.02 shall be
retained by the Servicer. The Servicer shall be required to pay all expenses
incurred by it in connection with its activities hereunder (including payment of
all other fees and expenses not expressly stated hereunder to be for the account
of the Securityholders, including, without limitation, the fees and expenses of
the Administrator, Owner Trustee, Indenture Trustee and any Custodian) and shall
not be entitled to reimbursement therefor except as specifically provided
herein.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. (a) The Servicer will
deliver to the Company, the Issuer and the Indenture Trustee, with a copy to the
Credit Enhancer, on or before ________ of each year, beginning ________, ____,
an Officer's Certificate stating that (i) a review of the activities of the
Servicer during the preceding fiscal year and of its performance under this
Servicing Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled all its material obligations under this Servicing Agreement in all
material respects throughout such fiscal year, or, if there has been a material
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof and (iii) to the best of
such officer's knowledge, based on
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consultation with counsel, any continuation Uniform Commercial Code financing
statement or other Uniform Commercial Code financing statement during the
preceding fiscal year which the Servicer determined was necessary to be filed
was filed in order to continue protection of the interest of the Company in the
Mortgage Loans. In addition, the Servicer shall deliver or cause each
Subservicer to deliver to the Indenture Trustee, the Company, the Issuer, the
Depositor and the Credit Enhancer a copy of each certification, accountant's
report or other document upon which the foregoing Officer's Certificate is based
with respect to such Subservicer's performance.
(b) The Servicer shall deliver to the Company, the Issuer and the
Indenture Trustee, with a copy to the Credit Enhancer, promptly after having
obtained knowledge thereof, but in no event later than five Business Days
thereafter, written notice by means of an Officer's Certificate of any event
which with the giving of notice or the lapse of time or both, would become a
Servicer of Default.
Section 3.11. ANNUAL SERVICING REPORT. On or before ________ of each
year, beginning ________, ____, the Servicer at its expense shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Company, the Issuer,
the Indenture Trustee, the Depositor, the Credit Enhancer and each Rating Agency
to the effect that such firm has examined certain documents and records relating
to the servicing of mortgage loans by the Servicer during the most recent
calendar year then ended under servicing agreements (including this Servicing
Agreement) substantially similar to this Servicing Agreement and that such
examination, which has been conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements), has disclosed no items of
noncompliance with the provisions of this Servicing Agreement which, in the
opinion of such firm, are material, except for such items of noncompliance as
shall be set forth in such report. In rendering such statement, such firm may
rely, as to matters relating to direct servicing of mortgage loans by
Subservicers, upon comparable statements for examinations conducted
substantially in the manner described above (rendered within one year of such
statement) of independent public accountants with respect to the related
Subservicer. For purposes of such statement, such firm may conclusively assume
that all servicing agreements among the Company and the Servicer relating to
home equity mortgage loans are substantially similar one to another except for
any such servicing agreement which, by its terms, specifically states otherwise.
Section 3.12. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE MORTGAGE LOANS. Whenever required by statute or regulation, the Servicer
shall provide to the Credit Enhancer, any Securityholder upon reasonable request
(or a regulator for a Securityholder) or the Indenture Trustee, reasonable
access to the documentation regarding the Mortgage Loans such access being
afforded without charge but only upon reasonable request and during normal
business hours at the offices of the Servicer. Nothing in this Section 3.12
shall derogate from the obligation of the Servicer to observe any applicable law
prohibiting disclosure of information regarding the Mortgagors and the failure
of the Servicer to provide access as provided in this Section 3.12 as a result
of such obligation shall not constitute a breach of this Section 3.12.
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Section 3.13. MAINTENANCE OF CERTAIN SERVICING INSURANCE POLICIES. The
Servicer shall during the term of its service as servicer maintain in force (i)
a policy or policies of insurance covering errors and omissions in the
performance of its obligations as servicer hereunder and (ii) a fidelity bond in
respect of its officers, employees or agents. Each such policy or policies and
bond shall be at least equal to the coverage that would be required by FNMA or
FHLMC, whichever is greater, for Persons performing servicing for mortgage loans
purchased by such entity.
Section 3.14. INFORMATION REQUIRED BY THE INTERNAL REVENUE SERVICE
GENERALLY AND REPORTS OF FORECLOSURES AND ABANDONMENTS OF MORTGAGED PROPERTY.
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer or Subservicer shall make reports of foreclosures
and abandonments of any Mortgaged property for each year beginning in ____, the
Servicer or Subservicer shall file reports relating to each instance occurring
during the previous calendar year in which the Servicer (i) on behalf of the
Company, acquires an interest in any Mortgaged Property through foreclosure or
other comparable conversion in full or partial satisfaction of a Mortgage Loan,
or (ii) knows or has reason to know that any Mortgaged Property has been
abandoned. The reports from the Servicer or Subservicer shall be in form and
substance sufficient to meet the reporting requirements imposed by Section 6050J
and Section 6050H (reports relating to mortgage interest received) of the Code.
Section 3.15. OPTIONAL REPURCHASE OF DEFAULTED MORTGAGE LOANS.
Notwithstanding any provision in Section 3.07 to the contrary, the Servicer may
repurchase any Mortgage Loan delinquent in payment for a period of 60 days or
longer for a price equal to the Repurchase Price.
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ARTICLE IV
Servicing Certificate
Section 4.01. STATEMENTS TO SECURITYHOLDERS. (a) With respect to each
Payment Date, the Servicer shall forward to the Indenture Trustee and the
Indenture Trustee pursuant to Section 3.26 of the Indenture shall forward or
cause to be forwarded by mail to each Certificateholder, Noteholder, the Credit
Enhancer, the Depositor, the Owner Trustee, the Certificate Paying Agent and
each Rating Agency, a statement setting forth the following information as to
the Notes and Certificates, to the extent applicable:
(i) the aggregate amount of (a) Security Interest
Collections with respect to the Notes and the Certificates, (b)
aggregate Security Principal Collections with respect to the Notes and
the Certificates and (c) Security Collections for the related
Collection Period with respect to the Notes and the Certificates;
(ii) the amount of such distribution to the
Securityholders of the Notes and the Certificates applied to reduce the
principal balance thereof and separately stating the portion thereof in
respect of the Accelerated Principal Distribution Amount and the amount
to be deposited in the Funding Account on such Payment Date;
(iii) the amount of such distribution to the
Securityholders of the Notes and the Certificates allocable to interest
and separately stating the portion thereof in respect of overdue
accrued interest;
(iv) the Credit Enhancement Draw Amount, if any, for such
Payment Date and the aggregate amount of prior draws thereunder not yet
reimbursed;
(v) the aggregate Principal Balance of (a) the ________
Loans, (b) the ______ Loans, (c) the _________ Loans, as of the end of
the preceding Collection Period and (d) all of the Mortgage Loans;
(vi) the number and aggregate Principal Balances of
Mortgage Loans (a) as to which the Minimum Monthly Payment is
delinquent for 30-59 days, 60-89 days, 90-179 days and 180 or more
days, respectively and (b) that have become REO, in each case as of the
end of the preceding Collection Period; PROVIDED, HOWEVER, that such
information will not be provided on the statements relating to the
first Payment Date;
(vii) the Weighted Average Net Mortgage Rate for the
related Collection Period and the Weighted Average Net Mortgage Rate
for (a) the ________ Loans, (b) the _______Loans and (c) the _________
Loans for the related Collection Period;
(viii) the Special Capital Distribution Amount and the
Required Special Capital Distribution Amount, in each case as the end
of the related Collection Period; and
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(ix) the aggregate amount of Additional Loans acquired
during the previous Collection Period with amounts in respect of Net
Principal Collections from the Funding Account;
(x) the aggregate Liquidation Loss Amounts with respect
to the related Collection Period, the amount of any remaining Carryover
Loss Amount with respect to the Notes and Certificates, respectively,
and the aggregate of the Liquidation Loss Amounts from all Collection
Periods to date expressed as a percentage of the sum of (a) the Cut-Off
Date Pool Balance and (b) the amount by which the Pool Balance as of
the latest date that the Additional Loans have been transferred to the
Company exceeds the Cut-Off Date Pool Balance;
(xi) any unpaid interest on the Notes and Certificates,
respectively, after such Distribution Date;
(xii) the aggregate Principal Balance of each Class of
Notes and of the Certificates after giving effect to the distribution
of principal on such Payment Date;
(xiii) the respective Security Percentage applicable to the
Notes and Certificates, after application of payments made on such
Payment Date; and
(xiv) the amount distributed pursuant to Section
3.05(a)(xi) of the Indenture on such Payment Date.
In the case of information furnished pursuant to clauses (ii) and (iii)
above, the amounts shall be expressed as an aggregate dollar amount per Note or
Certificate with a $1,000 denomination.
Prior to the close of business on the Business Day next succeeding each
Determination Date, the Servicer shall furnish a written statement to the
Company, the Owner Trustee, the Depositor, the Certificate Paying Agent and the
Indenture Trustee setting forth (i) all the foregoing information, (ii) the
aggregate amounts required to be withdrawn from the Collection Account and
deposited into the Payment Account on the Business Day preceding the Payment
Date pursuant to Section 3.03 and (iii) the amounts (A) withdrawn from the
Payment Account and deposited to the Funding Account pursuant to Section 8.02(b)
of the Indenture and (B) withdrawn from the Funding Account and deposited to the
Collection Account pursuant to Section 8.02(c)(i) of the Indenture. The deter
mination by the Servicer of such amounts shall, in the absence of obvious error,
be presumptively deemed to be correct for all purposes hereunder and the Owner
Trustee and Indenture Trustee shall be protected in relying upon the same
without any independent check or verification. In addition, upon the Company's
written request, the Servicer shall promptly furnish information reasonably
requested by the Company that is reasonably available to the Servicer to enable
the Company to perform its federal and state income tax reporting obligations.
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ARTICLE V
Distribution and Payment Accounts
Section 5.01. DISTRIBUTION ACCOUNT. The Servicer shall establish and
maintain a separate trust account (the "Distribution Account") titled
"Ameriquest Trust Series ____-__, [for the benefit of the Noteholders, the
Certificateholders and the Credit Enhancer pursuant to the Indenture, dated as
of _______________, between Ameriquest Trust Series ____-__ and [Name of
Indenture Trustee]. The Distribution Account shall be an Eligible Account. On
the Business Day prior to each Payment Date, (i) amounts deposited into the
Distribution Account pursuant to Section 3.03(i) hereof will be distributed by
the Servicer in accordance with Section ____ of the [Trust] Agreement, and (ii)
the portion of such amounts then distributable with respect to the Mortgage
Collateral shall be deposited into the Payment Account. [The Servicer shall
invest or cause the institution maintaining the Distribution Account to invest
the funds in the Distribution Account in Eligible Investments designated in the
name of the [Servicer], which shall mature not later than the Business Day next
preceding the Payment Date next following the date of such investment (except
that (i) any investment in the institution with which the Distribution Account
is maintained may mature on such Payment Date and (ii) any other investment may
mature on such Payment Date if the Servicer shall advance funds on such Payment
Date to the Payment Account in the amount payable on such investment on such
Payment Date, pending receipt thereof to the extent necessary to make
distributions on the Securities) and shall not be sold or disposed of prior to
maturity. All income and gain realized from any such investment shall be for the
benefit of the Servicer and shall be subject to its withdrawal or order from
time to time. The amount of any losses incurred in respect of any such
investments shall be deposited in the Distribution Account by the Servicer out
of its own funds immediately as realized.]
Section 5.02. PAYMENT ACCOUNT. The Indenture Trustee shall establish
and maintain a separate trust account (the "Payment Account") titled
"__________________________________, as Indenture Trustee, for the benefit of
the Noteholders, the Certificate Paying Agent and the Credit Enhancer pursuant
to the Indenture, dated as of _______________, between Ameriquest Trust Series
____-__ and __________________________________". The Payment Account shall be an
Eligible Account. On each Payment Date, amounts on deposit in the Payment
Account will be distributed by the Indenture Trustee in accordance with Section
3.05 of the Indenture. The Indenture Trustee shall, upon written request from
the Servicer, invest or cause the institution maintaining the Payment Account to
invest the funds in the Payment Account in Eligible Investments designated in
the name of the Indenture Trustee, which shall mature not later than the
Business Day next preceding the Payment Date next following the date of such
investment (except that (i) any investment in the institution with which the
Payment Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Payment Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Securities) and shall not be sold or
disposed of prior to maturity. All income and gain realized from any such
investment shall be for the benefit of the Servicer and shall be subject to its
withdrawal or order from time to time. The amount of any losses incurred in
respect of any such investments shall be deposited in the Payment Account by the
Servicer out of its own funds immediately as realized.
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ARTICLE VI
The Servicer
Section 6.01. LIABILITY OF THE SERVICER. The Servicer shall be liable
in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Servicer herein.
Section 6.02. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, THE SERVICER. Any corporation into which the Servicer may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer
shall be a party, or any corporation succeeding to the business of the Servicer,
shall be the successor of the Servicer, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
The Servicer may assign its rights and delegate its duties and
obligations under this Servicing Agreement; PROVIDED that the Person accepting
such assignment or delegation shall be a Person which is qualified to service
mortgage loans on behalf of FNMA or FHLMC, is reasonably satisfactory to the
Indenture Trustee (as pledgee of the Mortgage Collateral), the Company and the
Credit Enhancer, is willing to service the Mortgage Loans and executes and
delivers to the Indenture Trustee and the Company an agreement, in form and
substance reasonably satisfactory to the Credit Enhancer, the Indenture Trustee
and the Company, which contains an assumption by such Person of the due and
punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer under this Servicing Agreement; PROVIDED
further that each Rating Agency's rating of the Securities in effect immediately
prior to such assignment and delegation will not be qualified, reduced, or
withdrawn as a result of such assignment and delegation (as evidenced by a
letter to such effect from each Rating Agency) or considered to be below
investment grade without taking into account the Credit Enhancement Instrument.
Section 6.03. LIMITATION ON LIABILITY OF THE SERVICER AND OTHERS.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Company, the Issuer, the
Owner Trustee, the Indenture Trustee or the Securityholders for any action taken
or for refraining from the taking of any action in good faith pursuant to this
Servicing Agreement, PROVIDED, HOWEVER, that this provision shall not protect
the Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of its duties hereunder or by reason of its reckless disregard
of its obligations and duties hereunder. The Servicer and any director or
officer or employee or agent of the Servicer may rely in good faith on any
document of any kind PRIMA FACIE properly executed and submitted by any Person
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Company
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Servicing Agreement or the Securities,
including any amount paid to the Owner Trustee or the Indenture Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to this Servicing Agreement)
and any loss,
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liability or expense incurred by reason of its willful misfeasance, bad faith or
gross negligence in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Servicer shall
not be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties to service the Mortgage Loans in
accordance with this Servicing Agreement, and which in its opinion may involve
it in any expense or liability; PROVIDED, HOWEVER, that the Servicer may in its
sole discretion undertake any such action which it may deem necessary or
desirable in respect of this Servicing Agreement, and the rights and duties of
the parties hereto and the interests of the Securityholders hereunder. In such
event, the reasonable legal expenses and costs of such action and any liability
resulting therefrom shall be expenses, costs and liabilities of the Company, and
the Servicer shall be entitled to be reimbursed therefor. The Servicer's right
to indemnity or reimbursement pursuant to this Section 6.03 shall survive any
resignation or termination of the Servicer pursuant to Section 6.04 or 7.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination).
Section 6.04. SERVICER NOT TO RESIGN. Subject to the provisions of
Section 6.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Servicing Agreement or (ii) upon satisfaction of the following conditions: (a)
the Servicer has proposed a successor servicer to the Company, the Administrator
and the Indenture Trustee in writ ing and such proposed successor servicer is
reasonably acceptable to the Company, the Administrator, the Indenture Trustee
and the Credit Enhancer; (b) each Rating Agency shall have delivered a letter to
the Company, the Credit Enhancer and the Indenture Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Securities; and (c) such
proposed successor servicer is reasonably acceptable to the Credit Enhancer, as
evidenced by a letter to the Company and the Indenture Trustee; PROVIDED,
HOWEVER, that no such resignation by the Servicer shall become effective until
such successor servicer or, in the case of (i) above, the Indenture Trustee, as
pledgee of the Mortgage Collateral, shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee, as pledgee
of the Mortgage Collateral, shall have designated a successor servicer in
accordance with Section 7.02. Any such resignation shall not relieve the
Servicer of responsibility for any of the obligations specified in Sections 7.01
and 7.02 as obligations that survive the resignation or termination of the
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Securityholder or the Credit Enhancer for any
amounts paid by the Servicer pursuant to any provision of this Servicing
Agreement. Any such determination permitting the resignation of the Servicer
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Indenture Trustee and the Credit Enhancer.
Section 6.05. DELEGATION OF DUTIES. In the ordinary course of business,
the Servicer at any time may delegate any of its duties hereunder to any Person,
including any of its Affiliates, who agrees to conduct such duties in accordance
with standards comparable to those with which the
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Servicer complies pursuant to Section 3.01. Such delegation shall not relieve
the Servicer of its liabilities and responsibilities with respect to such duties
and shall not constitute a resignation within the meaning of Section 6.04.
Section 6.06. SERVICER TO PAY INDENTURE TRUSTEE'S AND OWNER TRUSTEE'S
FEES AND EXPENSES; INDEMNIFICATION. (a) The Servicer covenants and agrees to pay
to the Owner Trustee, the Indenture Trustee and any co-trustee of the Indenture
Trustee from time to time, and the Owner Trustee, the Indenture Trustee and any
such co-trustee shall be entitled to, reasonable compensation (which shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust) for all services rendered by each of them in the execution of
the trusts created under the Trust Agreement and the Indenture and in the
exercise and performance of any of the powers and duties under the Trust
Agreement or the Indenture, as the case may be, of the Owner Trustee, the
Indenture Trustee and any co-trustee, and the Servicer will pay or reimburse the
Indenture Trustee and any co-trustee upon request for all reasonable expenses,
disbursements and advances incurred or made by the Indenture Trustee or any
co-trustee in accordance with any of the provisions of this Servicing Agreement
except any such expense, disbursement or advance as may arise from its
negligence or bad faith.
(b) The Servicer agrees to indemnify the Indenture Trustee and the
Owner Trustee for, and to hold the Indenture Trustee and the Owner Trustee, as
the case may be, harmless against, any loss, liability or expense incurred
without negligence or willful misconduct on its part, arising out of, or in
connection with, the acceptance and administration of the Company and the assets
thereof, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against any claim in connection with the exercise
or performance of any of its powers or duties under any Basic Document, provided
that:
(i) with respect to any such claim, the Indenture
Trustee or Owner Trustee, as the case may be, shall have given the
Servicer written notice thereof promptly after the Indenture Trustee or
Owner Trustee, as the case may be, shall have actual knowledge thereof;
(ii) while maintaining control over its own defense, the
Company, the Indenture Trustee or Owner Trustee, as the case may be,
shall cooperate and consult fully with the Servicer in preparing such
defense; and
(iii) notwithstanding anything in this Servicing
Agreement to the contrary, the Servicer shall not be liable for
settlement of any claim by the Indenture Trustee or the Owner Trustee,
as the case may be, entered into without the prior consent of the
Servicer, which consent shall not be unreasonably withheld.
No termination of this Servicing Agreement shall affect the obligations created
by this Section 6.06 of the Servicer to indemnify the Indenture Trustee and the
Owner Trustee under the conditions and to the extent set forth herein.
24
<PAGE>
Notwithstanding the foregoing, the indemnification provided by the
Servicer in this Section 6.06(b) shall not pertain to any loss, liability or
expense of the Indenture Trustee or the Owner Trustee, including the costs and
expenses of defending itself against any claim, incurred in connection with any
actions taken by the Indenture Trustee or the Owner Trustee at the direction of
the Noteholders or Certificateholders, as the case may be, pursuant to the terms
of this Servicing Agreement.
25
<PAGE>
ARTICLE VII
Default
Section 7.01. SERVICING DEFAULT. If any one of the following events
("Servicing Default")shall occur and be continuing:
(i) Any failure by the Servicer to deposit in the
Collection Account, the Funding Account or Payment Account any deposit
required to be made under the terms of this Servicing Agreement which
continues unremedied for a period of five Business Days after the date
upon which written notice of such failure shall have been given to the
Servicer by the Company, the Issuer or the Indenture Trustee or to the
Servicer, the Company, the Issuer and the Indenture Trustee by the
Credit Enhancer; or
(ii) Failure on the part of the Servicer duly to observe
or perform in any material respect any other covenants or agreements of
the Servicer set forth in the Securities or in this Servicing
Agreement, which failure, in each case, materially and adversely
affects the interests of Securityholders or the Credit Enhancer and
which continues unremedied for a period of 45 days after the date on
which written notice of such failure, requiring the same to be
remedied, and stating that such notice is a "Notice of Default"
hereunder, shall have been given to the Servicer by the Company, the
Issuer or the Indenture Trustee or to the Servicer, the Company, the
Issuer and the Indenture Trustee by the Credit Enhancer; or
(iii) The entry against the Servicer of a decree or order
by a court or agency or supervisory authority having jurisdiction in
the premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 60 consecutive days; or
(iv) The Servicer shall voluntarily go into liquidation,
consent to the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to all or substantially all of its property,
or a decree or order of a court, agency or supervisory authority having
jurisdiction in the premises for the appointment of a conservator,
receiver, liquidator or similar person in any insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Servicer and such decree or order shall have
remained in force undischarged, unbonded or unstayed for a period of 60
days; or the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage
of any applicable insolvency or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
26
<PAGE>
(v) Any failure by the Seller (so long as the Seller is
the Servicer) or the Servicer, as the case may be, to pay when due any
amount payable by it under the terms of the Insurance Agreement which
continues unremedied for a period of three (3) Business Days after the
date upon which written notice of such failure shall have been given to
the Seller (so long as the Seller is the Servicer) or the Servicer, as
the case may be; or
(vi) Failure on the part of the Seller or the Servicer
to duly perform in any material respect any covenant or agreement set
forth in the Insurance Agreement, which failure in each case materially
and adversely affects the interests of the Credit Enhancer and
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied,
shall have been given to the Depositor, the Indenture Trustee, the
Seller or the Servicer, as the case may be, by the Credit Enhancer.
then, and in every such case, other than that set forth in (vi) hereof, so long
as a Servicing Default shall not have been remedied by the Servicer, either the
Company, subject to the direction of the Indenture Trustee as pledgee of the
Mortgage Collateral, with the consent of the Credit Enhancer, or the Credit
Enhancer, by notice then given in writing to the Servicer (and to the Company
and the Issuer if given by the Credit Enhancer) and in the case of the event set
forth in (vi) hereof, the Credit Enhancer with the consent of Securityholders at
least 51% of the aggregate Principal Balance of the Notes and the Certificates
may terminate all of the rights and obligations of the Servicer as servicer
under this Servicing Agreement other than its right to receive servicing
compensation and expenses for servicing the Mortgage Loans hereunder during any
period prior to the date of such termination and the Company, subject to the
direction of the Indenture Trustee as pledgee of the Mortgage Collateral, with
the consent of the Credit Enhancer, or the Credit Enhancer may exercise any and
all other remedies available at law or equity. Any such notice to the Servicer
shall also be given to each Rating Agency, the Credit Enhancer, the Company and
the Issuer. On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Servicing Agreement, whether with
respect to the Securities or the Mortgage Loans or otherwise, shall pass to and
be vested in the Company, subject to the direction of the Indenture Trustee as
pledgee of the Mortgage Collateral, pursuant to and under this Section 7.01;
and, without limitation, the Company is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to do or accomplish
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and endorsement of each
Mortgage Loan and related documents, or other wise. The Servicer agrees to
cooperate with the Company in effecting the termination of the respon sibilities
and rights of the Servicer hereunder, including, without limitation, the
transfer to the Indenture Trustee for the administration by it of all cash
amounts relating to the Mortgage Loans that shall at the time be held by the
Servicer and to be deposited by it in the Collection Account, or that have been
deposited by the Servicer in the Collection Account or thereafter received by
the Servicer with respect to the Mortgage Loans. All reasonable costs and
expenses (including, but not limited to, attorneys' fees) incurred in connection
with amending this Servicing Agreement to reflect such succession as Servicer
pursuant to this Section 7.01 shall be paid by the predecessor Servicer (or if
the predecessor Servicer is the Indenture Trustee, the initial Servicer) upon
presentation of reason able documentation of such costs and expenses.
27
<PAGE>
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a payment on a Mortgage Loan which was due prior to the notice terminating
the Servicer's rights and obligations hereunder and received after such notice,
that portion to which the Servicer would have been entitled pursuant to Sections
3.03 and 3.09 as well as its Servicing Fee in respect thereof, and any other
amounts payable to the Servicer hereunder the entitlement to which arose prior
to the termination of its activities hereunder.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 7.01(i) or under Section 7.01(ii) after the applicable grace
periods specified in such Sections, shall not constitute a Servicer Default if
such delay or failure could not be prevented by the exercise of reasonable
diligence by the Servicer and such delay or failure was caused by an act of God
or the public enemy, acts of declared or undeclared war, public disorder,
rebellion or sabotage, epidemics, landslides, lightning, fire, hurricanes,
earthquakes, floods or similar causes. The preceding sentence shall not relieve
the Servicer from using reasonable efforts to perform its respective obligations
in a timely manner in accordance with the terms of this Servicing Agreement and
the Servicer shall provide the Indenture Trustee, the Credit Enhancer and the
Securityholders with notice of such fail ure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee, the Credit Enhancer and the Owner
Trustee in writing of any Servicer Default.
Section 7.02. INDENTURE TRUSTEE TO ACT; APPOINTMENT OF SUCCESSOR. (a)
On and after the time the Servicer receives a notice of termination pursuant to
Section 7.01 or sends a notice pursuant to Section 6.04, the Indenture Trustee
on behalf of the Noteholders shall be the successor in all respects to the
Servicer in its capacity as servicer under this Servicing Agreement and the
trans actions set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof. Nothing in this Servicing Agreement or in
the Trust Agreement shall be construed to permit or require the Indenture
Trustee to (i) succeed to the responsibilities, duties and liabilities of the
initial Servicer in its capacity as Seller under the Mortgage Loan Purchase
Agreement, (ii) be responsible or accountable for any act or omission of the
Servicer prior to the issuance of a notice of termination hereunder, (iii)
require or obligate the Indenture Trustee, in its capacity as successor
Servicer, to purchase, repurchase or substitute any Mortgage Loan, (iv) fund any
losses on any Eligible Investment directed by any other Servicer, or (v) be
responsible for the representations and warranties of the Servicer. As compensa
tion therefor, the Indenture Trustee shall be entitled to such compensation as
the Servicer would have been entitled to hereunder if no such notice of
termination had been given. Notwithstanding the above, (i) if the Indenture
Trustee is unwilling to act as successor Servicer, or (ii) if the Indenture
Trustee is legally unable so to act, the Indenture Trustee on behalf of the
Mortgage Collateral holders may (in the situation described in clause (i)) or
shall (in the situation described in clause (ii)) appoint or petition a court of
competent jurisdiction to appoint any established housing and home finance
institution, bank or other mortgage loan or home equity loan servicer having a
net worth of not less than $10,000,000 as the successor to the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder; PROVIDED that any such successor
Servicer shall be acceptable to the Credit Enhancer, as evidenced by the Credit
Enhancer's prior written consent which consent shall not be unreasonably
withheld and provided further that the appointment of any such successor
Servicer will not result in the qualification, reduction or with-
28
<PAGE>
drawal of the ratings assigned to the Securities by the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Indenture
Trustee is prohibited by law from so acting, the Indenture Trustee shall act in
such capacity as hereinabove provided. In connection with such appointment and
assumption, the successor shall be entitled to receive compensation out of
payments on Mortgage Loans in an amount equal to the compensation which the
Servicer would otherwise have received pursuant to Section 3.09 (or such lesser
compensation as the Indenture Trustee and such successor shall agree). The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Servicing Agreement prior
to its termination as Servicer (including, without limitation, the obligation to
purchase Mortgage Loans pursuant to Section 3.01, to pay any deductible under an
insurance policy pursuant to Section 3.04 or to indemnify the Indenture Trustee
pursuant to Section 6.06), nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. The Indenture Trustee and such successor shall take such
action, consistent with this Servicing Agreement, as shall be necessary to
effectuate any such succession.
(b) Any successor, including the Indenture Trustee on behalf of the
Noteholders, to the Servicer as servicer shall during the term of its service as
servicer (i) continue to service and administer the Mortgage Loans for the
benefit of the Securityholders, (ii) maintain in force a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Servicer hereunder and a fidelity bond in respect of its officers, employees and
agents to the same extent as the Servicer is so required pursuant to Section
3.13.
(c) Any successor Servicer, including the Indenture Trustee on behalf
of the Mortgage Collateral holders, shall not be deemed in default or to have
breached its duties hereunder if the predecessor Servicer shall fail to deliver
any required deposit to the Collection Account or otherwise cooperate with any
required servicing transfer or succession hereunder.
Section 7.03. NOTIFICATION TO SECURITYHOLDERS. Upon any termination or
appointment of a successor to the Servicer pursuant to this Article VII or
Section 6.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders, the Credit Enhancer, the Company, the Issuer and each
Rating Agency.
29
<PAGE>
ARTICLE VIII
Miscellaneous Provisions
Section 8.01. AMENDMENT. This Servicing Agreement may be amended from
time to time by the parties hereto, provided that any amendment be accompanied
by a letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to the Securities and the
consent of the Credit Enhancer and the Indenture Trustee.
Section 8.02. GOVERNING LAW. THIS SERVICING AGREEMENT SHALL BE CON
STRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 8.03. NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Servicer, [Name and Address of Servicer], (b) in the
case of the Credit Enhancer, ________________, ________, ______________,
Attention: _________________, ___________________________, (c) in the case of
[Moody's, ___________, 4th Floor, 99 Church Street, New York, New York 10007],
(d) in the case of [Standard & Poor's, 26 Broadway, 15th Floor, New York, New
York 10004, Attention: Residential Mortgage Surveillance Group], (e) in the case
of the Owner Trustee, the Corporate Trust Office, and (f) in the case of the
Issuer, to Ameriquest Trust Series ____-__, c/o ______________________,
__________________, __________, ______________, Attention:
__________________________, with a copy to the Administrator at ______________
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party. [Any notice required or permitted to be
mailed to a Securityholder shall be given by first class mail, postage prepaid,
at the address of such Securityholder as shown in the Register. Any notice so
mailed within the time prescribed in this Servicing Agreement shall be
conclusively presumed to have been duly given, whether or not the Securityholder
receives such notice. Any notice or other document required to be delivered or
mailed by the Indenture Trustee to any Rating Agency shall be given on a
reasonable efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to delivery such
notice or document to any Rating Agency.]
Section 8.04. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Servicing Agreement shall be
for any reason whatsoever held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Servicing Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Servicing
Agreement or of the Securities or the rights of the Securityholders thereof.
Section 8.05. THIRD-PARTY BENEFICIARIES. This Servicing Agreement will
inure to the benefit of and be binding upon the parties hereto, the
Securityholders, the Credit Enhancer, the Owner Trustee, the Indenture Trustee
and their respective successors and permitted assigns. Except as
30
<PAGE>
otherwise provided in this Servicing Agreement, no other Person will have any
right or obligation hereunder.
Section 8.06. COUNTERPARTS. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 8.07. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 8.08. TERMINATION UPON PURCHASE BY THE SERVICER OR LIQUIDATION
OF ALL MORTGAGE LOANS. The respective obligations and responsibilities of the
Servicer and the Company created hereby shall terminate upon the last action
required to be taken by the Issuer pursuant to the Trust Agreement and by the
Indenture Trustee pursuant to the Indenture following the earlier of:
(i) the date on or before which the Indenture or Trust
Agreement is terminated, or
(ii) the purchase by the Servicer from the Company of all
Mortgage Loans and all property acquired in respect of any Mortgage
Loan at a price equal to the greater of (a) 100% of the unpaid
Principal Balance of each Mortgage Loan, plus accrued and unpaid
interest thereon at the Weighted Average Net Mortgage Rate up to the
day preceding the Payment Date on which such amounts are to be
distributed to Securityholders, plus any amounts due and owing to the
Credit Enhancer under the Insurance Agreement and (b) the fair market
value of the Mortgage Loans as determined by two bids from competitive
participants in the adjustable home equity loan market.
The right of the Servicer to purchase the assets of the Company pursuant to
clause (ii) above is conditioned upon the Pool Balance as of the Final Scheduled
Payment Date being less than ten percent of the aggregate of the Cut-Off Date
Principal Balances of the Mortgage Loans. If such right is exercised by the
Servicer, the Servicer shall deposit the amount calculated pursuant to clause
(ii) above with the Indenture Trustee pursuant to Section 4.10 of the Indenture
and, upon the receipt of such deposit, the Indenture Trustee or relevant
Custodian shall release to the Servicer, the files pertaining to the Mortgage
Loans being purchased.
The Servicer, at its expense, shall prepare and deliver to the
Indenture Trustee and the Owner Trustee for execution, at the time the Mortgage
Loans are to be released to the Servicer, appropriate documents assigning each
such Mortgage Loan from the Company to the Servicer or the appropriate party.
Section 8.09. CERTAIN MATTERS AFFECTING THE INDENTURE TRUSTEE. For all
purposes of this Servicing Agreement, in the performance of any of its duties or
in the exercise of any of its powers hereunder, the Indenture Trustee shall be
subject to and entitled to the benefits of Article VI of the Indenture.
31
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[Section 8.10. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Agreement acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.]
32
<PAGE>
IN WITNESS WHEREOF, the Servicer and the Company have caused this
Servicing Agreement to be duly executed by their respective officers or
representatives all as of the day and year first above written.
[NAME OF SERVICER],
as Servicer
By
---------------------------------
Title:
AMERIQUEST MORTGAGE SECURITIES INC.
as Company
By
---------------------------------
Title:
<PAGE>
EXHIBIT D
FORM OF REQUEST FOR RELEASE
DATE:
TO:
RE: REQUEST FOR RELEASE OF DOCUMENTS
In connection with your administration of the Mortgage Collateral, we request
the release of the Mortgage File described below.
Servicing Agreement Dated:
Series #:
Account #:
Pool #:
Loan #:
Borrower Name(s):
Reason for Document Request: (circle one) Mortgage Loan
Prepaid in Full
Mortgage Loan Repurchased
"We hereby certify that all amounts received or to be received in connection
with such payments which are required to be deposited have been or will be so
deposited as provided in the Servicing Agreement."
- -------------------------------------
[Name of Servicer]
Authorized Signature
******************************************************************
TO CUSTODIAN/INDENTURE TRUSTEE: Please acknowledge this request, and check off
documents being enclosed with a copy of this form. You should retain this form
for your files in accordance with the terms of the Servicing Agreement.
Enclosed Documents: [ ] Promissory Note
[ ] Primary Insurance Policy
[ ] Mortgage or Deed of Trust
[ ] Assignment(s) of Mortgage or
Deed of Trust
[ ] Title Insurance Policy
[ ] Other: ___________________________
- --------------------
Name
- --------------------
Title
- --------------------
Date
EXHIBIT 4.4
================================================================================
AMERIQUEST MORTGAGE SECURITIES INC.
as Depositor
and
_____________________,
as Owner Trustee
-----------------------------------------
TRUST AGREEMENT
Dated as of ________________
------------------------------------------
Ameriquest Trust Series ____-___
<PAGE>
Table of Contents
Section Page
ARTICLE I
DEFINITIONS
.........................................................................1
1.01. Definitions......................................................1
1.02. Other Definitional Provisions....................................1
ARTICLE II
ORGANIZATION
........................................................................3
2.01. Name.............................................................3
2.02. Office...........................................................3
2.03. Purposes and Powers..............................................3
2.04. Appointment of Owner Trustee.....................................3
2.05. Initial Capital Contribution of Owner Trust Estate...............4
2.06. Declaration of Trust.............................................4
2.07. Liability of the Holder of the Certificates......................4
2.08. Title to Trust Property..........................................4
2.09. Situs of Trust...................................................5
2.10. Representations and Warranties of the Depositor..................5
2.11. Payment of Trust Fees............................................6
ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
........................................................................7
3.01. Conveyance of the Mortgage Collateral............................7
3.02. Initial Ownership................................................7
3.03. The Certificates.................................................7
3.04. Authentication of Certificates...................................7
3.05. Registration of and Limitations on Transfer and Exchange of
Certificates.....................................................8
3.06. Mutilated, Destroyed, Lost or Stolen Certificates................9
3.07. Persons Deemed Certificateholders...............................10
3.08. Access to List of Certificateholders' Names and Addresses.......10
3.09. Maintenance of Office or Agency.................................10
3.10. Certificate Paying Agent........................................10
3.11. Ownership.......................................................12
ARTICLE IV
i
<PAGE>
Section Page
- ------- ----
AUTHORITY AND DUTIES OF OWNER TRUSTEE
.......................................................................13
4.01. General Authority...............................................13
4.02. General Duties..................................................13
4.03. Action upon Instruction.........................................13
4.04. No Duties Except as Specified under Specified Documents or in
Instructions....................................................14
4.05. Restrictions....................................................14
4.06. Prior Notice to Certificateholders with Respect to Certain
Matters.........................................................14
4.07. Action by Certificateholders with Respect to Certain Matters....15
4.08. Action by Certificateholders with Respect to Bankruptcy.........15
4.09. Restrictions on Certificateholders' Power.......................16
4.10. Majority Control................................................16
ARTICLE V
APPLICATION OF TRUST FUNDS
.......................................................................17
5.01. Distributions...................................................17
5.02. Method of Payment...............................................17
5.03. Signature on Returns............................................17
5.04. Statements to Certificateholders................................18
5.05. Tax Reporting; Tax Elections....................................18
ARTICLE VI
CONCERNING THE OWNER TRUSTEE
.......................................................................19
6.01. Acceptance of Trusts and Duties.................................19
6.02. Furnishing of Documents.........................................20
6.03. Representations and Warranties..................................20
6.04. Reliance; Advice of Counsel.....................................21
6.05. Not Acting in Individual Capacity...............................21
6.06. Owner Trustee Not Liable for Certificates or Related Documents..21
6.07. Owner Trustee May Own Certificates and Bonds....................22
ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
.......................................................................23
7.01. Owner Trustee's Fees and Expenses...............................23
7.02. Indemnification.................................................23
ii
<PAGE>
Section Page
- ------- ----
ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
.......................................................................25
8.01. Termination of Trust Agreement..................................25
8.02. Dissolution upon Bankruptcy of the Holder of the Designated
Certificate.....................................................26
ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
.......................................................................27
9.01. Eligibility Requirements for Owner Trustee......................27
9.02. Replacement of Owner Trustee....................................27
9.03. Successor Owner Trustee.........................................27
9.04. Merger or Consolidation of Owner Trustee........................28
9.05. Appointment of Co-Trustee or Separate Trustee...................28
ARTICLE X
MISCELLANEOUS
........................................................................30
10.01. Amendments......................................................30
10.02. No Legal Title to Owner Trust Estate............................31
10.03. Limitations on Rights of Others.................................31
10.04. Notices.........................................................31
10.05. Severability....................................................32
10.06. Separate Counterparts...........................................32
10.07. Successors and Assigns..........................................32
10.08. No Petition.....................................................32
10.9. No Recourse.....................................................32
10.10. Headings........................................................32
10.11. GOVERNING LAW...................................................32
10.12. Integration.....................................................33
SIGNATURES ...................................................................40
EXHIBIT
Exhibit A - Form of Certificate..............................................A-1
Exhibit B - Certificate of Trust of Ameriquest Trust ........................B-1
Exhibit C - Form of Certificate of Non-Foreign Status........................C-1
iii
<PAGE>
Exhibit D - Form of Investment Letter........................................D-1
Exhibit E - Form of Investment Letter for Certificates.......................E-1
iv
<PAGE>
This Trust Agreement, dated as of ________________ (as amended from time to
time, this "Trust Agreement"), between Ameriquest Mortgage Securities Inc., a
Delaware corporation, as Depositor (the "Depositor") and ______________________,
a Delaware ___________________, as Owner Trustee (the "Owner Trustee"),
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Depositor
and the Owner Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. For all purposes of this Trust Agreement, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Indenture. All other capitalized terms used herein shall
have the meanings specified herein.
SECTION 1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Trust Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(b) As used in this Trust Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Trust Agreement or in any such certificate or other document,
and accounting terms partly defined in this Trust Agreement or in any such
certificate or other document to the extent not defined, shall have the
respective meanings given to them under generally accepted accounting
principles. To the extent that the definitions of accounting terms in this Trust
Agreement or in any such certificate or other document are inconsistent with the
meanings of such terms under generally accepted accounting principles, the
definitions contained in this Trust Agreement or in any such certificate or
other document shall control.
(c) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Trust Agreement shall refer to this Trust Agreement as a whole
and not to any particular pro vision of this Trust Agreement; Section and
Exhibit references contained in this Trust Agreement are references to Sections
and Exhibits in or to this Trust Agreement unless otherwise specified; and the
term "including" shall mean "including without limitation".
(d) The definitions contained in this Trust Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
<PAGE>
(e) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
2
<PAGE>
ARTICLE II
ORGANIZATION
Section 2.01. NAME. The trust created hereby (the "Trust") shall be known
as "Ameriquest Trust Series ____-__," in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
Section 2.02. OFFICE. The office of the Trust shall be in care of the Owner
Trustee at the Corporate Trust Office or at such other address in Delaware as
the Owner Trustee may designate by written notice to the Certificateholders and
the Depositor.
Section 2.03. PURPOSES AND POWERS. The purpose of the Trust is to engage in
the following activities:
(i) to issue the Bonds pursuant to the Indenture and the Certificates
pursuant to this Trust Agreement and to sell the Bonds and the
Certificates;
(ii) to pay the organizational, start-up and transactional expenses of
the Trust;
(iii) to assign, grant, transfer, pledge and convey the Mortgage
Collateral pursuant to the Indenture and to hold, manage and distribute to
the Certificateholders pursuant to Section 5.01 any portion of the Mortgage
Collateral released from the Lien of, and remitted to the Trust pursuant to
the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into agreements,
that are necessary, suitable or convenient to accomplish the foregoing or
are incidental thereto or connected therewith, including, without
limitation, to accept additional contributions of equity that are not
subject to the Lien of the Indenture; and
(vi) subject to compliance with the Basic Documents, to engage in such
other activities as may be required in connection with conservation of the
Owner Trust Estate and the making of distributions to the
Certificateholders and the Bondholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Trust Agreement or the
Basic Documents [while any Bond is outstanding and without regard to the Bonds
and] [without the consent of __% of the Certificateholders].
Section 2.04. APPOINTMENT OF OWNER TRUSTEE. The Depositor hereby appoints
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
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Section 2.05. INITIAL CAPITAL CONTRIBUTION OF OWNER TRUST ESTATE. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Trust,
as of the date hereof, the sum of $1. The Owner Trustee hereby acknowledges
receipt in trust from the Depositor, as of the date hereof, of the foregoing
contribution, which shall constitute the initial corpus of the Trust and shall
be deposited in the Certificate Distribution Account. The Owner Trustee also
acknowledges on behalf of the trust receipt of the Mortgage Collateral and a
Surety Bond assigned to the Trust pursuant to Section 3.01, which shall
constitute the Owner Trust Estate.
Section 2.06. DECLARATION OF TRUST. The Owner Trustee hereby declares that
it shall hold the Owner Trust Estate in trust upon and subject to the conditions
set forth herein for the use and benefit of the Certificateholders, subject to
the obligations of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Trust Statute and that this Trust Agreement constitute the governing instrument
of such business trust. It is the intention of the parties hereto that, for
income and franchise tax purposes, the Trust shall be treated as a corporation,
with the assets of the corporation being the Owner Trust Estate, the [equity
interest in the corporation] being the Certificates and the Bonds being debt of
the corporation and the provisions of this Agreement shall be interpreted to
further this intention. Except as otherwise provided in this Trust Agreement,
the rights of the Certificateholders will be those of [equity owners of the
Trust] formed under the Delaware [corporation law]. The parties agree that,
unless otherwise required by appropriate tax authorities, the Trust will file or
cause to be filed annual or other necessary returns, reports and other forms
consistent with the characterization of the Trust as a corporation for such tax
purposes. Effective as of the date hereof, the Owner Trustee shall have all
rights, powers and duties set forth herein and in the Business Trust Statute
with respect to accomplishing the purposes of the Trust.
Section 2.07. LIABILITY OF THE HOLDER OF THE CERTIFICATES. (a) The Holders
of the Certificates shall be liable directly to and shall indemnify any injured
party for all losses, claims, damages, liabilities and expenses of the Trust
(including Expenses, to the extent not paid out of the Owner Trust Estate) to
the extent that the Holders of the Certificates would be liable if the Trust
were a corporation under [Delaware corporate law]; provided, however, that the
Holders of the Certificates shall not be liable for payments required to be made
on the Bonds or the Certificates, or for any losses incurred by a
Certificateholder in the capacity of an investor in the Certificates or a Bond
holder in the capacity of an investor in the Bonds. The Holders of the
Certificates shall be liable for any entity level taxes imposed on the Trust. In
addition, any third party creditors of the Trust, including the Credit Enhancer
(other than in connection with the obligations described in the preceding
sentence for which the Holders of the Certificates shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Holders of the Certificates under this paragraph shall be evidenced by the
Certificates.
(b) Subject to subsection (a) above, the Certificateholders shall be
entitled to the same limitation of personal liability extended to stockholders
of private corporations for profit organized under the General Corporation Law
of the State of Delaware.
Section 2.08. TITLE TO TRUST PROPERTY. Legal title to the Owner Trust
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Owner Trust Estate to be vested in a trustee or trustees, in which case
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title shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
Section 2.09. SITUS OF TRUST. The Trust will be located and administered in
the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
________. The Trust shall not have any employees in any state other than
Delaware; provided, however, that nothing herein shall restrict or prohibit the
Owner Trustee from having employees within or without the State of Delaware or
taking actions outside the State of Delaware in order to comply with Section
2.03. Payments will be received by the Trust only in Delaware, New York or
________, and payments will be made by the Trust only from Delaware, New York or
________. The only office of the Trust will be at the Corporate Trust Office in
Delaware.
Section 2.10. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The
Depositor hereby represents and warrants to the Owner Trustee that:
(i) The Depositor is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with
power and authority to own its properties and to conduct its business as
such properties are currently owned and such business is presently
conducted.
(ii) The Depositor is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications
and in which the failure to so qualify would have a material adverse effect
on the business, properties, assets or condition (financial or other) of
the Depositor.
(iii) The Depositor has the power and authority to execute and deliver
this Trust Agreement and to carry out its terms; the Depositor has full
power and authority to sell and assign the property to be sold and assigned
to and deposited with the Trust as part of the Trust and the Depositor has
duly authorized such sale and assignment and deposit to the Trust by all
necessary corporate action; and the execution, delivery and performance of
this Trust Agreement have been duly authorized by the Depositor by all
necessary corporate action.
(iv) The consummation of the transactions contemplated by this Trust
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Depositor, or any indenture, agreement or
other instrument to which the Depositor is a party or by which it is bound;
nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of the Depositor's knowledge, any order, rule or
regulation applicable to the Depositor of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Depositor or its properties.
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Section 2.11. PAYMENT OF TRUST FEES. The Owner Trustee shall cause the
Administrator (i) to pay the Trust's fees and expenses incurred with respect to
the performance of the Trust's duties under the Indenture from amounts received
pursuant to Section 3.05(x) under the Indenture and (ii) to notify the
Certificate Paying Agent of such fees and expenses incurred thereunder.
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ARTICLE III
CONVEYANCE OF THE MORTGAGE COLLATERAL;
CERTIFICATES
Section 3.01. CONVEYANCE OF THE MORTGAGE COLLATERAL. The Depositor,
concurrently with the execution and delivery hereof, does hereby transfer,
convey, sell and assign to the Trust, on behalf of the Holders of the Bonds and
the Certificates and the Credit Enhancer, without recourse, all its right, title
and interest in and to the Mortgage Collateral. The Depositor will also provide
the Trust with a Surety Bond.
The parties hereto intend that the transaction set forth herein be a sale
by the Depositor to the Trust of all of its right, title and interest in and to
the Mortgage Collateral. In the event that the trans action set forth herein is
not deemed to be a sale, the Depositor hereby grants to the Trust a security
interest in all of its right, title and interest in, to and under the Owner
Trust Estate, all distributions thereon and all proceeds thereof; and this Trust
Agreement shall constitute a security agreement under applicable law.
Section 3.02. INITIAL OWNERSHIP. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.05 and until the conveyance
of the Mortgage Collateral pursuant to Section 3.01 and the issuance of the
Certificates, the Depositor shall be the sole Certificateholder.
Section 3.03. THE CERTIFICATES. The Certificates shall be issued in minimum
denominations of $[_______] and in integral multiples of $______ in excess
thereof; except for one Certificate that may not be in an integral multiple of
$______; provided, however, that the Designated Certificate issued pursuant to
Section 3.11 may be issued in the amount of $_________. The Certificates shall
be executed on behalf of the Trust by manual or facsimile signature of an
authorized officer of the Owner Trustee and authenticated in the manner provided
in Section 3.04. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be validly issued and entitled
to the benefit of this Trust Agreement, notwithstanding that such individuals or
any of them shall have ceased to be so authorized prior to the authentication
and delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates. A Person shall become a
Certificateholder and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder upon such Person's acceptance of a
Certificate duly registered in such Person's name, pursuant to Section 3.05.
A transferee of a Certificate shall become a Certificateholder and shall be
entitled to the rights and subject to the obligations of a Certificateholder
hereunder upon such transferee's acceptance of a Certificate duly registered in
such transferee's name pursuant to and upon satisfaction of the conditions set
forth in Section 3.05.
Section 3.04. AUTHENTICATION OF CERTIFICATES. Concurrently with the
acquisition of the Mortgage Collateral by the Trust, the Owner Trustee shall
cause the Certificates in an aggregate prin cipal amount equal to the Initial
Principal Balance of the Certificates to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Depositor,
signed by its
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chairman of the board, its president or any vice president, without further
corporate action by the Depositor, in authorized denominations. No Certificate
shall entitle its holder to any benefit under this Trust Agreement or be valid
for any purpose unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee or ____________________, by manual signature; such authentication
shall constitute conclusive evidence that such Certificate shall have been duly
authenticated and delivered hereunder.
All Certificates shall be dated the date of their authentication.
Section 3.05. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE OF
CERTIFICATES. The Certificate Registrar shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 3.09, a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the [Owner
Trustee] shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. _____________________________
shall be the initial Certificate Registrar. If the Certificate Registrar resigns
or is removed, the Owner Trustee shall appoint a successor Certificate
Registrar.
Subject to satisfaction of the conditions set forth below and to the
provisions of Section 3.11 with respect to the Designated Certificate, upon
surrender for registration of transfer of any Certificate at the office or
agency maintained pursuant to Section 3.09, the Owner Trustee shall execute,
authenticate and deliver (or shall cause __________________________________ as
its authenticating agent to authenticate and deliver) in the name of the
designated transferee or transferees, one or more new Certificates in authorized
denominations of a like aggregate amount dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of authorized denominations
of a like aggregate amount upon surrender of the Certificates to be exchanged at
the office or agency maintained pursuant to Section 3.09.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Certificate Registrar duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer or exchange shall be cancelled and subsequently
disposed of by the Certificate Registrar in accordance with its customary
practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
No Person shall become a Certificateholder until it shall establish its
non-foreign status by submitting to the Certificate Paying Agent an IRS Form W-9
and the Certificate of Non-Foreign Status set forth in Exhibit C hereto.
No transfer of a Certificate shall be made unless such transfer is exempt
from the registration requirements of the Securities Act and any applicable
state securities laws or is made in accordance with said Act and laws. In the
event of any such transfer, the Certificate Registrar or the Depositor shall
prior to such transfer require the transferee to execute (i) (a) an investment
letter (in
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substantially the form attached hereto as Exhibit D) in form and substance
reasonably satisfactory to the Certificate Registrar and the Depositor
certifying to the Trust, the Owner Trustee, the Certificate Registrar and the
Depositor that such transferee is a "qualified institutional buyer" under Rule
144A under the Securities Act, or (b) solely with respect to the Designated
Certificate, an investment letter (in substantially the form attached hereto as
Exhibit E), acceptable to and in form and substance reasonably satisfactory to
the Certificate Registrar and the Depositor, which investment letters shall not
be an expense of the Trust, the Owner Trustee, the Certificate Registrar, the
Servicer or the Depositor and (ii) the Certificate of Non-Foreign Status (in
substantially the form attached hereto as Exhibit C) acceptable to and in form
and substance reasonably satisfactory to the Certificate Registrar and the
Depositor, which certificate shall not be an expense of the Trust, the Owner
Trustee, the Certificate Registrar or the Depositor. The Holder of a Certificate
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Trust, the Owner Trustee, the Certificate Registrar, the Servicer and the
Depositor against any liability that may result if the transfer is not so exempt
or is not made in accordance with such federal and state laws.
No transfer of a Certificate shall be made unless the Certificate Registrar
shall have received either (i) a representation letter from the proposed
transferee of such Certificate to the effect that such proposed transferee is
not an employee benefit plan subject to the fiduciary responsibility provisions
of ERISA, or Section 4975 of the Code, or a Person acting on behalf of any such
plan or using the assets of any such plan, which representation letter shall not
be an expense of the Trust, Owner Trustee, the Certificate Registrar, the
Servicer or the Depositor or (ii) in the case of any such certificate presented
for registration in the name of an employee benefit plan subject to the
fiduciary responsibility provisions of ERISA, or Section 4975 of the Code (or
comparable provisions of any subsequent enactments), or a trustee of any such
plan, or any other Person who is using the assets of any such plan to effect
such acquisition, an Opinion of Counsel, in form and substance reasonably
satisfactory to, and addressed and delivered to, the Trust, the Certificate
Registrar and the Depositor, to the effect that the purchase or holding of such
Certificate will not result in the assets of the Owner Trust Estate being deemed
to be "plan assets" and subject to the fiduciary responsibility provisions of
ERISA or the prohibited transaction provisions of the Code, will not constitute
or result in a prohibited transaction within the meaning of Section 406 or
Section 407 of ERISA or Section 4975 of the Code, and will not subject the
Trust, the Owner Trustee, the Certificate Registrar or the Depositor to any
obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code) in addition to those explicitly undertaken in this
Trust Agreement which Opinion of Counsel shall not be an expense of the Trust,
the Owner Trustee, the Certificate Registrar or Depositor.
Section 3.06. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any
mutilated Certificate shall be surrendered to the Certificate Registrar, or if
the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Owner Trustee such security or indemnity as
may be required by them to save each of them harmless, then in the absence of
notice to the Certificate Registrar or the Owner Trustee that such Certificate
has been acquired by a bona fide purchaser, the Owner Trustee shall execute on
behalf of the Trust and the Owner Trustee or ________________, as the Trust's
authenticating agent, shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate
of like tenor and denomination. In connection with the issuance of any new
Certificate under this Section
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3.06, the Owner Trustee or the Certificate Registrar may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith. Any duplicate Certificate issued pursuant to
this Section 3.06 shall constitute conclusive evidence of ownership in the
Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
Section 3.07. PERSONS DEEMED CERTIFICATEHOLDERS. Prior to due presentation
of a Certificate for registration of transfer, the Owner Trustee, the
Certificate Registrar or any Certificate Paying Agent may treat the Person in
whose name any Certificate is registered in the Certificate Register as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 5.02 and for all other purposes whatsoever, and none of the Trust, the
Owner Trustee, the Certificate Registrar or any Paying Agent shall be bound by
any notice to the contrary.
Section 3.08. ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES.
The Certificate Registrar shall furnish or cause to be furnished to the
Depositor or the Owner Trustee, within 15 days after receipt by the Certificate
Registrar of a written request therefor from the Depositor or the Owner Trustee,
a list, in such form as the Depositor or the Owner Trustee, as the case may be,
may reasonably require, of the names and addresses of the Certificateholders as
of the most recent Record Date. Each Holder, by receiving and holding a
Certificate, shall be deemed to have agreed not to hold any of the Trust, the
Depositor, the Holder of the Designated Certificate, the Certificate Regis trar
or the Owner Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
Section 3.09. MAINTENANCE OF OFFICE OR AGENCY. The Owner Trustee on behalf
of the Trust, shall maintain in the Borough of Manhattan, The City of New York,
an office or offices or agency or agencies where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Owner Trustee in respect of the Certificates and the Basic Documents
may be served. The Owner Trustee initially designates the Corporate Trust Office
of the Owner Trustee as its office for such purposes. The Owner Trustee shall
give prompt written notice to the Depositor, the Holder of the Designated
Certificate and the Certificateholders of any change in the location of the
Certificate Register or any such office or agency.
Section 3.10. CERTIFICATE PAYING AGENT. (a) The Certificate Paying Agent
shall make distributions to Certificateholders from the Certificate Distribution
Account on behalf of the Trust in accordance with the provisions of the
Certificates and Section 5.01 hereof from payments remitted to the Certificate
Paying Agent by the Indenture Trustee pursuant to Section 3.05 of the Indenture.
The Trust hereby appoints __________________ as Certificate Paying Agent and
_________________ hereby accepts such appointment and further agrees that it
will be bound by the provisions of this Trust Agreement relating to the
Certificate Paying Agent and shall:
(i) hold all sums held by it for the payment of amounts due with
respect to the Certificates in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
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(ii) give the Owner Trustee notice of any default by the Trust of
which it has actual knowledge in the making of any payment required to be
made with respect to the Certificates;
(iii) at any time during the continuance of any such default,
upon the written request of the Owner Trustee forthwith pay to the Owner
Trustee on behalf of the Trust all sums so held in Trust by such
Certificate Paying Agent;
(iv) immediately resign as Certificate Paying Agent and forthwith
pay to the Owner Trustee on behalf of the Trust all sums held by it in
trust for the payment of Certificates if at any time it ceases to meet the
standards required to be met by the Certificate Paying Agent at the time of
its appointment;
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Certificates of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith; and
(vi) deliver to the Owner Trustee a copy of the report to
Certificateholders prepared with respect to each Payment Date by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
(b) On the second LIBOR Business Day immediately preceding (i) the Closing
Date in the case of the first Interest Period and (ii) the first day of each
succeeding Interest Period, the Certificate Paying Agent shall determine LIBOR
and the Certificate Rate for such Interest Period and shall inform the Servicer
and the Depositor at their respective facsimile numbers given to the Certificate
Paying Agent in writing thereof.
(c) The Trust may revoke such power and remove the Certificate Paying Agent
if the Administrator determines in its sole discretion that the Certificate
Paying Agent shall have failed to perform its obligations under this Trust
Agreement in any material respect. __________________ shall be permitted to
resign as Certificate Paying Agent upon 30 days written notice to the Owner
Trustee; provided ________________ is also resigning as Paying Agent under the
Indenture at such time. In the event that ___________________ shall no longer be
the Certificate Paying Agent under this Trust Agreement and Paying Agent under
the Indenture, the Administrator shall appoint a successor to act as Certificate
Paying Agent (which shall be a bank or trust company) and which shall also be
the successor Paying Agent under the Indenture. The Administrator shall cause
such successor Certificate Paying Agent or any additional Certificate Paying
Agent appointed by the Administrator to execute and deliver to the Owner Trustee
an instrument to the effect set forth in this Section 3.10 as it relates to the
Certificate Paying Agent. The Certificate Paying Agent shall return all
unclaimed funds to the Trust and upon removal of a Certificate Paying Agent such
Certificate Paying Agent shall also return all funds in its possession to the
Trust. The provisions of Sections 6.01, 6.03, 6.04 and 7.01 shall apply to the
Certificate Paying Agent to the extent appli cable. Any reference in this
Agreement to the Certificate Paying Agent shall include any co-paying agent
unless the context requires otherwise.
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(d) The Certificate Paying Agent shall establish and maintain with itself a
trust account (the "Certificate Distribution Account") in which the Certificate
Paying Agent shall, deposit, on the same day as it is received from the
Indenture Trustee, each remittance received by the Certificate Paying Agent with
respect to payments made pursuant to the Indenture. The Certificate Paying Agent
shall make all distributions of principal of and interest on the Certificates,
from moneys on deposit in the Certificate Distribution Account.
[Section 3.11. OWNERSHIP. The Certificates shall, for income and franchise
tax purposes, be treated as the equity interest of the Trust. The Certificates
shall not be transferred unless (a) the transferee shall be an Affiliate of the
Seller, unless the prior written consent of the Credit Enhancer is obtained,
which will not be unreasonably withheld, (b) the applicable provisions of
Section 3.05 are satisfied, (c) the Certificate Registrar receives an Opinion of
Counsel to the effect that the transfer of the Certificates shall not cause the
Trust to be subject to an entity level tax and (d) the Rating Agencies shall
consent to such transfer.]
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ARTICLE IV
AUTHORITY AND DUTIES OF OWNER TRUSTEE
Section 4.01. GENERAL AUTHORITY. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party and any
amendment or other agreement or instrument described herein, in each case, in
such form as the Administrator shall approve, as evidenced conclusively by the
Owner Trustee's execution thereof. In addition to the foregoing, the Owner
Trustee is authorized, but shall not be obligated, to take all actions required
of the Trust pursuant to the Basic Documents. The Owner Trustee is further
authorized from time to time to take such action as the Administrator directs
with respect to the Basic Documents.
Section 4.02. GENERAL DUTIES. It shall be the duty of the Owner Trustee to
discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Trust Agreement and the Basic Documents to which the Trust is
a party and to administer the Trust in the interest of the Certificateholders,
subject to the Basic Documents and in accordance with the provisions of this
Trust Agreement. Notwithstanding the foregoing, the Owner Trustee shall be
deemed to have discharged its duties and responsibilities hereunder and under
the Basic Documents to the extent the Administrator has agreed in the
Administration Agreement to perform such acts or to discharge such duties of the
Owner Trustee or the Trust hereunder or under any Basic Document, and the Owner
Trustee shall not be held liable for the default or failure of the Administrator
to carry out its obligations under the Administration Agreement.
Section 4.03. ACTION UPON INSTRUCTION. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Certificateholders may by
written instruction direct the Owner Trustee in the management of the Trust.
Such direction may be exercised at any time by written instruction of the
Certificateholders pursuant to Article IV.
(b) Notwithstanding the foregoing, the Owner Trustee shall not be required
to take any action hereunder or under any Basic Document if the Owner Trustee
shall have reasonably determined, or shall have been advised by counsel, that
such action is likely to result in liability on the part of the Owner Trustee or
is contrary to the terms hereof or of any Basic Document or is otherwise
contrary to law.
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Trust Agreement or
under any Basic Document, or in the event that the Owner Trustee is unsure as to
the application of any provision of this Trust Agreement or any Basic Document
or any such provision is ambiguous as to its application, or is, or appears to
be, in conflict with any other applicable provision, or in the event that this
Trust Agreement permits any determination by the Owner Trustee or is silent or
is incomplete as to the course of action that the Owner Trustee is required to
take with respect to a particular set of facts, the Owner Trustee shall promptly
give notice (in such form as shall be appropriate under the circumstances) to
the Certificateholders (with a copy to the Credit Enhancer) requesting
instruction as to the course of action to be adopted, and to the extent the
Owner Trustee acts in good faith in accordance with any
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written instruction of the Certificateholders received, the Owner Trustee shall
not be liable on account of such action to any Person. If the Owner Trustee
shall not have received appropriate instruction within 10 days of such notice
(or within such shorter period of time as reasonably may be specified in such
notice or may be necessary under the circumstances) it may, but shall be under
no duty to, take or refrain from taking such action not inconsistent with this
Trust Agreement or the Basic Documents, as it shall deem to be in the best
interests of the Certificateholders, and the Owner Trustee shall have no
liability to any Person for such action or inaction.
Section 4.04. NO DUTIES EXCEPT AS SPECIFIED UNDER SPECIFIED DOCUMENTS OR IN
INSTRUCTIONS. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Trust Agreement, (ii) in accordance with the Basic
Documents and (iii) in accordance with any document or instruction delivered to
the Owner Trustee pursuant to Section 4.03; and no implied duties or obligations
shall be read into this Trust Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Securities and Exchange Commission filing
for the Trust or to record this Trust Agreement or any Basic Document. The Owner
Trustee nevertheless agrees that it will, at its own cost and expense, promptly
take all action as may be necessary to discharge any liens on any part of the
Owner Trust Estate that result from actions by, or claims against, the Owner
Trustee that are not related to the ownership or the administration of the Owner
Trust Estate.
Section 4.05. RESTRICTIONS. (a) The Owner Trustee shall not take any action
(x) that is inconsistent with the purposes of the Trust set forth in Section
2.03 or (y) that, to the actual knowl edge of the Owner Trustee, would result in
the Trust becoming taxable as a corporation for federal income tax purposes. The
Certificateholders shall not direct the Owner Trustee to take action that would
violate the provisions of this Section 4.06.
(b) The Owner Trustee shall not convey or transfer any of the Trust's
properties or assets, including those included in the Trust Estate, to any
person unless (a) it shall have received an Opinion of Counsel to the effect
that such transaction will not have any material adverse tax consequence to the
Trust or any Certificateholder and (b) such conveyance or transfer shall not
violate the provisions of Section 3.16(b) of the Indenture.
Section 4.06. PRIOR NOTICE TO CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN
MATTERS. With respect to the following matters, the Owner Trustee shall not take
action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee
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in writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims or
lawsuits brought in connection with the collection of cash distributions due and
owing under the Mortgage Collateral) and the compromise of any action, claim or
lawsuit brought by or against the Trust (except with respect to the
aforementioned claims or lawsuits for collection of cash distributions due and
owing under the Mortgage Collateral);
(b) the election by the Trust to file an amendment to the Certificate of
Trust (unless such amendment is required to be filed under the Business Trust
Statute);
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is required;
(d) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Bondholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
(e) the amendment, change or modification of the Administration Agreement,
except to cure any ambiguity or to amend or supplement any provision in a manner
or add any provision that would not materially adversely affect the interests of
the Certificateholders; or
(f) the appointment pursuant to the Indenture of a successor Bond
Registrar, Paying Agent or Indenture Trustee or pursuant to this Trust Agreement
of a successor Certificate Registrar or Certificate Paying Agent or the consent
to the assignment by the Bond Registrar, Paying Agent, Indenture Trustee,
Certificate Registrar or Certificate Paying Agent of its obligations under the
Indenture or this Trust Agreement, as applicable.
Section 4.07. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO CERTAIN MATTERS.
The Owner Trustee shall not have the power, except upon the direction of the
Certificateholders, and with the consent of the Credit Enhancer, to (a) remove
the Administrator under the Administration Agreement pursuant to Section 8
thereof, (b) appoint a successor Administrator pursuant to Section 8 of the
Administration Agreement, (c) remove the Servicer under the Servicing Agreement
pursuant to Sections 7.01 and 8.05 thereof or (d) except as expressly provided
in the Basic Documents, sell the Mortgage Collateral after the termination of
the Indenture. The Owner Trustee shall take the actions referred to in the
preceding sentence only upon written instructions signed by the
Certificateholders and with the consent of the Credit Enhancer.
Section 4.08. ACTION BY CERTIFICATEHOLDERS WITH RESPECT TO BANKRUPTCY. The
Owner Trustee shall not have the power to commence a voluntary proceeding in
bankruptcy relating to the Trust without the unanimous prior approval of all
Certificateholders and with the consent of the Credit Enhancer and the delivery
to the Owner Trustee by each such Certificateholder of a certificate certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
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Section 4.09. RESTRICTIONS ON CERTIFICATEHOLDERS' POWER. The
Certificateholders shall not direct the Owner Trustee to take or to refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Trust Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
Section 4.10. MAJORITY CONTROL. Except as expressly provided herein, any
action that may be taken by the Certificateholders under this Trust Agreement
may be taken by the Holders of Certificates evidencing not less than a majority
of the outstanding Principal Balance of the Certificates. Except as expressly
provided herein, any written notice of the Certificateholders delivered pursuant
to this Trust Agreement shall be effective if signed by Holders of Certificates
evidencing not less than a majority of the outstanding Principal Balance of the
Certificates at the time of the delivery of such notice.
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ARTICLE V
APPLICATION OF TRUST FUNDS
Section 5.01. DISTRIBUTIONS. (a) On each Payment Date, the Certificate
Paying Agent shall distribute to the Certificateholders all funds on deposit in
the Certificate Distribution Account and available therefor (as provided in
Section 3.05 of the Indenture), as principal and the Certificate Distribution
Amount for such Payment Date. All distributions made pursuant to this Section
shall be made on a pro rata basis to the Certificateholders based on the
Certificate Principal Balances thereof; provided however that any amount on
deposit in the Certificate Distribution Account relating to a payment to the
Certificate Paying Agent pursuant to Section 3.05(xi) of the Indenture shall be
distributed solely to the Designated Certificate.
(b) In the event that any withholding tax is imposed on the distributions
(or allocations of income) to a Certificateholder, such tax shall reduce the
amount otherwise distributable to the Certificateholder in accordance with this
Section 5.01. The Certificate Paying Agent is hereby authorized and directed to
retain or cause to be retained from amounts otherwise distributable to the
Certificateholders sufficient funds for the payment of any tax that is legally
owed by the Trust (but such authorization shall not prevent the Owner Trustee
from contesting any such tax in appropriate proceedings, and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to a Certificateholder shall
be treated as cash distributed to such Certificateholder at the time it is
withheld by the Certificate Paying Agent and remitted to the appropriate taxing
authority. If there is a possibility that withholding tax is payable with
respect to a distribution (such as a distribution to a non-U.S.
Certificateholder), the Certificate Paying Agent may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
(c) All calculations of the Certificate Distribution Amount on the
Certificates shall be made on the basis of the actual number of days in an
Interest Period and a year assumed to consist of 360 days.
(d) Distributions to Certificateholders shall be subordinated to the
creditors of the Trust, including the Bondholders.
Section 5.02. METHOD OF PAYMENT. Subject to Section 8.01(c), distributions
required to be made to Certificateholders on any Payment Date as provided in
Section 5.01 shall be made to each Certificateholder of record on the preceding
Record Date either by, in the case of any Certificateholder owning Certificates
having denominations aggregating at least $1,000,000, wire transfer, in
immediately available funds, to the account of such Holder at a bank or other
entity having appropriate facilities therefor, if such Certificateholder shall
have provided to the Certificate Registrar appropriate written instructions at
least five Business Days prior to such Payment Date or, if not, by check mailed
to such Certificateholder at the address of such Holder appearing in the
Certificate Register.
Section 5.03. SIGNATURE ON RETURNS. The Owner Trustee shall sign on behalf
of the Trust the tax returns of the Trust.
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Section 5.04. STATEMENTS TO CERTIFICATEHOLDERS. On each Payment Date, the
Certificate Paying Agent shall send to each Certificateholder the statement or
statements provided to the Owner Trustee and the Certificate Paying Agent by the
Servicer pursuant to Section 4.01 of the Servicing Agreement with respect to
such Distribution Date.
Section 5.05. TAX REPORTING; TAX ELECTIONS. The Holder of the Certificate
shall cause the Trust to file federal and state income tax returns and
information statements as a corporation for each of its taxable years. Within 90
days after the end of each calendar year, the Holder of the Designated
Certificate shall cause the Trust to provide to each Certificateholder an
Internal Revenue Service "K- 1" or any successor schedule and supplemental
information, if required by law, to enable each Certificateholder to file its
federal and state income tax returns. The Holder of the Designated Certificate
may from time to time make and revoke such tax elections with respect to the
Trust as it deems necessary or desirable in its sole discretion to carry out the
business of the Trust or the purposes of this Trust Agreement if permitted by
applicable law. Notwithstanding the foregoing, an election under Section 754 of
the Code shall not be made without the written consent of a majority in interest
of the Holders of the Certificates. The Holder of the Designated Certificate
shall serve as tax matters partner for the Trust.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
Section 6.01. ACCEPTANCE OF TRUSTS AND DUTIES. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Trust Agreement. The
Owner Trustee and the Certificate Paying Agent also agree to disburse all moneys
actually received by it constituting part of the Owner Trust Estate upon the
terms of the Basic Documents and this Trust Agreement. The Owner Trustee shall
not be answerable or accountable hereunder or under any Basic Document under any
circumstances, except (i) for its own willful misconduct, negligence or bad
faith or negligent failure to act or (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 6.03 expressly made by the Owner
Trustee. In particular, but not by way of limitation (and subject to the
exceptions set forth in the pre ceding sentence):
(a) The Owner Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in accordance with the instructions of the
Administrator or the Certificateholders;
(b) No provision of this Trust Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur any
financial liability in the performance of any of its rights, duties or powers
hereunder or under any Basic Document if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured or provided to it;
(c) Under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents, including
the principal of and interest on the Bonds;
(d) The Owner Trustee shall not be responsible for or in respect of the
validity or sufficiency of this Trust Agreement or for the due execution hereof
by the Depositor or the Holder of the Designated Certificate or for the form,
character, genuineness, sufficiency, value or validity of any of the Owner Trust
Estate, or for or in respect of the validity or sufficiency of the Basic
Documents, the Bonds, the Certificates, other than the certificate of
authentication on the Certificates, if executed by the Owner Trustee and the
Owner Trustee shall in no event assume or incur any liability, duty, or
obligation to any Bondholder or to any Certificateholder, other than as
expressly provided for herein or expressly agreed to in the Basic Documents;
(e) The execution, delivery, authentication and performance by it of this
Trust Agreement will not require the authorization, consent or approval of, the
giving of notice to, the filing or registration with, or the taking of any other
action with respect to, any governmental authority or agency;
(f) The Owner Trustee shall not be liable for the default or misconduct of
the Administrator, the Holder of the Designated Certificate, the Depositor,
Indenture Trustee or the Servicer under any of the Basic Documents or otherwise
and the Owner Trustee shall have no obligation or liability to perform the
obligations of the Trust under this Trust Agreement or the Basic Documents that
are required to be performed by the Administrator under the Administration
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Agreement, the Indenture Trustee under the Indenture or the Seller under the
Mortgage Loan Purchase Agreement; and
(g) The Owner Trustee shall be under no obligation to exercise any of the
rights or powers vested in it or duties imposed by this Trust Agreement, or to
institute, conduct or defend any litigation under this Trust Agreement or
otherwise or in relation to this Trust Agreement or any Basic Document, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee therein or thereby. The right of the Owner Trustee
to perform any discretionary act enumerated in this Trust Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee shall not
be answerable for other than its negligence or willful misconduct in the
performance of any such act.
Section 6.02. FURNISHING OF DOCUMENTS. The Owner Trustee shall furnish to
the Securityholders promptly upon receipt of a written reasonable request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Trust under the Basic Documents.
Section 6.03. REPRESENTATIONS AND WARRANTIES. The Owner Trustee hereby
represents and warrants to the Depositor, for the benefit of the
Certificateholders, that:
(a) It is a banking corporation duly organized and validly existing in good
standing under the laws of the State of Delaware. It has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Trust Agreement.
(b) It has taken all corporate action necessary to authorize the execution
and delivery by it of this Trust Agreement, and this Trust Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Trust Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this Trust Agreement,
nor the consummation by it of the transactions contemplated hereby nor
compliance by it with any of the terms or provisions hereof will contravene any
federal or Delaware law, governmental rule or regulation governing the banking
or trust powers of the Owner Trustee or any judgment or order binding on it, or
constitute any default under its charter documents or bylaws or any indenture,
mortgage, contract, agreement or instrument to which it is a party or by which
any of its properties may be bound.
(d) This Trust Agreement, assuming due authorization, execution and
delivery by the Owner Trustee and the Depositor, constitutes a valid, legal and
binding obligation of the Owner Trustee, enforceable against it in accordance
with the terms hereof subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditors' rights generally and to general principles of equity, regardless of
whether such enforcement is considered in a proceeding in equity or at law;
(e) The Owner Trustee is not in default with respect to any order or decree
of any court or any order, regulation or demand of any Federal, state, municipal
or governmental agency, which
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default might have consequences that would materially and adversely affect the
condition (financial or other) or operations of the Owner Trustee or its
properties or might have consequences that would materially adversely affect its
performance hereunder;
(f) No litigation is pending or, to the best of the Owner Trustee's
knowledge, threatened against the Owner Trustee which would prohibit its
entering into this Trust Agreement or performing its obligations under this
Trust Agreement;
Section 6.04. RELIANCE; ADVICE OF COUNSEL. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Owner Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter
and such certificate shall constitute full protection to the Owner Trustee for
any action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in the
performance of its duties and obligations under this Trust Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents,
attorneys, custodians or nominees (including persons acting under a power of
attorney) pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents,
attorneys , custodians or nominees (including persons acting under a power of
attorney) if such persons have been selected by the Owner Trustee with
reasonable care, and (ii) may consult with counsel, accountants and other
skilled persons to be selected with reasonable care and employed by it. The
Owner Trustee shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such Persons and not contrary to this Trust
Agreement or any Basic Document.
Section 6.05. NOT ACTING IN INDIVIDUAL CAPACITY. Except as provided in this
Article VII, in accepting the trusts hereby created ______________________ acts
solely as Owner Trustee here under and not in its individual capacity, and all
Persons having any claim against the Owner Trustee by reason of the transactions
contemplated by this Trust Agreement or any Basic Document shall look only to
the Owner Trust Estate for payment or satisfaction thereof.
Section 6.06. OWNER TRUSTEE NOT LIABLE FOR CERTIFICATES OR RELATED
DOCUMENTS. The recitals contained herein and in the Certificates (other than the
signatures of the Owner Trustee on the Certificates) shall be taken as the
statements of the Depositor, and the Owner Trustee assumes no responsibility for
the correctness thereof. The Owner Trustee makes no representations as to the
validity or sufficiency of this Trust Agreement, of any Basic Document or of the
Certificates (other than the signatures of the Owner Trustee on the
Certificates) or the Bonds, or of any Related Documents. The Owner Trustee shall
at no time have any responsibility or liability with respect to the sufficiency
of the Owner Trust Estate or its ability to generate the payments to be
distributed to
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Certificateholders under this Trust Agreement or the Bondholders under the
Indenture, including, the compliance by the Depositor or the Seller with any
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, or any action
of the Administrator, the Certificate Paying Agent, the Certificate Registrar or
the Indenture Trustee taken in the name of the Owner Trustee.
Section 6.07. OWNER TRUSTEE MAY OWN CERTIFICATES AND BONDS. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Bonds and may deal with the Depositor, the Seller, the
Certificate Paying Agent, the Certificate Registrar, the Administrator and the
Indenture Trustee in transactions with the same rights as it would have if it
were not Owner Trustee.
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ARTICLE VII
COMPENSATION OF OWNER TRUSTEE
Section 7.01. OWNER TRUSTEE'S FEES AND EXPENSES. The Owner Trustee shall
receive as compensation for its services hereunder such fees as have been
separately agreed upon before the date hereof, and the Owner Trustee shall be
reimbursed for its reasonable expenses hereunder and under the Basic Documents,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may reasonably
employ in connection with the exercise and performance of its rights and its
duties hereunder and under the Basic Documents pursuant to Section 3.08 of the
Servicing Agreement.
Section 7.02. INDEMNIFICATION. The Holder of the Designated Certificate
shall indemnify, defend and hold harmless the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
against, any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by, or
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Trust Agreement, the Basic Documents, the Owner Trust
Estate, the administration of the Owner Trust Estate or the action or inaction
of the Owner Trustee hereunder, provided, that:
(i) the Holder of the Designated Certificate shall not be liable
for or required to indemnify an Indemnified Party from and against Expenses
arising or resulting from the Owner Trustee's willful misconduct,
negligence or bad faith or as a result of any inaccuracy of a
representation or warranty contained in Section 6.03 expressly made by the
Owner Trustee;
(ii) with respect to any such claim, the Indemnified Party shall
have given the Holder of the Designated Certificate written notice thereof
promptly after the Indemnified Party shall have actual knowledge thereof;
(iii) while maintaining control over its own defense, the Holder
of the Designated Certificate shall consult with the Indemnified Party in
preparing such defense; and
(iv) notwithstanding anything in this Agreement to the contrary,
the Holder of the Designated Certificate shall not be liable for settlement
of any claim by an Indemnified Party entered into without the prior consent
of the Holder of the Designated Certificate which consent shall not be
unreasonably withheld.
The indemnities contained in this Section shall survive the resignation or
termination of the Owner Trustee or the termination of this Trust Agreement. In
the event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel, if other
than the legal counsel retained by the Owner Trustee in connection with the
execution and delivery of this Trust Agreement, shall be subject to the approval
of the Holder of the Designated Certificate, which approval shall not be
unreasonably withheld. In addition, upon written
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notice to the Owner Trustee and with the consent of the Owner Trustee which
consent shall not be unreasonably withheld, the Holder of the Designated
Certificate has the right to assume the defense of any claim, action or
proceeding against the Owner Trustee.
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ARTICLE VIII
TERMINATION OF TRUST AGREEMENT
Section 8.01. TERMINATION OF TRUST AGREEMENT. (a) This Trust Agreement
(other than Article VIII) and the Trust shall terminate and be of no further
force or effect upon the earliest of (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and this Trust Agreement, (ii) the Payment Date
in ____________, (iii) at the time provided in Section 8.02 or (iv) purchase by
the Servicer of all Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement. The bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder, other than the Holder of the Designated Certificate as
described in Section 8.02, shall not (x) operate to terminate this Trust
Agreement or the Trust or (y) entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of all or any part of the
Trust or the Owner Trust Estate or (z) otherwise affect the rights, obligations
and liabilities of the parties hereto.
(b) Except as provided in Section 8.01(a), none of the Depositor, the
Holder of the Designated Certificate or any other Certificateholder shall be
entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which Certificateholders shall surrender their Certificates to the
Certificate Paying Agent for payment of the final distribution and cancellation,
shall be given by the Certificate Paying Agent by letter to Certificateholders
and the Credit Enhancer mailed within five Business Days of receipt of notice of
such termination from the Administrator, stating (i) the Payment Date upon or
with respect to which final payment of the Certificates shall be made upon
presentation and surrender of the Certificates at the office of the Certificate
Paying Agent therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Certificate Payment Agent therein specified.
The Certificate Paying Agent shall give such notice to the Owner Trustee and the
Certificate Registrar at the time such notice is given to Certifi cateholders.
Upon presentation and surrender of the Certificates, the Certificate Paying
Agent shall cause to be distributed to Certificateholders amounts distributable
on such Payment Date pursuant to Section 5.01.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Certificate Paying Agent shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. Subject to applicable laws with respect to escheat of funds, if within
one year following the Payment Date on which final payment of the Certificates
was to have been made pursuant to Section 3.03 of the Indenture, all the
Certificates shall not have been surrendered for cancellation, the Certificate
Paying Agent may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Trust Agree-
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ment. Any funds remaining in the Certificate Distribution Account after
exhaustion of such remedies shall be distributed by the Certificate Paying Agent
to the Holder of the Designated Certificate.
(d) Upon the winding up of the Trust and its termination, the Owner Trustee
shall cause the Certificate of Trust to be cancelled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3810(c) of the Business Trust Statute.
Section 8.02. DISSOLUTION UPON BANKRUPTCY OF THE HOLDER OF THE DESIGNATED
CERTIFICATE. In the event that an Insolvency Event shall occur with respect to
the Holder of the Designated Certificate, this Trust Agreement and the Trust
shall be terminated in accordance with Section 8.01, 90 days after the date of
such Insolvency Event, unless, before the end of such 90-day period, the Owner
Trustee shall have received written instructions from (a) if no Credit Enhancer
Default shall have occurred and be continuing, Holders of Certificates (other
than the Holder of the Designated Certificate) representing more than 50% of the
Principal Balance of the Certificates (not including the Principal Balance of
the Designated Certificate), to the effect that such Holders disapprove of the
termination of the Trust or (b) if a Credit Enhancer Default shall have occurred
and be continuing, (i) each of the Holders of Certificates and (ii) each of the
Holders of the Bonds, to the effect that such Holders disapprove of the
termination of the Trust. Promptly after the occurrence of any Insolvency Event
with respect to the Holder of the Designated Certificate (A) the Holder of the
Designated Certificate shall give the Indenture Trustee, the Credit Enhancer and
the Owner Trustee written notice of such Insolvency Event, (B) the Owner Trustee
shall, upon the receipt of such written notice from the Holder of the Designated
Certificate, give prompt written notice to the Certificateholders of the
occurrence of such event and (C) the Indenture Trustee shall give prompt written
notice of such event to the Bondholders; provided, however, that any failure to
give a notice required by this sentence shall not prevent or delay, in any
manner, a termination of the Trust pursuant to the first sentence of this
Section 8.02. Upon a termination pursuant to this Section, the Owner Trustee
shall direct the Indenture Trustee promptly to sell the assets of the Trust
(other than the Payment Account) in a commercially reasonable manner and on
commercially reasonable terms. The proceeds of any such sale of the assets of
the Trust shall be deposited to the Payment Account for distribution in
accordance with Section 5.04(b) of the Indenture.
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ARTICLE IX
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
Section 9.01. ELIGIBILITY REQUIREMENTS FOR OWNER TRUSTEE. The Owner Trustee
shall at all times be a corporation satisfying the provisions of Section 3807(a)
of the Business Trust Statute; authorized to exercise corporate trust powers;
having a combined capital and surplus of at least $__________ and subject to
supervision or examination by federal or state authorities; and having (or
having a parent that has) a rating of at least Baa3 by [Moody's]. If such
corporation shall publish reports of condition at least annually pursuant to law
or to the requirements of the aforesaid supervis ing or examining authority,
then for the purpose of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Owner Trustee shall cease to be eligible in accordance with the provisions of
this Section 9.01, the Owner Trustee shall resign immediately in the manner and
with the effect specified in Section 9.02.
Section 9.02. REPLACEMENT OF OWNER TRUSTEE. The Owner Trustee may at any
time resign and be discharged from the trusts hereby created by giving 30 days
prior written notice thereof to the Administrator, the Credit Enhancer and the
Depositor. Upon receiving such notice of resignation, the Administrator shall
promptly appoint a successor Owner Trustee with the consent of the Credit
Enhancer which will not be unreasonably withheld, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and to the successor Owner Trustee. If no successor Owner Trustee
shall have been so appointed and have accepted appointment within 30 days after
the giving of such notice of resignation, the resigning Owner Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in accordance
with the provisions of Section 9.01 and shall fail to resign after written
request therefor by the Administrator, or if at any time the Owner Trustee shall
be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Administrator may remove the Owner Trustee. If the
Administrator shall remove the Owner Trustee under the authority of the
immediately preceding sentence, the Administrator shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed and one
copy to the successor Owner Trustee, and shall pay all fees owed to the outgoing
Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section shall
not become effective until acceptance of appointment by the successor Owner
Trustee pursuant to Section 9.03 and payment of all fees and expenses owed to
the outgoing Owner Trustee. The Administrator shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
Section 9.03. SUCCESSOR OWNER TRUSTEE. Any successor Owner Trustee
appointed pursuant to Section 9.02 shall execute, acknowledge and deliver to the
Administrator and to its predecessor
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Owner Trustee an instrument accepting such appointment under this Trust
Agreement, and thereupon the resignation or removal of the predecessor Owner
Trustee shall become effective, and such successor Owner Trustee, without any
further act, deed or conveyance, shall become fully vested with all the rights,
powers, duties and obligations of its predecessor under this Trust Agreement,
with like effect as if originally named as Owner Trustee. The predecessor Owner
Trustee shall upon payment of its fees and expenses deliver to the successor
Owner Trustee all documents and statements and monies held by it under this
Trust Agreement; and the Administrator and the predecessor Owner Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section 9.03 unless at the time of such acceptance such successor Owner Trustee
shall be eligible pursuant to Section 9.01.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this Section 9.03, the Administrator shall mail notice thereof to all
Certificateholders, the Indenture Trustee, the Bondholders and the Rating
Agencies. If the Administrator shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Owner Trustee, the
successor Owner Trustee shall cause such notice to be mailed at the expense of
the Administrator.
Section 9.04. MERGER OR CONSOLIDATION OF OWNER TRUSTEE. Any Person into
which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any Person
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding;
provided, that such Person shall be eligible pursuant to Section 9.01 and,
provided, further, that the Owner Trustee shall mail notice of such merger or
consolidation to the Rating Agencies.
Section 9.05. APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Trust Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Owner Trust Estate may at the time be located, the Administrator and
the Owner Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the
Administrator and Owner Trustee to act as co-trustee, jointly with the Owner
Trustee, or as separate trustee or trustees, of all or any part of the Owner
Trust Estate, and to vest in such Person, in such capacity, such title to the
Trust or any part thereof and, subject to the other provisions of this Section,
such powers, duties, obligations, rights and trusts as the Administrator and the
Owner Trustee may consider necessary or desirable. If the Administrator shall
not have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee under this Trust Agreement shall
be required to meet the terms of eligibility as a successor Owner Trustee
pursuant to Section 9.01 and no notice of the appointment of any co-trustee or
separate trustee shall be required pursuant to Section 9.03.
28
<PAGE>
Each separate trustee and co-trustee shall, to the extent permitted by law,
be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed upon
the Owner Trustee shall be conferred upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act), except to the extent
that under any law of any jurisdiction in which any particular act or acts are
to be performed, the Owner Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Owner Trust Estate or any
portion thereof in any such jurisdiction) shall be exercised and performed
singly by such separate trustee or co-trustee, but solely at the direction of
the Owner Trustee;
(b) No trustee under this Trust Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Trust Agreement;
and
(c) The Administrator and the Owner Trustee acting jointly may at any time
accept the resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Owner Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Trust Agreement and the
conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appoint ment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Trust Agreement, specifically including every provision of this Trust
Agreement relating to the conduct of, affecting the liability of, or affording
protection to, the Owner Trustee. Each such instrument shall be filed with the
Owner Trustee and a copy thereof given to the Administrator.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee as its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Trust Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor co-trustee or separate trustee.
29
<PAGE>
ARTICLE X
MISCELLANEOUS
Section 10.01. AMENDMENTS. (a) This Trust Agreement may be amended from
time to time by the parties hereto as specified in this Section [, provided that
any amendment, except as provided in subparagraph (e) below, be accompanied by
an Opinion of Counsel to the Owner Trustee to the effect that such amendment (i)
complies with the provisions of this Section and (ii) will not cause the Trust
to be subject to an entity level tax].
(b) If the purpose of the amendment (as detailed therein) is to correct any
mistake, eliminate any inconsistency, cure any ambiguity or deal with any matter
not covered (i.e. to give effect to the intent of the parties and, if
applicable, to the expectations of the Holders), it shall not be necessary to
obtain the consent of any Holders, but the Owner Trustee shall be furnished with
(A) a letter from the Rating Agencies that the amendment will not result in the
downgrading or with drawal of the rating then assigned to any Security and (B)
an Opinion of Counsel to the effect that such action will not adversely affect
in any material respect the interests of any Holders, and the consent of the
Credit Enhancer shall be obtained.
(c) If the purpose of the amendment is to prevent the imposition of any
federal or state taxes at any time that any Security is outstanding (i.e.
technical in nature), it shall not be necessary to obtain the consent of any
Holder, but the Owner Trustee shall be furnished with an Opinion of Counsel that
such amendment is necessary or helpful to prevent the imposition of such taxes
and is not materially adverse to any Holder and the consent of the Credit
Enhancer shall be obtained.
(d) If the purpose of the amendment is to add or eliminate or change any
provision of the Trust Agreement other than as contemplated in (b) and (c)
above, the amendment shall require (A) an Opinion of Counsel to the effect that
such action will not adversely affect in any material respect the interests of
any Holders and (B) either (a) a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any security or (b) the consent of Holders of Certificates
evidencing a majority of the Principal Balance of the Certificates and the
Indenture Trustee; provided, however, that no such amendment shall (i) reduce in
any manner the amount of, or delay the timing of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder and the Credit Enhancer, or (ii) reduce the aforesaid
percentage of Certificates the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all such Certificates then
outstanding.
(e) If the purpose of the amendment is to provide for the holding of any of
the Certificates in book-entry form, it shall require the consent of Holders of
all such Certificates then outstanding; provided, that the Opinion of Counsel
specified in subparagraph (a) above shall not be required.
(f) If the purpose of the amendment is to provide for the issuance of
additional certificates representing an interest in the Trust, it shall not be
necessary to obtain the consent of any Holder, but the Owner Trustee shall be
furnished with (A) an Opinion of Counsel to the effect that such action will not
adversely affect in any material respect the interests of any Holders and (B) a
30
<PAGE>
letter from the Rating Agencies that the amendment will not result in the
downgrading or withdrawal of the rating then assigned to any Security and the
consent of the Credit Enhancer shall be obtained.
(g) Promptly after the execution of any such amendment or consent, the
Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificate holder, the Indenture Trustee, the
Credit Enhancer and each of the Rating Agencies. It shall not be necessary for
the consent of Certificateholders or the Indenture Trustee pursuant to this
Section 10.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Trust Agreement or in any other Basic
Docu ment) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the Owner
Trustee may prescribe.
(h) In connection with the execution of any amendment to any agreement to
which the Trust is a party, other than this Trust Agreement, the Owner Trustee
shall be entitled to receive and conclusively rely upon an Opinion of Counsel to
the effect that such amendment is authorized or permitted by the documents
subject to such amendment and that all conditions precedent in the Basic
Documents for the execution and delivery thereof by the Trust or the Owner
Trustee, as the case may be, have been satisfied.
Promptly after the execution of any amendment to the Certificate of Trust,
the Owner Trustee shall cause the filing of such amendment with the Secretary of
State of the State of Delaware.
Section 10.02. NO LEGAL TITLE TO OWNER TRUST ESTATE. The Certificateholders
shall not have legal title to any part of the Owner Trust Estate. The
Certificateholders shall be entitled to receive distributions with respect to
their undivided beneficial interest therein only in accordance with Articles V
and IX. No transfer, by operation of law or otherwise, of any right, title or
interest of the Certificateholders to and in their ownership interest in the
Owner Trust Estate shall operate to terminate this Trust Agreement or the trusts
hereunder or entitle any transferee to an accounting or to the transfer to it of
legal title to any part of the Owner Trust Estate
Section 10.03. LIMITATIONS ON RIGHTS OF OTHERS. Except for Section 2.07,
the provisions of this Trust Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Holder of the Designated Certificate, the
Certificateholders, the Administrator, the Credit Enhancer and, to the extent
expressly provided herein, the Indenture Trustee and the Bondholders, and
nothing in this Trust Agreement (other than Section 2.07), whether express or
implied, shall be construed to give to any other Person any legal or equitable
right, remedy or claim in the Owner Trust Estate or under or in respect of this
Trust Agreement or any covenants, conditions or provisions contained herein.
Section 10.04. NOTICES. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt , if to the Owner Trustee, addressed to the Corporate
Trust Office; if to the Depositor, addressed to Ameriquest Mortgage Securities
Inc., _____________________; Attention: _________________; if to the Credit
Enhancer, addressed to ___________, Attention: _________________, if to the
Rating Agencies, addressed to ________________________ Attention: __________or,
as to each party, at such other address as shall be designated by such party in
a written notice to each other party.
31
<PAGE>
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Trust Agreement shall be conclusively presumed to have
been duly given, whether or not the Certificateholder receives such notice.
(c) A copy of any notice delivered to the Owner Trustee or the Trust shall
also be delivered to the Depositor and the Administrator.
Section 10.05. SEVERABILITY. Any provision of this Trust Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 10.06. SEPARATE COUNTERPARTS. This Trust Agreement may be executed
by the parties hereto in separate counterparts, each of which when so executed
and delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 10.07. SUCCESSORS AND ASSIGNS. All representations, warranties,
covenants and agreements contained herein shall be binding upon, and inure to
the benefit of, each of the Depositor, the Owner Trustee and its successors and
each Certificateholder and its successors and permitted assigns, all as herein
provided and the Credit Enhancer. Any request, notice, direction, consent,
waiver or other instrument or action by a Certificateholder shall bind the
successors and assigns of such Certificateholder.
[Section 10.08. NO PETITION. The Owner Trustee, by entering into this Trust
Agreement and each Certificateholder, by accepting a Certificate, hereby
covenant and agree that they will not at any time institute against the
Depositor or the Trust, or join in any institution against the Depositor or the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations to the
Certificates, the Bonds, this Trust Agreement or any of the Basic Documents.]
Section 10.9. NO RECOURSE. Each Certificateholder by accepting a
Certificate acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Holder of the Designated Certificate, the
Seller, the Administrator, the Owner Trustee, the Indenture Trustee or any
Affiliate thereof and no recourse may be had against such parties or their
assets, except as may be expressly set forth or contemplated in this Trust
Agreement, the Certificates or the Basic Documents.
Section 10.10. HEADINGS. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
Section 10.11. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE
32
<PAGE>
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 10.12. INTEGRATION. This Trust Agreement constitutes the entire
agreement among the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements and understanding pertaining thereto.
33
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
AMERIQUEST MORTGAGE SECURITIES INC.
By:_______________________________________
Name:
Title:
___________________, not in its individual
capacity but solely as Owner Trustee,
By:_______________________________________
Name:
Title:
Acknowledged and Agreed:
____________________________________
__________, as Certificate
Registrar and Certificate
Paying Agent
By:_________________________________
Name:
Title:
33
<PAGE>
EXHIBIT A
[Form of Certificate]
[Face]
THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE
RESOLD OR TRANSFERRED UNLESS IT IS REGISTERED PURSUANT TO SUCH ACT AND LAWS OR
IS SOLD OR TRANSFERRED IN TRANSACTIONS WHICH ARE EXEMPT FROM REGISTRATION UNDER
SUCH ACT AND UNDER APPLICABLE STATE LAW AND IS TRANSFERRED IN ACCORDANCE WITH
THE PROVISIONS OF SECTION 3.05 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED EITHER (I) A REPRESENTATION LETTER FROM THE TRANSFEREE OF
THIS CERTIFICATE TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE EMPLOYEE
RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR SECTION 4975 OF
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR A PERSON ACTING
ON BEHALF OF ANY SUCH PLAN OR USING THE ASSETS OF ANY SUCH PLAN, OR (II) IF THIS
CERTIFICATE IS PRESENTED FOR REGISTRATION IN THE NAME OF A PLAN SUBJECT TO THE
FIDUCIARY RESPONSIBILITY PROVISIONS OF ERISA, OR SECTION 4975 OF THE CODE (OR
COMPARABLE PROVISIONS OF ANY SUBSEQUENT ENACTMENTS), OR A TRUSTEE OF ANY SUCH
PLAN, OR ANY OTHER PERSON WHO IS USING THE ASSETS OF ANY SUCH PLAN TO EFFECT
SUCH ACQUISITION, AN OPINION OF COUNSEL TO THE EFFECT THAT THE PURCHASE OR
HOLDING OF THIS CERTIFICATE WILL NOT RESULT IN THE ASSETS OF THE OWNER TRUST
ESTATE BEING DEEMED TO BE "PLAN ASSETS" AND SUBJECT TO THE FIDUCIARY
RESPONSIBILITY PROVISIONS OF ERISA OR THE PROHIBITED TRANSACTION PROVISIONS OF
THE CODE, WILL NOT CONSTITUTE OR RESULT IN A PROHIBITED TRANSACTION WITHIN THE
MEANING OF SECTION 406 OR SECTION 407 OF ERISA OR SECTION 4975 OF THE CODE, AND
WILL NOT SUBJECT THE OWNER TRUSTEE OR THE DEPOSITOR TO ANY OBLIGATION OR
LIABILITY.
NO TRANSFER OF THIS CERTIFICATE SHALL BE MADE UNLESS THE CERTIFI CATE REGISTRAR
SHALL HAVE RECEIVED A CERTIFICATE OF NON-FOREIGN STATUS CERTIFYING AS TO THE
TRANSFEREE'S STATUS AS A U.S. PERSON OR CORPORATION UNDER U.S. LAW.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE SELLER,
THE DEPOSITOR, THE SERVICER, THE INDENTURE TRUSTEE, OR
<PAGE>
THE OWNER TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS EXPRESSLY
PROVIDED IN THE TRUST AGREEMENT OR THE BASIC DOCUMENTS.
A-2
<PAGE>
Certificate No.
Original principal amount ("Denomination") of this
Certificate: $_________
Aggregate Denominations of all Certificates: $_______
Pass-Through Rate: Floating
Cut-Off Date:
First Payment Date
___________, ____
CUSIP NO. __________
Ameriquest Trust Series ____-_
Evidencing a fractional undivided equity interest in the Owner Trust
Estate, the property of which consists primarily of the Mortgage Collateral in
_________________________, a corporation sold by
AMERIQUEST MORTGAGE SECURITIES INC., AS DEPOSITOR
This certifies that [name of Holder] is the registered owner of the
Percentage Interest represented hereby in the Ameriquest Trust Series ____-__
(the "Trust").
The Trust was created pursuant to an Trust Agreement dated as of
________________ (as amended and supplemented from time to time, the "Trust
Agreement") between the Depositor and ______________________, as owner trustee
(as amended and supplemented from time to time, the "Owner Trustee", which term
includes any successor entity under the Trust Agreement), a summary of certain
of the pertinent provisions of which is set forth hereinafter. This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Trust Agreement, to which Trust Agreement the Holder of this Certificate by
virtue of the acceptance hereof assents and by which such Holder is bound.
This Certificate is one of a duly authorized issue of Collateralized
Mortgage Certificates, Series ____-__ (herein called the "Certificates") issued
under the Trust Agreement to which reference is hereby made for a statement of
the respective rights thereunder of the Depositor, the Owner Trustee and the
Holders of the Certificates and the terms upon which the Certificates are
executed and delivered. All terms used in this Certificate which are defined in
the Trust Agreement shall have the meanings assigned to them in the Trust
Agreement. The Owner Trust Estate consists of the Mortgage Collateral in the
Ameriquest Trust Series ____-____ and a Surety Bond. The rights
A-3
<PAGE>
of the Holders of the Certificates are subordinated to the rights of the Holders
of the Bonds, as set forth in the [Indenture].
There will be distributed on the [twentieth] day of each month or, if
such [twentieth] day is not a Business Day, the next Business Day (each, a
"Payment Date"), commencing in _____________, to the Person in whose name this
Certificate is registered at the close of business on the last Business Day of
the month preceding the month of such Payment Date (the "Record Date"), such
Certificateholder's Percentage Interest (obtained by dividing the Denomination
of this Certificate by the aggregate Denominations of all Certificates) in the
amount to be distributed to Certificateholders on such Payment Date.
The Certificateholder, by its acceptance of this Certificate, agrees
that it will look solely to the funds on deposit in the Payment Account that
have been released from the Lien of the Indenture for payment hereunder and that
neither the Owner Trustee in its individual capacity nor the Depositor is
personally liable to the Certificateholders for any amount payable under this
Certificate or the Trust Agreement or, except as expressly provided in the Trust
Agreement, subject to any liability under the Trust Agreement.
The Holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Bondholders as described in the Indenture, dated as of _________,
____, between the Trust and __________________________________, as Indenture
Trustee (the "Indenture").
It is the intent of the Depositor and the Certificateholders that, for
purposes of federal income, state and local income and single business tax and
any other income taxes, the Trust will be treated as a corporation. The
Depositor and each Certificateholder, by acceptance of a Certificate, agree to
treat, and to take no action inconsistent with the treatment of, the
Certificates for such tax purposes as an equity interest in a corporation.
Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Depositor, or join in any institution against the Depositor or the Trust of,
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings, or other proceedings under any United States federal or state
bankruptcy or similar law in connection with any obligations relating to the
Certificates, the Bonds, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Certificate Paying Agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Certificate Paying Agent of the pendency of such distribution and
only upon presentation and surrender of this Certificate at the office or agency
maintained by the Certificate Registrar for that purpose by the Trust in the
__________________________________.
A-4
<PAGE>
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee, or an authenticating
agent by manual signature, this Certificate shall not entitle the Holder hereof
to any benefit under the Trust Agreement or be valid for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-5
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
AMERIQUEST TRUST SERIES ____-__
by _____________________, not in its
individual capacity but solely as Owner
Trustee
_____________________
Dated: Authorized Signatory
Certificate of Authentication
This is one of the Certificates referred to in the within mentioned Trust
Agreement.
______________________________,
not in its individual capacity
but solely as Owner Trustee
By:___________________________________________
Authorized Signatory
or __________________________________________,
as Authenticating Agent of the Trust
By:___________________________________________
Authorized Signatory
A-6
<PAGE>
[REVERSE OF CERTIFICATE]
The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer, the Indenture Trustee, the Owner
Trustee or any Affiliates of any of them and no recourse may be had against such
parties or their assets, except as expressly set forth or contemplated herein or
in the Trust Agreement or the Basic Documents. In addition, this Certificate is
not guaranteed by any governmental agency or instrumentality and is limited in
right of payment to certain collections and recoveries with respect to the
Mortgage Collateral, all as more specifically set forth herein. A copy of the
Trust Agreement may be examined by any Certificateholder upon written request
during normal business hours at the principal office of the Depositor and at
such other places, if any, designated by the Depositor.
The Trust Agreement permits the amendment thereof as specified below,
provided that any amendment be accompanied by the consent of the Credit Enhancer
and an Opinion of Counsel to the Owner Trustee to the effect that such amendment
complies with the provisions of the Trust Agreement and will not cause the Trust
to be subject to an entity level tax. If the purpose of the amendment is to
correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered, it shall not be necessary to obtain the consent of
any Holder, but the Owner Trustee shall be furnished with a letter from the
Rating Agencies that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Security. If the purpose of the
amendment is to prevent the imposition of any federal or state taxes at any time
that any Security is outstanding, it shall not be necessary to obtain the
consent of the any Holder, but the Owner Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Holder. If the
purpose of the amendment is to add or eliminate or change any provision of the
Trust Agreement, other than as specified in the preceding two sentences, the
amendment shall require either (a) a letter from the Rating Agencies that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Security or (b) the consent of Holders of the Certificates
evidencing a majority of the Percentage Interests of the Certificates and the
Indenture Trustee; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of, or delay the time of, payments received that are
required to be distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment without the
consent of the Holders of all such Certificates then outstanding.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trust in the _________________________________, accompanied by a written
instrument of transfer in form satisfactory to the Certificate Registrar duly
executed by the Holder hereof or such Holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee. The initial Certificate Registrar appointed under the
Trust Agreement is __________________________________.
A-7
<PAGE>
Except as provided in the Trust Agreement, the Certificates are
issuable only in minimum denominations of $______ and in integral multiples of
$______ in excess thereof, except for one Certificate that may not be in an
integral multiple of $______. As provided in the Trust Agreement and subject to
certain limitations therein set forth, Certificates are exchangeable for new
Certificates of authorized denominations evidencing the same aggregate
denomination, as requested by the Holder surrendering the same. No service
charge will be made for any such registration of transfer or exchange, but the
Owner Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Owner Trustee, the Certificate Paying Agent, the Certificate
Registrar and any agent of the Owner Trustee, the Certificate Paying Agent, or
the Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Owner Trustee,
the Certificate Paying Agent, the Certificate Registrar or any such agent shall
be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate (i) upon the final distribution of all
moneys or other property or proceeds of the Owner Trust Estate in accordance
with the terms of the Indenture and the Trust Agreement, (ii) the Payment Date
in ____________, or (iii) upon the bankruptcy or insolvency of the Holder of the
Designated Certificate and the satisfaction of other conditions specified in
Section 8.02 of the Trust Agreement.
A-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
________________________________________________________________________________
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________________________
to transfer said Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
__________________________________________*/
Signature Guaranteed:
__________________________________________*/
- -----------------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Certificate in every particular, without
alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-9
<PAGE>
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Certificate Paying Agent:
Distribution shall be made by wire transfer in immediately available
funds to ______________________________________________ for the account of
________________________________________, account number ______________, or, if
mailed by check, to ______________.
Applicable statements should be mailed to__________________.
------------------------------
Signature of assignee or agent
(for authorization of wire
transfer only)
A-10
<PAGE>
EXHIBIT B
TO THE TRUST AGREEMENT
CERTIFICATE OF TRUST OF
Ameriquest Trust Series ____-___
--------------------------------
THIS Certificate of Trust of Ameriquest Trust Series ____-__
(the "Trust"), dated ___________, ____, is being duly executed and filed by
______________________, a Delaware banking corporation, as trustee, to form a
business trust under the Delaware Business Trust Act (12 Del. Code, ss. 3801 ET
Seq.).
1. Name. The name of the business trust formed hereby is
Ameriquest Trust Series __________-___.
2. Delaware Trustee. The name and business address of the
trustee of the Trust in the State of Delaware is ______________________,
__________________, __________, ______________, Attention:
______________________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
______________________,
not in its individual capacity but solely as
owner trustee under a Trust Agreement dated
as of _________, ____,
By:
__________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[FORM OF RULE 144A INVESTMENT REPRESENTATION]
Description of Rule 144A Securities, including numbers:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
The undersigned seller, as registered holder (the "Seller"),
intends to transfer the Rule 144A Securities described above to the undersigned
buyer (the "Buyer").
1. In connection with such transfer and in accordance with the
agreements pursuant to which the Rule 144A Securities were issued, the Seller
hereby certifies the following facts: Neither the Seller nor anyone acting on
its behalf has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any other
similar security to, or solicited any offer to buy or accept a transfer, pledge
or other disposition of the Rule 144A Securities, any interest in the Rule 144A
Securities or any other similar security from, or otherwise approached or
negotiated with respect to the Rule 144A Securities, any interest in the Rule
144A Securities or any other similar security with, any person in any manner, or
made any general solicitation by means of general advertising or in any other
manner, or taken any other action, that would constitute a distribution of the
Rule 144A Securities under the Securities Act of 1933, as amended (the "1933
Act"), or that would render the disposition of the Rule 144A Securities a
violation of Section 5 of the 1933 Act or require registration pursuant thereto,
and that the Seller has not offered the Rule 144A Securities to any person other
than the Buyer or another "qualified institutional buyer" as defined in Rule
144A under the 1933 Act.
2. The Buyer warrants and represents to, and covenants with,
the Owner Trustee and the Depositor (as defined in the Trust Agreement (the
"Agreement"), dated as of _________, ____ between Ameriquest Mortgage Securities
Inc., as Depositor and ______________________, as Owner Trustee pursuant to
Section 3.05 of the Agreement and __________________________________ as
indenture trustee, as follows:
a. The Buyer understands that the Rule 144A
Securities have not been registered under the 1933 Act or the
securities laws of any state.
b. The Buyer considers itself a substantial,
sophisticated institutional investor having such knowledge and
experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Rule 144A
Securities.
c. The Buyer has been furnished with all information
regarding the Rule 144A Securities that it has requested from the
Seller, the Indenture Trustee, the Owner Trustee or the Servicer.
C-1
<PAGE>
d. Neither the Buyer nor anyone acting on its behalf
has offered, transferred, pledged, sold or otherwise disposed of the
Rule 144A Securities, any interest in the Rule 144A Securities or any
other similar security to, or solicited any offer to buy or accept a
transfer, pledge or other disposition of the Rule 144A Securities, any
interest in the Rule 144A Securities or any other similar security
from, or otherwise approached or negotiated with respect to the Rule
144A Securities, any interest in the Rule 144A Securities or any other
similar security with, any person in any manner, or made any general
solicitation by means of general advertising or in any other manner, or
taken any other action, that would constitute a distribution of the
Rule 144A Securities under the 1933 Act or that would render the
disposition of the Rule 144A Securities a violation of Section 5 of the
1933 Act or require registration pursuant thereto, nor will it act, nor
has it authorized or will it authorize any person to act, in such
manner with respect to the Rule 144A Securities.
e. The Buyer is a "qualified institutional buyer" as
that term is defined in Rule 144A under the 1933 Act and has completed
either of the forms of certification to that effect attached hereto as
Annex 1 or Annex 2. The Buyer is aware that the sale to it is being
made in reliance on Rule 144A. The Buyer is acquiring the Rule 144A
Securities for its own account or the accounts of other qualified
institutional buyers, understands that such Rule 144A Securities may be
resold, pledged or transferred only (i) to a person reasonably believed
to be a qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A, or (ii) pursuant to another exemption from
registration under the 1933 Act.
[3. The Buyer warrants and represents to, and covenants with,
the Seller, the Indenture Trustee, Owner Trustee, Servicer and the Depositor
that either (1) the Buyer is (A) not an employee benefit plan (within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), or a plan (within the meaning of Section 4975(e)(1) of
the Internal Revenue Code of 1986 ("Code")), which (in either case) is subject
to ERISA or Section 4975 of the Code (both a "Plan"), and (B) is not directly or
indirectly purchasing the Rule 144A Securities on behalf of, as investment
manager of, as named fiduciary of, as trustee of, or with "plan assets" of a
Plan, or (2) the Buyer understands that registration of transfer of any Rule
144A Securities to any Plan, or to any Person acting on behalf of any Plan, will
not be made unless such Plan delivers an opinion of its counsel, addressed and
satisfactory to the Certificate Registrar and the Depositor, to the effect that
the purchase and holding of the Rule 144A Securities by, on behalf of or with
"plan assets" of any Plan would not constitute or result in a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code, and would
not subject the Depositor, the Servicer, the Indenture Trustee or the Trust to
any obligation or liability (including liabilities under ERISA or Section 4975
of the Code) in addition to those undertaken in the Agreement or any other
liability.]
4. This document may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same document.
C-2
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this
document as of the date set forth below.
_____________________________ ____________________________________
Print Name of Seller Print Name of Buyer
By:__________________________ By:_________________________________
Name: Name:
Title: Title:
Taxpayer Identification: Taxpayer Identification:
No.__________________________ No._________________________________
Date:________________________ Date:_______________________________
C-3
<PAGE>
ANNEX 1 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
--------------------------------------------------------
[For Buyers Other Than Registered Investment Companies]
The undersigned hereby certifies as follows in connection with the
Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.
2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $______________________1 in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.
___ CORPORATION, ETC. The Buyer is a corporation (other than a bank,
savings and loan association or similar institution), Massachusetts
or similar business trust, partnership, or charitable organization
described in Section 501(c)(3) of the Internal Revenue Code.
___ BANK. The Buyer (a) is a national bank or banking institution
organized under the laws of any State, territory or the District of
Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking
commission or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.
- ------------------
1 Buyer must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Buyer is a dealer, and, in that case, Buyer must own and/or
invest on a discretionary basis at least $10,000,000 in securities.
C-4
<PAGE>
___ SAVINGS AND LOAN. The Buyer (a) is a savings and loan association,
building and loan association, cooperative bank, homestead
association or similar institution, which is supervised and
examined by a State or Federal authority having supervision over
any such institutions or is a foreign savings and loan association
or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial
statements.
___ BROKER-DEALER. The Buyer is a dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934.
___ INSURANCE COMPANY. The Buyer is an insurance company whose primary
and predominant business activity is the writing of insurance or
the reinsuring of risks underwritten by insurance companies and
which is subject to supervision by the insurance commissioner or a
similar official or agency of a State or territory or the District
of Columbia.
___ STATE OR LOCAL PLAN. The Buyer is a plan established and maintained
by a State, its political subdivisions, or any agency or
instrumentality of the State or its political subdivisions, for the
benefit of its employees.
___ ERISA PLAN. The Buyer is an employee benefit plan within the
meaning of Title I of the Employee Retirement Income Security Act
of 1974.
___ INVESTMENT ADVISER. The Buyer is an investment adviser registered
under the Investment Advisers Act of 1940.
___ SBIC. The Buyer is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1958.
___ BUSINESS DEVELOPMENT COMPANY. The Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisers
Act of 1940.
___ TRUST FUND. The Buyer is a trust fund whose trustee is a bank or
trust company and whose participants are exclusively (a) plans
established and maintained by a State, its political subdivisions,
or any agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees, or (b) employee
benefit plans within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, but is not a trust fund
that includes as participants individual retirement accounts or
H.R. 10 plans.
3. The term "SECURITIES" as used herein DOES NOT INCLUDE (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.
C-5
<PAGE>
4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.
5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.
___ ___ Will the Buyer be purchasing the Rule 144A
Yes No Securities only for the Buyer's own account?
6. If the answer to the foregoing question is "no", the Buyer
agrees that, in connection with any purchase of securities sold to the Buyer for
the account of a third party (including any separate account) in reliance on
Rule 144A, the Buyer will only purchase for the account of a third party that at
the time is a "qualified institutional buyer" within the meaning of Rule 144A.
In addition, the Buyer agrees that the Buyer will not purchase securities for a
third party unless the Buyer has obtained a current representation letter from
such third party or taken other appropriate steps contemplated by Rule 144A to
conclude that such third party independently meets the definition of "qualified
institutional buyer" set forth in Rule 144A.
7. The Buyer will notify each of the parties to which this
certification is made of any changes in the information and conclusions herein.
Until such notice is given, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification as of the date of such
purchase.
____________________________________
Print Name of Buyer
By: _______________________________
Name:
Title:
Date:_______________________________
C-6
<PAGE>
ANNEX 2 TO EXHIBIT C
--------------------
QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A
--------------------------------------------------------
[For Buyers That Are Registered Investment Companies]
The undersigned hereby certifies as follows in connection with
the Rule 144A Investment Representation to which this Certification is attached:
1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.
2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used.
____ The Buyer owned $___________________ in securities (other than the
excluded securities referred to below) as of the end of the Buyer's
most recent fiscal year (such amount being calculated in accordance
with Rule 144A).
____ The Buyer is part of a Family of Investment Companies which owned in
the aggregate $______________ in securities (other than the excluded
securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule
144A).
3. The term "Family of Investment Companies" as used herein
means two or more registered investment companies (or series thereof) that have
the same investment adviser or investment advisers that are affiliated (by
virtue of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).
4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.
5. The Buyer is familiar with Rule 144A and understands that
each of the parties to which this certification is made are relying and will
continue to rely on the statements made herein
C-7
<PAGE>
because one or more sales to the Buyer will be in reliance on Rule 144A. In
addition, the Buyer will only purchase for the Buyer's own account.
6. The undersigned will notify each of the parties to which
this certification is made of any changes in the information and conclusions
herein. Until such notice, the Buyer's purchase of Rule 144A Securities will
constitute a reaffirmation of this certification by the undersigned as of the
date of such purchase.
Print Name of Buyer
By:________________________________
Name:___________________________
Title:__________________________
IF AN ADVISER:
___________________
Print Name of Buyer
Date:______________________________
C-8
<PAGE>
EXHIBIT D
CERTIFICATE OF NON-FOREIGN STATUS
This Certificate of Non-Foreign Status ("certificate") is delivered
pursuant to Section 3.03 of the Trust Agreement, dated as of _________, ____
(the "Trust Agreement"), between Ameriquest Mortgage Securities Inc., as
depositor and ______________________, as Owner Trustee, in connection with the
acquisition of, transfer to or possession by the undersigned, whether as
beneficial owner (the "Beneficial Owner"), or nominee on behalf of the
Beneficial Owner of the AQ Mortgage-Backed Notes, Series ____-__ (the
"Certificate"). Capitalized terms used but not defined in this certificate have
the respective meanings given them in the Trust Agreement.
Each holder must complete Part I, Part II (if the holder is a nominee), and in
all cases sign and otherwise complete Part III. In addition, each holder shall
submit with the Certificate an IRS Form W-9 relating to such holder.
To confirm to the Trust that the provisions of Sections 871, 881 or 1446 of the
Internal Revenue Code (relating to withholding tax on foreign partners) do not
apply in respect of the Certificate held by the undersigned, the undersigned
hereby certifies:
Part I - Complete Either A or B
A. Individual as Beneficial Owner
1. I am (The Beneficial Owner is ) not a non-resident
alien for purposes of U.S. income taxation;
2. My (The Beneficial Owner's) name and home address
are:
________________________
________________________
________________________; and
3. My (The Beneficial Owner's) U.S. taxpayer
identification number (Social Security Number) is
__________________.
B. Corporate, Partnership or Other Entity as Beneficial
Owner
1. ____________________ (Name of the Beneficial
Owner) is not a foreign corporation, foreign
partnership, foreign trust or foreign estate
(as those terms are defined in the Code and
Treasury Regulations;
2. The Beneficial Owner's office address and
place of incorporation (if applicable) is
______________________________________; and
C-9
<PAGE>
3. The Beneficial Owner's U.S. employer
identification number is ____________.
Part II - Nominees
If the undersigned is the nominee for the Beneficial Owner, the
undersigned certifies that this certificate has been made in reliance upon
information contained in:
_____ an IRS Form W-9
_____ a form such as this or substantially similar
provided to the undersigned by an appropriate person and (i) the undersigned
agrees to notify the Trust at least thirty (30) days prior to the date that the
form relied upon becomes obsolete, and (ii) in connection with change in
Beneficial Owners, the undersigned agrees to submit a new Certificate of
Non-Foreign Status to the Trust promptly after such change.
Part III - Declaration
The undersigned, as the Beneficial Owner or a nominee thereof, agrees
to notify the Trust within sixty (60) days of the date that the Beneficial Owner
becomes a foreign person. The undersigned understands that this certificate may
be disclosed to the Internal Revenue Service by the Trust and any false
statement contained therein could be punishable by fines, imprisonment or both.
C-10
<PAGE>
Under penalties of perjury, I declare that I have examined this
certificate and to the best of my knowledge and belief it is true, correct and
complete and will further declare that I will inform the Trust of any change in
the information provided above, and, if applicable, I further declare that I
have the authority* to sign this document.
_____________________
Name
_____________________
Title (if applicable)
_____________________
Signature and Date
*Note: If signed pursuant to a power of attorney, the power of attorney must
accompany this certificate.
C-11
<PAGE>
EXHIBIT E
FORM OF INVESTMENT LETTER [NON-RULE 144A]
[DATE]
[Certificate Registrar]
Re: Ameriquest Trust Series _____-__
Mortgage-Backed Notes,
Series _____-____, (the "Certificates")
---------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-captioned Certificates,
we certify that (a) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and are being transferred to us in a transaction that is exempt
from the registration requirements of the Act and any such laws, (b) we are an
"accredited investor," as defined in Regulation D under the Act, and have such
knowledge and experience in financial and business matters that we are capable
of evaluating the merits and risks of investments in the Certificates, (c) we
have had the opportunity to ask questions of and receive answers from the
Depositor concerning the purchase of the Certificates and all matters relating
thereto or any additional information deemed necessary to our decision to
purchase the Certificates, (d) we are not an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or a
plan that is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended, nor are we acting on behalf of any such plan, (e) we are acquiring the
Certificates for investment for our own account and not with a view to any
distribution of such Certificates (but without prejudice to our right at all
times to sell or otherwise dispose of the Certificates in accordance with clause
(g) below), (f) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise approached or
negotiated with any person with respect thereto, or taken any other action which
would result in a violation of Section 5 of the Act, and (g) we will not sell,
transfer or otherwise dispose of any Certificates unless (1) such sale, transfer
or other disposition is made pursuant to an effective registration statement
under the Act or is exempt from such registration requirements, and if
requested, we will at our expense provide an opinion of counsel satisfactory to
the addressees of this certificate that such sale, transfer or other disposition
may be made pursuant to an exemption from the Act, (2) the purchaser or
transferee of such Certificate has executed and delivered to you a certificate
to substantially the same effect as this certificate, and (3) the purchaser or
transferee has otherwise complied with any conditions for transfer set forth in
the Trust Agreement.
Very truly yours,
F-1
<PAGE>
[TRANSFEREE]
By:____________________________
Authorized Officer
F-2
EXHIBIT 4.5
AMERIQUEST TRUST SERIES ____ - __
Issuer
AND
[Name of Indenture Trustee]
Indenture Trustee
-----------------------------------------
INDENTURE
Dated as of _________, ____
------------------------------------------
AQ Mortgage-Backed Notes Series ____-___
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- ------- ----
<S> <C>
ARTICLE I
Definitions
1.01. Definitions................................................................................2
1.02. Incorporation by Reference of Trust Indenture Act..........................................2
1.03. Rules of Construction......................................................................2
ARTICLE II
Original Issuance of Notes
2.01. Form.......................................................................................4
2.02. Execution, Authentication and Delivery.....................................................4
ARTICLE III
Covenants
3.01. Collection of Payments with respect to the Mortgage Loans..................................5
3.02. Maintenance of Office or Agency............................................................5
3.03. Money for Payments To Be Held in Trust; Paying Agent.......................................5
3.04. Existence..................................................................................6
3.05. Payment of Principal and Interest; Defaulted Interest......................................6
3.06. Protection of Trust Estate.................................................................9
3.07. Opinions as to Trust Estate................................................................9
3.08. Performance of Obligations; Servicing Agreement...........................................10
3.09. Negative Covenants........................................................................10
3.10. Annual Statement as to Compliance.........................................................11
3.11. Recording of Assignments..................................................................11
3.12. Representations and Warranties Concerning the Mortgage Loans..............................11
3.13. Amendments to Servicing Agreement.........................................................11
3.14. Master Servicer as Agent and Bailee of the Mortgage Loans Holder..........................12
3.15. Investment Company Act....................................................................12
3.16. Issuer May Consolidate, etc...............................................................12
3.17. Successor or Transferee...................................................................14
3.18. No Other Business.........................................................................14
3.19. No Borrowing..............................................................................14
3.20. Guarantees, Loans, Advances and Other Liabilities.........................................14
3.21. Capital Expenditures......................................................................14
3.22. [Reserved]................................................................................14
3.23. Restricted Payments.......................................................................14
3.24. Notice of Events of Default...............................................................15
i
<PAGE>
3.25. Further Instruments and Acts..............................................................15
3.26. Statements to Noteholders.................................................................15
3.27. Determination of Note Interest Rate.......................................................15
3.28. Payments under the Note Insurance Policy..................................................15
3.29. Replacement Note Insurance Policy.........................................................16
ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
4.01. The Notes.................................................................................17
4.02. Registration of and Limitations on Transfer and Exchange of Notes;
Appointment of Certificate Registrar......................................................17
4.03. Mutilated, Destroyed, Lost or Stolen Notes................................................18
4.04. Persons Deemed Owners.....................................................................19
4.05. Cancellation..............................................................................19
4.06. Book-Entry Notes..........................................................................19
4.07. Notices to Depository.....................................................................20
4.08. Definitive Notes..........................................................................20
4.09. Tax Treatment.............................................................................21
4.10. Satisfaction and Discharge of Indenture...................................................21
4.11. Application of Trust Money................................................................22
4.12. Subrogation and Cooperation...............................................................22
4.13. Repayment of Monies Held by Paying Agent..................................................23
4.14. Temporary Notes...........................................................................23
ARTICLE V
Default and Remedies
5.01. Events of Default.........................................................................24
5.02. Acceleration of Maturity; Rescission and Annulment........................................24
5.03. Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.................25
5.04. Remedies; Priorities......................................................................27
5.05. Optional Preservation of the Trust Estate.................................................28
5.06. Limitation of Suits.......................................................................29
5.07. Unconditional Rights of Noteholders To Receive Principal and Interest.....................29
5.08. Restoration of Rights and Remedies........................................................29
5.09. Rights and Remedies Cumulative............................................................30
5.10. Delay or Omission Not a Waiver............................................................30
5.11. Control by Noteholders....................................................................30
5.12. Waiver of Past Defaults...................................................................30
5.13. Undertaking for Costs.....................................................................31
ii
<PAGE>
5.14. Waiver of Stay or Extension Laws..........................................................31
5.15. Sale of Trust Estate......................................................................31
5.16. Action on Notes...........................................................................33
ARTICLE VI
The Indenture Trustee
6.01. Duties of Indenture Trustee...............................................................35
6.02. Rights of Indenture Trustee...............................................................36
6.03. Individual Rights of Indenture Trustee....................................................36
6.04. Indenture Trustee's Disclaimer............................................................36
6.05. Notice of Event of Default................................................................36
6.06. Reports by Indenture Trustee to Holders...................................................37
6.07. Compensation and Indemnity................................................................37
6.08. Replacement of Indenture Trustee..........................................................37
6.09. Successor Indenture Trustee by Merger.....................................................38
6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee.........................38
6.11. Eligibility; Disqualification.............................................................40
6.12. Preferential Collection of Claims Against Issuer..........................................40
6.13. Representation and Warranty...............................................................40
6.14. Directions to Indenture Trustee...........................................................40
6.15. No Consent to Certain Acts of Depositor...................................................41
6.16. Indenture Trustee May Own Securities......................................................41
ARTICLE VII
Noteholders' Lists and Reports
7.01. Issuer To Furnish Indenture Trustee Names and Addresses of Noteholders....................42
7.02. Preservation of Information; Communications to Noteholders................................42
7.03. Reports by Issuer.........................................................................42
7.04. Reports by Indenture Trustee..............................................................43
ARTICLE VIII
Accounts, Disbursements and Releases
8.01. Collection of Money.......................................................................44
8.02. Trust Accounts............................................................................44
8.03. Officer's Certificate.....................................................................45
8.04. Termination Upon Distribution to Noteholders..............................................45
8.05. Release of Trust Estate...................................................................45
8.06. Surrender of Notes Upon Final Payment.....................................................46
iii
<PAGE>
ARTICLE IX
Supplemental Indentures
9.01. Supplemental Indentures Without Consent of Noteholders....................................47
9.02. Supplemental Indentures With Consent of Noteholders.......................................48
9.03. Execution of Supplemental Indentures......................................................49
9.04. Effect of Supplemental Indenture..........................................................50
9.05. Conformity with Trust Indenture Act.......................................................50
9.06. Reference in Notes to Supplemental Indentures.............................................50
ARTICLE X
Miscellaneous
10.01. Compliance Certificates and Opinions, etc.................................................51
10.02. Form of Documents Delivered to Indenture Trustee..........................................52
10.03. Acts of Noteholders.......................................................................53
10.04. Notices, etc., to Indenture Trustee, Issuer, Note Insurer and Rating Agencies.............53
10.05. Notices to Noteholders; Waiver............................................................54
10.06. Alternate Payment and Notice Provisions...................................................55
10.07. Conflict with Trust Indenture Act.........................................................55
10.08. Effect of Headings........................................................................55
10.09. Successors and Assigns....................................................................55
10.10. Separability..............................................................................55
10.11. Benefits of Indenture.....................................................................55
10.12. Legal Holidays............................................................................56
10.13. GOVERNING LAW.............................................................................56
10.14. Counterparts..............................................................................56
10.15. Recording of Indenture....................................................................56
10.16. Issuer Obligation.........................................................................56
10.17. No Petition...............................................................................56
10.18. Inspection................................................................................57
10.19. Authority of the Administrator............................................................57
Adjustment Date.........................................................................................60
Advance ..........................................................................................60
Available Funds.........................................................................................61
Available Funds Cap Carry-Forward Amount................................................................61
Available Funds Interest Rate...........................................................................61
Bankruptcy Code.........................................................................................61
Cash Liquidation........................................................................................62
Converted Mortgage Loan.................................................................................63
Convertible Mortgage Loan...............................................................................63
Converting Mortgage Loan................................................................................63
Debt Service Reduction..................................................................................64
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Deficient Valuation.....................................................................................64
Prepayment Interest Shortfall...........................................................................78
Prepayment Period.......................................................................................78
REO Acquisition.........................................................................................81
REO Disposition.........................................................................................81
REO Imputed Interest....................................................................................81
REO Proceeds ..........................................................................................81
Required Subordination Amount...........................................................................82
Servicing Advances......................................................................................83
Subordination Amount....................................................................................84
Subordination Reduction Amount..........................................................................84
Signatures and Seals ......................................................................................... 81
Acknowledgments .............................................................................................. 82
</TABLE>
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EXHIBITS
Exhibit A - Form of Notes
Appendix A Definitions
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This Indenture, dated as of _______________, between
AMERIQUEST Trust Series ____-__, a Delaware business trust, as Issuer (the
"Issuer"), and ____________________________, a ____________________________, as
Indenture Trustee (the "Indenture Trustee"),
WITNESSETH THAT:
Each party hereto agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders of the Issuer's
AQ Mortgage-Backed Notes, Series ____ - ____ (the "Notes").
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the
Closing Date, as trustee for the benefit of the Holders of the Notes, all of the
Issuer's right, title and interest in and to whether now existing or hereafter
created by (a) the Mortgage Loans and the proceeds thereof, (b) all funds on
deposit in the Funding Account, including all income from the investment and
reinvestment of funds therein, (c) all funds on deposit from time to time in the
Collection Account allocable to the Mortgage Loans excluding any investment
income from such funds; (d) all funds on deposit from time to time in the
Payment Account and in all proceeds thereof; (e) the Policy and (f) all present
and future claims, demands, causes and chooses in action in respect of any or
all of the foregoing and all payments on or under, and all proceeds of every
kind and nature whatsoever in respect of, any or all of the foregoing and all
payments on or under, and all proceeds of every kind and nature whatsoever in
the conversion thereof, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes, drafts,
acceptances, checks, deposit accounts, rights to payment of any and every kind,
and other forms of obligations and receivables, instruments and other property
which at any time constitute all or part of or are included in the proceeds of
any of the foregoing (collectively, the "Trust Estate" or the "Collateral").
The foregoing Grant is made in trust to secure the payment of
principal of and interest on, and any other amounts owing in respect of, the
Notes, equally and ratably without prejudice, priority or distinction, and to
secure compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as trustee on behalf of the Holders of
the Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions hereof and agrees to perform its duties as
Indenture Trustee as required herein.
<PAGE>
ARTICLE I
Definitions
Section 1.01. DEFINITIONS. For all purposes of this Indenture, except
as otherwise expressly provided herein or unless the context otherwise requires,
capitalized terms not otherwise defined herein shall have the meanings assigned
to such terms in the Definitions attached hereto as Appendix A which is
incorporated by reference herein. All other capitalized terms used herein shall
have the meanings specified herein.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the Trust Indenture Act (the
"TIA"), the provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any
other obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meaning assigned to them by such definitions.
Section 1.03. RULES OF CONSTRUCTION. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words
in the plural include the singular; and
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(vi) any agreement, instrument or statute defined or
referred to herein or in any instrument or certificate delivered in
connection herewith means such agreement, instrument or statute as from
time to time amended, modified or supplemented and includes (in the
case of agreements or instruments) references to all attachments
thereto and instruments incorporated therein; references to a Person
are also to its permitted successors and assigns.
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ARTICLE II
Original Issuance of Notes
Section 2.01. FORM. The Notes, together with the Indenture Trustee's
certificate of authentication, shall be in substantially the form set forth in
Exhibit A, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the Authorized Officers executing such Notes, as
evidenced by their execution of such Notes.
The terms of the Notes set forth in Exhibit A are part of the terms of
this Indenture.
Section 2.02. EXECUTION, AUTHENTICATION AND DELIVERY. The Notes shall
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were
at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Request authenticate and
deliver Notes for original issue in an aggregate initial principal amount of
$___________.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes and the Notes shall be issuable in the
minimum initial Security Balances of $_______ and in integral multiples of
$_____ in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
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ARTICLE III
Covenants
Section 3.01. COLLECTION OF PAYMENTS WITH RESPECT TO THE MORTGAGE
LOANS. The Indenture Trustee shall establish and maintain with itself a trust
account (the "Payment Account") in which the Indenture Trustee shall, subject to
the terms of this paragraph, deposit, on the same day as it is received from the
Master Servicer, each remittance received by the Indenture Trustee with respect
to the Mortgage Loans. The Indenture Trustee shall make all payments of
principal of and interest on the Notes, subject to Section 3.03 as provided in
Section 3.05 herein from monies on deposit in the Payment Account.
Section 3.02. MAINTENANCE OF OFFICE OR AGENCY. The Issuer will maintain
in the [County of ______, The City of ______,] an office or agency where,
subject to satisfaction of conditions set forth herein, Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Indenture Trustee to serve as its agent for
the foregoing purposes. If at any time the Issuer shall fail to maintain any
such office or agency or shall fail to furnish the Indenture Trustee with the
address thereof, such surrenders, notices and demands may be made or served at
the Corporate Trust Office, and the Issuer hereby appoints the Indenture Trustee
as its agent to receive all such surrenders, notices and demands.
Section 3.03. MONEY FOR PAYMENTS TO BE HELD IN TRUST; PAYING AGENT. (a)
As provided in Section 3.01, all payments of amounts due and payable with
respect to any Notes that are to be made from amounts withdrawn from the Payment
Account pursuant to Section 3.01 shall be made on behalf of the Issuer by the
Indenture Trustee or by the Paying Agent, and no amounts so withdrawn from the
Payment Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section 3.03.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent it hereby so agrees), subject to the provisions of
this Section 3.03, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts
due with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by
the Issuer of which it has actual knowledge in the making of any
payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such
default, upon the written request of the Indenture Trustee, forthwith
pay to the Indenture Trustee all sums so held in trust by such Paying
Agent;
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<PAGE>
(iv) immediately resign as Paying Agent and forthwith
pay to the Indenture Trustee all sums held by it in trust for the
payment of Notes if at any time it ceases to meet the standards
required to be met by a Paying Agent at the time of its appointment;
and
(v) comply with all requirements of the Code with
respect to the withholding from any payments made by it on any Notes of
any applicable withholding taxes imposed thereon and with respect to
any applicable reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Request direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same trusts as those upon which the sums were held by such Paying Agent; and
upon such payment by any Paying Agent to the Indenture Trustee, such Paying
Agent shall be released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for one year
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Paying Agent with respect to
such trust money shall thereupon cease; provided, however, that the Indenture
Trustee or such Paying Agent, before being required to make any such repayment,
shall at the expense and direction of the Issuer cause to be published once, in
an Authorized Newspaper published in the English language, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the Issuer. The Indenture
Trustee may also adopt and employ, at the expense and direction of the Issuer,
any other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in monies due and payable but not claimed is determinable from the
records of the Indenture Trustee or of any Paying Agent, at the last address of
record for each such Holder).
Section 3.04. EXISTENCE. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Mortgage Loans and each other
instru ment or agreement included in the Trust Estate.
Section 3.05. PAYMENT OF PRINCIPAL AND INTEREST; DEFAULTED INTEREST.
(a) On each Payment Date from amounts on deposit in the Payment Account after
making (x) any deposit to the Funding Account pursuant to Section 8.02(b) and
(y) any deposits to the Payment Account pursuant to Section 8.02(c)(ii) and
Section 8.02(c)(i)(2), the Indenture Trustee shall pay to the Noteholders, the
6
<PAGE>
Certificate Paying Agent, on behalf of the Certificateholders, and to other
Persons the amounts to which they are entitled as set forth below:
(i) To the Noteholders the sum of (a) one month's
interest at the Note Interest Rate on the Security Balances of Notes
immediately prior to such Payment Date and (b) any previously accrued
and unpaid interest for prior Payment Dates;
(ii) if such Payment Date is after the Funding Period,
to the Noteholders, as principal on the Notes, the applicable Security
Percentage of the Principal Collection Distribution Amount and if such
Payment Date is the first Payment Date following the end of the Funding
Period (if ending due to an Amortization Event) or the Payment Date on
which the Funding Period ends, to the Noteholders as principal on the
Notes the applicable Security Percentage of the amount deposited from
the Funding Account in respect of Security Principal Collections;
(iii) to the Noteholders, as principal on the Notes,
from the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Liquidation Loss Amounts for the
related Collection Period;
(iv) to the Noteholders, as principal on the Notes, from
the amount remaining on deposit in the Payment Account, up to the
applicable Security Percentage of Carryover Loss Amounts;
(v) to the Note Insurer, in the amount of the premium
for the Note Insurance Policy and for any Additional Note Insurance
Policy;
(vi) to the Note Insurer, to reimburse it for prior
draws made on the Note Insurance Policy and on any Additional Note
Insurance Policy (with interest thereon as provided in the Insurance
Agreement);
(vii) to the Noteholders, as principal on the Notes
based on the Security Balances from Security Interest Collections, up
to the Special Capital Distribution Amount for such Payment Date;
(viii) to the Note Insurer, any other amounts owed to
the Note Insurer pursuant to the Insurance Agreement;
(ix) [Reserved];
(x) to reimburse the Administrator for expenditures made
on behalf of the Issuer with respect to the performance of its duties
under the Indenture; and
(xi) any remaining amount, to the Certificate Paying
Agent, on behalf of the Certificates.
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<PAGE>
PROVIDED, HOWEVER, in the event that on a Payment Date a Note Insurer Default
shall have occurred and be continuing then the priorities of distributions
described above will be adjusted such that payments of the Certificate
Distribution Amount and all other amounts to be paid to the Certificate Paying
Agent will not be paid until the full amount of interest and principal in
accordance with clauses (i), (x) and (ii) through (iv) above that are due on the
Notes on such Payment Date have been paid and PROVIDED, FURTHER, that on the
Final Scheduled Payment Date or other final Payment Date, the amount to be paid
pursuant to clause (ii) above shall be equal to the Security Balances of the
Securities immediately prior to such Payment Date.
On each Payment Date, the Certificate Paying Agent shall deposit in the
Certificate Distribution Account all amounts it received pursuant to this
Section 3.05 for the purpose of distributing such funds to the
Certificateholders.
The amounts paid to Noteholders shall be paid to each Class in
accordance with the Class Percentage as set forth in paragraph (b) below.
Interest will accrue on the Notes during an Interest Period on the basis of the
actual number of days in such Interest Period and a year assumed to consist of
360 days.
[Any installment of interest or principal, if any, payable on any Note
or Certificate that is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall, if such Holder holds Notes or Certificates of an
aggregate initial Principal Balance of at least $_________, be paid to each
Holder of record on the preceding Record Date, by wire transfer to an account
specified in writing by such Holder reasonably satisfactory to the Indenture
Trustee as of the preceding Record Date or in all other cases or if no such
instructions have been delivered to the Indenture Trustee, by check to such
Noteholder mailed to such Holder's address as it appears in the Note Register
the amount required to be distributed to such Holder on such Payment Date
pursuant to such Holder's Securities; PROVIDED, HOWEVER, that the Indenture
Trustee shall not pay to such Holders any amount required to be withheld from a
payment to such Holder by the Code.]
(b) The principal of each Note shall be due and payable in full on the
Final Scheduled Payment Date for such Note as provided in the form of Note set
forth in Exhibit A. All principal payments on each Class of Notes shall be made
to the Noteholders of such Class entitled thereto in accordance with the
Percentage Interests represented by such Notes. Upon notice to the Indenture
Trustee by the Issuer, the Indenture Trustee shall notify the Person in whose
name a Note is register ed at the close of business on the Record Date preceding
the Final Scheduled Payment Date or other final Payment Date. Such notice shall
be mailed no later than five Business Days prior to such Final Scheduled Payment
Date or other final Payment Date and shall specify that payment of the principal
amount and any interest due with respect to such Note at the Final Scheduled
Payment Date or other final Payment Date will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for such final payment.
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<PAGE>
Section 3.06. PROTECTION OF TRUST ESTATE. (a) The Issuer will from time
to time execute and deliver all such supplements and amendments hereto and all
such financing statements, continuation statements, instruments of further
assurance and other instruments, and will take such other action necessary or
advisable to:
(i) maintain or preserve the lien and security interest
(and the priority thereof) of this Indenture or carry out more
effectively the purposes hereof;
(ii) perfect, publish notice of or protect the validity
of any Grant made or to be made by this Indenture;
(iii) cause the Issuer to enforce any of the Mortgage
Loans; or
(iv) preserve and defend title to the Trust Estate and
the rights of the Indenture Trustee and the Noteholders in such Trust
Estate against the claims of all persons and parties.
(b) Except as otherwise provided in this Indenture, the Indenture
Trustee shall not remove any portion of the Trust Estate that consists of money
or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Counsel delivered pursuant to Section 3.07 (or from the jurisdiction in which it
was held as described in the Opinion of Counsel delivered at the Closing Date
pursuant to Section 3.07(a), if no Opinion of Counsel has yet been delivered
pursuant to Section 3.07(b) unless the Trustee shall have first received an
Opinion of Counsel to the effect that the lien and security interest created by
this Indenture with respect to such property will continue to be maintained
after giving effect to such action or actions.
The Issuer hereby designates the Indenture Trustee its agent and
attorney-in-fact to execute any financing statement, continuation statement or
other instrument required to be executed pursuant to this Section 3.06.
Section 3.07. OPINIONS AS TO TRUST ESTATE. (a) On the Closing Date, the
Issuer shall furnish to the Indenture Trustee and the Owner Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the lien and security
interest in the Mortgage Loans and reciting the details of such action, or
stating that, in the opinion of such counsel, no such action is necessary to
make such lien and security interest effective.
(b) On or before ___________ in each calendar year, beginning in ____,
the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel at the
expense of the Issuer either stating that, in the opinion of such counsel, such
action has been taken with respect to the recording, filing, rerecording and
refiling of this Indenture, any indentures supplemental hereto and any other
requisite documents and with respect to the execution and filing of any
financing statements and continuation statements as is necessary to maintain the
lien and security interest in the Mortgage Loans and reciting the details of
such action or stating that in the opinion of such counsel no such action is
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<PAGE>
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and the execution and filing of any financing statements and continuation
statements that will, in the opinion of such counsel, be required to maintain
the lien and security interest in the Mortgage Loans until December 31 in the
following calendar year.
Section 3.08. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT. (a) The
Issuer will punctually perform and observe all of its obligations and agreements
contained in this Indenture, the Basic Documents and in the instruments and
agreements included in the Trust Estate.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officer's Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Administrator to assist the Issuer in performing
its duties under this Indenture.
(c) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any of the documents relating to the Mortgage
Loans or under any instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity or effectiveness of, any of the documents relating to
the Mortgage Loans or any such instrument, except such actions as the Master
Servicer is expressly permitted to take in the Servicing Agreement. The
Indenture Trustee, as pledgee of the Mortgage Loans, shall be able to exercise
the rights Issuer and the Mortgage Loans holder, to direct the actions of the
Master Servicer.
(d) The Issuer shall at all times retain an Administrator (approved by
the Note Insurer under the Administration Agreement) and may enter into
contracts with other Persons for the performance of the Issuer's obligations
hereunder, and performance of such obligations by such Persons shall be deemed
to be performance of such obligations by the Issuer.
Section 3.09. NEGATIVE COVENANTS. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture,
sell, transfer, exchange or otherwise dispose of the Trust Estate,
unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate;
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or
permit any Person to be released from any covenants or obligations with
respect to the Notes under this Indenture except as may be expressly
permitted hereby, (B) permit any lien, charge, excise, claim, security
interest, mortgage or other encumbrance
10
<PAGE>
(other than the lien of this Indenture) to be created on or extend to
or otherwise arise upon or burden the Trust Estate or any part thereof
or any interest therein or the proceeds thereof or (C) permit the lien
of this Indenture not to constitute a valid first priority security
interest in the Trust Estate; or
(iv) waive or impair, or fail to assert rights under,
the Mortgage Loans, or impair or cause to be impaired the Company's or
the Issuer's interest in the Mortgage Loans, the Mortgage Loan Purchase
Agreement or in any Basic Document, if any such action would materially
and adversely affect the interests of the Noteholders.
Section 3.10. ANNUAL STATEMENT AS TO COMPLIANCE. The Issuer will
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year ____), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that:
(i) a review of the activities of the Issuer during such
year and of its performance under this Indenture has been made under
such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge,
based on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in its compliance with any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
Section 3.11. RECORDING OF ASSIGNMENTS. The Company shall cause the to
exercise its right under the Mortgage Loan Purchase Agreement with respect to
the obligation of the Seller to submit or cause to be submitted for recording
all Assignments of Mortgages on or prior to ______________ with respect to the
Initial Loans and within 60 days following the related Deposit Date with respect
to any Additional Loans.
Section 3.12. REPRESENTATIONS AND WARRANTIES CONCERNING THE MORTGAGE
LOANS. The Indenture Trustee, as pledgee of the Mortgage Loans, has the benefit
of the representations and warranties made by the Seller in Section [____] and
Section [____] of the Mortgage Loan Purchase Agreement concerning the Mortgage
Loans and the right to enforce the remedies against the Seller provided in such
Section [____] or Section [____] to the same extent as though such
representations and warranties were made directly to the Indenture Trustee.
Section 3.13. AMENDMENTS TO SERVICING AGREEMENT. The Issuer covenants
with the Inden ture Trustee that it will not enter into any amendment or
supplement to the Servicing Agreement in accordance with Section 8.01 of the
Servicing Agreement without the prior written consent of the Indenture Trustee.
The Indenture Trustee, as pledgee of the Mortgage Loans, may, in its discretion,
decline to enter into or consent to any such supplement or amendment if its own
rights, duties or immunities shall be adversely affected.
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Section 3.14. MASTER SERVICER AS AGENT AND BAILEE OF THE MORTGAGE LOANS
HOLDER. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code or other similar applicable law, rule or regulation of the state
in which such property is held by the Master Servicer, the Indenture Trustee
hereby acknowledges that the Master Servicer is acting as agent and bailee of
the Mortgage Loans holder in holding amounts on deposit in the Collection
Account pursuant to Section 3.02 of the Servicing Agreement, as well as its
agent and bailee in holding any Related Documents released to the Master
Servicer pursuant to Section 3.06(c) of the Servicing Agreement, and any other
items constituting a part of the Trust Estate which from time to time come into
the possession of the Master Servicer. It is intended that, by the Master
Servicer's acceptance of such agency pursuant to Section 3.02 of the Servicing
Agreement, the Trustee, as a secured party of the Mortgage Loans, will be deemed
to have possession of such Related Documents, such monies and such other items
for purposes of Section 9-305 of the Uniform Commercial Code of the state in
which such property is held by the Master Servicer.
Section 3.15. INVESTMENT COMPANY ACT. The Issuer shall not become an
"investment company" or under the "control" of an "investment company" as such
terms are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), and the rules and regulations thereunder
(taking into account not only the general definition of the term "investment
company" but also any available exceptions to such general definition);
provided, however, that the Issuer shall be in compliance with this Section 3.15
if it shall have obtained an order exempting it from regulation as an
"investment company" so long as it is in compliance with the conditions imposed
in such order.
Section 3.16. ISSUER MAY CONSOLIDATE, ETC. (a) The Issuer shall not
consolidate or merge with or into any other Person, unless:
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Person organized and
existing under the laws of the United States of America or any state or
the District of Columbia and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form reasonably satisfactory to the Indenture Trustee, the due and
punctual payment of the prin cipal of and interest on all Notes and to
the Certificate Paying Agent, on behalf of the Certificateholders and
the performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such
transaction, no Event of Default shall have occurred and be continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes [or the
Certificates] to be reduced, suspended or withdrawn or to be considered
by either Rating Agency to be below investment grade without taking
into account the Note Insurance Policy;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not
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have any material adverse tax consequence to the Issuer, any Noteholder
or any Certificateholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such consolidation or merger and such supplemental indenture
comply with this Article III and that all conditions precedent herein
provided for relating to such transaction have been complied with
(including any filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless:
(i) the Person that acquires by conveyance or transfer
the properties and assets of the Issuer the conveyance or transfer of
which is hereby restricted shall (A) be a United States citizen or a
Person organized and existing under the laws of the United States of
America or any state, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then
one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing;
(iii) the Rating Agencies shall have notified the Issuer
that such transaction shall not cause the rating of the Notes or the
Certificates to be reduced, suspended or withdrawn;
(iv) the Issuer shall have received an Opinion of
Counsel (and shall have delivered copies thereof to the Indenture
Trustee) to the effect that such transaction will not have any material
adverse tax consequence to the Issuer or any Noteholder;
(v) any action that is necessary to maintain the lien
and security interest created by this Indenture shall have been taken;
and
(vi) the Issuer shall have delivered to the Indenture
Trustee an Officer's Certificate and an Opinion of Counsel each stating
that such conveyance or transfer and such
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supplemental indenture comply with this Article III and that all
conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act).
Section 3.17. SUCCESSOR OR TRANSFEREE. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.16(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.16(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Indenture Trustee of such conveyance or transfer.
Section 3.18. NO OTHER BUSINESS. The Issuer shall not engage in any
business other than financing, purchasing, owning and selling and managing the
Mortgage Loans and the issuance of the Notes and Certificates in the manner
contemplated by this Indenture and the Basic Documents and all activities
incidental thereto.
Section 3.19. NO BORROWING. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
Section 3.20. GUARANTEES, LOANS, ADVANCES AND OTHER LIABILITIES. Except
as contemplated by this Indenture or the Basic Documents, the Issuer shall not
make any loan or advance or credit to, or guarantee (directly or indirectly or
by an instrument having the effect of assuring another's payment or performance
on any obligation or capability of so doing or otherwise), endorse or otherwise
become contingently liable, directly or indirectly, in connection with the
obligations, stocks or dividends of, or own, purchase, repurchase or acquire (or
agree contingently to do so) any stock, obligations, assets or securities of, or
any other interest in, or make any capital contribution to, any other Person.
Section 3.21. CAPITAL EXPENDITURES. The Issuer shall not make any
expenditure (by long- term or operating lease or otherwise) for capital assets
(either realty or personalty).
Section 3.22. [Reserved]
Section 3.23. RESTRICTED PAYMENTS. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer, (ii) redeem, purchase, retire or otherwise acquire for
value any such ownership or equity interest or security or (iii) set aside or
otherwise segregate any amounts for any such purpose; PROVIDED, HOWEVER, that
the Issuer may make, or cause to be made, (x) distributions to the Owner Trustee
and the Certificateholders as contemplated by, and to the extent funds are
available for such purpose under the Trust Agreement, (y) payments to the Master
Servicer pursuant to the terms of the Servic-
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ing Agreement and (z) payments to the Indenture Trustee pursuant to Section
1(a)(ii) of the Administration Agreement. The Issuer will not, directly or
indirectly, make payments to or distribu tions from the Collection Account
except in accordance with this Indenture and the Basic Documents.
Section 3.24. NOTICE OF EVENTS OF DEFAULT. The Issuer shall give the
Indenture Trustee the Note Insurer and the Rating Agencies prompt written notice
of each Event of Default hereunder and under the Trust Agreement.
Section 3.25. FURTHER INSTRUMENTS AND ACTS. Upon request of the
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
Section 3.26. STATEMENTS TO NOTEHOLDERS. The Indenture Trustee and the
Certificate Registrar shall forward by mail to each Noteholder and
Certificateholder, respectively, the Statement delivered to it pursuant to
Section 4.01 of the Servicing Agreement.
Section 3.27. DETERMINATION OF NOTE INTEREST RATE. On the second LIBOR
Business Day immediately preceding (i) the Closing Date in the case of the first
Interest Period and (ii) the first day of each succeeding Interest Period, the
Indenture Trustee shall determine LIBOR and the Note Interest Rate for such
Interest Period and shall inform the Issuer, the Master Servicer and the
Depositor at their respective facsimile numbers given to the Indenture Trustee
in writing thereof.
Section 3.28. PAYMENTS UNDER THE NOTE INSURANCE POLICY. (a) On any
Payment Date, other than a Dissolution Payment Date, the Indenture Trustee on
behalf of the Noteholders, and in its capacity as Certificate Paying Agent on
behalf of the Certificateholders shall make a draw on the Note Insurance Policy
in an amount if any equal to the sum of (x) the amount by which the interest
accrued at the Note Interest Rate on the Security Balance of the Notes exceeds
the amount on deposit in the Payment Account available to be distributed
therefor on such Payment Date and (y) the Guaranteed Principal Payment Amount
(the "Credit Enhancement Draw Amount").
(b) The Indenture Trustee shall submit, if a Credit Enhancement Draw
Amount is specified in any Statement to Holders prepared by the Master Servicer
pursuant to Section 4.01 of the Servicing Agreement, the Notice for Payment (as
defined in the Note Insurance Policy) in the amount of the Credit Enhancement
Draw Amount to the Note Insurer no later than _____________ time, on the second
Business Day prior to the applicable Payment Date. Upon receipt of such Credit
Enhancement Draw Amount in accordance with the terms of the Note Insurance
Policy, the Indenture Trustee shall deposit such Credit Enhancement Draw Amount
in the Payment Account for distribution to Holders (and the Certificate Paying
Agent on behalf of the Certificates) pursuant to Section 3.05.
In addition, a draw may be made under the Note Insurance Policy in
respect of any Avoided Payment (as defined in and pursuant to the terms and
conditions of the Note Insurance Policy) and the Indenture Trustee shall submit
a Notice for Payment with respect thereto together with the other documents
required to be delivered to the Note Insurer pursuant to the Note Insurance
Policy in connection with a draw in respect of any Avoided Payment.
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(c) In the event that any Additional Note Insurance Policys are issued
pursuant to Section 4.01 and Section 2.02(B) of the Insurance Agreement, the
Indenture Trustee shall be authorized to make draws thereon subject to the terms
and conditions therein.
Section 3.29. REPLACEMENT NOTE INSURANCE POLICY. In the event of a Note
Insurer Default or if the claims paying ability rating of the Note Insurer is
downgraded and such downgrade results in a downgrading of the then current
rating of the Securities (in each case, a "Replacement Event"), the Issuer, at
its expense, in accordance with and upon satisfaction of the conditions set
forth in the Note Insurance Policy, including, without limitation, payment in
full of all amounts owed to the Note Insurer, may, but shall not be required to,
substitute a new surety bond or surety bonds for the existing Note Insurance
Policy or may arrange for any other form of credit enhancement; PROVIDED,
HOWEVER, that in each case the Notes shall be rated no lower than the rating
assigned by each Rating Agency to the Notes immediately prior to such
Replacement Event and the timing and mechanism for drawing on such new credit
enhancement shall be reasonably acceptable to the Indenture Trustee and provided
further that the premiums under the proposed credit enhancement shall not exceed
such premiums under the existing Note Insurance Policy. It shall be a condition
to substitution of any new credit enhancement that there be delivered to the
Indenture Trustee (i) an Opinion of Counsel, acceptable in form to the Indenture
Trustee, from counsel to the provider of such new credit enhancement with
respect to the enforceability thereof and such other matters as the Indenture
Trustee may require and (ii) an Opinion of Counsel to the effect that such
substitution would not (a) adversely affect in any material respect the tax
status of the Notes or (b) cause the Issuer to be subject to a tax at the entity
level. Upon receipt of the items referred to above and payment of all amounts
owing to the Note Insurer and the taking of physical possession of the new
credit enhancement, the Indenture Trustee shall, within _____ Business Days
following receipt of such items and such taking of physical possession, deliver
the replaced Note Insurance Policy to the Note Insurer. In the event of any such
replacement the Issuer shall give written notice thereof to the Rating Agencies.
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ARTICLE IV
The Notes; Satisfaction and Discharge of Indenture
Section 4.01. THE NOTES. The Notes shall be registered in the name of a
nominee designated by the Depository. Beneficial Owners will hold interests in
the Notes through the book-entry facilities of the Depository in minimum initial
Principal Balances of $______ and integral multiples of $_______ in excess
thereof.
The Indenture Trustee may for all purposes (including the making of
payments due on the Notes) deal with the Depository as the authorized
representative of the Beneficial Owners with respect to the Notes for the
purposes of exercising the rights of Holders of Notes hereunder. Except as
provided in the next succeeding paragraph of this Section 4.01, the rights of
Beneficial Owners with respect to the Notes shall be limited to those
established by law and agreements between such Beneficial Owners and the
Depository and Depository Participants. Except as provided in Section 4.08,
Beneficial Owners shall not be entitled to definitive certificates for the Notes
as to which they are the Beneficial Owners. Requests and directions from, and
votes of, the Depository as Holder of the Notes shall not be deemed inconsistent
if they are made with respect to different Beneficial Owners. The Indenture
Trustee may establish a reasonable record date in connection with solicita tions
of consents from or voting by Noteholders and give notice to the Depository of
such record date. Without the consent of the Issuer and the Indenture Trustee,
no Note may be transferred by the Depository except to a successor Depository
that agrees to hold such Note for the account of the Beneficial Owners.
In the event the Depository Trust Company resigns or is removed as
Depository, the Indenture Trustee with the approval of the Issuer may appoint a
successor Depository. If no successor Depository has been appointed within 30
days of the effective date of the Depository's resignation or removal, each
Beneficial Owner shall be entitled to certificates representing the Notes it
beneficially owns in the manner prescribed in Section 4.08.
The Notes shall, on original issue, be executed on behalf of the Issuer
by the Owner Trustee, not in its individual capacity but solely as Owner
Trustee, authenticated by the Note Registrar and delivered by the Indenture
Trustee to or upon the order of the Issuer.
Section 4.02. REGISTRATION OF AND LIMITATIONS ON TRANSFER AND EXCHANGE
OF NOTES; APPOINTMENT OF CERTIFICATE REGISTRAR. The Issuer shall cause to be
kept at its Corporate Trust Office a Note Register in which, subject to such
reasonable regulations as it may prescribe, the Note Registrar shall provide for
the registration of Notes and of transfers and exchanges of Notes as herein
provided.
Subject to the restrictions and limitations set forth below, upon
surrender for registration of transfer of any Note at the Corporate Trust
Office, the Indenture Trustee shall execute and the Note Registrar shall
authenticate and deliver, in the name of the designated transferee or
transferees, one
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or more new Notes in authorized initial Security Balances evidencing the same
aggregate Percentage Interests.
Subject to the foregoing, at the option of the Noteholders, Notes may
be exchanged for other Notes of like tenor or, in each case in authorized
initial Principal Balances evidencing the same aggregate Percentage Interests
upon surrender of the Notes to be exchanged at the Corporate Trust Office of the
Note Registrar. Whenever any Notes are so surrendered for exchange, the
Indenture Trustee shall execute and the Note Registrar shall authenticate and
deliver the Notes which the Note holder making the exchange is entitled to
receive. Each Note presented or surrendered for registration of transfer or
exchange shall (if so required by the Note Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form reasonably satisfactory
to the Note Registrar duly executed by, the Holder thereof or his attorney duly
authorized in writing with such signature guaranteed by a commercial bank or
trust company located or having a correspondent located in the city of New York.
Notes delivered upon any such transfer or exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Notes surrendered.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Note Registrar shall require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes.
All Notes surrendered for registration of transfer and exchange shall
be canceled by the Note Registrar and delivered to the Indenture Trustee for
subsequent destruction without liability on the part of either.
The Issuer hereby appoints __________________________________ as
Certificate Registrar to keep at its Corporate Trust Office a Certificate
Register pursuant to Section 3.09 of the Trust Agreement in which, subject to
such reasonable regulations as it may prescribe, the Certificate Registrar shall
provide for the registration of Certificates and of transfers and exchanges
thereof pursuant to Section 3.05 of the Trust Agreement.
__________________________________ hereby accepts such appointment.
Section 4.03. MUTILATED, DESTROYED, LOST OR STOLEN NOTES. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute, and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, instead
of issuing a replacement Note, the Issuer may pay such destroyed, lost or stolen
Note when so due or payable without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to
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recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section 4.03, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section 4.03 in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section 4.03 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 4.04. PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
Section 4.05. CANCELLATION. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly canceled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly canceled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes canceled as provided in this Section 4.05, except as expressly
permitted by this Indenture. All canceled Notes may be held or disposed of by
the Indenture Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Request that they be destroyed or returned to it; provided however, that such
Issuer Request is timely and the Notes have not been previously disposed of by
the Indenture Trustee.
Section 4.06. BOOK-ENTRY NOTES. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to The Depository Trust Company, the initial Depository, by, or on
behalf of, the Issuer. Such Notes shall initially be registered on the Note
Register in the name of Cede & Co., the nominee of the initial Depository,
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and no Beneficial Owner will receive a Definitive Note representing such
Beneficial Owner's interest in such Note, except as provided in Section 4.08.
Unless and until definitive, fully registered Notes (the "Definitive Notes")
have been issued to Beneficial Owners pursuant to Section 4.08:
(i) the provisions of this Section 4.06 shall be in full
force and effect;
(ii) the Note Registrar and the Indenture Trustee shall
be entitled to deal with the Depository for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Owners of
Notes;
(iii) to the extent that the provisions of this Section
4.06 conflict with any other provisions of this Indenture, the
provisions of this Section 4.06 shall control;
(iv) the rights of Beneficial Owners shall be exercised
only through the Depository and shall be limited to those established
by law and agreements between such Owners of Notes and the Depository
and/or the Depository Participants. Unless and until Definitive Notes
are issued pursuant to Section 4.08, the initial Depository will make
book-entry transfers among the Depository Participants and receive and
transmit payments of principal of and interest on the Notes to such
Depository Participants; and
(v) whenever this Indenture requires or permits actions
to be taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Security Balances of the
Notes, the Depository shall be deemed to represent such percentage only
to the extent that it has received instructions to such effect from
Beneficial Owners and/or Depository Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
Section 4.07. NOTICES TO DEPOSITORY. Whenever a notice or other
communication to the Note Holders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Beneficial Owners pursuant to
Section 4.08, the Indenture Trustee shall give all such notices and
communications specified herein to be given to Holders of the Notes to the
Depository, and shall have no obligation to the Beneficial Owners.
Section 4.08. DEFINITIVE NOTES. If (i) the Administrator advises the
Indenture Trustee in writing that the Depository is no longer willing or able to
properly discharge its responsibilities with respect to the Notes and the
Administrator is unable to locate a qualified successor, (ii) the Administrator
at its option advises the Indenture Trustee in writing that it elects to
terminate the book-entry system through the Depository or (iii) after the
occurrence of an Event of Default, Owners of Notes representing beneficial
interests aggregating at least a majority of the Security Balances of the Notes
advise the Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Beneficial
Owners, then the Depository shall notify all Beneficial Owners and the Indenture
Trustee of the occurrence of any such event and of the availability of
Definitive Notes to Beneficial Owners requesting the same. Upon surrender to the
Indenture Trustee of the typewritten Notes representing the Book-Entry Notes
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by the Depository, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Depository. None of the Issuer, the Note
Registrar or the Indenture Trustee shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Notes, the
Indenture Trustee shall recognize the Holders of the Definitive Notes as
Noteholders.
Section 4.09. TAX TREATMENT. The Issuer has entered into this
Indenture, and the Notes will be issued, with the intention that, for federal,
state and local income, single business and franchise tax purposes, the Notes
will qualify as indebtedness of the Issuer. The Issuer, by entering into this
Indenture, and each Noteholder, by its acceptance of its Note (and each
Beneficial Owner by its acceptance of an interest in the applicable Book-Entry
Note), agree to treat the Notes for federal, state and local income, single
business and franchise tax purposes as indebtedness of the Issuer.
Section 4.10. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.03, 3.04, 3.06, 3.09,
3.16, 3.18 and 3.19, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.07 and the obligations of the Indenture Trustee under Section 4.11) and (vi)
the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 4.03 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.03) have
been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture
Trustee for cancellation
a. have become due and payable,
b. will become due and payable at the Final Scheduled
Payment Date within one year, or
c. have been called for early redemption pursuant to
Section 5.02.
and the Issuer, in the case of a. or b. above, has irrevocably
deposited or caused to be irrevocably deposited with the Indenture
Trustee cash or direct obligations of or obligations guaranteed by the
United States of America (which will mature prior to the date such
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amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes
and Certificates then outstanding not theretofore delivered to the
Indenture Trustee for cancellation when due on the Final Scheduled
Payment Date;
(B) the Issuer has paid or caused to be paid all other sums
payable hereunder and under the Insurance Agreement by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee and the
Note Insurer an Officer's Certificate, an Opinion of Counsel and each
meeting the applicable requirements of Section 10.01 each stating that
all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with
and, if the Opinion of Counsel relates to a deposit made in connection
with Section 4.10(A)(2)b. above, such opinion shall further be to the
effect that such deposit will not have any material adverse tax
consequences to the Issuer, any Noteholders or any Certificateholders.
Section 4.11. APPLICATION OF TRUST MONEY. All monies deposited with the
Indenture Trustee pursuant to Section 4.10 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent or
Certificate Paying Agent, as the Indenture Trustee may determine, to the Holders
of Securities, of all sums due and to become due thereon for principal and
interest; but such monies need not be segregated from other funds except to the
extent required herein or required by law.
Section 4.12. SUBROGATION AND COOPERATION. (a) The Issuer and the
Indenture Trustee acknowledge that (i) to the extent the Note Insurer makes
payments under the Note Insurance Policy on account of principal of or interest
on the Notes, the Note Insurer will be fully subrogated to the rights of such
Holders to receive such principal and interest from the Issuer, and (ii) the
Note Insurer shall be paid such principal and interest but only from the sources
and in the manner provided herein and in the Insurance Agreement for the payment
of such principal and interest.
The Indenture Trustee shall cooperate in all respects with any
reasonable request by the Note Insurer for action to preserve or enforce the
Note Insurer's rights or interest under this Indenture or the Insurance
Agreement without limiting the rights of the Noteholders as otherwise set forth
in the Indenture, including, without limitation, upon the occurrence and
continuance of a default under the Insurance Agreement, a request to take any
one or more of the following actions:
(i) institute Proceedings for the collection of all
amounts then payable on the Notes, or under this Indenture in respect
to the Notes and all amounts payable under the Insurance Agreement
enforce any judgment obtained and collect from the Issuer monies
adjudged due;
(ii) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private Sales
called and conducted in any manner permitted by law;
(iii) file or record all Assignments that have not
previously been recorded;
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(iv) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture; and
(v) exercise any remedies of a secured party under the
Uniform Commercial Code and take any other appropriate action to
protect and enforce the rights and remedies of the Note Insurer
hereunder.
Section 4.13. REPAYMENT OF MONIES HELD BY PAYING AGENT. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all monies then held by any Administrator other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.05 and thereupon such Paying Agent shall be released from all
further liability with respect to such monies.
Section 4.14. TEMPORARY NOTES. Pending the preparation of any
Definitive Notes, the Issuer may execute and upon its written direction, the
Indenture Trustee may authenticate and make available for delivery, temporary
Notes that are printed, lithographed, typewritten, photocopied or otherwise
produced, in any denomination, substantially of the tenor of the Definitive
Notes in lieu of which they are issued and with such appropriate insertions,
omissions, substitutions and other variations as the officers executing such
Notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause Definitive Notes
to be prepared without unreasonable delay. After the preparation of the
Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes
upon surrender of the temporary Notes at the office or agency of the Indenture
Trustee, without charge to the Holder. Upon surrender for cancellation of any
one or more temporary Notes, the Issuer shall execute and the Indenture Trustee
shall authenticate and make available for delivery, in exchange therefor,
Definitive Notes of authorized denominations and of like tenor and aggregate
principal amount. Until so exchanged, such temporary Notes shall in all respects
be entitled to the same benefits under this Indenture as Definitive Notes.
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ARTICLE V
DEFAULT AND REMEDIES
Section 5.01. EVENTS OF DEFAULT. "Event of Default," wherever used
herein, shall have the meaning provided in Article I; provided, however, that no
Event of Default will occur under clause (i) or clause (ii) of the definition of
"Event of Default" if the Issuer fails to make payments of principal of and
interest on the Notes so long as the Note Insurer makes payments sufficient
therefore under the Note Insurance Policy.
The Issuer shall deliver to the Indenture Trustee and the Note Insurer,
within five days after learning of the occurrence of an Event of Default,
written notice in the form of an Officer's Certificate of any event which with
the giving of notice and the lapse of time would become an Event of Default
under clause (iii) of the definition of "Event of Default", its status and what
action the Issuer is taking or proposes to take with respect thereto.
Section 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default should occur and be continuing or if the Master Servicer shall
purchase all of the Mortgage Loans pursuant to Section 8.08 of the Servicing
Agreement, then and in every such case the Indenture Trustee or the Holders of
Notes representing not less than a majority of the Security Balances of all
Notes may declare the Notes to be immediately due and payable, by a notice in
writing to the Issuer (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the unpaid principal amount of such Class of
Notes, together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable. Unless the prior written
consent of the Note Insurer shall have been obtained by the Indenture Trustee,
the Payment Date upon which such accelerated payment is due and payable shall
not be a Payment Date under the Note Insurance Policy and the Indenture Trustee
shall not be authorized under Section 3.29 to make a draw therefor.
At any time after such declaration of acceleration of maturity with
respect to an Event of Default has been made and before a judgment or decree for
payment of the money due has been obtained by the Indenture Trustee as
hereinafter in this Article V provided, the Holders of Notes representing a
majority of the Security Balances of all Notes, by written notice to the Issuer
and the Indenture Trustee, may waive the related Event of Default and rescind
and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture
Trustee a sum sufficient to pay:
(A) all payments of principal of and interest on the
Notes and all other amounts that would then be due hereunder
or upon the Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Indenture
Trustee hereunder and the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee and its
agents and counsel; and
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(ii) all Events of Default, other than the nonpayment of
the principal of the Notes that has become due solely by such
acceleration, have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
Section 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
INDENTURE TRUSTEE. (a) The Issuer covenants that if (i) default is made in the
payment of any interest on any Note when the same becomes due and payable, and
such default continues for a period of five days, or (ii) default is made in the
payment of the principal of or any installment of the principal of any Note when
the same becomes due and payable, the Issue shall, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of Notes and of the Note
Insurer, the whole amount then due and payable on the Notes for principal and
interest, with interest upon the overdue principal, and in addition thereto such
further amount as shall be sufficient to cover the costs and expenses of collec
tion, including the reasonable compensation, expenses, disbursements and
advances of the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, subject to the provisions of Section 10.17 hereof may institute a
Proceeding for the collection of the sums so due and unpaid, and may prosecute
such Proceeding to judgment or final decree, and may enforce the same against
the Issuer or other obligor upon the Notes and collect in the manner provided by
law out of the property of the Issuer or other obligor the Notes, wherever
situated, the monies adjudged or decreed to be payable.
(c) If an Event of Default occurs and is continuing, the Indenture
Trustee subject to the provisions of Section 10.17 hereof may, as more
particularly provided in Section 5.04, in its discretion, proceed to protect and
enforce its rights and the rights of the Noteholders and the Note Insurer, by
such appropriate Proceedings as the Indenture Trustee shall deem most effective
to protect and enforce any such rights, whether for the specific enforcement of
any covenant or agreement in this Indenture or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy or legal or
equitable right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
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(i) to file and prove a claim or claims for the whole
amount of principal and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee
(including any claim for reasonable compensation to the Indenture
Trustee and each predecessor Indenture Trustee, and their respective
agents, attorneys and counsel, and for reimbursement of all expenses
and liabilities incurred, and all advances made, by the Inden ture
Trustee and each predecessor Indenture Trustee, except as a result of
negligence or bad faith) and of the Noteholders allowed in such
Proceedings;
(ii) unless prohibited by applicable law and
regulations, to vote on behalf of the Holders of Notes in any election
of a trustee, a standby trustee or Person performing similar functions
in any such Proceedings;
(iii) to collect and receive any monies or other
property payable or deliverable on any such claims and to distribute
all amounts received with respect to the claims of the Noteholders and
of the Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Indenture Trustee or the Holders of Notes allowed in any
judicial proceedings relative to the Issuer, its creditors and its
property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party),
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the Indenture Trustee shall be held to represent all the Holders of the Notes,
and it shall not be necessary to make any Noteholder a party to any such
Proceedings.
Section 5.04. REMEDIES; PRIORITIES. (a) If an Event of Default shall
have occurred and be continuing, the Indenture Trustee subject to the provisions
of Section 10.17 hereof may do one or more of the following (subject to Section
5.05):
(i) institute Proceedings in its own name and as trustee
of an express trust for the collection of all amounts then payable on
the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, and all amounts payable under the Insurance
Agreement, enforce any judgment obtained, and collect from the Issuer
and any other obligor upon such Notes monies adjudged due;
(ii) institute Proceedings from time to time for the
complete or partial foreclosure of this Indenture with respect to the
Trust Estate;
(iii) exercise any remedies of a secured party under the
UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Indenture Trustee, the Holders of the Notes
and the Note Insurer; and
(iv) sell the Trust Estate or any portion thereof or
rights or interest therein, at one or more public or private sales
called and conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Trust Estate following an Event of Default, unless (A) the
Indenture Trustee obtains the consent of the Holders of 100% of the aggregate
Principal Balances of the Notes and the Note Insurer, which consent will not be
unreasonably withheld, (B) the proceeds of such sale or liquidation
distributable to Holders are sufficient to discharge in full all amounts then
due and unpaid upon the Notes for principal and interest and to reimburse the
Note Insurer for any amounts drawn under the Note Insurance Policy and any other
amounts due the Note Insurer under the Insurance Agreement or (C) the Indenture
Trustee determines that the Mortgage Loans will not continue to provide
sufficient funds for the payment of principal of and interest on the Notes as
they would have become due if the Notes had not been declared due and payable,
and the Indenture Trustee obtains the consent of the Note Insurer, which consent
will not be unreasonably withheld, and of the Holders of a majority of the
aggregate Principal Balances of the Notes. In determining such sufficiency or
insufficiency with respect to clause (B) and (C), the Indenture Trustee may, but
need not, obtain and rely upon an opinion of an Independent investment banking
or accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
Notwithstanding the foregoing, so long as an Event of Servicer Termination has
not occurred, any Sale of the Trust Estate shall be made subject to the
continued Servicing of the Mortgage Loans by the Master Servicer as provided in
the Servicing Agreement.
(b) If the Indenture Trustee collects any money or property pursuant to
this Article V, it shall pay out the money or property in the following order:
FIRST: to the Indenture Trustee for amounts due under Section
6.07;
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SECOND: to each Class of Noteholders for amounts due and
unpaid on the related Class Notes for interest and to each
Noteholder of such Class in each case, ratably, without
preference or priority of any kind, according to the amounts
due and payable on such Class of Notes for interest from
amounts available in the Trust Estate for such Noteholders;
THIRD: to Holders of each Class of Notes for amounts due and
unpaid on the related Class of Notes for principal, from
amounts available in the Trust Estate for such Noteholders,
and to each Noteholder of such Class in each case ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Class of Notes for principal,
until the Security Balances of each Class of Notes is reduced
to zero;
FOURTH: to the Issuer for amounts required to be distributed
to the Certificateholders in respect of interest and principal
pursuant to the Trust Agreement;
FIFTH: To the payment of all amounts due and owing to the Note
Insurer under the Insurance Agreement;
SIXTH: to the Issuer for amounts due under Article VIII of the
Trust Agreement; and
SEVENTH: to the payment of the remainder, if any to the Issuer
or any other person legally entitled thereto.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section 5.04. At least 15 days before
such record date, the Indenture Trustee shall mail to each Noteholder a notice
that states the record date, the payment date and the amount to be paid.
Section 5.05. OPTIONAL PRESERVATION OF THE TRUST ESTATE. If the Notes
have been declared to be due and payable under Section 5.02 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to take and maintain
possession of the Trust Estate. It is the desire of the parties hereto and the
Noteholders that there be at all times sufficient funds for the payment of
principal of and interest on the Notes and other obligations of the Issuer
including payment to the Note Insurer, and the Indenture Trustee shall take such
desire into account when determining whether or not to take and maintain
possession of the Trust Estate. In determining whether to take and maintain
possession of the Trust Estate, the Indenture Trustee may, but need not, obtain
and rely upon an opinion of an Independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action and as to
the sufficiency of the Trust Estate for such purpose.
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Section 5.06. LIMITATION OF SUITS. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless and subject to the provisions of Section 10.17 hereof:
(i) such Holder has previously given written notice to
the Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Security
Balances of the Notes have made written request to the Indenture
Trustee to institute such Proceeding in respect of such Event of
Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the
Indenture Trustee reasonable indemnity against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to institute
such Proceedings; and
(v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by
the Holders of a majority of the Security Balances of the Notes.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Security Balances of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.07. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL
AND INTEREST. Notwithstanding any other provisions in this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture and to institute suit for the enforcement of any such payment, and
such right shall not be impaired without the consent of such Holder.
Section 5.08. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be
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restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as though no such Proceeding had been instituted.
Section 5.09. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.10. DELAY OR OMISSION NOT A WAIVER. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Indenture
Trustee or to the Noteholders may be exercised from time to time, and as often
as may be deemed expedient, by the Indenture Trustee or by the Noteholders, as
the case may be.
Section 5.11. CONTROL BY NOTEHOLDERS. The Holders of a majority of the
Security Balances of Notes shall have the right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any
rule of law or with this Indenture;
(ii) subject to the express terms of Section 5.04, any
direction to the Indenture Trustee to sell or liquidate the Trust
Estate shall be by Holders of Notes representing not less than 100% of
the Security Balances of Notes;
(iii) if the conditions set forth in Section 5.05 have
been satisfied and the Indenture Trustee elects to retain the Trust
Estate pursuant to such Section, then any direction to the Indenture
Trustee by Holders of Notes representing less than 100% of the Security
Balances of Notes to sell or liquidate the Trust Estate shall be of no
force and effect; and
(iv) the Indenture Trustee may take any other action
deemed proper by the Indenture Trustee that is not inconsistent with
such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially adversely affect the rights of
any Noteholders not consenting to such action.
Section 5.12. WAIVER OF PAST DEFAULTS. Prior to the declaration of the
acceleration of the maturity of the Notes as provided in Section 5.02, the
Holders of Notes of not less than a majority of the Security Balances of the
Notes may waive any past Event of Default and its consequences except an Event
of Default (a) with respect to payment of principal of or interest on any of the
Notes
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or (b) in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of the Holder of each Note or (c) the waiver of
which would materially and adversely affect the interests of the Note Insurer or
modify its obligation under the Note Insurance Policy. In the case of any such
waiver, the Issuer, the Indenture Trustee and the Holders of the Notes shall be
restored to their former positions and rights hereunder, respectively; but no
such waiver shall extend to any subsequent or other Event of Default or impair
any right consequent thereto.
Upon any such waiver, any Event of Default arising therefrom shall be
deemed to have been cured and not to have occurred, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or other Event of
Default or impair any right consequent thereto.
Section 5.13. UNDERTAKING FOR COSTS. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 5.13 shall not apply to (a) any suit instituted by
the Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the Security
Balances of the Notes or (c) any suit instituted by any Noteholder for the
enforcement of the payment of principal of or interest on any Note on or after
the respective due dates expressed in such Note and in this Indenture.
Section 5.14. WAIVER OF STAY OR EXTENSION LAWS. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
Section 5.15. SALE OF TRUST ESTATE. (a) The power to effect any sale or
other disposition (a "Sale") of any portion of the Trust Estate pursuant to
Section 5.04 is expressly subject to the provisions of Section 5.05 and this
Section 5.15. The power to effect any such Sale shall not be exhausted by any
one or more Sales as to any portion of the Trust Estate remaining unsold, but
shall continue unimpaired until the entire Trust Estate shall have been sold or
all amounts payable on the Notes and under this Indenture and under the
Insurance Agreement shall have been paid. The Indenture Trustee may from time to
time postpone any public Sale by public announcement made at the time and place
of such Sale. The Indenture Trustee hereby expressly waives its right to any
amount fixed by law as compensation for any Sale.
(b) The Indenture Trustee shall not in any private Sale sell the Trust
Estate, or any portion thereof, unless
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(1) the Holders of all Notes and the Note Insurer consent to
or direct the Indenture Trustee to make, such Sale, or
(2) the proceeds of such Sale would be not less than the
entire amount which would be payable to the Noteholders under the Notes and the
Note Insurer in respect of amounts drawn under the Note Insurance Policy and any
other amounts due the Note Insurer under the Insurance Agreement, in full
payment thereof in accordance with Section 5.02, on the Payment Date next
succeeding the date of such Sale, or
(3) The Indenture Trustee determines, in its sole discretion,
that the conditions for retention of the Trust Estate set forth in Section 5.05
cannot be satisfied (in making any such deter mination, the Indenture Trustee
may rely upon an opinion of an Independent investment banking firm obtained and
delivered as provided in Section 5.05), and the Note Insurer consents to such
Sale, which consent will not be unreasonably withheld and the Holders
representing at least ______% of the Security Balances of the Notes consent to
such Sale.
The purchase by the Indenture Trustee of all or any portion of the Trust Estate
at a private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.15(b).
(c) Unless the Holders and the Note Insurer have otherwise consented or
directed the Indenture Trustee, at any public Sale of all or any portion of the
Trust Estate at which a minimum bid equal to or greater than the amount
described in paragraph (2) of subsection (b) of this Section 5.15 has not been
established by the Indenture Trustee and no Person bids an amount equal to or
greater than such amount, the Indenture Trustee shall bid an amount at least
$1.00 more than the highest other bid.
(d) In connection with a Sale of all or any portion of the Trust Estate
(1) any Holder or Holders of Notes may bid for and with the
consent of the Note Insurer purchase the property offered for sale, and upon
compliance with the terms of sale may hold, retain and possess and dispose of
such property, without further accountability, and may, in paying the purchase
money therefor, deliver any Notes or claims for interest thereon in lieu of cash
up to the amount which shall, upon distribution of the net proceeds of such
sale, be payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Indenture Trustee may bid for and acquire the property
offered for Sale in connection with any Sale thereof, and, subject to any
requirements of, and to the extent permitted by, applicable law in connection
therewith, may purchase all or any portion of the Trust Estate in a private
sale, and, in lieu of paying cash therefor, may make settlement for the purchase
price by crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes and Holders of Certificates
and amounts owing to the Note Insurer as a result of such Sale in accordance
with Section 5.04(b) on the Payment Date next succeeding the date of such Sale
and (B) the expenses of the Sale and of any Proceedings in connection therewith
which are reimbursable to it, without being required to produce the Notes in
order to complete any such Sale or in order for the net Sale price to be
credited against such Notes, and any property so acquired
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by the Indenture Trustee shall be held and dealt with by it in accordance with
the provisions of this Indenture;
(3) the Indenture Trustee shall execute and deliver an
appropriate instrument of conveyance transferring its interest in any portion of
the Trust Estate in connection with a Sale there of;
(4) the Indenture Trustee is hereby irrevocably appointed the
agent and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
(5) no purchaser or transferee at such a Sale shall be bound
to ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent or see to the application of any monies.
Section 5.16. ACTION ON NOTES. The Indenture Trustee's right to seek
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.04(b).
Section 5.17. PERFORMANCE AND ENFORCEMENT OF CERTAIN OBLIGATIONS. (a)
Promptly following a request from the Indenture Trustee to do so and at the
Administrator's expense, the Issuer in its capacity as holder of the Mortgage
Loans, shall take all such lawful action as the Indenture Trustee may request to
cause the Issuer to compel or secure the performance and observance by the
Seller and the Master Servicer, as applicable, of each of their obligations to
the Issuer under or in connection with the Mortgage Loan Purchase Agreement and
the Servicing Agreement, and to exercise any and all rights, remedies, powers
and privileges lawfully available to the Issuer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, as pledgee of the Mortgage
Loans, including the transmission of notices of default on the part of the
Seller or the Master Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Seller or the Master Servicer of each of their obligations under the Mortgage
Loan Purchase Agreement and the Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee, as pledgee of the Mortgage Loans, subject to the rights of
the Note Insurer under the Servicing Agreement may, and at the direction (which
direction shall be in writing or by telephone (confirmed in writing promptly
thereafter)) of the Holders of 66-2/3% of the Security Balances of the Notes
shall, exercise all rights, remedies, powers, privileges and claims of the
Issuer against the Seller or the Master Servicer under or in connection with the
Mortgage Loan Purchase Agreement and the Servicing Agreement, including the
right or power to take any action to compel or secure performance or observance
by the Seller or the Master Servicer, as the case may be, of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval,
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extension or waiver under the Mortgage Loan Purchase Agreement and the Servicing
Agreement, as the case may be, and any right of the Issuer to take such action
shall not be suspended.
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ARTICLE VI
THE INDENTURE TRUSTEE
Section 6.01. DUTIES OF INDENTURE TRUSTEE. (a) If an Event of Default
has occurred and is continuing, the Indenture Trustee shall exercise the rights
and powers vested in it by this Indenture and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such
duties and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be read into
this Indenture against the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the
Indenture Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Indenture Trustee and
conforming to the requirements of this Indenture; however, the
Indenture Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (b) of this Section 6.01;
(ii) the Indenture Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer unless it
is proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with
respect to any action it takes or omits to take in good faith in
accordance with a direction received by it (A) pursuant to Section 5.11
or (B) from the Note Insurer, which it is entitled to give under any of
the Basic Documents.
(d) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(e) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Trust Agreement.
(f) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
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(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
Section 6.02. RIGHTS OF INDENTURE TRUSTEE. (a) The Indenture Trustee
may rely on any document believed by it to be genuine and to have been signed or
presented by the proper person. The Indenture Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on an Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
Section 6.03. INDIVIDUAL RIGHTS OF INDENTURE TRUSTEE. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Administrator, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
Section 6.04. INDENTURE TRUSTEE'S DISCLAIMER. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Issuer's use of the proceeds from the Notes, and it shall not be responsible for
any statement of the Issuer in the Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Indenture
Trustee's certificate of authentication.
Section 6.05. NOTICE OF EVENT OF DEFAULT. If an Event of Default occurs
and is continuing and if it is known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall give notice thereof to the Note Insurer.
The Trustee shall mail to each Noteholder notice of the Event of Default within
90 days after it occurs. Except in the case of an Event of Default in payment of
principal of or interest on any Note, the Indenture Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of Noteholders.
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Section 6.06. REPORTS BY INDENTURE TRUSTEE TO HOLDERS. The Indenture
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its federal and state income tax returns. In
addition, upon the Issuer's written request, the Indenture Trustee shall
promptly furnish information reasonably requested by the Issuer that is
reasonably available to the Indenture Trustee to enable the Issuer to perform
its federal and state income tax reporting obligations.
Section 6.07. COMPENSATION AND INDEMNITY. The Issuer shall or shall
cause the Administrator to pay to the Indenture Trustee on each Payment Date
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Administrator to
indemnify the Indenture Trustee against any and all loss, liability or expense
(including attorneys' fees) incurred by it in connection with the administration
of this trust and the performance of its duties hereunder. The Indenture Trustee
shall notify the Issuer and the Administrator promptly of any claim for which it
may seek indemnity. Failure by the Indenture Trustee to so notify the Issuer and
the Administrator shall not relieve the Issuer or the Administrator of its
obligations hereunder. The Issuer shall or shall cause the Administrator to
defend any such claim, and the Indenture Trustee may have separate counsel and
the Issuer shall or shall cause the Administrator to pay the fees and expenses
of such counsel. Neither the Issuer nor the Administrator need reimburse any
expense or indemnify against any loss, liability or expense incurred by the
Indenture Trustee through the Indenture Trustee's own willful misconduct,
negligence or bad faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section 6.07 shall survive the discharge of this Indenture. When the
Indenture Trustee incurs expenses after the occurrence of an Event of Default
specified in Section 5.01(iv) or (v) with respect to the Issuer, the expenses
are intended to constitute expenses of administration under Title 11 of the
United States Code or any other applicable federal or state bankruptcy,
insolvency or similar law.
Section 6.08. REPLACEMENT OF INDENTURE TRUSTEE. No resignation or
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.08. The Indenture Trustee
may resign at any time by so notifying the Issuer and the Note Insurer. The
Holders of a majority of Security Balances of the Notes may remove the Indenture
Trustee by so notifying the Indenture Trustee and the Note Insurer and may
appoint a successor Indenture Trustee.
The Issuer shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section
6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or
insolvent;
(iii) a receiver or other public officer takes charge of
the Indenture Trustee or its property; or
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(iv) the Indenture Trustee otherwise becomes incapable
of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The successor Indenture Trustee
shall mail a notice of its succession to Noteholders. The retiring Indenture
Trustee shall promptly transfer all property held by it as Indenture Trustee to
the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority of Security Balances
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Administrator's obligations under Section
6.07 shall continue for the benefit of the retiring Indenture Trustee.
Section 6.09. SUCCESSOR INDENTURE TRUSTEE BY MERGER. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. APPOINTMENT OF CO-INDENTURE TRUSTEE OR SEPARATE INDENTURE
TRUSTEE. (a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Estate may at the time be located,
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the Indenture Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Trust Estate, or any part hereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.08 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred
or imposed upon the Indenture Trustee shall be conferred or imposed
upon and exercised or performed by the Indenture Trustee and such
separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Indenture Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be
incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Estate or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the
resignation of or remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or
co-trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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Section 6.11. ELIGIBILITY; DISQUALIFICATION. The Indenture Trustee
shall at all times satisfy the requirements of TIA ss. 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least [$50,000,000] as
set forth in its most recent published annual report of condition and it or its
parent shall have a long-term debt rating of [Baa3] or better by [Moody's]. The
Indenture Trustee shall comply with TIA ss. 310(b), including the optional
provision permitted by the second sentence of TIA ss. 310(b)(9); provided,
however, that there shall be excluded from the operation of TIA ss. 310(b)(1)
any indenture or indentures under which other securities of the Issuer are
outstanding if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
Section 6.12. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER. The
Indenture Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 6.13. REPRESENTATION AND WARRANTY. The Indenture Trustee hereby
represents that:
(i) The Indenture Trustee is duly organized and validly
existing as a corporation in good standing under the laws of the State
of ___________, with power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted.
(ii) The Indenture Trustee has the power and authority to
execute and deliver this Indenture and to carry out its terms; and the
execution, delivery and performance of this Indenture have been duly
authorized by the Indenture Trustee by all necessary corporate action.
(iii) The consummation of the transactions contemplated by
this Indenture and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or bylaws of the Indenture Trustee or any
agreement or other instrument to which the Indenture Trustee is a party
or by which it is bound
(iv) To the Indenture Trustee's best knowledge, there are no
proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Indenture Trustee or its
properties: (A) asserting the invalidity of this Indenture (B) seeking
to prevent the consum mation of any of the transactions contemplated by
this Indenture or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Indenture
Trustee of its obligations under, or the validity or enforceability of,
this Indenture.
Section 6.14. DIRECTIONS TO INDENTURE TRUSTEE. The Indenture Trustee is
hereby directed:
(a) to accept the pledge of the Mortgage Loans and hold the assets of
the Trust in trust for the Noteholders;
(b) to issue, execute and deliver the Notes substantially in the form
prescribed by Exhibit A in accordance with the terms of this Indenture; and
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(c) to take all other actions as shall be required to be taken by the
terms of this Indenture.
[Section 6.15. NO CONSENT TO CERTAIN ACTS OF DEPOSITOR. The Indenture
Trustee shall not consent to any action proposed to be taken by the Depositor
pursuant to Article [_________] of the Depositor's Restated Certificate of
Incorporation.]
Section 6.16. INDENTURE TRUSTEE MAY OWN SECURITIES. The Indenture
Trustee, in its individual or any other capacity may become the owner or pledgee
of Securities with the same rights it would have if it were not Indenture
Trustee.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. ISSUER TO FURNISH INDENTURE TRUSTEE NAMES AND ADDRESSES
OF NOTEHOLDERS. The Issuer will furnish or cause to be furnished to the
Indenture Trustee (a) not more than five days after each Record Date, a list, in
such form as the Indenture Trustee may reasonably require, of the names and
addresses of the Holders of Notes as of such Record Date, (b) at such other
times as the Indenture Trustee and the Note Insurer may request in writing,
within 30 days after receipt by the Issuer of any such request, a list of
similar form and content as of a date not more than 10 days prior to the time
such list is furnished; provided, however, that so long as the Indenture Trustee
is the Note Registrar, no such list shall be required to be furnished.
Section 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO
NOTEHOLDERS. (a) The Indenture Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.01 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.01 upon receipt
of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA ss. 312(c).
Section 7.03. REPORTS BY ISSUER. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days
after the Issuer is required to file the same with the Commission,
copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as
the Commission may from time to time by rules and regulations
prescribe) that the Issuer may be required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee, and the Commission
in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports
with respect to compliance by the Issuer with the conditions and
covenants of this Indenture as may be required from time to time by
such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) such summaries of any information, docu ments and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of
this Section 7.03(a) and by rules and regulations prescribed from time
to time by the Commission.
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(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
Section 7.04. REPORTS BY INDENTURE TRUSTEE. If required by TIA ss.
313(a), within 60 days after each January 1 beginning with January 1, ______,
the Indenture Trustee shall mail to each Note holder as required by TIA ss.
313(c) and to the Note Insurer a brief report dated as of such date that
complies with TIA ss. 313(a). The Indenture Trustee also shall comply with TIA
ss. 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
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ARTICLE VIII
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. COLLECTION OF MONEY. Except as otherwise expressly
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The Indenture
Trustee shall apply all such money received by it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under any agreement or instrument
that is part of the Trust Estate, the Indenture Trustee may take such action as
may be appropriate to enforce such payment or performance, including the
institution and prosecution of appropriate Proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
Section 8.02. TRUST ACCOUNTS. (a) On or prior to the Closing Date, the
Issuer shall cause the Indenture Trustee to establish and maintain, in the name
of the Indenture Trustee, for the benefit of the Noteholders and the Certificate
Paying Agent, on behalf of the Certificateholders and the Note Insurer, the
Payment Account as provided in Section 3.01 of this Indenture.
(b) All monies deposited from time to time in the Payment Account
pursuant to the Servicing Agreement and all deposits therein pursuant to this
Indenture are for the benefit of the Noteholders and the Certificate Paying
Agent, on behalf of the Certificateholders and all investments made with such
monies including all income or other gain from such investments are for the
benefit of the Master Servicer as provided by the Servicing Agreement.
On each Payment Date during the Funding Period the Indenture Trustee
shall withdraw Net Principal Collections from the Payment Account and deposit
Net Principal Collections to the Funding Account.
On each Payment Date, the Indenture Trustee shall distribute all
amounts on deposit in the Payment Account (after giving effect to the withdrawal
referred to in the preceding paragraph) to Noteholders in respect of the Notes
and in its capacity as Certificate Paying Agent to Certificateholders in the
order of priority set forth in Section 3.05 (except as otherwise provided in
Section 5.04(b).
The Master Servicer may direct the Indenture Trustee to invest any
funds in the Payment Account in Eligible Investments maturing no later than the
Business Day preceding each Payment Date and shall not be sold or disposed of
prior to the maturity. Unless otherwise instructed by the Master Servicer, the
Indenture Trustee shall invest all funds in the Payment Account in Eligible
Investments.
(c) On or before the Closing Date the Issuer shall open, at the
Corporate Trust Office, an account which shall be the "Funding Account". The
Master Servicer may direct the Indenture Trustee to invest any funds in the
Funding Account in Eligible Investments maturing no later than
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the Business Day preceding each Payment Date and shall not be sold or disposed
of prior to the maturity. Unless otherwise instructed by the Master Servicer,
the Indenture Trustee shall invest all funds in the Payment Account in its
Corporate Trust Short Term Investment Fund so long as it is an Eligible
Investment. During the Funding Period, any amounts received by the Indenture
Trustee in respect of Net Principal Collections for deposit in the Funding
Account, together with any Eligible Investments in which such monies are or will
be invested or reinvested during the term of the Notes, shall be held by the
Indenture Trustee in the Funding Account as part of the Trust Estate, subject to
disbursement and withdrawal as herein provided: Amounts on deposit in the
Funding Account in respect of Net Principal Collections may be withdrawn on each
Deposit Date and (1) paid to the Issuer in payment for Additional Loans by the
deposit of such amount to the Collection Account and (2) at the end of the
Funding Period any amounts remaining in the Funding Account after the with
drawal called for by clause (1) shall be deposited in the Payment Account to be
included in the payment of principal on the Payment Date that is the last day of
the Funding Period.
(d) (i) Any investment in the institution with which the Funding
Account is maintained may mature on such Payment Date and (ii) any other
investment may mature on such Payment Date if the Indenture Trustee shall
advance funds on such Payment Date to the Funding Account in the amount payable
on such investment on such Payment Date, pending receipt thereof to the extent
necessary to make distributions on the Notes and the Certificates) and shall not
be sold or disposed of prior to maturity.
Section 8.03. OFFICER'S CERTIFICATE. The Indenture Trustee shall
receive at least [seven] days notice when requested by the Issuer to take any
action pursuant to Section 8.05(a), accompanied by copies of any instruments to
be executed, and the Indenture Trustee shall also require, as a condition to
such action, an Officer's Certificate, in form and substance satisfactory to the
Indenture Trustee, stating the legal effect of any such action, outlining the
steps required to complete the same, and concluding that all conditions
precedent to the taking of such action have been complied with.
Section 8.04. TERMINATION UPON DISTRIBUTION TO NOTEHOLDERS. This
Indenture and the respective obligations and responsibilities of the Issuer and
the Indenture Trustee created hereby shall terminate upon the distribution to
Noteholders, Certificate Paying Agent, on behalf of the Certificateholders and
the Indenture Trustee of all amounts required to be distributed pursuant to
Article III; provided, however, that in no event shall the trust created hereby
continue beyond the expiration of 21 years from the death of the survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
Section 8.05. RELEASE OF TRUST ESTATE. (a) Subject to the payment of
its fees and expenses, the Indenture Trustee may, and when required by the
provisions of this Indenture shall, execute instruments to release property from
the lien of this Indenture, or convey the Indenture Trustee's interest in the
same, in a manner and under circumstances that are not inconsistent with the
provisions of this Indenture. No party relying upon an instrument executed by
the Indenture Trustee as provided in Article VIII hereunder shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction of
any conditions precedent, or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as (i) there are no Notes
Outstanding, (ii) all sums due the Indenture Trustee pursuant to this Indenture
have been paid, and (iii) all sums due the
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Note Insurer have been paid, release any remaining portion of the Trust Estate
that secured the Notes from the lien of this Indenture.
[(c) The Indenture Trustee shall release property from the lien of this
Indenture pursuant to this Section 8.05 only upon receipt of an request from the
Issuer accompanied by an [Officers' Certificate], [an Opinion of Counsel,] and a
letter from the Note Insurer, stating that the Note Insurer has no objection to
such request from the Issuer.]
Section 8.06. SURRENDER OF NOTES UPON FINAL PAYMENT. By acceptance of
any Note, the Holder thereof agrees to surrender such Note to the Indenture
Trustee promptly, prior to such Note holder's receipt of the final payment
thereon.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
(a) Without the consent of the Holders of any Notes but with the consent of the
Note Insurer and prior notice to the Rating Agencies and the Note Insurer, the
Issuer and the Indenture Trustee, when authorized by an Issuer Request, at any
time and from time to time, may enter into one or more indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force at the date of the execution thereof), in form satisfactory to the
Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any
property at any time subject to the lien of this Indenture, or better
to assure, convey and confirm unto the Indenture Trustee any property
subject or required to be subjected to the lien of this Indenture, or
to subject to the lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the
benefit of the Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture that may be
inconsistent with any other provision herein or in any supplemental
indenture
(vi) to make any other provisions with respect to
matters or questions arising under this Indenture or in any
supplemental indenture; provided, that such action shall not materially
and adversely affect the interests of the Holders of the Notes;
(vii) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(viii) to modify, eliminate or add to the provisions of
this Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA;
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provided, however, that no such indenture supplements shall be entered into
unless the Indenture Trustee shall have received an Opinion of Counsel that
entering into such indenture supplement will not have any material adverse tax
consequences to the Noteholders.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Request, may, also without the consent of any of the Holders of the Notes but
with the consent of the Note Insurer and prior notice to the Rating Agencies and
the Note Insurer, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
however, that such action shall not, as evidenced by an Opinion of Counsel, (i)
adversely affect in any material respect the interests of any Noteholder or (ii)
cause the Issuer to be subject to an entity level tax.
Section 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS. The
Issuer and the Indenture Trustee, when authorized by an Issuer Request, also
may, with prior notice to the Rating Agencies and, with the written consent of
the Note Insurer and with the consent of the Holders of not less than a majority
of the Security Balances of each Class of Notes affected thereby, by Act of such
Holders delivered to the Issuer and the Indenture Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Note affected
thereby:
(i) change the date of payment of any installment of
principal of or interest on any Note, or reduce the principal amount
thereof or the interest rate thereon, change the provisions of this
Indenture relating to the application of collections on, or the
proceeds of the sale of, the Trust Estate to payment of principal of or
interest on the Notes, or change any place of payment where, or the
coin or currency in which, any Note or the interest thereon is payable,
or impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof;
(ii) reduce the percentage of the Security Balances of
the Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to
the definition of the term "Outstanding" or modify or alter the
exception in the definition of the term "Holder";
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(iv) reduce the percentage of the Security Balances of
the Notes required to direct the Indenture Trustee to direct the Issuer
to sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section 9.02 except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture or the Basic Documents cannot
be modified or waived without the consent of the Holder of each Note
affected thereby;
(vi) modify any of the provisions of this Indenture in
such manner as to affect the calculation of the amount of any payment
of interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation); or
(vii) permit the creation of any lien ranking prior to
or on a parity with the lien of this Indenture with respect to any part
of the Trust Estate or, except as otherwise permitted or contemplated
herein, terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture; and provided, further, that
such action shall not, as evidenced by an Opinion of Counsel, cause the
Issuer to be subject to an entity level tax.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter authenticated and delivered hereunder. The Indenture
Trustee shall not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
9.02 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section 9.02, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
Section 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modification thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
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Section 9.04. EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and shall be deemed to be modified and amended in accordance therewith
with respect to the Notes affected thereby, and the respective rights,
limitations of rights, obligations, duties, liabilities and immunities under
this Indenture of the Indenture Trustee, the Issuer and the Holders of the Notes
shall thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such supplemental indenture shall be and be deemed to be part of the
terms and conditions of this Indenture for any and all purposes.
Section 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
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ARTICLE X
MISCELLANEOUS
Section 10.01. COMPLIANCE CERTIFICATES AND OPINIONS, ETC. (a) Upon any
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Note Insurer (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (ii) an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that, in the case of any such application or request
as to which the furnishing of such documents is specifically required by any
provision of this Indenture, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with;
(4) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with; and
(5) if the Signer of such Certificate or Opinion is required
to be Independent, the Statement required by the definition of the term
"Independent".
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 10.01(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officer's
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within 90 days of such deposit) to the Issuer
of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (i) above, the Issuer
shall also deliver to the Indenture Trustee an Independent Certificate as to the
same matters, if the fair value to the Issuer of the securities to be so
deposited and of all other such securities made the basis of any such withdrawal
or release since the commencement of the then-current fiscal year of the Issuer,
as set forth in the certificates delivered pursuant to clause (i) above and this
clause (ii), is ____% or more of the Security Balances of the Notes, but such a
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certificate need not be furnished with respect to any securities so deposited,
if the fair value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $_________ or less than one percent of the Security
Balances of the Notes.
(iii) Whenever any property or securities are to be
released from the lien of this Indenture, the Issuer shall also furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
each person signing such certificate as to the fair value (within 90 days of
such release) of the property or securities proposed to be released and stating
that in the opinion of such person the proposed release will not impair the
security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the
Indenture Trustee an Officer's Certificate certifying or stating the opinion of
any signer thereof as to the matters described in clause (iii) above, the Issuer
shall also furnish to the Indenture Trustee an Independent Certificate as to the
same matters if the fair value of the property or securities and of all other
property, other than property as contemplated by clause (v) below or securities
released from the lien of this Indenture since the commencement of the
then-current calendar year, as set forth in the certificates required by clause
(iii) above and this clause (iv), equals ____% or more of the Security Balances
of the Notes, but such certificate need not be furnished in the case of any
release of property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $_______ or less than one percent of
the then Security Balances of the Notes.
(v) Notwithstanding any provision of this Indenture, the
Issuer may, without compliance with the requirements of the other provisions of
this Section 10.01, (A) collect, sell or otherwise dispose of the Mortgage Loans
as and to the extent permitted or required by the Basic Documents or (B) make
cash payments out of the Payment Account as and to the extent permitted or
required by the Basic Documents [, so long as the Issuer shall deliver to the
Indenture Trustee every six months, commencing _____________, an Officer's
Certificate of the Issuer stating that all the dispositions of Collateral
described in clauses (A) or (B) above that occurred during the preceding six
calendar months were in the ordinary course of the Issuer's business and that
the proceeds thereof were applied in accordance with the Basic Documents].
Section 10.02. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an
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officer or officers of the Seller, the Issuer or the Administrator, stating that
the information with respect to such factual matters is in the possession of the
Seller, the Issuer or the Administrator, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such docu ment shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
Section 10.03. ACTS OF NOTEHOLDERS. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Indenture Trustee, and, where it
is hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Noteholders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
6.01) conclusive in favor of the Indenture Trustee and the Issuer, if made in
the manner provided in this Section 10.03.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be proved by the Note Registrar.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
Section 10.04. NOTICES, ETC., TO INDENTURE TRUSTEE, ISSUER, NOTE
INSURER AND RATING AGENCIES. Any request, demand, authorization, direction,
notice, consent, waiver or Act of Note holders or other documents provided or
permitted by this Indenture shall be in writing and if such request, demand,
authorization, direction, notice, consent, waiver or act of Noteholders is to be
made upon, given or furnished to or filed with:
(i) the Indenture Trustee by any Noteholder or by the
Issuer shall be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Indenture Trustee at the
Corporate Trust Office. The Indenture Trustee shall promptly transmit
any notice received by it from the Noteholders to the Issuer, or
(ii) the Issuer by the Indenture Trustee or by any
Noteholder shall be sufficient for every purpose hereunder if in
writing and mailed first-class, postage prepaid to the Issuer addressed
to: Ameriquest Trust Series ____-_, in care of [Name of Owner Trustee]
_________________, __________, ______________, Attention of
_________________________________________ with a copy to the
Administrator at ________________ Attention: __________
__________________________, or at any other address previously
furnished in writing to the Indenture Trustee by the Issuer or the
Admin istrator. The Issuer shall promptly transmit any notice received
by it from the Noteholders to the Indenture Trustee, or
(iii) the Note Insurer by the Issuer, the Indenture
Trustee or by any Noteholders shall be sufficient for every purpose
hereunder to in writing and mailed, first-class postage pre-paid, or
personally delivered or telecopied to: [Name of Note Insurer],
________________, ________, _______________, Attention:
_________________, ___________________________, Telephone
______________. Telecopier ______________. The Note Insurer shall
promptly transmit any notice received by it from the Issuer, the
Indenture Trustee or the Noteholders to the Issuer or Indenture
Trustee, as the case may be.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested, to (i) in the case of
[Moody's], at the following address: [Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007] and (ii) in
the case of [Standard & Poor's], at the following address: [Standard & Poor's
Ratings Group, 26 Broadway (15th Floor), New York, New York 10004, Attention of
Asset Backed Surveillance Department]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
Section 10.05. NOTICES TO NOTEHOLDERS; WAIVER. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at such Person's as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given regardless of
whether such notice is in fact actually received.
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Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute an Event of
Default.
Section 10.06. ALTERNATE PAYMENT AND NOTICE PROVISIONS. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Administrator to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer shall furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee shall cause payments to be made
and notices to be given in accordance with such agreements.
Section 10.07. CONFLICT WITH TRUST INDENTURE ACT. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
Section 10.08. EFFECT OF HEADINGS. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
Section 10.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-trustees and agents.
Section 10.10. SEPARABILITY. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 10.11. BENEFITS OF INDENTURE. The Note Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture. Nothing in this Indenture or in
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the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
Section 10.12. LEGAL HOLIDAYS. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 10.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 10.14. COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 10.15. RECORDING OF INDENTURE. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforce ment of any right or remedy granted to the
Indenture Trustee under this Indenture.
Section 10.16. ISSUER OBLIGATION. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
Section 10.17. NO PETITION. The Indenture Trustee, by entering into
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time
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institute against the Depositor or the Issuer, or join in any institution
against the Depositor or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, this Indenture or any of the Basic
Documents.
Section 10.18. INSPECTION. The Issuer agrees that, on reasonable prior
notice, it shall permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by Independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and Independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 10.19. AUTHORITY OF THE ADMINISTRATOR. Each of the parties to
this Indenture acknowledges that the Issuer and the Owner Trustee have each
appointed the Administrator to act as its agent to perform the duties and
obligations of the Issuer hereunder. Unless otherwise instructed by the Issuer
or the Owner Trustee, copies of all notices, requests, demands and other
documents to be delivered to the Issuer or the Owner Trustee pursuant to the
terms hereof shall be delivered to the Administrator. Unless otherwise
instructed by the Issuer or the Owner Trustee, all notices, requests, demands
and other documents to be executed or delivered, and any action to be taken, by
the Issuer or the Owner Trustee pursuant to the terms hereof may be executed,
delivered and/or taken by the Administrator pursuant to the Administration
Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
AMERIQUEST Trust Series ____- _,
as Issuer
By:
-------------------------------------------
not in its individual capacity
but solely as Owner Trustee
By:
-------------------------------------------
Name:______________________________________
Title:_____________________________________
______________________________________________
as Indenture Trustee, as Certificate Paying
Agent and as Note Registrar
By:
-------------------------------------------
Name:______________________________________
Title:_____________________________________
______________________________________
hereby accepts the appointment as Cer-
tificate Paying Agent pursuant to
Section 3.03 hereof and as Certificate
Registrar pursuant to Section 4.02
hereof.
___________________________
By:________________________
Title:_____________________
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ____ day of __________, before me personally appeared
______________, to me known, who being by me duly sworn, did depose and say,
that he resides at _________________, __________________ _____, that he is the
of the Owner Trustee, one of the corpo rations described in and which executed
the above instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation; and that he signed his name
thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On this ____ day of __________, before me personally appeared , to me
known, who being by me duly sworn, did depose and say, that he resides at , that
he is the ______________ of ________________, as Indenture Trustee, one of the
corporations described in and which executed the above instrument; that he knows
the seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
---------------------------
Notary Public
[NOTARIAL SEAL]
<PAGE>
APPENDIX A
DEFINITIONS
ADJUSTABLE RATE MORTGAGE LOAN: A Mortgage Loan with a Mortgage
Rate that is subject to periodic adjustment calculated on the basis of the
Index, plus an applicable Gross Margin. Each Adjustable Rate Mortgage Loan is
secured by a first lien on the related Mortgaged Property.
ADJUSTMENT DATE: As to each Adjustable Rate Mortgage Loan,
each date set forth in the related Mortgage Note on which an adjustment to the
interest rate on such Mortgage Loan becomes effective.
ADMINISTRATIVE FEE: The amount of the fee payable to the Owner
Trustee together with the amount of the premium payable to the Note Insurer,
which will accrue at ______% per annum based on the Note Principal Balance of
the Notes.
ADVANCE: As to any Mortgage Loan, any advance made by the
Master Servicer, pursuant to Section 4.04 of the Servicing Agreement.
AFFILIATE: With respect to any Person, any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, whether through ownership of
voting securities, by contract or otherwise and "controlling" and "controlled"
shall have meanings correlative to the foregoing.
APPRAISED VALUE: The appraised value of a Mortgaged Property
based upon the lesser of (i) the appraisal made at the time of the origination
of the related Mortgage Loan, or (ii) the sales price of such Mortgaged Property
at such time of origination. With respect to a Mortgage Loan the proceeds of
which were used to refinance an existing mortgage loan, the appraised value of
the Mortgaged Property based upon the appraisal (as reviewed and approved by the
Seller) obtained at the time of refinancing.
ASSIGNMENT OF MORTGAGE: An assignment of Mortgage, notice of
transfer or equivalent instrument, in recordable form, which is sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to reflect of record the sale of the Mortgage, which assignment, notice of
transfer or equivalent instrument may be in the form of one or more blanket
assignments covering Mortgages secured by Mortgaged Properties located in the
same county, if permitted by law.
AUTHORIZED NEWSPAPER: A newspaper of general circulation in
the _______ of ___________, The City of ___________, printed in the English
language and customarily published on each Business Day, whether or not
published on Saturdays, Sundays or holidays.
AUTHORIZED OFFICER: With respect to the Issuer, any officer of
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on
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the list of Authorized Officers delivered by the Owner Trustee to the Indenture
Trustee on the Closing Date (as such list may be modified or supplemented from
time to time thereafter).
AVAILABLE FUNDS: As to any Payment Date, an amount equal to
the amount on deposit in the Payment Account on such Payment Date and available
for distribution to the Noteholders (minus, if the Notes have been declared due
and payable following an Event of Default on such Payment Date, any amounts owed
to the Indenture Trustee by the Issuer pursuant to Section 6.07 of the
Indenture).
AVAILABLE FUNDS CAP CARRY-FORWARD AMOUNT: With respect to the
Notes and any Payment Date, an amount equal to the sum of (x) the amount, if
any, by which (a) the lesser of (1) the amount payable if clause (i) of the
definition of Note Interest Rate is used to calculate interest and (2) the
amount payable if the Maximum Note Interest Rate is used to calculate interest
exceeds (b) the amount payable if clause (ii) of the definition of Note Interest
Rate is used to calculate interest and (y) the interest accrued during the prior
Interest Period on the amount of any Available Funds Cap Carry-Forward Amount
immediately prior to such Payment Date, calculated on the basis of a 360-day
year and the actual number of days elapsed and using the Note Interest Rate
applicable to such Payment Date minus (z) the aggregate of all amounts
distributed to the Noteholders on all prior Payment Dates pursuant to Section
3.05(v) of the Indenture.
AVAILABLE FUNDS INTEREST RATE: As to any Payment Date, a per
annum rate equal to the lesser of (x) the fraction, expressed as a percentage,
the numerator of which is (i) an amount equal to (A) 1/12 of the aggregate
Principal Balance of the then outstanding Mortgage Loans times the weighted
average of the Expense Adjusted Mortgage Rates on the then outstanding Mortgage
Loans minus (B) the Administrative Fee for such Payment Date, and the
denominator of which is (ii) an amount equal to (A) the then outstanding
aggregate Note Principal Balance of the Notes multiplied by (B) the actual
number of days elapsed in the related Interest Period divided by 360 and (y) the
Maximum Note Interest Rate.
BANKRUPTCY CODE: The Bankruptcy Code of 1978, as amended.
BASIC DOCUMENTS: The Trust Agreement, the Certificate of
Trust, the Indenture, the Mortgage Loan Purchase Agreement, the Insurance
Agreement, the Servicing Agreement, and the other documents and certificates
delivered in connection with any of the above.
BENEFICIAL OWNER: With respect to any Note, the Person who is
the beneficial owner of such Note as reflected on the books of the Depository or
on the books of a Person maintaining an account with such Depository (directly
as a Depository Participant or indirectly through a Depository Participant, in
accordance with the rules of such Depository).
BOOK-ENTRY NOTES: Beneficial interests in the Notes, ownership
and transfers of which shall be made through book entries by the Depository as
described in Section 4.06 of the Indenture.
BUSINESS DAY: Any day other than (i) a Saturday or a Sunday or
(ii) a day on which banking institutions in the City of New York, Delaware or
California or in the city in which the
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corporate trust offices of the Indenture Trustee or the Note Insurer are
located, are required or authorized by law to be closed.
BUSINESS TRUST STATUTE: Chapter 38 of Title 12 of the Delaware
Code, 12 DEL. Code ss.ss.3801 ET seq., as the same may be amended from time to
time.
CASH LIQUIDATION: As to any defaulted Mortgage Loan other than
a Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Master Servicer that it has received all Insurance Proceeds, Liquidation
Proceeds and other payments or cash recoveries which the Master Servicer
reasonably and in good faith expects to be finally recoverable with respect to
such Mortgage Loan.
CERTIFICATE DISTRIBUTION ACCOUNT: The account or accounts
created and maintained pursuant to Section 3.10(d) of the Trust Agreement. The
Certificate Distribution Account shall be an Eligible Account.
CERTIFICATE PAYING AGENT: The meaning specified in Section
3.10 of the Trust Agreement.
CERTIFICATE PERCENTAGE INTEREST: With respect to each
Certificate, the Certificate Percentage Interest on the face thereof.
CERTIFICATE REGISTER: The register maintained by the
Certificate Registrar in which the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates.
CERTIFICATE REGISTRAR: Initially, the Indenture Trustee, in
its capacity as Certificate Registrar, or any successor to the Indenture Trustee
in such capacity.
CERTIFICATE OF TRUST: The Certificate of Trust filed for the
Trust pursuant to Section 3810(a) of the Business Trust Statute.
CERTIFICATES: The Ameriquest Mortgage Securities Inc, AQ Trust
Certificates, Series ____-_, evidencing the beneficial ownership interest in the
Issuer and executed by the Owner Trustee in substantially the form set forth in
Exhibit A to the Trust Agreement.
CERTIFICATEHOLDER: The Person in whose name a Certificate is
registered in the Certificate Register. Owners of Certificates that have been
pledged in good faith may be regarded as Holders if the pledgee establishes to
the satisfaction of the Indenture Trustee or the Owner Trustee, as the case may
be, the pledgee's right so to act with respect to such Certificates and that the
pledgee is not the Issuer, any other obligor upon the Certificates or any
Affiliate of any of the foregoing Persons.
CLOSING DATE: ______ __, 199_.
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CODE: The Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
COLLATERAL: The meaning specified in the Granting Clause of
the Indenture.
COLLECTION ACCOUNT: The account or accounts created and
maintained pursuant to Section 3.06(d) of the Servicing Agreement. The
Collection Account shall be an Eligible Account.
COMBINED LOAN-TO-VALUE RATIO: With respect to any Mortgage
Loan and any date, the percentage equivalent of a fraction, the numerator of
which is the Cut-Off Date Principal Balance of such Mortgage Loan and the
denominator of which is the outstanding principal balance as of the date of the
origination of such Mortgage Loan of any mortgage loan or mortgage loans that
are secured by liens on the Mortgaged Property that are senior or subordinate to
the Mortgage and the denominator of which is the Appraised Value of the related
Mortgaged Property.
COMPENSATING INTEREST: With respect to any Determination Date,
an amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfall for the related Prepayment Period and (ii) the Servicing Fee for such
Determination Date.
CONVERTED MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the interest rate borne by such Mortgage Loan has been
converted from an adjustable interest rate to a fixed interest rate.
CONVERTIBLE MORTGAGE LOAN: Any Adjustable Rate Mortgage Loan
which by its terms grants to the related Mortgagor the option to convert the
interest rate borne by such Mortgage Loan from an adjustable interest rate to a
fixed interest rate.
CONVERTING MORTGAGE LOAN: Any Convertible Mortgage Loan with
respect to which the related Mortgagor has given notice of his intent to convert
from an adjustable interest rate to a fixed interest rate and prior to the
conversion of such Mortgage Loan.
CORPORATE TRUST OFFICE: With respect to the Indenture Trustee,
Certificate Registrar, Certificate Paying Agent and Paying Agent, the principal
corporate trust office of the Indenture Trustee and Note Registrar at which at
any particular time its corporate trust business shall be admin istered, which
office at the date of the execution of this instrument is located at
____________, __________, ______, __________ _____, Attention: ________ ___
______, except that for purposes of Section 4.02 of the Indenture and Section
3.09 of the Trust Agreement, such term shall include the Indenture Trustee's
office or agency at _______________, ________, ________ _____, Attention:
___________ _________. With respect to the Owner Trustee, the principal
corporate trust office of the Owner Trustee at which at any particular time its
corporate trust business shall be administered, which office at the date of the
execution of this Trust Agreement is located at ________________________, ______
____________, ________________________, __________, ________ _____, Attention:
________________________________.
CUT-OFF DATE: With respect to the Mortgage Loans, ______ 1,
199_.
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CUT-OFF DATE PRINCIPAL BALANCE: With respect to any Mortgage
Loan, the unpaid principal balance thereof as of the opening of business on the
last day of the related Due Period immediately prior to the Cut-Off Date.
DEBT SERVICE REDUCTION: With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction constituting a Deficient Valuation or any reduction that results in a
permanent forgiveness of principal.
DEFAULT: Any occurrence which is or with notice or the lapse
of time or both would become an Event of Default.
DEFICIENCY AMOUNT: The meaning provided in the Note Insurance
Policy.
DEFICIENT VALUATION: With respect to any Mortgage Loan, a
valuation by a court of competent jurisdiction of the Mortgaged Property in an
amount less than the then outstanding indebtedness under the Mortgage Loan, or
any reduction in the amount of principal to be paid in connection with any
scheduled Monthly Payment that constitutes a permanent forgiveness of principal,
which valuation or reduction results from a proceeding under the Bankruptcy
Code.
DEFINITIVE NOTES: The meaning specified in Section 4.06 of the
Indenture.
DELETED MORTGAGE LOAN: A Mortgage Loan replaced or to be
replaced with an Eligible Substitute Mortgage Loan.
DEPOSITOR: Ameriquest Mortgage Securities Inc., a Delaware
corporation, or its successor in interest.
DEPOSITORY OR DEPOSITORY AGENCY: The Depository Trust Company
or a successor appointed by the Indenture Trustee with the approval of the
Depositor. Any successor to the Depository shall be an organization registered
as a "clearing agency" pursuant to Section 17A of the Exchange Act and the
regulations of the Securities and Exchange Commission thereunder.
DEPOSITORY PARTICIPANT: A Person for whom, from time to time,
the Depository effects book-entry transfers and pledges of securities deposited
with the Depository.
DETERMINATION DATE: With respect to any Payment Date, the 15th
of the related month, or if the 15th day of such month is not a Business Day,
the immediately preceding Business Day.
DUE DATE: The first day of the month of the related Payment
Date.
DUE PERIOD: With respect to any Mortgage Loan and Due Date,
the period commencing on the second day of the month preceding the month of such
Payment Date (or, with respect to the first Due Period, the day following the
Cut-Off Date) and ending on the related Due Date.
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ELIGIBLE ACCOUNT: An account that is any of the following: (i)
maintained with a depository institution the short term deposits of which have
been rated by each Rating Agency in its highest rating available, or (ii) an
account or accounts in a depository institution in which such accounts are fully
insured to the limits established by the FDIC, PROVIDED that any deposits not so
insured shall, to the extent acceptable to the Note Insurer and each Rating
Agency, as evidenced in writing, be maintained such that (as evidenced by an
Opinion of Counsel delivered to the Indenture Trustee, the Note Insurer and each
Rating Agency) the Indenture Trustee have a claim with respect to the funds in
such account or a perfected first security interest against any collateral
(which shall be limited to Eligible Investments) securing such funds that is
superior to claims of any other depositors or creditors of the depository
institution with which such account is maintained, or (iii) in the case of the
Collection Account, either (A) a trust account or accounts maintained at the
Corporate Trust Department of the Indenture Trustee or (B) an account or
accounts maintained at the Corporate Trust Department of the Indenture Trustee,
as long as its short term debt obligations are rated P-1 by Moody's and A-1 by
Standard & Poor's or better and its long term debt obligations are rated A2 by
Moody's and A by Standard & Poor's or better, or (iv) in the case of the
Collection Account and the Payment Account, a trust account or accounts
maintained in the corporate trust division of the Indenture Trustee, or (v) an
account or accounts of a depository institution acceptable to each Rating Agency
as evidenced in writing by each Rating Agency that use of any such account as
the Collection Account or the Payment Account will not reduce the rating
assigned to any of the Securities by such Rating Agency below investment grade
without taking into account the Note Insurance Policy and acceptable to the Note
Insurer as evidenced in writing.
ELIGIBLE INVESTMENTS: One or more of the following:
(i) direct obligations of, and obligations fully
guaranteed by, the United States of America, the Federal Home Mortgage
Corporation, the Federal National Mortgage Association, the Federal
Home Loan Banks or any agency or instrumentality of the United States
of America the obligations of which are backed by the full faith and
credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal funds sold by any
depository institution or trust company (including the Indenture
Trustee or its agent acting in their respective commercial capacities)
incorporated under the laws of the United States of America or any
State thereof and subject to supervision and examination by federal
and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short term unsecured debt rating in
the highest available rating category of each of the Rating Agencies
and provided that each such investment has an original maturity of no
more than 365 days, and (B) any other demand or time deposit or deposit
which is fully insured by the Federal Deposit Insurance Corporation;
(iii) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause (i) above and
entered into with a depository institution or trust company (acting as
a principal) rated "A" or higher by S&P and A2 or higher by Moody's;
provided, however, that collateral transferred pursuant to such
repurchase obligation must (A) be valued weekly at current market price
plus accrued interest, (B)
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pursuant to such valuation, equal, at all times, 105% of the cash
transferred by the Indenture Trustee in exchange for such collateral
and (C) be delivered to the Indenture Trustee or, if the Indenture
Trustee is supplying the collateral, an agent for the Indenture
Trustee, in such a manner as to accomplish perfection of a security
interest in the collateral by possession of certificated securities.
(iv) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws of the United
States of America or any State thereof which has a long term unsecured
debt rating in the highest available rating category of each of the
Rating Agencies at the time of such investment;
(v) commercial paper having an original maturity of less
than 365 days and issued by an institution having a short term
unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment;
(vi) a guaranteed investment contract approved by each of
the Rating Agencies and the Note Insurer and issued by an insurance
company or other corporation having a long term unsecured debt rating
in the highest available rating category of each of the Rating Agencies
at the time of such investment;
(vii) money market funds having ratings in the highest
available long-term rating category of each of the Rating Agencies at
the time of such investment; any such money market funds which provide
for demand withdrawals being conclusively deemed to satisfy any
maturity requirement for Eligible Investments set forth in the
Indenture; and
(viii) any investment approved in writing by each of the
Rating Agencies and the Note Insurer.
The Indenture Trustee may purchase from or sell to itself or an affiliate, as
principal or agent, the Eligible Investments listed above.
PROVIDED, HOWEVER, that each such instrument shall be acquired in an arm's
length transaction and no such instrument shall be an Eligible Investment if it
represents, either (1) the right to receive only interest payments with respect
to the underlying debt instrument or (2) the right to receive both principal and
interest payments derived from obligations underlying such instrument and the
principal and interest payments with respect to such instrument provide a yield
to maturity greater than 120% of the yield to maturity at par of such underlying
obligations; PROVIDED FURTHER, HOWEVER, that each such instrument acquired shall
not be acquired at a price in excess of par.
ELIGIBLE SUBSTITUTE MORTGAGE LOAN: A Mortgage Loan substituted
by the Seller for a Deleted Mortgage Loan which must, on the date of such
substitution, as confirmed in an Officer's Certificate delivered to the
Indenture Trustee, (i) have an outstanding principal balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a Deleted
Mortgage Loan, an aggregate outstanding principal balance, after such
deduction), not in excess of the outstanding principal balance of the Deleted
Mortgage Loan (the amount of any shortfall to be deposited by the Seller in
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the Collection Account in the month of substitution); (ii) comply with each
representation and warranty set forth in clauses (ii) through (lxxvii) of
Section 3.1(b) of the Mortgage Loan Purchase Agreement other than clauses (ii),
(iii), (v)-(xi), (xiii)-(xiv), (l), (lxvi), (lxviii), (lxxi)-(lxxiii); (iii)
have a Mortgage Rate and Gross Margin no lower than and not more than 1% per
annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Combined
Loan-to-Value Ratio at the time of substitution no higher than that of the
Deleted Mortgage Loan at the time of substitution; (v) have a remaining term to
stated maturity not greater than (and not more than one year less than) that of
the Deleted Mortgage Loan and (vi) not be 30 days or more delinquent.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
EVENT OF DEFAULT: With respect to the Indenture, any one of
the following events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) a default in (a) the payment of the Interest Payment
Amount or the Principal Payment Amount with respect to a Payment Date
on such Payment Date or (b) the Subordination Increase Amount or the
Available Funds Cap Carry-Forward Amount, but only, with respect to
clause (b), to the extent funds are available to make such payment as
provided in the Indenture; or
(ii) the failure by the Issuer on the Final Scheduled
Payment Date to reduce the Note Principal Balance to zero; or
(iii) there occurs a default in the observance or
performance of any covenant or agreement of the Issuer made in the
Indenture, or any representation or warranty of the Issuer made in the
Indenture or in any certificate or other writing delivered pursuant
hereto or in connection herewith proving to have been incorrect in any
material respect as of the time when the same shall have been made, and
such default shall continue or not be cured, or the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days after there shall have been given, by registered or
certified mail, to the Issuer by the Indenture Trustee or to the Issuer
and the Indenture Trustee by the Note Insurer, or if a Note Insurer
Default exists the Holders of at least 25% of the Outstanding Amount of
the Notes, a written notice specifying such default or incorrect
representation or warranty and requiring it to be remedied and stating
that such notice is a notice of default hereunder; or
(iv) there occurs the filing of a decree or order for
relief by a court having jurisdiction in the premises in respect of the
Issuer or any substantial part of the Trust Estate in an involuntary
case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Issuer or for any substantial part of the Trust Estate,
or ordering the winding-up or liquidation of the Issuer's affairs, and
such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or
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(v) there occurs the commencement by the Issuer of a
voluntary case under any applicable federal or state bankruptcy,
insolvency or other similar law now or hereafter in effect, or the
consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the assets of the Trust Estate,
or the making by the Issuer of any general assignment for the benefit
of creditors, or the failure by the Issuer generally to pay its debts
as such debts become due, or the taking of any action by the Issuer in
furtherance of any of the foregoing.
EVENT OF SERVICER TERMINATION: With respect to the Servicing
Agreement, a Servicing Default as defined in Section 6.01 of the Servicing
Agreement.
EXCESS SUBORDINATION AMOUNT: With respect to any Payment Date,
the excess, if any, of (a) the Subordination Amount that would apply on such
Payment Date after taking into account all distributions to be made on such
Payment Date (exclusive of any reductions thereto attributable to Subordination
Reduction Amounts on such Payment Date) over (b) the Required Subordination
Amount for such Payment Date.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
EXPENSE ADJUSTED MORTGAGE RATE: For any Mortgage Loan, the
rate equal to the then applicable Mortgage Rate thereon minus the sum of (i) the
Minimum Spread and (ii) the Servicing Fee Rate and (iii) the Indenture Trustee
Fee Rate.
EXPENSES: The meaning specified in Section 7.02 of the Trust
Agreement.
FDIC: The Federal Deposit Insurance Corporation or any
successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any
successor thereto.
FINAL SCHEDULED PAYMENT DATE: The Payment Date occurring in
_________, _____.
FIXED RATE MORTGAGE LOAN: Any Mortgage Loan with a fixed rate
of interest.
FNMA: The Federal National Mortgage Association, or any
successor thereto.
FORECLOSURE PROFIT: With respect to a Liquidated Mortgage
Loan, the amount, if any, by which (i) the aggregate of its Net Liquidation
Proceeds exceeds (ii) the related Principal Balance (plus accrued and unpaid
interest thereon at the applicable Mortgage Rate from the date interest was last
paid through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.
GRANT: Pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit,
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set over and confirm pursuant to the Indenture. A Grant of the Collateral or of
any other agreement or instrument shall include all rights, powers and options
(but none of the obligations) of the granting party thereunder, including the
immediate and continuing right to claim for, collect, receive and give receipt
for principal and interest payments in respect of such collateral or other
agreement or instrument and all other moneys payable thereunder, to give and
receive notices and other communi cations, to make waivers or other agreements,
to exercise all rights and options, to bring proceedings in the name of the
granting party or otherwise, and generally to do and receive anything that the
granting party is or may be entitled to do or receive thereunder or with respect
thereto.
GROSS MARGIN: With respect to any Adjustable Rate Mortgage
Loan, the percentage set forth as the "Gross Margin" for such Mortgage Loan on
the Mortgage Loan Schedule, as adjusted from time to time in accordance with the
terms of the Servicing Agreement.
INDEMNIFIED PARTY: The meaning specified in Section 7.02 of
the Trust Agreement.
INDENTURE: The indenture dated as of ______ 1, ____, between
the Issuer, as debtor, and the Indenture Trustee, as Indenture Trustee.
INDENTURE TRUSTEE: _________________________________________,
a national banking association, and its successors and assigns or any successor
indenture trustee appointed pursuant to the terms of the Indenture.
INDENTURE TRUSTEE FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Indenture Trustee Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
INDENTURE TRUSTEE FEE RATE: _____% per annum.
INDEPENDENT: When used with respect to any specified Person,
the Person (i) is in fact independent of the Issuer, any other obligor on the
Notes, the Seller, the Issuer, the Depositor and any Affiliate of any of the
foregoing Persons, (ii) does not have any direct financial interest or any
material indirect financial interest in the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons and (iii) is not connected with the Issuer, any such other obligor, the
Seller, the Issuer, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
INDEPENDENT CERTIFICATE: A certificate or opinion to be
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable require ments of Section 10.01 of the
Indenture, made by an Independent appraiser or other expert appointed by an
Issuer Order and approved by the Indenture Trustee in the exercise of reasonable
care, and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
INDEX: With respect to any Adjustable Rate Mortgage Loan,
index for the adjustment of the Mortgage Rate set forth as such on the related
Mortgage Note.
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INITIAL NOTE PRINCIPAL BALANCE: With respect to the Notes,
$______________.
INITIAL SUBSERVICER: _____________, a __________ corporation.
INSOLVENCY EVENT: With respect to a specified Person, (a) the
filing of a decree or order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, assignee,
custo dian, trustee, sequestrator or similar official for such Person or for any
substantial part of its property, or ordering the winding-up or liquidation of
such Person's affairs, and such decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or (b) the commencement by such
Person of a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such Person to the
entry of an order for relief in an involuntary case under any such law, or the
consent by such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its property, or the making by such
Person of any general assignment for the benefit of creditors, or the failure by
such Person generally to pay its debts as such debts become due or the admission
by such Person in writing (as to which the Indenture Trustee shall have notice)
of its inability to pay its debts generally, or the adoption by the Board of
Directors or managing member of such Person of a resolution which authorizes
action by such Person in furtherance of any of the foregoing.
INSURANCE AGREEMENT: The insurance and reimbursement agreement
dated as of _____ 1, _____, among the Master Servicer, the Seller, the
Depositor, the Issuer, Indenture Trustee and the Note Insurer, including any
amendments and supplements thereto.
INSURANCE PROCEEDS: Proceeds paid by any insurer (other than
the Note Insurer) pursuant to any insurance policy covering a Mortgage Loan
which are required to be remitted to the Master Servicer, or amounts required to
be paid by the Master Servicer pursuant to the Servicing Agreement, net of any
component thereof (i) covering any expenses incurred by or on behalf of the
Master Servicer in connection with obtaining such proceeds, (ii) that is applied
to the restoration or repair of the related Mortgaged Property, (iii) released
to the Mortgagor in accordance with the Master Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
INSURED PAYMENT: Shall have the meaning set forth in the Note
Insurance Policy.
INTEREST DETERMINATION DATE: With respect to any Interest
Period, the second London Business Day preceding the commencement of such
Interest Period.
INTEREST PAYMENT AMOUNT: With respect to any Payment Date, an
amount equal to interest accrued during the related Interest Period on the Note
Principal Balance thereof at the then-applicable Note Interest Rate, minus any
Prepayment Interest Shortfalls and Relief Act Shortfalls to the extent not
covered by the Master Servicer by Compensating Interest for such Payment Date.
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INTEREST PERIOD: With respect to any Payment Date other than
the first Payment Date, the period beginning on the preceding Payment Date and
ending on the day preceding such Payment Date, and in the case of the first
Payment Date, the period beginning on the Closing Date and ending on the day
preceding the first Payment Date.
INTEREST RATE ADJUSTMENT DATE: With respect to each Mortgage
Loan, the date or dates on which the Mortgage Rate is adjusted in accordance
with the related Mortgage Note.
ISSUER: Ameriquest Trust Series ____-__, a Delaware business
trust, or its successor in interest.
ISSUER REQUEST: A written order or request signed in the name
of the Issuer by any one of its Authorized Officers and approved in writing by
the Note Insurer, so long as no Note Insurer Default exists and delivered to the
Indenture Trustee.
LIBOR BUSINESS DAY: Any day other than (i) a Saturday or a
Sunday or (ii) a day on which banking institutions in the State of New York,
Delaware or California, or in the city of London, England are required or
authorized by law to be closed.
LIEN: Any mortgage, deed of trust, pledge, conveyance,
hypothecation, assignment, participation, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority right or interest or other security
agreement or preferential arrangement of any kind or nature whatsoever,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the UCC
(other than any such financing statement filed for informational purposes only)
or comparable law of any jurisdiction to evidence any of the foregoing;
PROVIDED, HOWEVER, that any assignment pursuant to Section 6.02 of the Servicing
Agreement shall not be deemed to constitute a Lien.
LIFETIME RATE CAP: With respect to each Mortgage Loan with
respect to which the related Mortgage Note provides for a lifetime rate cap, the
maximum Mortgage Rate permitted over the life of such Mortgage Loan under the
terms of such Mortgage Note, as set forth on the Mortgage Loan Schedule and
initially as set forth on Exhibit A to the Servicing Agreement.
LIQUIDATED MORTGAGE LOAN: With respect to any Payment Date,
any Mortgage Loan in respect of which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Servicing Agreement,
as of the end of the related Prepayment Period that substantially all
Liquidation Proceeds which it reasonably expects to recover with respect to the
disposition of the related REO Property have been recovered.
LIQUIDATION EXPENSES: Out-of-pocket expenses (exclusive of
overhead) which are incurred by or on behalf of the Master Servicer in
connection with the liquidation of any Mortgage Loan and not recovered under any
insurance policy, such expenses including, without limitation, legal fees and
expenses, any unreimbursed amount expended (including, without limitation,
amounts advanced to correct defaults on any mortgage loan which is senior to
such Mortgage Loan and amounts advanced to keep current or pay off a mortgage
loan that is senior to such Mortgage Loan)
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respecting the related Mortgage Loan and any related and unreimbursed
expenditures for real estate property taxes or for property restoration,
preservation or insurance against casualty loss or damage.
LIQUIDATION PROCEEDS: Proceeds (including Insurance Proceeds
but not including amounts drawn under the Note Insurance Policy) received in
connection with the liquidation of any Mortgage Loan or related REO Property,
whether through trustee's sale, foreclosure sale or otherwise.
LOAN YEAR: With respect to any Mortgage Loan, the one year
period commencing on the day succeeding the origination of such Mortgage Loan
and ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.
LONDON BUSINESS DAY: Any day on which banks in the City of
London, England are open and conducting transactions in United States dollars.
LOST NOTE AFFIDAVIT: With respect to any Mortgage Loan as to
which the original Mortgage Note has been permanently lost or destroyed and has
not been replaced, an affidavit from the Seller certifying that the original
Mortgage Note has been lost, misplaced or destroyed (together with a copy of the
related Mortgage Note).
MASTER SERVICER: _______________________, a __________
corporation, and its successors and assigns.
MASTER SERVICING FEE: With respect to each Mortgage Loan and
any Payment Date the product of (i) the Master Servicing Fee Rate divided by 12
and (ii) the Principal Balance of such Mortgage Loans as of such date.
MASTER SERVICING FEE RATE: With respect to each Mortgage Loan,
____% per annum.
MAXIMUM NOTE INTEREST RATE: With respect to any Payment Date,
the per annum rate equal to the fraction, expressed as a percentage, the
numerator of which is (i) an amount equal to (A) 1/12 of the aggregate Principal
Balance of the then outstanding Mortgage Loans times the weighted average of the
Expense Adjusted Maximum Mortgage Rates on the then outstanding Mortgage Loans
minus (B) the Administrative Fee for such Payment Date, and the denominator of
which is (ii) an amount equal to (A) the aggregate Note Principal Balance of the
Notes multiplied by (B) the actual number of days elapsed in the related
Interest Period divided by 360.
MAXIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the maximum Mortgage Rate.
MINIMUM MORTGAGE RATE: With respect to each Adjustable Rate
Mortgage Loan, the minimum Mortgage Rate.
MINIMUM SPREAD: ____% per annum.
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MONTHLY PAYMENT: With respect to any Mortgage Loan (including
any REO Property) and any Due Date, the payment of principal and interest due
thereon in accordance with the amortization schedule at the time applicable
thereto (after adjustment, if any, for partial Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).
MOODY'S: Moody's Investors Service, Inc. or its successor in
interest.
MORTGAGE: The mortgage, deed of trust or other instrument
creating a first or second lien on an estate in fee simple interest in real
property securing a Mortgage Loan.
MORTGAGE FILE: The file containing the Related Documents
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to the Mortgage Loan Purchase
Agreement or the Servicing Agreement.
MORTGAGE LOAN PURCHASE AGREEMENT: The Mortgage Loan Purchase
Agreement, dated as of the Cut-Off Date, between the Seller, as seller, and the
Purchaser, as purchaser, with respect to the Mortgage Loans, dated as of ______
1, _____.
MORTGAGE LOAN SCHEDULE: With respect to any date, the schedule
of Mortgage Loans held by the Issuer on such date. The initial schedule of
Mortgage Loans as of the Cut-Off Date is the schedule set forth in Exhibit A of
the Servicing Agreement, which schedule sets forth as to each Mortgage Loan
(i) the loan number and name of the Mortgagor;
(ii) the street address, city, state and zip code of the
Mortgaged Property;
(iii) the Mortgage Rate;
(iv) the Maximum Rate;
(v) the maturity date;
(vi) the original principal balance;
(vii) the first payment date;
(viii) the type of Mortgaged Property;
(ix) the Monthly Payment in effect as of the Cut-Off Date;
(x) the Cut-off Date Principal Balance;
(xi) the occupancy status;
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(xii) the purpose of the Mortgage Loan;
(xiii) the Appraised Value of the Mortgaged Property;
(xiv) the original term to maturity;
(xv) the paid-through date of the Mortgage Loan;
(xvi) the Loan-to-Value Ratio; and
(xvii) whether or not the Mortgage Loan was underwritten
pursuant to a limited documentation program.
The Mortgage Loan Schedule shall also set forth the total of
the amounts described under (ix) above for all of the Mortgage Loans.
MORTGAGE LOANS: At any time, collectively, all Mortgage Loans
that have been sold to the Depositor under the Mortgage Loan Purchase Agreement
or substituted for pursuant to Section 2.1 and 3.1 of the Mortgage Loan Purchase
Agreement and transferred and conveyed to the Issuer, in each case together with
the Related Documents, and that remain subject to the terms thereof.
MORTGAGE NOTE: The note or other evidence of the indebtedness
of a Mortgagor under a Mortgage Loan.
MORTGAGE RATE: With respect to any Mortgage Loan, the annual
rate at which interest accrues on such Mortgage Loan.
MORTGAGED PROPERTY: The underlying property, including real
property and improvements thereon, securing a Mortgage Loan.
MORTGAGOR: The obligor or obligors under a Mortgage Note.
NET LIQUIDATION PROCEEDS: With respect to any Liquidated
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
NET MONTHLY EXCESS CASHFLOW: For any Payment Date, the amount
of Available Funds and any Insured Payment remaining after distributions
pursuant to clauses (i) through (iii) of Section 3.05 of the Indenture (minus
any Insured Payment and any Subordination Reduction Amount).
NET MORTGAGE RATE: With respect to any Mortgage Loan and any
day, the related Mortgage Rate less the sum of the related Servicing Fee Rate,
the Administrative Fee Rate and the Indenture Trustee Fee Rate.
NONRECOVERABLE ADVANCE: Any advance (i) which was previously
made or is proposed to be made by the Master Servicer; and (ii) which, in the
good faith judgment of the Master
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Servicer, will not or, in the case of a proposed advance, would not, be
ultimately recoverable by the Master Servicer from Liquidation Proceeds,
Insurance Proceeds or future payments on any Mortgage Loan.
NOTE INSURANCE POLICY: The bond guaranty insurance policy
number ____, issued by the Note Insurer to the Indenture Trustee for the benefit
of the Noteholders.
NOTE INSURER: _______________, a ________- insurance company,
any successor thereto or any replacement bond insurer substituted pursuant to
Section 3.29 of the Indenture.
NOTE INSURER DEFAULT: The existence and continuance of any of
the following: (a) a failure by the Note Insurer to make a payment required
under the Note Insurance Policy in accordance with its terms; or (b)(i) the Note
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the Bankruptcy Code or any other similar federal or
state law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the Bankruptcy Code or
any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization which is final and nonappealable;
or (ii) a court of competent jurisdiction, the New York Department of Insurance
or other competent regulatory authority enters a final and nonappealable order,
judgment or decree (A) appointing a custodian, trustee, agent or receiver for
the Note Insurer or for all or any material portion of its property or (B)
authorizing the taking of possession by a custodian, trustee, agent or receiver
of the Note Insurer (or the taking of possession of all or any material portion
of the property of the Note Insurer).
NOTE INTEREST RATE: With respect to each Payment Date after
the first Payment Date, a floating rate equal to the lesser of (i) with respect
to each Payment Date up to and including the Payment Date in _________ _____,
One-Month LIBOR plus ____%, and with respect to each Payment Date thereafter,
One-Month LIBOR plus ____% and (ii) the Available Funds Interest Rate with
respect to such Payment Date. The Note Interest Rate for the first Payment Date
will equal ____% per annum.
NOTE OWNER: The Beneficial Owner of a Note.
NOTE PERCENTAGE: With respect to any Payment Date and any
Note, the ratio expressed as a percentage of the Note Principal Balance of such
Note to the aggregate Note Principal Balance of all Notes immediately prior to
such Payment Date.
NOTE PRINCIPAL BALANCE: With respect to any Note, the initial
Note Principal Balance thereof minus all amounts distributed in respect of
principal with respect to such Note.
NOTE REGISTER: The register maintained by the Note Registrar
in which the Note Registrar shall provide for the registration of Notes and of
transfers and exchanges of Notes.
NOTE REGISTRAR: The Indenture Trustee, in its capacity as Note
Registrar.
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NOTEHOLDER: The Person in whose name a Note is registered in
the Note Register, except that, any Note registered in the name of the
Depositor, the Issuer or the Indenture Trustee or any Affiliate of any of them
shall be deemed not to be outstanding and the registered holder will not be
considered a Noteholder or holder for purposes of giving any request, demand,
authorization, direction, notice, consent or waiver under the Indenture or the
Trust Agreement provided that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, de mand, authorization,
direction, notice, consent or waiver, only Notes that the Indenture Trustee or
the Owner Trustee knows to be so owned shall be so disregarded. Owners of Notes
that have been pledged in good faith may be regarded as Holders if the pledgee
establishes to the satisfaction of the Indenture Trustee or the Owner Trustee
the pledgee's right so to act with respect to such Notes and that the pledgee is
not the Issuer, any other obligor upon the Notes or any Affiliate of any of the
foregoing Persons. Any bonds on which payments are made under the Note Insurance
Policy shall be deemed Outstanding until the Note Insurer has been reimbursed
with respect thereto and the Note Insurer shall be deemed the Noteholder thereof
to the extent of such unreimbursed payment.
NOTES: The Notes designated as the "Notes" in the Indenture.
OFFICER'S CERTIFICATE: With respect to the Master Servicer, a
certificate signed by the President, Managing Director, a Director, a Vice
President or an Assistant Vice President, of the Master Servicer and delivered
to the Indenture Trustee. With respect to the Issuer, a certificate signed by
any Authorized Officer of the Issuer, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 10.01 of the
Indenture, and delivered to the Indenture Trustee. Unless otherwise specified,
any reference in the Indenture to an Officer's Certificate shall be to an
Officer's Certificate of any Authorized Officer of the Issuer.
ONE-MONTH LIBOR: With respect to any Interest Period, the rate
determined by the Indenture Trustee on the related Interest Determination Date
on the basis of the offered rates of the Reference Banks for one-month United
States dollar deposits, as such rates appear on the Reuters Screen LIBO Page, as
of 11:00 a.m. (London time) on such Interest Determination Date. On each
Interest Determination Date, One-Month LIBOR for the related Interest Period
will be established by the Indenture Trustee as follows:
(i) If on such Interest Determination Date two or more
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the arithmetic mean of such offered quotations
(rounded upwards if necessary to the nearest whole
multiple of 1/16%).
(ii) If on such Interest Determination Date fewer than two
Reference Banks provide such offered quotations,
One-Month LIBOR for the related Interest Period shall
be the higher of (i) One-Month LIBOR as determined on
the previous Interest Determination Date and (ii) the
Reserve Interest Rate.
OPINION OF COUNSEL: A written opinion of counsel acceptable to
Note Insurer who may be in-house counsel for the Master Servicer if acceptable
to the Indenture Trustee, the Note Insurer and the Rating Agencies or counsel
for the Depositor, as the case may be.
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ORIGINAL SPECIFIED SUBORDINATION AMOUNT: An amount equal to
____% of the aggregate Principal Balance of the Mortgage Loans as of the Cut-Off
Date.
ORIGINAL VALUE: Except in the case of a refinance Mortgage
Loan, the lesser of the Appraised Value or sales price of Mortgaged Property at
the time a Mortgage Loan is closed, and for a refinance Mortgage Loan, the
Original Value is the value of such property set forth in an appraisal
acceptable to the Master Servicer.
OUTSTANDING: With respect to the Notes, as of the date of
determination, all Notes theretofore executed, authenticated and delivered under
this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Indenture Trustee for cancellation; and
(ii) Notes in exchange for or in lieu of which other
Notes have been executed, authenticated and delivered pursuant to the
Indenture unless proof satisfactory to the Indenture Trustee is
presented that any such Notes are held by a holder in due course;
all Notes that have been paid with funds provided under the Note Insurance
Policy shall be deemed to be Outstanding until the Note Insurer has been
reimbursed with respect thereto.
OWNER TRUST : The Ameriquest Trust Series ____-__ to be
created pursuant to the Trust Agreement.
OWNER TRUST ESTATE: The corpus of the Issuer created by the
Trust Agreement which consists of items in Section 2.01 of the Trust Agreement.
OWNER TRUSTEE: ________________________ and its successors and
assigns or any successor owner trustee appointed pursuant to the terms of the
Trust Agreement.
OWNER TRUSTEE FEE:
OWNER TRUSTEE FEE RATE: ______% per annum.
PAYING AGENT: Any paying agent or co-paying agent appointed
pursuant to Section 3.03 of the Indenture, which initially shall be the
Indenture Trustee.
PAYMENT ACCOUNT: The account established by the Indenture
Trustee pursuant to Section 8.02 of the Indenture and Section 4.03 of the
Servicing Agreement. The Payment Account shall be an Eligible Account.
PAYMENT DATE: The [25th] day of each month, or if such day is
not a Business Day, then the next Business Day.
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PERCENTAGE INTEREST: With respect to any Note, the percentage
obtained by dividing the Note Principal Balance of such Note by the aggregate of
the Note Principal Balances of all Notes.
With respect to any Certificate, the percentage on the face thereof.
PERSON: Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
POOL BALANCE: With respect to any date, the aggregate of the
Principal Balances of all Mortgage Loans as of such date.
PREFERENCE AMOUNT: Any amount previously distributed to an
Owner on the Notes that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
PREMIUM AMOUNT: The amount of premium due to the Note Insurer
in accordance with the terms of the Insurance Agreement.
PREPAYMENT INTEREST SHORTFALL: As to any Payment Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Net Mortgage Rate on the Principal Balance of such
Mortgage Loan over the amount of interest (adjusted to the Net Mortgage Rate)
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Prepayment during the prior calendar month,
an amount equal to interest accrued during the related Prepayment Period at the
Net Mortgage Rate on the amount of such partial Prepayment.
PREPAYMENT PERIOD: As to any Payment Date, the calendar month
preceding the month of distribution.
PRIMARY INSURANCE POLICY: Each primary policy of mortgage
guaranty insurance issued by a Qualified Insurer or any replacement policy
therefor.
PRINCIPAL BALANCE: With respect to any Mortgage Loan or
related REO Property, at any given time, (i) the Cut-off Date Principal Balance
of the Mortgage Loan, minus (ii) the sum of (a) the principal portion of the
Monthly Payments due with respect to such Mortgage Loan or REO Property during
each Due Period ending prior to the most recent Payment Date which were received
or with respect to which an Advance was made, and (b) all Principal Prepayments
with respect to such Mortgage Loan or REO Property, and all Insurance Proceeds,
Liquidation Proceeds and REO Proceeds, to the extent applied by the Master
Servicer as recoveries of principal in accordance with the Servicing Agreement
with respect to such Mortgage Loan or REO Property, and (c) any Realized Loss
with respect thereto for any previous Payment Date.
PRINCIPAL PAYMENT AMOUNT: With respect to any Payment Date (a)
other than the Final Scheduled Payment Date, and the first Payment Date
following any acceleration of the Notes
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following an Event of Default, the lesser of (a) the sum of the Available Funds
remaining after distributions pursuant to clause (i) of Section 3.05 of the
Indenture and any portion of any Insured Payment for such Payment Date
representing a Subordination Deficit and (b) the sum of:
(1) the principal portion of all Monthly Payments
received during the related Due Period or advanced on
each Mortgage Loan;
(2) the Principal Balance of any Mortgage Loan
repurchased during the related Prepayment Period (or
deemed to have been so repurchased) pursuant to the
Mortgage Loan Purchase Agreement or Section 3.18 of
the Servicing Agreement and the amount of any
Substitution Adjustment Amounts during the related
Prepayment Period;
(3) the principal portion of all other unscheduled
collections (including, without limitation, Principal
Prepayments in full, partial Prepayments, Insurance
Proceeds, Liquidation Proceeds and REO Proceeds)
received during the related Prepayment Period to the
extent applied by the Master Servicer as payments or
recoveries of principal of the related Mortgage Loan;
(4) any Insured Payment made with respect to any
Subordination Deficit; and
MINUS
(5) the amount of any Subordination Reduction Amount
for such Payment Date;
and (b) with respect to the Final Scheduled Payment Date, and the first Payment
Date following any acceleration of the Notes following an Event of Default, the
amount necessary to reduce the Note Principal Balance to zero.
PRINCIPAL PREPAYMENT: Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing
scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment.
PROCEEDING: Any suit in equity, action at law or other
judicial or administrative proceeding.
PURCHASE PRICE: The meaning specified in Section 2.2(a) of the
Mortgage Loan Purchase Agreement.
PURCHASER: _______________________, a ________ corporation,
and its successors and assigns.
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QUALIFIED INSURER: A mortgage guaranty insurance company duly
qualified as such under the laws of the state of its principal place of business
and each state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed in such
states to transact a mortgage guaranty insurance business in such states and to
write the insurance provided by the insurance policy issued by it, approved as
an insurer by the Master Servicer and as a FNMA-approved mortgage insurer.
RATING AGENCY: Any nationally recognized statistical rating
organization, or its successor, that rated the Notes at the request of the
Depositor at the time of the initial issuance of the Notes. Initially, Moody's
or Standard & Poor's. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Note Insurer
so long as no Note Insurer Default exists, notice of which designation shall be
given to the Indenture Trustee. References herein to the highest short term
unsecured rating category of a Rating Agency shall mean A-1 or better in the
case of Standard & Poor's and P-1 or better in the case of Moody's and in the
case of any other Rating Agency shall mean such equivalent ratings. References
herein to the highest long-term rating category of a Rating Agency shall mean
"AAA" in the case of Standard & Poor's and "Aaa" in the case of Moody's and in
the case of any other Rating Agency, such equivalent rating.
REALIZED LOSS: With respect to each Mortgage Loan (or REO
Property) as to which a Cash Liquidation or REO Disposition has occurred, an
amount (not less than zero) equal to (i) the Principal Balance of the Mortgage
Loan (or REO Property) as of the date of Cash Liquidation or REO Disposition,
plus (ii) interest (and REO Imputed Interest, if any) at the Net Mortgage Rate
from the Due Date as to which interest was last paid or advanced to Noteholders
up to the last day of the month in which the Cash Liquidation (or REO
Disposition) occurred on the Principal Balance of such Mortgage Loan (or REO
Property) outstanding during each Due Period that such interest was not paid or
advanced, minus (iii) the proceeds, if any, received during the month in which
such Cash Liquidation (or REO Disposition) occurred, to the extent applied as
recoveries of interest at the Net Mortgage Rate and to principal of the Mortgage
Loan, net of the portion thereof reimbursable to the Master Servicer or any
Subservicer with respect to related Advances or expenses as to which the Master
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
object of a Debt Service Reduction, the amount of such Debt Service Reduction.
RECORD DATE: With respect to the Notes and any Payment Date,
the last day of the calendar month preceding such Payment Date.
REFERENCE BANKS: Bankers Trust Company, Barclay's Bank PLC,
The Bank of Tokyo and National Westminster Bank PLC and their successors in
interest; PROVIDED that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Indenture Trustee
which are engaged in transactions in Eurodollar deposits in the international
Eurocurrency market (i) with an established place of business in London, (ii)
not controlling, under the control of or under common control with the Company
or any Affiliate thereof, (iii) whose
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quotations appear on the Reuters Screen LIBO Page on the relevant Interest
Determination Date and (iv) which have been designated as such by the Indenture
Trustee.
REGISTERED HOLDER: The Person in whose name a Note is
registered in the Note Register on the applicable Record Date.
RELATED DOCUMENTS: With respect to each Mortgage Loan, the
documents specified in Section 2.1(b) of the Mortgage Loan Purchase Agreement
and any documents required to be added to such documents pursuant to the
Mortgage Loan Purchase Agreement, the Trust Agreement, Indenture or the
Servicing Agreement.
RELIEF ACT: The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
RELIEF ACT SHORTFALL: For any Payment Date, As to any Payment
Date and any Mortgage Loan (other than a Mortgage Loan relating to an REO
Property) any shortfalls relating to the Relief Act or similar legislation or
regulations.
REO ACQUISITION: The acquisition by the Master Servicer on
behalf of the Indenture Trustee for the benefit of the Noteholders of any REO
Property pursuant to Section 3.13 of the Servicing Agreement.
REO DISPOSITION: As to any REO Property, a determination by
the Master Servicer that it has received substantially all Insurance Proceeds,
Liquidation Proceeds, REO Proceeds and other payments and recoveries (including
proceeds of a final sale) which the Master Servicer expects to be finally
recoverable from the sale or other disposition of the REO Property.
REO IMPUTED INTEREST: As to any REO Property, for any period,
an amount equivalent to interest (at the Net Mortgage Rate that would have been
applicable to the related Mortgage Loan had it been outstanding) on the unpaid
principal balance of the Mortgage Loan as of the date of acquisition thereof for
such period.
REO PROCEEDS: Proceeds, net of expenses, received in respect
of any REO Property (including, without limitation, proceeds from the rental of
the related Mortgaged Property) which proceeds are required to be deposited into
the Collection Account only upon the related REO Disposition.
REO PROPERTY: A Mortgaged Property that is acquired by the
Issuer in foreclosure or by deed in lieu of foreclosure.
REPURCHASE EVENT: With respect to any Mortgage Loan, either
(i) a discovery that, as of the Closing Date the related Mortgage was not a
valid lien on the related Mortgaged Property subject only to (A) the lien of any
prior mortgage indicated on the Mortgage Loan Schedule, (B) the lien of real
property taxes and assessments not yet due and payable, (C) covenants,
conditions, and restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage and such other
permissible title exceptions as are permitted and (D) other matters to which
like properties are commonly subject which do not materially adversely affect
the value,
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use, enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.
REPURCHASE PRICE: With respect to any Mortgage Loan required
to be repurchased on any date pursuant to the Mortgage Loan Purchase Agreement
or purchased by the Master Servicer pursuant to the Servicing Agreement, an
amount equal to the sum, without duplication, of (i) 100% of the Principal
Balance thereof (without reduction for any amounts charged off) and (ii) unpaid
accrued interest at the Mortgage Rate on the outstanding principal balance
thereof from the Due Date to which interest was last paid by the Mortgagor to
the first day of the month following the month of purchase plus (iii) the amount
of Advances and any unreimbursed Servicing Advances or unreimbursed Advances
made with respect to such Mortgage Loan plus (iv) any other amounts owed to the
Master Servicer or the Subservicer pursuant to Section 3.07 of the Servicing
Agreement not included in clause (iii) of this definition.
REQUIRED SUBORDINATION AMOUNT: [With respect to any Payment
Date occurring from the initial Payment Date and ending on the later of (i) the
date on which the aggregate Principal Balance of the Mortgage Loans is 50% of
the initial aggregate Principal Balance of the Mortgage Loans and (ii) the 30th
Payment Date, the greater of:
(a) the Original Specified Subordination Amount; and
(b) two times the excess of (1) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (2) two times the
current Net Monthly Excess Cash Flow for such Payment Date; and
with respect to any Payment Date thereafter, the greatest of:
(a) the lesser of (1) the Original Specified Subordination Amount and
(2) two times ____% times the aggregate Note Principal Balance as of such
Payment Date;
(b) two times the excess of (A) 50% of the aggregate Principal Balance
of the Mortgage Loans which are 91 or more days delinquent (including Mortgage
Loans in foreclosure and REO Properties) as of such date over (B) two times the
current Net Monthly Excess Cash Flow for such Payment Date;
(c) 0.5% of the Cut-Off Date Principal Balance of the Mortgage Loans;
and
(d) an amount equal to the outstanding balance of the four largest
Mortgage Loans as of the Cut-Off Date;]
PROVIDED, HOWEVER, that if (x) a Servicer Default has occurred and is continuing
as of such Payment Date, and such Servicer Default has not been waived by the
Note Insurer or (y) a claim has been
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made on the Note Insurance Policy by the Indenture Trustee, the Required
Subordination Amount shall not decrease on any Payment Date.
RESERVE INTEREST RATE: With respect to any Interest
Determination Date, the rate per annum that the Indenture Trustee determines to
be either (i) the arithmetic mean (rounded upwards if necessary to the nearest
whole multiple of 1/16%) of the three-month United States dollar lending rates
which New York City banks selected by the Indenture Trustee are quoting on the
relevant Interest Determination Date to the principal London offices of leading
banks in the London interbank market or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the lowest three-month United
States dollar lending rate which New York City banks selected by the Indenture
Trustee are quoting on such Interest Determination Date to leading European
banks.
RESPONSIBLE OFFICER: With respect to the Indenture Trustee,
any officer of the Indenture Trustee with direct responsibility for the
administration of the Trust Agreement and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
SECURITIES ACT: The Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
SECURITY: Any of the Certificates or Notes.
SECURITYHOLDER or HOLDER: Any Noteholder or a
Certificateholder.
SECURITY INSTRUMENT: A written instrument creating a valid
first lien on a Mortgaged Property securing a Mortgage Note, which may be any
applicable form of mortgage, deed of trust, deed to secure debt or security
deed, including any riders or addenda thereto.
SELLER: _______________________, a __________ corporation, and
its successors and assigns.
SERVICING ACCOUNT: The separate trust account created and
maintained by the Master Servicer or each Subservicer with respect to the
Mortgage Loans or REO Property, which shall be an Eligible Account, for
collection of taxes, assessments, insurance premiums and comparable items as
described in Section 3.08 of the Servicing Agreement.
SERVICING ADVANCES: All customary, reasonable and necessary
"out of pocket" costs and expenses incurred in connection with a default,
delinquency or other unanticipated event in the performance by the Master
Servicer of its servicing obligations, including, without duplication, but not
limited to, the cost of (i) the preservation, restoration and protection of a
Mortgaged Property, (ii) any enforcement or judicial proceedings, including
foreclosures, (iii) the management and liquidation of any REO Property and (iv)
compliance with the obligations under Sections 3.10, 3.11, 3.13 of the Servicing
Agreement.
SERVICING AGREEMENT: The Servicing Agreement dated as of
______ 1, ____, between the Master Servicer and the Issuer.
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SERVICING CERTIFICATE: A certificate completed and executed by
a Servicing Officer on behalf of the Master Servicer in accordance with Section
4.01 of the Servicing Agreement.
SERVICING DEFAULT: The meaning assigned in Section 6.01 of the
Servicing Agreement.
SERVICING FEE: With respect to any Mortgage Loan, the sum of
the related Master Servicing Fee and the related Subservicing Fee.
SERVICING FEE RATE: With respect to any Mortgage Loan, the sum
of the related Master Servicing Fee Rate and the Subservicing Fee Rate.
SERVICING OFFICER: Any officer of the Master Servicer involved
in, or responsible for, the administration and servicing of the Mortgage Loans
whose name and specimen signature appear on a list of servicing officers
furnished to the Indenture Trustee (with a copy to the Note Insurer) by the
Master Servicer, as such list may be amended from time to time.
SINGLE NOTE: A Note in the amount of $_________.
STANDARD & POOR'S: Standard & Poor's Ratings Service, or its
successor in interest.
SUBORDINATION AMOUNT: As of any Payment Date, the excess, if
any, of (x) the sum of the aggregate Principal Balances of the Mortgage Loans as
of the close of business on the last day of the related Due Period as of such
Payment Date over (y) the Note Principal Balance of the Notes as of such Payment
Date (and following the making of all distributions on such Payment Date)
SUBORDINATION DEFICIT: With respect to any Payment Date, the
amount, if any, by which (x) the aggregate Note Principal Balance of the Notes
as of such Payment Date, and following the making of all distributions to be
made on such Payment Date (except for any payment to be made as to principal
from proceeds of the Note Insurance Policy), exceeds (y) the aggregate Principal
Balances of the Mortgage Loans as of the close of business on the preceding Due
Date on such Payment Date.
SUBORDINATION INCREASE AMOUNT: With respect to any Payment
Date, the amount of any Net Monthly Excess Cashflow (including any Subordination
Reduction Amount) available in the Payment Account to increase the Subordination
Amount up to the Required Subordination Amount.
SUBORDINATION REDUCTION AMOUNT: With respect to any Payment
Date, an amount equal to the lesser of (a) the Excess Subordination Amount and
(b) the principal collections received by the Master Servicer with respect to
the prior Due Period.
SUBSERVICER: Any Person with whom the Master Servicer has
entered into a Subservicing Agreement as a Subservicer by the Master Servicer
and acceptable to the Note Insurer and the Indenture Trustee, including the
Initial Subservicers.
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SUBSERVICING ACCOUNT: An Eligible Account established or
maintained by a Sub servicer as provided for in Section 3.06(e) of the Servicing
Agreement.
SUBSERVICING AGREEMENT: The written contract between the
Master Servicer and any Subservicer relating to servicing and administration of
certain Mortgage Loans as provided in Section 3.02 of the Servicing Agreement.
SUBSERVICING FEE: With respect to each Mortgage Loan and any
date of determina tion, the product of (i) the Subservicing Fee Rate divided by
12 and (ii) the Principal Balance of such Mortgage Loans as of such date.
SUBSERVICING FEE RATE: For any date of determination, ____%
per annum.
SUBSTITUTION ADJUSTMENT AMOUNT: With respect to any Eligible
Substitute Mortgage Loan, the amount as defined in Section 2.03 of the Servicing
Agreement.
TELERATE SCREEN PAGE 3750: The display designated as page 3750
on the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying One-Month LIBOR or comparable rates as may be
selected by the Issuer after consultation with the Indenture Trustee), the rate
will be the Reference Bank Rate.
TREASURY REGULATIONS: Regulations, including proposed or
temporary Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
TRUST AGREEMENT: The Trust Agreement dated as of ______ 1,
_____ between the Owner Trustee and the Depositor.
TRUST ESTATE: The meaning specified in the Granting Clause of
the Indenture.
TRUST INDENTURE ACT OR TIA: The Trust Indenture Act of 1939,
as amended from time to time, as in effect on any relevant date.
UCC: The Uniform Commercial Code, as amended from time to
time, as in effect in any specified jurisdiction.
WEIGHTED AVERAGE NET MORTGAGE RATE: With respect to the
Mortgage Loans in the aggregate, and any Due Date, the average of the Net
Mortgage Rate for each Mortgage Loan as of the last day of the related Due
Period weighted on the basis of the related Principal Balances out standing as
of the last day of the related Due Period for each Mortgage Loan as determined
by the Master Servicer in accordance with the Master Servicer's normal servicing
procedures.
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EXHIBIT 5.1, 8.1 and 23.1
January 11, 2000
Ameriquest Mortgage Securities Inc.
1100 Town & Country Road
Orange, California 92868
Ameriquest Mortgage Securities Inc.
Mortgage Pass-Through Certificates and
Mortgage-Backed Notes
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We are counsel to Ameriquest Mortgage Securities Inc., a Delaware
corporation (the "Registrant"), in connection with the registration under the
Securities Act of 1933, as amended (the "1933 Act"), of Mortgage Pass-Through
Certificates (the "Certificates") and Mortgage-Backed Notes (the "Notes";
collectively with the Certificates, the "Securities"), and the related
preparation and filing of a Registration Statement on Form S-3 (the
"Registration Statement"). The Certificates are issuable in series under
separate pooling and servicing agreements (each such agreement, a "Pooling and
Servicing Agreement") among the Registrant and a master servicer and a trustee
to be identified in the prospectus supplement for such series of Certificates.
Each Pooling and Servicing Agreement will be substantially in one of the forms
filed as Exhibits to the Registration Statement. The Notes are issuable in
series under separate indentures (each such indenture, an "Indenture"), between
an indenture trustee and an issuer to be formed, each to be identified in the
prospectus supplement for such series of Notes. Each Indenture will be
substantially in the form filed as an Exhibit to the Registration Statement.
In rendering this opinion letter, as to relevant factual matters we
have examined the documents described above and such other documents as we have
deemed necessary including, where we have deemed appropriate, representations or
certifications of officers of parties thereto or public officials. In rendering
this opinion letter, except for the matters that are specifically addressed in
the opinions expressed below, we have assumed (i) the authenticity of all
documents submitted to us as originals or as copies thereof, and the conformity
to the originals of all documents submitted to us as copies, (ii) the necessary
entity formation and continuing existence in the jurisdiction of formation, and
the necessary licensing and qualification in all jurisdictions, of all parties
to all documents, (iii) the necessary authorization, execution, delivery and
enforceability of all documents, and the necessary entity power with respect
thereto, and (iv) that there is not any other agreement that modifies or
supplements the agreements expressed in any document to which this opinion
letter relates and that renders any of the opinions expressed below inconsistent
with such document as so
<PAGE>
Ameriquest Mortgage Securities Inc. Page 2.
January 11, 2000
modified or supplemented. In rendering this opinion letter, we have made no
inquiry, have conducted no investigation and assume no responsibility with
respect to (a) the accuracy of and compliance by the parties thereto with the
representations, warranties and covenants as to factual matters contained in any
document or (b) the conformity of the underlying assets and related documents to
the requirements of any agreement to which this opinion letter relates.
The opinions expressed below with respect to the enforceability of any
right or obligation under any agreement are subject to (i) general principles of
equity, including concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance and injunctive
relief, regardless of whether considered in a proceeding in equity or at law,
(ii) the effect of certain laws, regulations and judicial and other decisions
upon the availability and enforceability of certain remedies including the
remedies of specific performance and self-help and provisions purporting to
waive the obligation of good faith, materiality, fair dealing, diligence,
reasonableness or objection to venue or forum, to confer subject matter
jurisdiction on a federal court located within the State of New York to
adjudicate any controversy in any situation in which such court would not
otherwise have subject matter jurisdiction, to waive the right to jury trial, to
impose a penalty or forfeiture, to release, exculpate or exempt a party from or
require indemnification of a party for liability for its own action or inaction
to the extent that the action or inaction includes negligence, recklessness or
willful or unlawful conduct, to sever any provision of any agreement, to
restrict access to legal or equitable remedies, to establish evidentiary
standards, to appoint any person or entity as the attorney-in-fact of any other
person or entity, to require that any agreement may only be amended, modified or
waived in writing, to provide that all rights or remedies of any party are
cumulative and may be enforced in addition to any other right or remedy, to
provide that the election of a particular remedy does not preclude recourse to
one or more remedies, to provide that the failure to exercise or the delay in
exercising rights or remedies will not operate as a waiver of any such rights or
remedies, to waive rights or remedies which can not be waived as a matter of
law, to provide for set-off unless there is mutuality between the parties or to
provide that any agreement is to be governed by or construed in accordance with
the laws of any jurisdiction other than the State of New York, (iii) bankruptcy,
insolvency, receivership, reorganization, liquidation, voidable preference,
fraudulent conveyance and transfer, moratorium and other similar laws affecting
the rights of creditors or secured parties and (iv) public policy considerations
underlying the securities laws, to the extent that such public policy
considerations limit the enforceability of any provision of any agreement which
purports or is construed to provide indemnification with respect to securities
law violations. We do not express any opinion herein with respect to any law the
violation of which would not have any material adverse effect on the ability of
any party to perform its obligations under any agreement. However, the
non-enforceability of any such provisions will not, taken as a whole, materially
interfere with the practical realization of the benefits of the rights and
remedies included in any such agreement which is the subject of any opinion
expressed below, except for the considerations referred to in foregoing clause
(iv) and the consequences of any judicial, administrative, procedural or other
delay which may be imposed by, relate to or arise from applicable laws,
equitable principles and interpretations thereof.
In rendering this opinion letter, we do not express any opinion
concerning any laws other than the federal laws of the United States, the laws
of the State of New York and the State of Delaware.
<PAGE>
Ameriquest Mortgage Securities Inc. Page 3.
January 11, 2000
We do not express any opinion with respect to the securities laws of any
jurisdiction or any other matter not specifically addressed in the opinions
expressed below.
Based upon and subject to the foregoing, it is our opinion that:
1. Each Pooling and Servicing Agreement, assuming the
authorization, execution and delivery thereof by the parties
thereto, will be a valid and legally binding agreement under
the laws of the State of New York, enforceable thereunder
against the parties thereto in accordance with its terms.
2. Each Indenture, assuming the authorization, execution and
delivery thereof by the parties thereto, will be a valid and
legally binding agreement under the laws of the State of New
York, enforceable thereunder against the parties thereto in
accordance with its terms.
3. Each series of Certificates, assuming the authorization,
execution and delivery of the related Pooling and Servicing
Agreement, the execution and authentication of such
Certificates in accordance with that Pooling and Servicing
Agreement and the delivery thereof and payment therefor as
contemplated in the Registration Statement and in the
prospectus and prospectus supplement delivered in connection
with such Certificates, will be legally and validly issued and
outstanding, fully paid and non-assessable and entitled to the
benefits of that Pooling and Servicing Agreement.
4. Each series of Notes, assuming the authorization, execution
and authentication thereof in accordance with the related
Indenture and the delivery thereof and payment therefor as
contemplated in the Registration Statement and in the
prospectus and prospectus supplement delivered in connection
with such Notes, will be legally and validly issued and
outstanding, fully paid and non-assessable and entitled to the
benefits of that Indenture.
5. The description of federal income tax consequences appearing
under the heading "Federal Income Tax Consequences" in the
prospectus contained in the Registration Statement, discusses
the material federal income tax consequences of an investment
in the Securities, is accurate with respect to those tax
consequences which are discussed and we hereby adopt and
confirm that description as our opinion.
<PAGE>
Ameriquest Mortgage Securities Inc. Page 4.
January 11, 2000
We hereby consent to the filing of this opinion letter as an Exhibit to
the Registration Statement, and to the use of our name in the prospectus and
prospectus supplement included in the Registration Statement under the headings
"Federal Income Tax Consequences" and "Legal Matters", without admitting that we
are "persons" within the meaning of Section 7(a) or 11(a)(4) of the 1933 Act, or
"experts" within the meaning of Section 11 thereof, with respect to any portion
of the Registration Statement.
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ Francis X. Sulger
---------------------
Name: Francis X. Sulger
Title: Partner
EXHIBIT 24.1
AMERIQUEST MORTGAGE SECURITIES INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each other director and the President,
each Executive Vice President, the Secretary and Treasurer of Ameriquest
Mortgage Securities Inc. as his true and lawful attorney-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (including his capacity as director
and/or officer of Ameriquest Mortgage Securities Inc.), to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form S-3, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming that said attorney-in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
SIGNATURE TITLE DATE
/s/ Aseem Mital Director and President January 10, 2000
- ------------------------
Aseem Mital
/s/ John P. Grazer Director and Treasurer January 10, 2000
- ------------------------
John P. Grazer
/s/ Andrew L. Stidd Director January 10, 2000
- ------------------------
Andrew L. Stidd
