<PAGE>
[LOGO]
This filing is made under Registration Statement No. 333-85443 pursuant
to rule 424(b)(5).
Prospectus supplement dated December 20, 2000
(to prospectus dated October 12, 1999)
$267,613,760
ABN AMRO MORTGAGE CORPORATION
DEPOSITOR
ABN AMRO MORTGAGE GROUP, INC.
SERVICER
MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-4
The trust will hold one pool of conventional, fixed-rate first lien residential
mortgage loans.
The trust will issue these classes of certificates that are offered under this
prospectus supplement:
12 classes of senior certificates
4 classes of subordinated certificates
Credit enhancement for all of these certificates will be provided by additional
subordination.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON
PAGE S-11 IN THIS PROSPECTUS SUPPLEMENT.
Lehman Brothers Inc. and ABN AMRO Incorporated will offer 12 classes of senior
certificates and 4 classes of subordinated certificates to the public at varying
prices to be determined at the time of sale. From the sale of the offered
certificates, ABN AMRO Mortgage Corporation will receive their principal amount,
plus any accrued interest, less expenses.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THE OFFERED
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. ANY CONTRARY REPRESENTATION IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------------
LEHMAN BROTHERS ABN AMRO INCORPORATED
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
Summary......................... S-1
Offered Certificates.......... S-1
Components.................... S-1
Residual Class................ S-3
Book-Entry Registration....... S-3
The Mortgage Pool............. S-3
Subordination and Allocation
of Losses................... S-4
Credit Enhancement............ S-4
Optional Termination.......... S-4
Federal Income Tax
Treatment................... S-4
Legal Investment.............. S-5
ERISA Considerations.......... S-5
Available Distribution
Amount...................... S-5
Amounts Allocated to
Interest.................... S-5
Interest Only Certificates and
Components.................. S-6
Principal Only Component...... S-7
Accrual and Accretion Directed
Certificates and
Component................... S-7
PAC Certificates and
Components.................. S-7
TAC Certificates and
Components.................. S-8
Allocation of Principal Cash
Flows....................... S-8
Risk Factors.................... S-11
Prepayments on the mortgage
loans may affect the yield
on your certificates........ S-11
Losses and delinquent payments
on the mortgage loans may
affect the return on your
certificate................. S-13
The Subordinate certificates
are especially sensitive to
losses on the mortgage
loans....................... S-14
It may not be possible to find
an investor to purchase your
certificates................ S-14
The concentration of mortgage
loans with certain
characteristics may change
over time, which may affect
the timing and amount of
payments on your
certificates................ S-15
Payments from the mortgage
loans are the sole source of
payments on your
certificates................ S-15
The return on your
certificates may be
particularly sensitive to
changes in the real estate
markets in certain
geographical areas.......... S-15
The Class R Certificate has
tax implications that are
different from the other
certificates................ S-16
Factors that reduce
collections could cause
early repayment, delayed
payment or reduced payment
on the certificates......... S-17
The bankruptcy or insolvency
of the Servicer could
further delay or reduce
payments to you............. S-18
Attempted recharacterization
of the transfer from ABN
AMRO Mortgage Group, Inc. to
the Depositor and from the
Depositor to the trust could
delay or reduce payments to
you......................... S-18
The Trust....................... S-20
Description of the Mortgage
Pool.......................... S-20
General....................... S-20
Additional Information........ S-23
Description of the
Certificates.................. S-23
General....................... S-23
Book-Entry Registration....... S-24
Definitive Certificates....... S-25
Transfer Restrictions......... S-26
Available Distribution
Amount...................... S-26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Advances...................... S-27
Glossary of Definitions
Relating to the Priority of
Distributions............... S-27
Priority of Distributions..... S-33
Subordination and Allocation
of Losses................... S-37
The Class R Certificate....... S-39
Last Scheduled Distribution
Date........................ S-40
Optional Termination.......... S-40
Servicing....................... S-41
Delinquency and Foreclosure
Experience of ABN AMRO
Mortgage Group, Inc.,
Compensation and Payment of
Expenses.................... S-41
Special Servicing
Agreements.................. S-43
Prepayment and Yield
Considerations................ S-43
General....................... S-43
Principal Prepayments and
Compensating Interest....... S-44
The Subordinate
Certificates................ S-45
Rate of Payments.............. S-45
Special Sensitivities......... S-46
Prepayment Speed Assumption
and Modeling Assumptions.... S-46
Yield Considerations of the
Interest Only Certificates,
Interest Only Components and
Principal Only Component.... S-48
Additional Yield
Considerations Applicable
Solely to the Class R
Certificate................. S-51
Additional Information........ S-51
Legal Aspects of the Mortgage
Loans under California Law.... S-51
Federal Income Tax
Consequences.................. S-51
New Withholding Regulations... S-53
Special Tax Considerations
Applicable to the Residual
Certificate................. S-53
Legal Investment Aspects........ S-56
ERISA Considerations............ S-57
Underwriter's PTE............. S-57
Method of Distribution.......... S-59
Legal Matters................... S-59
Certificate Ratings............. S-60
INDEX OF SIGNIFICANT
DEFINITIONS................... S-61
APPENDIX A -- Planned Principal
Balance Table................. A-1
APPENDIX B -- Targeted Principal
Balance Table................. B-1
APPENDIX C -- Declining Balance
Tables........................ C-1
APPENDIX D -- Loan
Information................... D-1
</TABLE>
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
------------------------------------------------
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
We describe the offered certificates in two separate documents that
progressively provide more detail: (1) the accompanying prospectus, which
provides general information, some of which may not apply to this series of
certificates; and (2) this prospectus supplement, which describes the specific
terms of this series of securities and may be different from the information in
the prospectus.
IF THE DESCRIPTION OF THE TERMS OF THE CERTIFICATES VARIES BETWEEN THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THIS PROSPECTUS SUPPLEMENT.
We include cross-references in this prospectus supplement and in the
accompanying prospectus to captions in these materials where you can find
further related discussions. The preceding Table of Contents and the Table of
Contents included in the accompanying prospectus provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption 'Index of Significant
Definitions' in this prospectus supplement and under the caption 'Index to
Prospectus Definitions' in the accompanying prospectus.
------------------------------------------------
i
<PAGE>
THE SERIES 2000-4 MULTI-CLASS MORTGAGE PASS-THROUGH CERTIFICATES
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL
OR NOTIONAL INTEREST
CLASS AMOUNT(1) PRINCIPAL TYPE(2) RATE
-------------------------------------------------------------------------
<S> <C> <C> <C>
OFFERED CERTIFICATES:
A-1 $ 15,300,000 Senior/PAC 6.50%
A-2 75,000,000 Senior/PAC 6.85%
A-3 15,000,000 Senior/PAC 6.60%
A-4 11,177,419 Senior/PAC/Notional 7.75%
A-5 5,787,096 Senior/TAC/Notional 7.75%
A-6 74,700,000 Senior/TAC/Accretion 7.00%
Directed
A-7 44,603,660 Component (5)
A-7-1 5,100,000 Senior/PAC 7.75%
A-7-2 2,225,806 Senior/PAC/Notional 7.75%
A-7-3 3,216,129 Senior/TAC/Notional 7.75%
A-7-4 38,000,000 Senior/TAC/Accrual/ 7.75%
Accretion Directed
A-7-5 5,672,255 Senior/Notional 7.75%
A-7-6 1,503,660 Senior/PO 0.00%
A-8 4,973,000 Senior/Accrual/ 7.75%
Accretion Directed
A-9 3,600,000 Senior/Accrual/ 7.75%
Accretion Directed
A-10 25,000,000 Senior/TAC/Accretion 7.20%
Directed
A-X 2,620,515 Senior/Notional 7.75%
M 5,123,000 Senior Subordinate 7.25%
B-X 426,193 Senior Subordinate/Notional 7.75%
B-1 2,966,000 Senior Subordinate 7.50%
B-2 1,348,000 Senior Subordinate 7.75%
R 100 Senior/Residual 7.75%
Total Offered:(6) $267,613,760
NON-OFFERED CERTIFICATES:(7)
B-3 808,000 Junior Subordinate 7.75%
B-4 539,000 Junior Subordinate 7.75%
B-5 676,114 Junior Subordinate 7.75%
Total Non-Offered: $ 2,023,114
Total:(6) $269,636,874
<CAPTION>
LAST
STANDARD & SCHEDULED
POOR'S FITCH DISTRIBUTION
CLASS INTEREST TYPE(2) RATING(3) RATING(3) DATE(4)
<S> <C> <C> <C> <C>
OFFERED CERTIFICATES:
A-1 Fixed AAA AAA 1/25/2031
A-2 Fixed AAA AAA 1/25/2031
A-3 Fixed AAA AAA 1/25/2031
A-4 Fixed/IO AAA AAA 1/25/2031
A-5 Fixed/IO AAA AAA 1/25/2031
A-6 Fixed AAA AAA 1/25/2031
A-7 Component AAA AAA 1/25/2031
A-7-1 Fixed -- -- 1/25/2031
A-7-2 Fixed/IO -- -- 1/25/2031
A-7-3 Fixed/IO -- -- 1/25/2031
A-7-4 Fixed -- -- 1/25/2031
A-7-5 Fixed/IO -- -- 1/25/2031
A-7-6 PO -- -- 1/25/2031
A-8 Fixed AAA AAA 1/25/2031
A-9 Fixed AAA AAA 1/25/2031
A-10 Fixed AAA AAA 1/25/2031
A-X Fixed/IO AAA AAA 1/25/2031
M Fixed -- AA 1/25/2031
B-X Fixed/IO -- A 1/25/2031
B-1 Fixed -- A 1/25/2031
B-2 Fixed -- BBB 1/25/2031
R Fixed AAA AAA 1/25/2031
Total Offered:(6)
NON-OFFERED CERTIF
B-3 Fixed -- BB 1/25/2031
B-4 Fixed -- B 1/25/2031
B-5 Fixed -- -- 1/25/2031
Total Non-Offered:
Total:(6)
</TABLE>
(1) These amounts are approximate. They are subject to an upward or
downward adjustment of no more than 5%, depending on the total
principal amount of the mortgage loans delivered at closing. Amount
is 'notional' if so indicated under principal type.
(2) See pages S-6, S-7 and S-8 in this prospectus supplement for a more
complete description of the principal types and interest types.
(3) See 'Certificate Ratings' in this prospectus supplement.
(4) The actual final payment to any class of certificates could be
significantly earlier.
(5) The Class A-7 certificates will be composed of six components having
the characteristics described in the table above.
(6) Excludes notional balances.
(7) The information presented for the non-offered certificates is
provided solely to assist the reader's understanding of the offered
certificates.
ii
<PAGE>
SUMMARY
This summary highlights selected information from this document and does not
contain all of the information that you need to consider in making your
investment decision. To understand the terms of the certificates, carefully read
this entire document and the accompanying prospectus.
<TABLE>
<S> <C> <C> <C> <C>
TITLE OF Multi-Class Mortgage Pass-
SERIES: Through Certificates
Series 2000-4
DEPOSITOR: ABN AMRO Mortgage Corporation
181 West Madison Street
Chicago, Illinois 60602
(312) 904-0800
SELLER: ABN AMRO Mortgage
Group, Inc.
2600 West Big Beaver Road
Troy, Michigan 48084
(800) 783-8900
SERVICER: ABN AMRO Mortgage
Group, Inc.
TRUSTEE: The Chase Manhattan Bank
DISTRIBUTION The 25th day of each month,
DATES: beginning in January 2001. If
the 25th day is not a
business day, then the
distribution date will be the
next business day.
CUT-OFF DATE: December 1, 2000
CLOSING DATE: On or about December 21, 2000
UNDERWRITERS: Lehman Brothers Inc.
ABN AMRO Incorporated
</TABLE>
OFFERED CERTIFICATES
The Trustee will issue the certificates under a Pooling and Servicing
Agreement dated as of the Cut-Off Date among ABN AMRO Mortgage Corporation, as
depositor, The Chase Manhattan Bank, as trustee, and ABN AMRO Mortgage Group,
Inc., as servicer.
The certificates will represent all of the beneficial ownership interest in
the trust. ABN AMRO Mortgage Corporation will deposit the mortgage loans
composing the pool into the trust.
Sometimes we refer to the certificates and components by their principal or
interest types. Since some classes of certificates and some components have the
characteristics of more than one category, they appear more than once in the
categories presented in the applicable chart on the following page.
COMPONENTS
The Class A-7 certificates will be composed of six components each having a
specified component principal balance or component notional amount which
functions in a similar manner to that of a class principal balance or class
notional amount. Holders of the Class A-7 certificates may not transfer these
components separately.
S-1
<PAGE>
CERTIFICATE AND COMPONENT TYPES
<TABLE>
CERTIFICATE TYPES
<S> <C> <C> <C> <C>
Class A Certificates: A-1, A-2, A-3, A-4,
A-5, A-6, A-7, A-8,
A-9, A-10 and A-X
Subordinate M, B-X, B-1, B-2, B-3,
Certificates: B-4 and B-5
Senior Subordinate M, B-X, B-1 and B-2
Certificates:
Junior Subordinate B-3, B-4 and B-5
Certificates:
Residual Certificate: R
Senior Certificates: A and R
Book-Entry A and Senior
Certificates: Subordinate
PAC Certificates: A-1, A-2, A-3 and A-4
TAC Certificates: A-5, A-6 and A-10
Accrual Certificates: A-8 and A-9
Accretion Directed A-6, A-8, A-9 and A-10
Certificates:
Interest Only A-4, A-5, A-X and B-X
Certificates:
<CAPTION>
COMPONENT TYPES
Senior Components: A-7-1, A-7-2, A-7-3,
A-7-4, A-7-5 and A-7-6
PAC Components: A-7-1 and A-7-2
TAC Components: A-7-3 and A-7-4
Interest Only A-7-2, A-7-3 and A-7-5
Components:
Principal Only A-7-6
Component:
Accrual Component: A-7-4
Accretion Directed A-7-4
Component:
</TABLE>
S-2
<PAGE>
RESIDUAL CLASS
The Class R certificate, having a principal amount of $100 and an interest
rate of 7.75%, will consist of:
Component R-1, representing the residual interest in REMIC I.
Component R-2, representing the residual interest in REMIC II.
BOOK-ENTRY REGISTRATION
The offered certificates (other than the Class R certificate) will be
available only in book-entry form through the facilities of the Depository Trust
Company, except under limited circumstances. See 'Description of the
Certificates -- Book-Entry Registration'.
THE MORTGAGE POOL
The mortgage pool will consist of conventional fixed rate residential
mortgage loans secured by first liens on one- to four-family residential
properties. ABN AMRO Mortgage Corporation expects the mortgage loans to have the
following characteristics:
SELECTED MORTGAGE POOL DATA AS OF DECEMBER 1, 2000
<TABLE>
<CAPTION>
RANGE OR TOTAL WEIGHTED AVERAGE
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Number of Mortgage Loans 701 --
Aggregate Unpaid Principal Balance $269,636,874(1) --
Unpaid Principal Balances $221,412 - 999,346(1) $384,646(2)
Interest Rates 7.375% - 9.125% 8.195%
Remaining Terms to Stated Maturity 356 - 360 358
Loan Age 0 - 4 2
Original Loan-to-Value Ratio 30.31 - 95.00 75.46
FICO Scores 592 - 810 724
Geographic Concentration of Mortgaged Properties in Excess 37.26% CA --
of 5% of the Aggregate Unpaid Principal Balance 11.41% MI
7.21% IL
6.40% NY
5.18% TX
Maximum Five-Digit Zip Code Concentration 1.01% --
</TABLE>
(1) Approximate
(2) Average
Before the issuance of the offered certificates, we may remove mortgage
loans from the mortgage pool. We may also substitute new mortgage loans for
certain mortgage loans in the mortgage pool. This may result in changes in the
mortgage pool characteristics shown above and could affect the weighted average
lives and yields of the certificates.
S-3
<PAGE>
SUBORDINATION AND ALLOCATION OF LOSSES
The certificates shown in the second column in the table below will be
subordinated in their right to receive interest and principal payments. They
will bear all realized losses on the mortgage loans before the certificates
shown on the same line in the first column, with limited exceptions for certain
types of losses. The support provided by the certificates shown in the second
column is intended to enhance the likelihood that the certificates shown in the
first column will receive expected monthly payments of interest and principal.
<TABLE>
<CAPTION>
INITIAL SUPPORT
CLASS(ES) CREDIT SUPPORT PERCENTAGE(1)
<S> <C> <C>
--------------------------------------------------------
SENIOR Senior Subordinate and 4.25%
Junior Subordinate
--------------------------------------------------------
M B-X, B-1, B-2 and Junior 2.35%
Subordinate
--------------------------------------------------------
B-X AND B-2 and Junior 1.25%
B-1 Subordinate
--------------------------------------------------------
B-2 Junior Subordinate 0.75%
--------------------------------------------------------
</TABLE>
(1) IN EACH ROW, THE INITIAL CERTIFICATE PRINCIPAL BALANCE OF THE CERTIFICATES
LISTED UNDER 'CREDIT SUPPORT' AS A PERCENTAGE OF THE BALANCE OF THE MORTGAGE
POOL, AS OF THE CUT-OFF DATE.
CREDIT ENHANCEMENT
The Trustee will allocate mortgage loan prepayments among the classes of
certificates in a manner that will enhance the likelihood that investors in the
Senior certificates will be paid in full the amount of principal to which they
are entitled. During the first five years, the Trustee will generally allocate
all of the principal prepayments to the Senior certificates. Then, over the
following four years, the allocation of principal prepayments to the Senior
certificates will decrease as the Trustee begins to allocate an increasingly
larger portion of principal prepayments to the Subordinate certificates, until
the January 2010 distribution date when the Trustee will allocate principal
prepayments proportionately between the Senior and Subordinate certificates if
certain tests are met.
OPTIONAL TERMINATION
If the total outstanding principal balance of all the mortgage loans on any
distribution date is less than 10% of their total outstanding principal balance
as of the Cut-Off Date, the Depositor may repurchase the mortgage loans, but is
not required to. If the Depositor does repurchase the mortgage loans, the
outstanding certificate principal balance of the certificates will be paid in
full together with accrued interest.
FEDERAL INCOME TAX TREATMENT
The offered certificates, other than the Class R certificate, will represent
ownership of REMIC regular interests. For federal income tax purposes, these
offered certificates will be treated as ownership of debt. Certificateholders
must include in income all interest and any original issue discount on such
offered certificates in accordance with the accrual method of accounting, even
if the certificateholder is otherwise a cash method taxpayer.
Certain classes of offered certificates will be treated as having been
issued with original issue discount; certain other classes of offered
certificates may be so treated. The prepayment assumption that will be used in
determining the rate of accrual of original issue discount and market discount
or premium (if any) for federal income tax purposes is 250% PSA. No
representation is made that the mortgage loans will prepay at any given
percentage of PSA.
The Class R certificate will likely constitute 'non-economic' residual
S-4
<PAGE>
interests under the REMIC rules. The taxation of the Class R certificate is very
complex and may entail significant adverse tax consequences. Also, transfers of
the Class R certificate are restricted. See 'Federal Income Tax Consequences' in
this prospectus supplement and the prospectus.
LEGAL INVESTMENT
At the time of their issuance, the offered certificates (except the
Class B-X, Class B-1 and Class B-2 certificates) will constitute
'mortgage-related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984. Investors should consult their own legal counsel in
determining the extent to which the offered certificates constitute legal
investments for them. See 'Legal Investment Aspects'.
ERISA CONSIDERATIONS
In general, the offered certificates will be eligible for purchase by
retirement plans subject to ERISA. Investors should consult with their legal
counsel with respect to the consequences under ERISA and the Internal Revenue
Code of the plan's acquisition and ownership of the certificates.
Any investor in the offered certificates will be deemed to make certain
representations. See 'ERISA Considerations.'
AVAILABLE DISTRIBUTION AMOUNT
On any distribution date, interest and principal distributions will
generally be made only up to the 'AVAILABLE DISTRIBUTION AMOUNT' calculated for
that distribution date which generally includes the following amounts net of
servicing fees:
amounts received on the mortgage loans for scheduled principal and interest
payments due on the first day of the month (including advances received from
the Servicer);
full and partial prepayments received on the mortgage loans in the preceding
calendar month (including compensating interest received from the Servicer);
and
any other unscheduled amounts received in respect of the mortgage loans,
including liquidation proceeds, in the preceding calendar month.
AMOUNTS ALLOCATED TO INTEREST
On each distribution date, for each class of certificates (or components of
the Class A-7 certificates) entitled to interest, interest will accrue in an
amount determined by the following formula:
<TABLE>
<S> <C> <C> <C> <C>
1/12 of the the related the pro rata share
applicable interest class allocated to such
rate for each class x principal or - class (or component)
(or component) notional of any prepayment
balance for interest shortfalls
each class not covered by
(or compensating
component) interest and certain
losses attributable
to interest
</TABLE>
Interest to be distributed on each class of interest bearing certificates
will include accrued but unpaid interest from prior distribution dates (together
with interest thereon at the applicable rate), but only up to the Available
Distribution Amount. The Senior certificates' claim to interest payments will
take priority over the Subordinate certificates' claim to both interest and
principal payments. The claim to interest payments of each class of Subordinate
certificates will take priority over the claim to both interest and principal
payments of any class which is subordinated to it.
S-5
<PAGE>
INTEREST ONLY CERTIFICATES AND COMPONENTS
The Class A-4, Class A-5, Class A-X and Class B-X certificates are 'INTEREST
ONLY' certificates and Components A-7-2, A-7-3 and A-7-5 of the Class A-7
certificates are 'INTEREST ONLY' components. This means that the Trustee will
distribute interest (based upon their related notional amounts) but will not
distribute principal to investors in the Class A-4, Class A-5, Class A-X or
Class B-X certificates or the Class A-7 certificates (to the extent of
Components A-7-2, A-7-3 and A-7-5).
On each distribution date, the Class A-4 notional amount will be equal to
the sum of:
approximately 16.1290322581% of the certificate principal balance of the
Class A-1 certificates
+
approximately 11.6129032258% of the certificate principal balance of the
Class A-2 certificates.
On each distribution date, the Class A-5 notional amount will be equal to
the sum of:
approximately 6.4516129032% of the certificate principal balance of the
Class A-6 certificates
+
approximately 3.8709677419% of the certificate principal balance of the
Class A-10 certificates.
On each distribution date, the Class B-X notional amount will be equal to
the sum of:
approximately 6.4516129032% of the certificate principal balance of the
Class M certificates
+
approximately 3.2258064516% of the certificate principal balance of the
Class B-1 certificates.
On each distribution date, the Class A-X notional amount will be equal to
the total principal balance of the mortgage loans having interest rates, after
deducting the servicer's fee of 0.25% ('PASS-THROUGH RATES'), greater than 7.75%
multiplied by 31.600% of the following fraction:
Weighted Average
Pass-Through Rate
for all such loans minus 7.75%
------------------------------
7.75%
On each distribution date, the Component A-7-2 notional amount will be equal
to approximately 14.8387096774% of the certificate principal balance of the
Class A-3 certificates.
On each distribution date, the Component A-7-3 notional amount will be equal
to the sum of:
approximately 3.2258064516% of the certificate principal balance of the
Class A-6 certificates
+
approximately 3.2258064516% of the certificate principal balance of the
Class A-10 certificates.
On each distribution date, the Component A-7-5 notional amount will be equal
to the total principal balance of the mortgage loans having Pass-Through Rates
greater than 7.75% multiplied by 68.400% of the following fraction:
S-6
<PAGE>
Weighted Average
Pass-Through Rate
for all such loans minus 7.75%
-----------------------------
7.75%
PRINCIPAL ONLY COMPONENT
Component A-7-6 of the Class A-7 certificates is a 'PRINCIPAL ONLY'
component. This means that the Trustee will not distribute interest to investors
in the Class A-7 certificates (to the extent of Component A-7-6).
The Trustee will distribute a fixed portion of the principal payments
received in respect of mortgage loans having Pass-Through Rates less than 7.75%
to investors in the Class A-7 certificates (to the extent of Component A-7-6).
This portion is determined based on the following fraction as to each such
mortgage loan:
7.75% minus the
Pass-Through Rate on such mortgage loan
---------------------------------------
7.75%
ACCRUAL AND ACCRETION DIRECTED CERTIFICATES AND COMPONENT
The Class A-8 and A-9 certificates are 'ACCRUAL' certificates and Component
A-7-4 of the Class A-7 certificates is an 'ACCRUAL' component. Interest accrued
on these classes and this component will be added to their principal balances
rather than distributed to the holders of these certificates and this component
on each distribution date except as described below.
The Class A-6, A-8, A-9 and A-10 certificates are 'ACCRETION DIRECTED'
certificates and Component A-7-4 of the Class A-7 certificates is an 'ACCRETION
DIRECTED' component. Each of these certificates and this component will receive
distributions of principal payable from the amounts of interest not paid to the
Accrual certificates and Accrual component.
After the principal amount of the Subordinate certificates is reduced to
zero, interest accrued on the Accrual certificates and Accrual component will be
distributed on each distribution date as interest to these certificates and
component (to the extent available) rather than added to their principal
balances.
PAC CERTIFICATES AND COMPONENTS
The Class A-1, A-2, A-3 and A-4 certificates are planned amortization
classes or 'PAC' certificates and Components A-7-1 and A-7-2 of the Class A-7
certificates are planned amortization components or 'PAC' components. If funds
are available, the Trustee will distribute principal to the holders of these
certificates (other than the Class A-4 certificates) and components (other than
Component A-7-2 of the Class A-7 certificates) up to an amount which will reduce
each certificate or component principal balance to a planned amount. The
schedule of planned principal balances for these certificates (other than the
Class A-4 certificates) and components (other than Component A-7-2 of the
Class A-7 certificates) for each distribution date are shown in Appendix A. The
Class A-4 certificates are Interest Only certificates with a notional amount
based on the certificate principal balances of the Class A-1 and Class A-2
certificates. Component A-7-2 of the Class A-7 certificates is an Interest Only
component with a notional amount based on the certificate principal balance of
the Class A-3 certificates.
S-7
<PAGE>
TAC CERTIFICATES AND COMPONENTS
The Class A-5, A-6 and A-10 certificates are targeted amortization classes
or 'TAC' certificates and Components A-7-3 and A-7-4 of the Class A-7
certificates are targeted amortization components or 'TAC' components. If funds
are available, the Trustee will distribute principal to the holders of the
Class A-6 certificates, the Class A-10 certificates, and Component A-7-4 of the
Class A-7 certificates in accordance with their schedules up to an amount which
will reduce the certificate principal balance of the Class A-6 certificates and
the Class A-10 certificates or the component principal balance of Component
A-7-4 of the Class A-7 certificates to a targeted amount. The schedules of
targeted principal balances for the Class A-6 certificates, the Class A-10
certificates and Component A-7-4 of the Class A-7 certificates for each
distribution date are shown in Appendix B. The Class A-5 certificates are
Interest Only certificates with a notional amount based on the certificate
principal balances of the Class A-6 certificates and Class A-10 certificates.
Component A-7-3 of the Class A-7 certificates is an Interest Only component with
a notional amount based on the certificate principal balances of the Class A-6
certificates and Class A-10 certificates.
ALLOCATION OF PRINCIPAL CASH FLOWS
On each distribution date, the Trustee will distribute from the Available
Distribution Amount interest and principal to investors until the certificate
principal balance or notional balance of each certificate or component has been
reduced to zero. Only certain classes and components are due principal and/or
interest on each distribution date as described in this prospectus supplement.
The calculation of the amount of interest and principal that the Trustee will
distribute is very complex. The following two charts summarize the flow of
payments.
S-8
<PAGE>
PRIORITY OF DISTRIBUTIONS PROVIDED THAT THE PRINCIPAL BALANCES OF THE
SUBORDINATE CERTIFICATES HAVE NOT BEEN REDUCED TO ZERO
<TABLE>
<S> <C>
A fixed fraction of the principal received on each mortgage
Component A-7-6 loan which has a Pass-Through Rate lower than 7.75%.
Unpaid and accrued interest pro rata based upon the amount
of interest due each class or component, provided that
Senior Certificates and interest then payable on the Accrual certificates or
Components Accrual component shall be payable as principal to the
Accretion Directed certificates and the Accretion Directed
components.
A percentage of the total principal received on each
mortgage loan (other than a fixed fraction allocated to
Component A-7-6), related to the ratio of the total
outstanding principal balance of the Senior certificates or
components to the aggregate scheduled principal balance of
Senior Certificates and the mortgage loans immediately preceding the distribution
Components (but not date (other than a fixed fraction allocated to Component
Component A-7-6) A-7-6), which may include, for a certain period of time, a
disproportionately high percentage of principal prepayments
received in respect of the mortgage loans, allocated among
the Senior certificates or components, as described in this
prospectus supplement.
An amount equal to unreimbursed losses, if any, previously
Component A-7-6 allocated to Component A-7-6 for each mortgage loan which
has a Pass-Through Rate lower than 7.75%.
Interest and then a percentage of the total principal
received on the mortgage loans (other than a fixed fraction
allocated to Component A-7-6) related to the ratio of the
total outstanding principal balance of the Subordinate
certificates to the aggregate scheduled principal balance
Subordinate of the mortgage loans immediately preceding the
Certificates distribution date (other than a fixed fraction allocated to
Component A-7-6), which may include a disproportionately
small allocation of principal prepayments on the mortgage
loans for a certain period of time, to be distributed as
follows:
Class M accrued and unpaid interest, then principal
Class B-X accrued and unpaid interest
Class B-1 accrued and unpaid interest, then principal
Class B-2 accrued and unpaid interest, then principal
Class B-3 accrued and unpaid interest, then principal
Class B-4 accrued and unpaid interest, then principal
Class B-5 accrued and unpaid interest, then principal
To each class or component of Senior certificates and
Senior Certificates and components and Subordinate certificates in the order of
Components and their seniority, the amount of unreimbursed losses
Subordinate Certificates previously allocated to each class or component.
The remainder of the Available Distribution Amount, which
Class R Certificate is expected to be zero.
</TABLE>
S-9
<PAGE>
PRIORITY OF DISTRIBUTIONS IN THE EVENT THAT THE PRINCIPAL BALANCES OF THE
SUBORDINATE CERTIFICATES HAVE BEEN REDUCED TO ZERO
<TABLE>
<S> <C>
A fixed fraction of the principal received on each mortgage
Component A-7-6 loan which has a Pass-Through Rate lower than 7.75%.
Senior Certificates and Unpaid and accrued interest pro rata based upon the amount
Components of interest due each class or component.
Senior Certificates and The total principal received (other than the fixed fraction
Components (but not allocated to Component A-7-6) pro rata to each class or
Component A-7-6) component.
The amount of unreimbursed losses previously allocated to
Senior Certificates and each class or component, pro rata to each class or
Components component.
The remainder of the Available Distribution Amount, which
Class R Certificate is expected to be zero.
</TABLE>
S-10
<PAGE>
RISK FACTORS
The offered certificates may not be suitable investments for you. In
particular, you should not purchase certificates of any class unless you
understand and are able to bear the prepayment, credit, liquidity, and market
risks associated with that class. Holders of the Class A-7 certificates may not
transfer the components of this class separately.
The certificates are complex securities. You should possess, either alone or
together with an investment advisor, the expertise necessary to evaluate the
information contained in this prospectus supplement and the prospectus in the
context of your financial situation.
The yield of each class will depend upon the price you paid for your
certificates and the rate of principal payments on the mortgage loans (including
prepayments, defaults and liquidations) as well as the actual characteristics of
the mortgage loans. The mortgage loans may be prepaid at any time without
penalty. Mortgage prepayment rates are likely to fluctuate significantly from
time to time. You should consider the associated risks, including the following:
<TABLE>
<S> <C>
PREPAYMENTS ON THE MORTGAGE LOANS MAY AFFECT If the mortgage loans are prepaid at a
THE YIELD ON YOUR CERTIFICATES. fast rate, this may reduce the yields of
any classes of certificates,
especially any certificate purchased
at a premium over its principal
balances.
If the mortgage loans which have Pass-
Through Rates higher than 7.75% per
annum are prepaid at a fast rate, this
may reduce the yield of the Class A-X
certificates and the Class A-7
certificates to the extent of
Component A-7-5 and investors in these
certificates may not fully recoup
their investments.
If the mortgage loans are prepaid at a
slow rate, this may reduce the yields of
any classes of Senior certificates
(except for the Class A-4, Class A-5,
Class A-X and for the Class B-X
certificates and the Class A-7
certificates to the extent of
Components A-7-2, A-7-3 and A-7-5 ) or
any Subordinate certificates purchased
at a discount to their principal
balances.
If the mortgage loans which have Pass-
Through Rates less than 7.75% per
annum are prepaid at a slow rate, this
may reduce the yield of the Class A-7
certificates to the extent of
Component A-7-6.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
The Accrual certificates and Accrual
component will be especially sensitive
to the rate of payment of principal
(including prepayments, defaults and
liquidations) on the mortgage loans.
The Accretion Directed certificates and
Accretion Directed component may
amortize more quickly because the
Trustee will distribute interest
accrued on the Accrual certificates
and Accrual component as principal to
the Accretion Directed certificates
and Accretion Directed component that
would otherwise be payable as interest
to the Accrual certificates and
Accrual component for a period of
time.
Any time your principal is repaid to you
at a time when you did not expect to
receive it, you may not be able to
reinvest your funds at the same or a
higher rate of return than the
interest rate on your certificates.
If the actual characteristics and
behavior of the mortgage loans differ
from what you assumed, it can have a
significant effect on the weighted
average lives and yields of the
related classes of certificates.
The rate of principal payments on pools
of mortgage loans varies among pools and
from time to time is influenced by a
variety of economic, demographic,
geographic, social, tax, legal and
other factors, including prevailing
mortgage market interest rates and the
particular terms of the mortgage
loans. There is no guarantee as to the
actual rate of prepayment on the
mortgage loans, or that the rate of
prepayment will conform to any model
described in this prospectus
supplement or in the prospectus. See
'Prepayment and Yield Considerations'
in this prospectus supplement and
'Prepayment, Yield and Maturity
Considerations' in the prospectus.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
LOSSES AND DELINQUENT PAYMENTS ON THE If, as a result of losses on liquidated
MORTGAGE LOANS MAY AFFECT THE RETURN ON YOUR mortgage loans, the certificate
CERTIFICATE. principal balance of the Junior
Subordinate certificates is reduced to
zero, the yield on each class of the
Senior Subordinate certificates will
be extremely sensitive to losses on
the mortgage loans. If, as a result of
losses, the certificate principal
balance of the Senior Subordinate and
Junior Subordinate certificates is
reduced to zero, the yield on each
class of the Senior certificates that
is still outstanding will be extremely
sensitive to losses.
Delinquencies that are not covered by
amounts advanced by the Servicer
(because the Servicer believes the
amounts, if advanced, would not be
recoverable) will adversely affect the
yield on the Junior Subordinate
certificates, the Senior Subordinate
certificates and the Senior
certificates in that order. Because of
the priority of distributions,
shortfalls resulting from
delinquencies will be borne first by
the Junior Subordinate certificates,
second by the Senior Subordinate
certificates, each in the reverse
order of their seniority, and third,
pro rata, by the Senior certificates.
The yield on the Subordinate
certificates, in decreasing order of
their seniority, will be progressively
more sensitive to the rate and timing
of defaults and the severity of losses
on the mortgage loans. In general,
losses on the mortgage loans and the
resulting reduction in principal
balance will mean that less interest
will accrue than would otherwise be
the case. The earlier a loss and
resulting reduction in principal
balance occurs, the greater the effect
on an investor's yield. The yield on
the Subordinate certificates will also
be affected by the disproportionate
allocations of principal prepayments
and in some cases, liquidation
proceeds, to the Senior certificates,
net interest shortfalls, and other
cash shortfalls in available funds.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
THE SUBORDINATE CERTIFICATES ARE ESPECIALLY Investors who purchase Subordinate
SENSITIVE TO LOSSES ON THE MORTGAGE LOANS. certificates will not receive
distributions of interest and principal
on any given distribution date until
after the Senior certificates and
classes of more senior Subordinate
certificates receive their
distributions of interest and
principal. The Subordinate
certificates will bear losses and
delinquencies in reverse order of
their priority. Depending upon the
timing of defaults and severity of
losses, investors may realize a lower
expected return on their investment
than they originally anticipated. It
may also take longer for investors
holding Subordinate certificates to
realize their expected return on their
investment.
IT MAY NOT BE POSSIBLE TO FIND AN INVESTOR TO The Underwriters intend to make a market
PURCHASE YOUR CERTIFICATES. for the purchase and sale of the
offered certificates after their
initial issuance but have no
obligation to do so. There is no
assurance that such a secondary market
will develop for any class of
certificates or, if it develops, that
it will continue. Consequently,
investors may not be able to sell
their certificates readily or at
prices that will enable them to
realize their desired yield. The
market values of the certificates are
likely to fluctuate. These
fluctuations may be significant and
could result in significant losses to
investors. The secondary markets for
mortgage-backed securities have
experienced periods of illiquidity and
can be expected to do so in the
future. Illiquidity means you may not
be able to find another investor to
buy your certificates, which can have
a severely adverse effect on the
market value of your certificates.
Illiquidity is more likely for classes
that are especially sensitive to
prepayment, credit, or interest rate
risk, or that have been structured to
meet the investment requirements of
limited categories of investors.
However, any class of certificates may
experience illiquidity.
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
THE CONCENTRATION OF MORTGAGE LOANS WITH The concentration of the mortgage loans
CERTAIN CHARACTERISTICS MAY CHANGE OVER TIME, with specific characteristics relating
WHICH MAY AFFECT THE TIMING AND AMOUNT OF to the types of properties, property
PAYMENTS ON YOUR CERTIFICATES. characteristics, and geographic location
are likely to change over time.
Principal payments may affect the
concentration levels. Principal payments
could include voluntary prepayments
and prepayments resulting from
casualty or condemnation, defaults and
liquidations and from repurchases and
substitutions due to breaches of
representations and warranties.
Because principal payments on the
mortgage loans are payable to the
respective classes of Senior
certificates in varying orders of
priority, such classes that have a
later priority for principal
distributions and all of the
Subordinate certificates are more
likely to be exposed to any risks
associated with changes in
concentrations of mortgage loan or
property characteristics.
PAYMENTS FROM THE MORTGAGE LOANS ARE THE SOLE The certificates do not represent an
SOURCE OF PAYMENTS ON YOUR CERTIFICATES. interest in or obligation of the
Depositor, the Servicer, the Trustee,
the Underwriters or any of their
affiliates. However, the Depositor
does have limited obligations with
respect to certain breaches of its
representations and warranties. The
certificates are not insured by any
financial guaranty insurance policy.
No governmental agency or
instrumentality, the Depositor, the
Servicer, the Trustee, the
Underwriters nor any of their
affiliates will guarantee or insure
either the certificates or the
mortgage loans. Consequently, if
payments on the mortgage loans are
insufficient or otherwise unavailable
to make all payments required on the
certificates, you will have no
recourse to the Depositor, the
Servicer, the Trustee, the
Underwriters or any of their
affiliates.
THE RETURN ON YOUR CERTIFICATES MAY BE As of the Cut-Off Date, mortgaged
PARTICULARLY SENSITIVE TO CHANGES IN THE REAL properties located in the State of
ESTATE MARKETS IN CERTAIN GEOGRAPHICAL AREAS. California secure approximately
37.26% of all mortgage loans. If the
California residential real estate
market should experience an
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
overall decline in property values,
the rates of delinquency, foreclosure,
bankruptcy and loss on those mortgage
loans may be expected to increase, and
may increase substantially, as
compared to such rates in a stable or
improving real estate market. In
addition, approximately 11.41%, 7.21%,
6.40% and 5.18% of all the mortgage
loans are located in Michigan,
Illinois, New York and Texas,
respectively.
THE CLASS R CERTIFICATE HAS TAX IMPLICATIONS The Class R certificateholders will be
THAT ARE DIFFERENT FROM THE OTHER required to report on their federal
CERTIFICATES. income tax returns as ordinary income
their pro rata share of taxable
income of the REMIC regardless of the
amount or timing of their receipt of
cash payments. See 'Federal Income Tax
Consequences -- Qualification as a
REMIC -- Taxation of Owners of
Residual Certificates' in the
prospectus and 'Federal Income Tax
Consequences -- Special Tax
Considerations Applicable to the
Residual Certificate' in this
prospectus supplement. Accordingly,
the Class R certificateholders may
have taxable income and tax
liabilities arising from their
investment during a taxable year in
excess of the cash received during
that period which results in a
negative after-tax return. The
requirement that the Class R
certificateholders report their pro
rata share of the taxable income and
net loss of the REMIC will continue
until the class principal balances of
all classes of certificates have been
reduced to zero, even though the Class
R certificateholders have received
full payment of their stated interest
and principal. It is expected that all
or a substantial portion of the REMIC
taxable income of the Class R
certificateholders will be treated as
'excess inclusion' income to the
holder which:
will not be subject to offset by losses
from other activities;
</TABLE>
S-16
<PAGE>
<TABLE>
<S> <C>
for a tax-exempt holder, will be treated
as unrelated business taxable income;
and
for a foreign holder, will not qualify
for tax treaty rate reduction or
statutory exemption for withholding
tax.
Individual Class R certificateholders
may be limited in their ability to
deduct servicing fees and other
non-interest expenses of the REMIC.
Because of the special tax treatment
of REMIC residual interests, the
taxable income arising in a given year
on a REMIC residual interest will not
be equal to the taxable income
associated with investment in a
corporate bond or stripped instrument
having similar cash flow
characteristics and pre-tax yield.
Therefore, the after-tax yield on the
Class R certificate may be
significantly less than that of a
corporate bond or stripped instrument
having similar cash flow
characteristics. See 'Federal Income
Tax Consequences -- Qualification as a
REMIC -- Taxation of Owners of
Residual Certificates' in the
prospectus and 'Federal Income Tax
Consequences -- Special Tax
Considerations Applicable to the
Residual Certificate' in this
prospectus supplement.
FACTORS THAT REDUCE COLLECTIONS COULD CAUSE A decline in real estate values or
EARLY REPAYMENT, DELAYED PAYMENT OR REDUCED changes in mortgage market interest
PAYMENT ON THE CERTIFICATES. rates may affect the yield on your
certificates. If the residential real
estate market in the locale of
properties securing the mortgage loans
should experience an overall decline
in property values so that the
outstanding balances of the mortgage
loans, and any secondary financing on
the mortgaged properties, become equal
to or greater than the value of
mortgaged properties, the actual rates
of delinquencies, foreclosures and
losses could be higher than those now
generally experienced in the mortgage
lending industry. To the extent that
these losses are not covered by any
applicable credit enhancement,
certificateholders will bear all risk
of loss resulting from default
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
by mortgagors. The amount of losses
will depend primarily upon the value
of the mortgaged properties for
recovery of the outstanding principal
balance and unpaid interest of the
defaulted mortgage loans.
THE BANKRUPTCY OR INSOLVENCY OF THE SERVICER If the Servicer becomes the subject of
COULD FURTHER DELAY OR REDUCE PAYMENTS TO bankruptcy or similar proceedings, the
YOU. Trustee's claim to collections in the
Servicer's possession at the time of
the bankruptcy filing or other similar
filing may not be perfected. In this
event, funds available to pay
principal and interest on your
certificates may be delayed or
reduced.
Additionally, if the Servicer defaults
on its obligations under the Pooling and
Servicing Agreement solely because it
becomes insolvent, the bankruptcy
court or other similar entity might
have the power to prevent the
appointment of a new servicer. In this
event, the ability of the Servicer to
service the receivables could be
impaired by its bankruptcy or
insolvency and its actions would be
supervised by the bankruptcy court or
other similar entity, which could
cause delays in payments being made on
your certificates.
ATTEMPTED RECHARACTERIZATION OF THE TRANSFER We expect that the transfer of the
FROM ABN AMRO MORTGAGE GROUP, INC. TO THE mortgage loans from ABN AMRO Mortgage
DEPOSITOR AND FROM THE DEPOSITOR TO THE TRUST Group, Inc., as Seller, to ABN AMRO
COULD DELAY OR REDUCE PAYMENTS TO YOU. Mortgage Corporation, and from ABN
AMRO Mortgage Corporation, as
Depositor, to the trust will each be
characterized as a sale. Each of the
Seller and the Depositor have
documented its respective transfer as
a sale. However, a bankruptcy trustee
or creditor of the Seller may take the
position that the transfer of the
mortgage loans to ABN AMRO Mortgage
Corporation should be recharacterized
as a pledge. If so, ABN AMRO Mortgage
Corporation would be required to go
through court proceedings to
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
establish its rights to collections on
the mortgage loans. Similarly, a
bankruptcy trustee or creditor of the
Depositor may take the position that
the transfer of the mortgage loans to
the trust should be recharacterized as
a pledge. If so, the Trustee would be
required to go through court
proceedings to establish its rights to
collections on the mortgage loans. If
either or both of these events occur,
payments on your certificates could be
delayed or reduced.
</TABLE>
S-19
<PAGE>
THE TRUST
The primary assets of REMIC I will consist of a pool ('MORTGAGE POOL') of
mortgage loans ('LOANS'). REMIC I will also contain (1) certain insurance
policies related to the Loans, (2) any property which secured a Loan and which
is acquired by foreclosure or by deed in lieu of foreclosure after the Cut-Off
Date, (3) amounts held in the certificate account established by the Trustee to
facilitate distributions to certificateholders (the 'CERTIFICATE ACCOUNT'), and
(4) certain other assets all as described in this prospectus supplement.
The Depositor will assign the Loans to the Trustee, together with all
principal and interest due on the Loans after the Cut-Off Date. The Trustee
will, concurrently with such assignment, authenticate and deliver the
certificates. Each Loan will be identified in a Loan schedule appearing as an
exhibit to the Pooling and Servicing Agreement which will specify with respect
to each Loan, among other things, the original principal balance and the
outstanding principal balance as of the close of business on the Cut-Off Date,
the term of the mortgage note, and the mortgage interest rate.
DESCRIPTION OF THE MORTGAGE POOL(1)
GENERAL
The Mortgage Pool will consist of Loans that have an aggregate outstanding
principal balance as of the Cut-Off Date, after deducting payments due on or
before that date, of approximately $269,636,874. Each of the Loans has an
original term to maturity of thirty (30) years. Certain of the risks of loss on
certain Loans will be covered by primary insurance policies up to specified
limits.
---------------------------
(1) The description herein of the Mortgage Pool and the mortgaged properties is
based upon the Loans at the close of business on the Cut-Off Date, after
deducting the scheduled principal payments due on or before such date, whether
or not actually received. All references herein to principal balance refer to
the principal balance as of the Cut-Off Date, unless otherwise specifically
stated or required by the context. References herein to percentages of Loans
refer in each case to the percentage of the aggregate principal balance of the
Loans, based on the outstanding principal balances of the Loans after giving
effect to scheduled monthly payments due on or before the Cut-Off Date, whether
or not received. References to weighted averages refer, in each case, to
weighted averages by principal balance as of the Cut-Off Date of the related
Loans (determined as described in the preceding sentence). Prior to the issuance
of the certificates, Loans may be removed from the Mortgage Pool as a result of
principal prepayments in full, delinquencies or otherwise. In such event, other
Loans may be included in the Mortgage Pool. The Depositor believes that the
information set forth herein with respect to the Mortgage Pool is representative
of the characteristics of the Mortgage Pool as it will actually be constituted
at the time the certificates are issued, although the range of mortgage interest
rates and certain other characteristics of the Loans in the Mortgage Pool may
vary. See ' -- Additional Information.'
S-20
<PAGE>
First deeds of trust or other similar security instruments creating first
liens on one- to four-family residential properties secure the Loans. The
mortgaged properties may include detached homes, townhouses, individual
condominium units, and individual units in planned unit developments, so long as
the property subject to the lien of the related mortgage consists of no more
than four units, and has the additional characteristics described below and in
the prospectus.
The Depositor acquired all of the Loans included in the Mortgage Pool
pursuant to a mortgage loan purchase agreement, the 'MORTGAGE LOAN PURCHASE
AGREEMENT', to be dated as of December 21, 2000, between the Seller and the
Depositor. ABN AMRO Mortgage Group, Inc., an affiliate of the Depositor,
originated 100% of the Loans pursuant to a 'full documentation' program and in
accordance with the underwriting standards described in 'The Trusts -- The
Loans -- Loan Underwriting Policies' in the prospectus.
Approximately 96.87% of the Loans have FICO Scores. The weighted average
FICO Score for the Loans that were scored is 724. 'FICO SCORES' are statistical
credit scores obtained by many mortgage lenders in connection with a loan
application to help assess a borrower's creditworthiness as of the time the
score is obtained. FICO Scores are generated by models developed by a third
party and are made available to lenders through three national credit bureaus.
The models were derived by analyzing data on consumers to establish patterns
which are believed to be indicative of the borrower's probability of default.
The FICO Score is based on a borrower's historical credit data, including, among
other things, payment history, delinquencies on accounts, levels of outstanding
indebtedness, length of credit history, types of credit, and bankruptcy
experience. FICO Scores range from approximately 250 to approximately 900, with
higher scores indicating an individual with a more favorable credit history
compared to an individual with a lower score. However, a FICO Score purports
only to be a measurement of the relative degree of risk a borrower represents to
a lender, meaning that a borrower with a higher score is statistically expected
to be less likely to default in payment than a borrower with a lower score. In
addition, it should be noted that FICO Scores were developed to indicate a level
of default probability over a two-year period, which does not correspond to the
life of a mortgage loan. Furthermore, FICO Scores were not developed
specifically for use in connection with mortgage loans, but for consumer loans
in general. Therefore, a FICO Score does not take into consideration the effect
of mortgage loan characteristics on the probability of repayment by the
borrower. The Depositor does not make any representations or warranties as to
the actual performance of any Loan or that a particular FICO Score will not
change over time or should be relied upon as a basis for an expectation that the
borrower will repay the Loan according to its terms.
The Depositor will assign the Loans to the Trustee for the ultimate benefit
of the certificateholders. The Servicer will service the Loans directly as
Servicer pursuant to the Pooling and Servicing Agreement, and will receive
compensation for such services. See 'The Pooling and Servicing
Agreement -- Assignment of Loans' in the prospectus.
Pursuant to the terms of the Mortgage Loan Purchase Agreement, the Seller
has made certain representations and warranties with respect to the Loans which
the Depositor will assign to the Trustee for the benefit of the
certificateholders. If the Seller breaches any of
S-21
<PAGE>
the representations and warranties with respect to any Loan, the Seller will be
obligated to cure such breach in all material respects or shall repurchase the
Loan or any property acquired in respect thereof.
In addition, the Depositor will make representations and warranties
regarding the Loans in the Pooling and Servicing Agreement, but its assignment
of the Loans to the Trustee will be without recourse and the Depositor's
obligations relating to the Loans will be limited to the representations and
warranties made by it and to its servicing obligations, if any, under the
Pooling and Servicing Agreement. The Servicer is required to make certain
advances of its own funds in respect of the Loans to the limited extent set
forth under 'Servicing of the Loans -- Advances' in the prospectus and
'Description of the Certificates -- Advances' in this prospectus supplement.
The representations and warranties made by the Seller under the Mortgage
Loan Purchase Agreement and, in turn, made by the Depositor under the Pooling
and Servicing Agreement, as described in the preceding paragraphs, differ from
the description of the corresponding representations and warranties in the
prospectus under the heading 'The Pooling and Servicing
Agreement -- Representations and Warranties.' In particular, the representation
and warranty regarding condominium loans described in the thirteenth bullet
point has been eliminated.
All of the Loans will have principal and interest payable on the first day
of each month, which day is called the due date. The latest original scheduled
maturity date of any Loan will be December 1, 2030. Each of the Loans will have
original terms to maturity of thirty (30) years. At origination, based upon the
lower of the purchase price paid for or the appraisal of the mortgaged property
securing each Loan had approximate loan-to-value ratios as described in the
table below.
<TABLE>
<CAPTION>
Percentage of Loans
by Principal
Approximate Loan-to-Value Ratio Balance
<S> <C>
Less than or equal to 80% 87.19%
Greater than 80%, but less than or equal to 95% 12.81%
Greater than 95% 0.00%
</TABLE>
The scheduled principal balance of a Loan as of any distribution date is the
unpaid principal balance of such Loan as specified in the amortization schedule
at the time relating thereto (before any adjustment to such schedule by reason
of bankruptcy or similar proceeding or any moratorium or similar waiver or grace
period) as of the first day of the month preceding the month of such
distribution date, after giving effect to any previously applied partial
principal prepayments, the payment of principal due on such first day of the
month and any reduction of the principal balance of such Loan by a bankruptcy
court, irrespective of any delinquency in payment by the related mortgagor.
S-22
<PAGE>
All of the Loans having loan-to-value ratios greater than approximately 80%
at origination are covered by primary mortgage insurance policies. No Loan
permits negative amortization or the deferral of accrued interest.
ADDITIONAL INFORMATION
Appendix D, attached hereto, sets forth in tabular format certain
information, as of the Cut-Off Date, with respect to the Loans.
Each mortgagor must maintain a standardized hazard insurance policy in an
amount equal to the maximum insurable value of the improvements securing such
Loan or the principal balance of such Loan, whichever is less. See 'Servicing of
the Loans -- Hazard Insurance' in the prospectus. No mortgage pool insurance
policy, special hazard insurance policy or mortgagor bankruptcy insurance will
be maintained with respect to the Mortgage Pool, nor will any Loan be insured by
the FHA or guaranteed by the VA.
The description in this prospectus supplement of the Mortgage Pool and the
mortgaged properties is based upon the Mortgage Pool, as presently constituted.
Prior to the issuance of the certificates, the Depositor may add or remove Loans
from the Mortgage Pool if it deems such addition or removal necessary or
appropriate.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Trustee will issue the certificates pursuant to a Pooling and Servicing
Agreement to be dated as of the Cut-Off Date among ABN AMRO Mortgage
Corporation, as Depositor, ABN AMRO Mortgage Group, Inc., as Servicer, and The
Chase Manhattan Bank, as Trustee, a form of which is filed as an exhibit to the
registration statement of which this prospectus supplement is a part. Reference
is made to the prospectus for important additional information regarding the
terms and conditions of the Pooling and Servicing Agreement and the
certificates. It is a condition to the issuance of the offered certificates that
they receive the ratings from one or more of Standard & Poor's, a division of
the McGraw Hill Companies, Inc. ('S&P') and Fitch, Inc. ('FITCH') indicated
under 'Certificate Ratings'. As of the date of their issuance, the offered
certificates, other than the Class B-X, Class B-1 and Class B-2 certificates,
will qualify as 'mortgage related securities' within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984.
The Servicer will be obligated to make advances with respect to delinquent
payments on the Loans as described under ' -- Advances'.
The certificates, other than the Class R certificate, will evidence all the
beneficial ownership in a trust called REMIC II established by the Depositor to
hold the regular interests of REMIC I into which the mortgage loans will be
deposited.
Only the Senior certificates and Senior Subordinate certificates are offered
hereby. The Junior Subordinate certificates are not offered hereby. The class
principal balance for any class of certificates (other than the Interest Only
certificates) or component principal
S-23
<PAGE>
balance for any component of the Class A-7 certificates (other than the Interest
Only components) will equal the aggregate amount of principal to which such
class or component is entitled, after giving effect to prior (1) distributions
of principal to such class or component, (2) adjustments for accrued interest
added to principal on the Accrual certificates and Accrual component and
(3) allocations of losses required to be borne by such class or component.
Notwithstanding the foregoing, the class principal balance of the most
subordinate class of certificates outstanding at any time is equal to the
aggregate principal balance of all of the Loans less the class principal balance
of all other classes of certificates senior to such certificates. As used in
this prospectus supplement, the principal balance of a class means the class
principal balance thereof and the component principal balance of a component
means the component principal balance thereof.
The certificate principal balance for any certificate will be the portion of
the corresponding class principal balance represented by such certificate. The
aggregate initial certificate principal balance will be approximately equal to
the aggregate principal balance of the Loans as of the Cut-Off Date. The offered
certificates (other than the Class R certificate) are offered in minimum
denominations equivalent to at least $25,000 initial certificate principal
balance each and multiples of $1 in excess thereof. The Class R certificate will
be offered in registered, certificated form in a single denomination of a 100%
percentage interest. Holders of the Class A-7 certificates may not transfer the
components thereof separately.
BOOK-ENTRY REGISTRATION
A global certificate registered in the name of the nominee of The Depository
Trust Company, or DTC, will initially represent each class of Book-Entry
certificates. DTC has advised the Depositor that DTC's nominee will be Cede &
Co. ('CEDE'). Accordingly, Cede is expected to be the holder of record of the
Book-Entry certificates. Unless the events described in ' -- Definitive
Certificates' have occurred, the Trustee will not issue the certificates in
fully registered, certificated form as 'DEFINITIVE CERTIFICATES.'
Unless and until the Trustee issues Definitive Certificates, all references
in this prospectus supplement to actions by Book-Entry certificateholders shall
refer to actions taken by DTC upon instructions from DTC participants. Further,
all references in this prospectus supplement to distributions, notices, reports,
and statements to Book-Entry certificateholders shall refer to distributions,
notices, reports, and statements to Cede, as the registered holder of the
certificates, for distribution to Book-Entry certificateholders in accordance
with DTC procedures.
Unless the Trustee issues Definitive Certificates, certificateholders will
receive all distributions of principal and interest on the Book-Entry
certificates through DTC participants. Under a book-entry format,
certificateholders will receive payments after the related distribution date
because, while payments are required to be forwarded to Cede, as nominee for
DTC, on each distribution date, DTC will forward such payments to DTC
participants which thereafter will be required to forward them to indirect DTC
participants or certificateholders. It is anticipated that the sole
'Certificateholder' (as such term is used in the Pooling and Servicing
Agreement) for each class of Book-Entry certificates will be
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<PAGE>
Cede, as nominee of DTC, and that Book-Entry certificateholders will not be
recognized by the Trustee as certificateholders under the Pooling and Servicing
Agreement. Book-Entry certificateholders will be permitted to exercise the
rights of certificateholders under the Pooling and Servicing Agreement only
indirectly through DTC participants, who in turn will exercise their rights
through DTC.
DEFINITIVE CERTIFICATES
The Trustee will issue the Book-Entry certificates as Definitive
Certificates to certificateholders or their nominees, rather than to DTC or its
nominee, only if (1) the Depositor advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as Depository
with respect to the Book-Entry certificates and the Trustee or the Depositor is
unable to locate a qualified successor, (2) the Depositor, at its option, elects
to terminate the book-entry system through DTC or (3) after the occurrence of an
event of default under the Pooling and Servicing Agreement, Book-Entry
certificateholders evidencing not less than 66% of the aggregate outstanding
certificate principal balance advise the Trustee and DTC through DTC
participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the
certificateholders.
Upon notice of the occurrence of any of the events described in the
immediately preceding paragraph, DTC is required to notify all DTC participants
of the availability of Definitive Certificates. Upon surrender by DTC of the
global certificates and receipt from DTC of instructions for re-registration,
the Trustee will issue the Book-Entry certificates in the form of Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as certificateholders under the Pooling and Servicing
Agreement.
The Trustee (or its duly appointed paying agent, if any) will distribute
principal and interest on the Definitive Certificates, as well as the other
classes of certificates, directly to holders of such certificates in accordance
with the procedures set forth in this prospectus supplement and in the Pooling
and Servicing Agreement. The Trustee will distribute principal and interest on
each distribution date to holders in whose names such certificates were
registered at the close of business on the last business day of the month
preceding the month of such distribution date. The Trustee will make
distributions by wire transfer in immediately available funds for the account of
each such holder or, if a holder has not provided wire instructions, by check
mailed to the address of such holder as it appears on the register maintained by
the certificate registrar. The Trustee will make the final payment on any
certificate (whether a Definitive Certificate or the global certificates
registered in the name of Cede) only upon presentation and surrender of such
certificate at its offices or its agent's office or such office or agency as is
specified in the notice of final distribution to holders of certificates being
retired. The Trustee will provide such notice to registered certificateholders
not later than the fifteenth day of the month in which all remaining outstanding
certificates will be retired.
Definitive Certificates, as well as the Class R certificate, will be
transferable and exchangeable at the offices of the Trustee or its agent. The
Trustee may impose a
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<PAGE>
reasonable service charge for any registration of transfer or exchange, and the
Trustee or such agent may require payment of a sum sufficient to cover any tax
or other governmental charge imposed in connection therewith.
TRANSFER RESTRICTIONS
The offered certificates are subject to transfer restrictions described in
this prospectus supplement under 'ERISA Considerations'. The Class R certificate
is subject to transfer restrictions described in the prospectus under 'Federal
Income Tax Consequences -- Qualification as a REMIC -- Taxation of Owners of
Residual Certificates'.
AVAILABLE DISTRIBUTION AMOUNT
The Available Distribution Amount for any distribution date will generally
include scheduled principal and interest payments due on the related due date
(whether paid by the mortgagor or advanced by the Servicer), partial principal
prepayments received in the previous calendar month (as set forth below),
prepayments in full received in the applicable Prepayment Period to the extent
set forth below and amounts received with respect to liquidations of Loans in
the previous calendar month, and will be distributed on each distribution date
by or on behalf of the Trustee to the certificateholders, as specified in this
prospectus supplement.
The 'DUE DATE' related to each distribution date is the first day of the
month in which such distribution date occurs. The 'DETERMINATION DATE' is a day
not later than the 10th day preceding the related distribution date in the month
in which such distribution date occurs.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any distribution date, as more fully
described in the Pooling and Servicing Agreement, will equal the sum of the
following amounts:
(1) the total amount of all cash received by or on behalf of the Servicer
with respect to such Loans by the Determination Date for such
distribution date and not previously distributed (including
Liquidation Proceeds), except:
all scheduled payments of principal and interest collected but due
on a date after the related Due Date;
all partial principal prepayments received after the previous
calendar month, together with any interest payment received with the
prepayments to the extent that it represents the payment of interest
accrued on the Loans for the period after the previous calendar
month;
all prepayments in full received after the previous calendar month
(together with any interest payment received with such prepayments
in full to the extent that it represents the payment of interest
accrued on the Loans for the period after the previous calendar
month);
Liquidation Proceeds and insurance proceeds received on the Loans
after the previous calendar month;
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<PAGE>
all amounts in the custodial account for principal and interest
which are due and reimbursable to the Servicer pursuant to the terms
of the Pooling and Servicing Agreement;
the servicing fee for each Loan; and
the excess, if any, of aggregate Liquidation Proceeds on such Loans
received during the previous calendar month over the amount that
would have been received if prepayments in full had been made on
these Loans on the date the Liquidation Proceeds were received
('EXCESS LIQUIDATION PROCEEDS');
(2) all advances made by the Servicer to the Trustee on that distribution
date;
(3) any amounts payable as 'COMPENSATING INTEREST' by the Servicer on that
distribution date which will be equal to the lesser of:
any shortfall for the related month of interest collections
resulting from the timing of prepayments in full on the related
Loans made during the related Prepayment Period; and
the sum of (a) one-twelfth of 0.125% of the aggregate outstanding
principal balance of each Loan on such distribution date, (b) any
reinvestment income realized by the Servicer during the related
Prepayment Period relating to prepayments in full on the related
Loans made during the related Prepayment Period and (c) interest
payments on such prepayments in full received during the related
Prepayment Period; and
(4) the total amount of any cash received by the Trustee or the Servicer
in respect of the obligation of the Depositor or the Seller to
repurchase any Loans.
ADVANCES
With respect to each Loan, the Servicer will make advances to the
Certificate Account on the day before each distribution date to cover any
shortfall between (1) payments of principal and interest scheduled to be
received with respect to such Loan and (2) the amounts actually deposited in the
Certificate Account on account of such payments; provided, that the Servicer
determines on such distribution date, in good faith, that such advances will be
recoverable from insurance proceeds, Liquidation Proceeds or other amounts it
expects to receive with respect to that Loan. Advances are reimbursable to the
Servicer from cash in the Certificate Account before payments to the
certificateholders if the Servicer determines that such advances will not be
recoverable from insurance proceeds, Liquidation Proceeds or other amounts
recoverable and so notifies the Trustee.
GLOSSARY OF DEFINITIONS RELATING TO THE PRIORITY OF DISTRIBUTIONS
Certain definitions are necessary to understand the priority of interest and
principal distributions to the certificates. These terms are defined below and
highlighted within the various definitions:
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<PAGE>
'BANKRUPTCY COVERAGE' is expected to equal approximately $104,454 as of the
Cut-Off Date. BANKRUPTCY COVERAGE will be reduced, from time to time, by the
amount of BANKRUPTCY LOSSES allocated to the certificates.
'BANKRUPTCY LOSSES' means any DEBT SERVICE REDUCTION or DEFICIENT VALUATIONS.
'CLASS A-4 NOTIONAL AMOUNT' will initially be approximately $11,177,419 and with
respect to any distribution date, will be equal to the sum of:
approximately 16.1290322581% of the certificate principal balance of the
Class A-1 certificates
+
approximately 11.6129032258% of the certificate principal balance of the
Class A-2 certificates.
'CLASS A-5 NOTIONAL AMOUNT' will initially be approximately $5,787,096 and with
respect to any distribution date, will be equal to the sum of:
approximately 6.4516129032% of the certificate principal balance of the
Class A-6 certificates
+
approximately 3.8709677419% of the certificate principal balance of the
Class A-10 certificates.
'CLASS B-X NOTIONAL AMOUNT' will initially be approximately $426,193 and with
respect to any distribution date, will be equal to the sum of:
approximately 6.4516129032% of the certificate principal balance of
the Class M certificates
+
approximately 3.2258064516% of the certificate principal balance of
the Class B-1 certificates.
'CLASS A-X NOTIONAL AMOUNT' will initially be approximately $2,620,515 and with
respect to any distribution date will equal the total principal balance, as of
the first day of the month of such distribution date, of the Premium Loans
multiplied by 31.600% of the following fraction:
the weighted average of the PASS-THROUGH RATES of the
PREMIUM LOANS as of the first day of such month minus 7.75%
7.75%.
'COMPONENT A-7-2 NOTIONAL AMOUNT' will initially be approximately $2,225,806 and
with respect to any distribution date, will be equal to approximately
14.8387096774% of the certificate principal balance of the Class A-3
certificates.
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<PAGE>
'COMPONENT A-7-3 NOTIONAL AMOUNT' will initially be approximately $3,216,129 and
with respect to any distribution date, will be equal to the sum of:
approximately 3.2258064516% of the certificate principal balance of the
Class A-6 certificates
+
approximately 3.2258064516% of the certificate principal balance of the
Class A-10 certificates.
'COMPONENT A-7-5 NOTIONAL AMOUNT' will initially be approximately $5,672,255 and
with respect to any distribution date will equal the total principal balance, as
of the first day of the month of such distribution date, of the Premium Loans
multiplied by 68.400% of the following fraction:
the weighted average of the PASS-THROUGH RATES of the
PREMIUM LOANS as of the first day of such month minus 7.75%
-----------------------------------------------------------
7.75%.
'CREDIT SUPPORT DEPLETION DATE' is the first distribution date on which the
class principal balances of all of the Subordinate certificates have been or
will be reduced to zero.
'DEBT SERVICE REDUCTION' means any reduction of the amount of the monthly
payment on the related Loan made by a bankruptcy court in connection with a
personal bankruptcy of a mortgagor.
'DEFICIENT VALUATION' means in connection with a personal bankruptcy of a
mortgagor, the positive difference, if any, resulting from the outstanding
principal balance on a Loan less a bankruptcy court's valuation of the related
mortgaged property.
'DISCOUNT FRACTION' with respect to a DISCOUNT LOAN means the following
fraction:
7.75% minus the PASS-THROUGH RATE ON SUCH DISCOUNT LOAN
-------------------------------------------------------
7.75%.
'DISCOUNT FRACTIONAL PRINCIPAL AMOUNT' means the DISCOUNT FRACTION of the
principal received with respect to a DISCOUNT LOAN.
'DISCOUNT FRACTIONAL PRINCIPAL SHORTFALL' means an amount generally equal to the
sum of:
(1) the DISCOUNT FRACTION of any loss on a DISCOUNT LOAN other than a
Special Hazard Loss in excess of the Special Hazard Coverage, a Fraud
Loss in excess of the Fraud Coverage or a Bankruptcy Loss in excess of
the Bankruptcy Coverage as described in ' -- Subordination and
Allocation of Losses'; and
(2) the sum of amounts, if any, by which the foregoing amount on each
prior distribution date exceeded the amount actually distributed in
respect thereof on such prior distribution dates and not subsequently
distributed; provided, however, that such payments in respect of
losses shall not cause a further reduction of the outstanding
Component A-7-6 component principal balance.
'DISCOUNT LOAN' means any Loan with a PASS-THROUGH RATE of less than 7.75% per
annum.
S-29
<PAGE>
'EXCESS LOSS' means a Special Hazard Loss incurred on a Loan in excess of the
Special Hazard Coverage, a Fraud Loss incurred on a Loan in excess of the Fraud
Coverage and a Bankruptcy Loss incurred on a Loan in excess of the Bankruptcy
Coverage.
'FRAUD COVERAGE' is expected to equal approximately $2,696,368 as of the Cut-Off
Date. As of any date of determination after the Cut-Off Date, the FRAUD COVERAGE
will generally be equal to:
(1) before the third anniversary of the Cut-Off Date, an amount equal to:
(a) 1.00% of the aggregate principal balance of all Loans as of the
Cut-Off Date, minus
(b) the aggregate amounts allocated to the certificates with respect
to FRAUD LOSSES on the Loans up to such date of determination;
and
(2) from the third to the fifth anniversary of the Cut-Off Date, an amount
equal to:
(a) 0.50% of the aggregate principal of all of the Loans as of the
most recent anniversary of the Cut-Off Date, minus
(b) the aggregate amounts allocated to the certificates with respect
to FRAUD LOSSES on the Loans since the most recent anniversary of
the Cut-Off Date up to such date of determination.
(3) On and after the fifth anniversary of the Cut-Off Date, the FRAUD
COVERAGE will be zero.
'FRAUD LOSSES' are losses on Loans arising from fraud, dishonesty or
misrepresentation of the mortgagor in the origination of such Loans.
'INTEREST ACCRUAL PERIOD' for all classes of certificates is the calendar month
preceding the month in which the distribution date occurs.
'LIQUIDATED LOAN' is a Loan as to which the Servicer has determined that all
amounts which it expects to recover from or on account of such Loan, whether
from insurance proceeds, LIQUIDATION PROCEEDS or otherwise, have been recovered.
'LIQUIDATION PRINCIPAL' is the principal portion of LIQUIDATION PROCEEDS
received with respect to each Loan which became a LIQUIDATED LOAN (but not in
excess of the principal balance thereof) during the calendar month preceding the
month of the distribution date, exclusive of the DISCOUNT FRACTION of
LIQUIDATION PROCEEDS received with respect to each DISCOUNT LOAN, if any.
'LIQUIDATION PROCEEDS' are amounts received by the Servicer in connection with
the liquidation of a defaulted Loan whether through foreclosure or otherwise,
other than proceeds of insurance policies.
'PASS-THROUGH RATE' for each Loan is equal to the mortgage interest rate thereon
less 0.25% (which is the rate at which the related servicing fee is calculated).
'PREMIUM LOAN' means any Loan with a PASS-THROUGH RATE in excess of 7.75% per
annum.
S-30
<PAGE>
'PREPAYMENT PERIOD' means with respect to each distribution date and each
partial principal prepayment or payoff on any Loan, the calendar month preceding
the month in which the related distribution date occurs.
'PRINCIPAL PAYMENT AMOUNT' is the sum, for any distribution date, of:
(1) scheduled principal payments on the Loans due on the related Due Date;
(2) the principal portion of repurchase proceeds received with respect to
any Loan which was repurchased as permitted or required by the Pooling
and Servicing Agreement during the calendar month preceding the month
of the distribution date; and
(3) any other unscheduled payments of principal which were received on the
Loans during the preceding calendar month, other than prepayments in
full, partial principal prepayments or LIQUIDATION PRINCIPAL.
'PRINCIPAL PREPAYMENT AMOUNT' for any distribution date is the sum of all
partial principal prepayments and all prepayments in full which were received
during the applicable PREPAYMENT PERIOD.
'PRO RATA ALLOCATION' means allocating the principal portion of certain losses
relating to a Loan to the Senior certificates (other than Component A-7-6 of the
Class A-7 certificates and the Interest Only certificates and Interest Only
components) and/or to the Subordinate certificates (other than the Class B-X
certificates), as applicable, pro rata according to their outstanding
certificate principal balances or component principal balances in the case of
the Class A-7 certificates or, in the case of the Accrual certificates or
Accrual component, the certificate principal balance of that certificate or
component principal balance of that component on the Closing Date, if lower
(except if the loss is recognized with respect to a DISCOUNT LOAN, in which
event the DISCOUNT FRACTION of such loss will be allocated to Component A-7-6 of
the Class A-7 certificates and the remainder of such loss will be allocated as
described above in this definition without regard to this parenthetical) in
reduction thereof, and the allocation of the interest portion of such losses to
such certificates or components, as applicable (other than Component A-7-6 of
the Class A-7 certificates), pro rata according to the amount of interest
accrued but unpaid on each such class or component in reduction thereof and then
pro rata according to their outstanding certificate or component principal
balances or, in the case of the Accrual certificates or Accrual component, the
certificate principal balance of that Accrual certificate or component principal
balance of that Accrual component on the Closing Date, if lower, in reduction
thereof.
'SENIOR LIQUIDATION AMOUNT' is the aggregate, for each Loan which became a
LIQUIDATED LOAN during the calendar month preceding the month of the
distribution date, of the lesser of:
(1) the SENIOR PERCENTAGE of the principal balance of such Loan (exclusive
of the DISCOUNT FRACTION thereof, if applicable); and
(2) the SENIOR PREPAYMENT PERCENTAGE of the LIQUIDATION PRINCIPAL with
respect to such Loan.
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<PAGE>
'SENIOR PERCENTAGE' as of the Closing Date will be approximately 95.73% and for
any distribution date will equal the sum of the class principal balances of the
Senior certificates immediately preceding such distribution date (other than the
Principal Only component) divided by the aggregate scheduled principal balance
of all Loans immediately preceding such distribution date (exclusive of the
DISCOUNT FRACTION of the DISCOUNT LOANS).
'SENIOR PREPAYMENT PERCENTAGE' is subject to certain conditions specified in the
Pooling and Servicing Agreement. It will generally be equal to the percentage
amount set forth in the table below, except that on any distribution date where
the SENIOR PERCENTAGE exceeds the initial SENIOR PERCENTAGE, then the SENIOR
PREPAYMENT PERCENTAGE for such distribution date will equal 100%.
<TABLE>
<CAPTION>
DISTRIBUTION DATE OCCURRING IN SENIOR PREPAYMENT PERCENTAGE
------------------------------ ----------------------------
<S> <C>
January 2001 through December 2005....... 100%
January 2006 through December 2006....... SENIOR PERCENTAGE + 70% of the SUBORDINATE PERCENTAGE
January 2007 through December 2007....... SENIOR PERCENTAGE + 60% of the SUBORDINATE PERCENTAGE
January 2008 through December 2008....... SENIOR PERCENTAGE + 40% of the SUBORDINATE PERCENTAGE
January 2009 through December 2009....... SENIOR PERCENTAGE + 20% of the SUBORDINATE PERCENTAGE
January 2010 and thereafter.............. SENIOR PERCENTAGE
</TABLE>
'SENIOR PRINCIPAL AMOUNT' for any distribution date will equal the sum of:
(1) the SENIOR PERCENTAGE of the PRINCIPAL PAYMENT AMOUNT (exclusive of
the portion thereof attributable to the DISCOUNT FRACTIONAL PRINCIPAL
AMOUNT);
(2) the SENIOR PREPAYMENT PERCENTAGE of the PRINCIPAL PREPAYMENT AMOUNT
(exclusive of the portion thereof attributable to the DISCOUNT
FRACTIONAL PRINCIPAL AMOUNT); and
(3) the SENIOR LIQUIDATION AMOUNT.
'SPECIAL HAZARD COVERAGE' is expected to equal approximately $2,729,092 as of
the Cut-Off Date. On each anniversary of the Cut-Off Date, the SPECIAL HAZARD
COVERAGE will be reduced, but not increased, to an amount equal to the lesser
of:
(1) the greatest of:
(a) the aggregate principal balance of the Loans located in the
single California zip code area containing the largest aggregate
principal balance of such Loans;
(b) 1.0% of the aggregate unpaid principal balance of the Loans; and
(c) twice the unpaid principal balance of the largest single Loan, in
each case calculated as of the due date in the immediately
preceding month; and
(2) the SPECIAL HAZARD COVERAGE as of the Cut-Off Date as reduced by the
SPECIAL HAZARD LOSSES allocated to the certificates since the Cut-Off
Date.
'SPECIAL HAZARD LOSSES' are losses relating to Loans that become liquidated and
have been the subject of certain hazards (including earthquakes, tidal waves and
related water damage) not insured against under any applicable insurance policy.
Special Hazard Losses do not include losses occasioned by war, civil
insurrection, certain government actions,
S-32
<PAGE>
errors in design, faulty workmanship or materials (except under certain
circumstances, nuclear reaction, chemical contamination or waste by the
mortgagor).
'SUBORDINATE LIQUIDATION AMOUNT' will equal the excess, if any, of the aggregate
LIQUIDATION PRINCIPAL for all Loans which became LIQUIDATED LOANS during the
calendar month preceding the month of the distribution date, minus the SENIOR
LIQUIDATION AMOUNT for such distribution date.
'SUBORDINATE PERCENTAGE' is equal to 100% minus the SENIOR PERCENTAGE.
Initially, the SUBORDINATE PERCENTAGE will be approximately 4.27%.
'SUBORDINATE PREPAYMENT PERCENTAGE' on any distribution date will equal the
excess of 100% over the SENIOR PREPAYMENT PERCENTAGE. Initially the SUBORDINATE
PREPAYMENT PERCENTAGE will be 0%.
'SUBORDINATE PRINCIPAL AMOUNT' for any distribution date will be equal to the
sum of:
(1) the SUBORDINATE PERCENTAGE of the PRINCIPAL PAYMENT AMOUNT (exclusive
of the portion thereof attributable to the DISCOUNT FRACTIONAL
PRINCIPAL AMOUNT);
(2) the SUBORDINATE PRINCIPAL PREPAYMENT AMOUNT; and
(3) the SUBORDINATE LIQUIDATION AMOUNT;
provided, however, that the SUBORDINATE PRINCIPAL AMOUNT shall be reduced by the
amounts required to be distributed to the Principal Only component with respect
to the DISCOUNT FRACTIONAL PRINCIPAL SHORTFALL on such distribution date. Any
reduction in the SUBORDINATE PRINCIPAL AMOUNT pursuant to the provision above
shall offset the amount calculated pursuant to first clause (1), second clause
(3) and then clause (2), in each case of the definition thereof.
'SUBORDINATE PRINCIPAL PREPAYMENT AMOUNT' as of any distribution date is the
SUBORDINATE PREPAYMENT PERCENTAGE of the PRINCIPAL PREPAYMENT AMOUNT (exclusive
of the portion thereof attributable to the DISCOUNT FRACTIONAL PRINCIPAL
AMOUNT).
'SUBORDINATION LEVEL' on any specified date with respect to any class of
Subordinate certificates is the percentage obtained by dividing:
(1) the sum of the class principal balances of all classes of certificates
which are subordinate in right of payment to such class as of such
date before giving effect to distributions or allocations of Realized
Losses on the Loans on such date; by
(2) the sum of the class principal balances of all classes of certificates
as of such date before giving effect to distributions or allocations
of Realized Losses on the Loans on such date.
PRIORITY OF DISTRIBUTIONS
Commencing in January 2001, the Trustee will make distributions to
certificateholders on each distribution date which will be the 25th day of each
month, or if such 25th day is not a business day on the immediately succeeding
business day. Before the Credit
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<PAGE>
Support Depletion Date, the Trustee will make such distributions to
certificateholders in the following order and priority:
(1) first, the Discount Fractional Principal Amount, to Component A-7-6 of
the Class A-7 certificates;
(2) second, interest to the Senior certificates entitled to receive
accrued and unpaid interest; provided, however, that the aggregate
amount of interest accrued on the Accrual certificates and Accrual
component shall be payable as principal to the Accretion Directed
certificates and Accretion Directed components in the order of
priority set forth in clauses (3)(c) through (3)(i) below;
(3) third, the Senior Principal Amount to the Senior certificates and
Senior components then entitled to principal (other than
Component A-7-6 of the Class A-7 certificates), as follows:
(a) first, to the Class R certificate, until its class principal
balance has been reduced to zero;
(b) second, to the Class A-1, Class A-2 and Class A-3 certificates
and Component A-7-1 of the Class A-7 certificates, sequentially,
to the extent necessary to reduce the aggregate class principal
balances of the Class A-1, Class A-2 and Class A-3 certificates
and component principal balance of Component A-7-1 of the
Class A-7 certificates to their aggregate planned principal
balance set forth in Appendix A hereto;
(c) third, to the Class A-6 and Class A-10 certificates, to the
extent necessary to reduce the aggregate class principal balances
of the Class A-6 and Class A-10 certificates to their first
aggregate targeted principal balance set forth in Appendix B
hereto, sequentially as follows:
(i) first, concurrently:
1. 87.000% to the Class A-6 certificates; and
2. 13.000% to the Class A-10 certificates;
(ii) second, sequentially to the Class A-6 and Class A-10
certificates;
(d) fourth, to Component A-7-4 of the Class A-7 certificates, to the
extent necessary to reduce its component principal balance to its
first targeted principal balance set forth in Appendix B hereto;
(e) fifth, to the Class A-8 and Class A-9 certificates, sequentially,
until their class principal balances have been reduced to zero;
(f) sixth, to the Class A-6 and Class A-10 certificates, to the
extent necessary to reduce the aggregate class principal balances
of the Class A-6 and Class A-10 certificates to their second
aggregate targeted principal balance set forth in Appendix B
hereto, sequentially as follows:
(i) first, concurrently:
1. 87.000% to the Class A-6 certificates; and
S-34
<PAGE>
2. 13.000% to the Class A-10 certificates;
(ii) second, sequentially to the Class A-6 and Class A-10
certificates;
(g) seventh, to Component A-7-4 of the Class A-7 certificates, to the
extent necessary to reduce its component principal balance to its
second targeted principal balance set forth in Appendix B hereto;
(h) eighth, to the Class A-6 and Class A-10 certificates, without
regard to the first or second aggregate targeted principal
balances of the Class A-6 and Class A-10 certificates set forth
in Appendix B hereto, until their class principal balances have
been reduced to zero, sequentially as follows:
(i) first, concurrently:
1. 87.000% to the Class A-6 certificates; and
2. 13.000% to the Class A-10 certificates;
(ii) second, sequentially to the Class A-6 and Class A-10
certificates;
(i) ninth, to Component A-7-4 of the Class A-7 certificates, without
regard to its first or second targeted principal balances set
forth in Appendix B hereto, until its component principal
balance has been reduced to zero;
(j) tenth, to the Class A-1, Class A-2 and Class A-3 certificates
and Component A-7-1 of the Class A-7 certificates, sequentially,
without regard to the aggregate planned principal balances of
the Class A-1, Class A-2 and Class A-3 certificates and
Component A-7-1 of the Class A-7 certificates set forth in
Appendix A hereto, until their class principal balances and
component principal balance have been reduced to zero;
(4) fourth, the Discount Fractional Principal Shortfall to
Component A-7-6 of the Class A-7 certificates, but not more than an
amount equal to the Subordinate Principal Amount (without regard to
the proviso of such definition);
(5) fifth, to the Class M, Class B-X, Class B-1, Class B-2, Class B-3,
Class B-4 and Class B-5 certificates, in that order of seniority,
their respective amount of accrued and unpaid interest and their pro
rata share, according to their outstanding class principal balances,
of the Subordinate Principal Amount; provided, however, that on any
distribution date on which the Subordination Level for any class of
Subordinate certificates is less than the Subordination Level as of
the Closing Date, the portion of the Subordinate Principal Prepayment
Amount otherwise allocable to the class or classes of the Subordinate
certificates junior to such class will be allocated to the most senior
class of Subordinate certificates for which the Subordination Level is
less than such percentage as of the Closing Date and to the class or
classes of Subordinate certificates senior thereto, pro rata according
to the class principal balances of such classes;
(6) sixth, to the Senior and Subordinate certificates, in the order of
their seniority, the amount of any unreimbursed losses previously
allocated to such certificates; and
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<PAGE>
(7) seventh, to the Class R certificate, the remainder, if any, which is
expected to be zero, of the Available Distribution Amount.
On each distribution date on or after the Credit Support Depletion Date, to
the extent of the Available Distribution Amount on such distribution date,
distributions will be made to the Senior certificates or components in the
following order of priority:
(1) first, the Discount Fractional Principal Amount to Component A-7-6 of
the Class A-7 certificates;
(2) second, to the Senior certificates and components (including the
Accrual certificates and Accrual component) accrued and unpaid
interest pro rata according to such amount payable to the extent of
amounts available;
(3) third, to the Senior certificates and components (other than
Component A-7-6 of the Class A-7 certificates), principal, pro rata,
according to their outstanding class principal balances or component
principal balances;
(4) fourth, to each class of Senior certificates and components, other
than the Interest Only certificates and Interest Only components, pro
rata, according to their outstanding class principal balances or
component principal balances, the amount of unreimbursed losses
previously allocated to each class or component; and
(5) fifth, to the Class R certificate, the remainder, if any, which is
expected to be zero, of the Available Distribution Amount.
With respect to each class of certificates or components of the Class A-7
certificates (except for the Principal Only component), interest will be passed
through monthly on each distribution date, commencing in January 2001 (except
for the Accrual certificates and Accrual component). With respect to each
distribution date, interest will accrue or accrete, as applicable, during the
Interest Accrual Period in an amount determined by the following formula:
<TABLE>
<S> <C> <C>
1/12th of the the related class
applicable principal balance or
interest rate for x notional amount for
each class (or each class (or
component) component)
</TABLE>
For purposes of this formula, the notional amount on any distribution date
for the Class A-4 certificates, Class A-5 certificates, Class A-X and Class B-X
certificates and Component A-7-2 of the Class A-7 certificates, Component A-7-3
of the Class A-7 certificates and Component A-7-5 of the Class A-7 certificates
will be equal to the Class A-4 Notional Amount, the Class A-5 Notional Amount,
the Class A-X Notional Amount, the Class B-X Notional Amount, the
Component A-7-2 Notional Amount, the Component A-7-3 Notional Amount and the
Component A-7-5 Notional Amount, respectively.
The interest rates for the Senior and Subordinate classes of certificates or
components of the Class A-7 certificates are fixed as set forth on page ii.
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<PAGE>
Interest accrued on any class of certificates or component of the Class A-7
certificates will be reduced by the following amounts:
(1) the pro rata share allocated to such class or component of all interest
shortfalls resulting from (i) prepayments in full on the Loans during the
related Prepayment Period, to the extent not covered by Compensating
Interest, (ii) partial prepayments on the Loans during the related
Prepayment Period, and (iii) reductions in interest payable on the Loans
by operation of law (such shortfalls are allocated among all classes pro
rata according to the amount of interest to which such class or component
would otherwise be entitled); and
(2) the portion of Realized Losses attributable to interest allocated to such
class or component.
In addition, the amount of interest payable to each class of certificates or
component of the Class A-7 certificates will include accrued but unpaid interest
from prior distribution dates (together with interest thereon at the applicable
rate), but will only be paid to the extent of the Available Distribution Amount.
SUBORDINATION AND ALLOCATION OF LOSSES
The Subordinate certificates will be subordinate in right of payment to and
provide credit support to the Senior certificates and components. The Junior
Subordinate certificates will be subordinate in right of payment to and provide
credit support to the Senior Subordinate certificates. Each class of Senior
Subordinate certificates will be subordinate in right of payment to and provide
credit support to each class of Senior Subordinate certificates senior thereto.
The support provided by the Subordinate certificates is intended to enhance the
likelihood of regular receipt by the Senior certificates and components of the
full amount of the monthly distributions of interest and principal to which the
Senior certificates and components are entitled and to afford the Senior
certificates and components protection against certain losses. The protection
afforded to the Senior certificates and components by the Subordinate
certificates will be accomplished by the preferential right on each distribution
date of the Senior certificates and components to receive distributions of
interest and principal before distributions of interest or principal to the
Subordinate certificates. The protection afforded a class of Senior Subordinate
certificates by the classes of Senior Subordinate certificates subordinate
thereto will be similarly accomplished by the preferential right of such classes
to receive distributions of principal and interest before distributions of
principal and interest to those classes of Senior Subordinate certificates
subordinate thereto. The support provided by the Junior Subordinate certificates
to the Senior Subordinate certificates is intended to enhance the likelihood of
regular receipt by the Senior Subordinate certificates of the full amount of
monthly distributions of interest and principal to which they are entitled and
to afford such certificateholders protection against certain losses. The
protection afforded to the Senior Subordinate certificates by the Junior
Subordinate certificates will be accomplished by the preferential right on each
distribution date of the Senior Subordinate certificates to receive
distributions of interest and principal, to distributions of interest and
principal to the Junior Subordinate certificates.
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<PAGE>
Except for Excess Losses, any Realized Loss will be allocated among the
certificates, as follows:
(i) for losses allocable to principal:
first, to the Junior Subordinate certificates, until the aggregate
of the class principal balances thereof has been reduced to zero,
second, to the Class B-2 certificates, until the class principal
balance thereof has been reduced to zero,
third, to the Class B-1 certificates, until the class principal
balance thereof has been reduced to zero,
fourth, to the Class M certificates, until the class principal
balance thereof has been reduced to zero, and
fifth, to the Senior certificates and Senior components, by Pro Rata
Allocation, until the aggregate of the class principal balances and
component principal balances thereof have been reduced to zero;
(ii) for losses allocable to interest:
first, to the Junior Subordinate certificates, in reduction of
accrued but unpaid interest thereon until the amount of interest
accrued on the Junior Subordinate certificates on such distribution
date has been reduced to zero and then in reduction of the class
principal balances of such certificates until the class principal
balances thereof have been reduced to zero,
second, to the Class B-2 certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on the
Class B-2 certificates on such distribution date has been reduced to
zero and then in reduction of the class principal balance of such
certificates until the class principal balance thereof has been
reduced to zero,
third, to the Class B-1 certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on the
Class B-1 certificates on such distribution date has been reduced to
zero and then in reduction of the class principal balance of such
certificates until the class principal balance thereof has been
reduced to zero,
fourth, to the Class B-X certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on the
Class B-X certificates on such distribution date has been reduced to
zero,
fifth, to the Class M certificates, in reduction of accrued but
unpaid interest thereon until the amount of interest accrued on the
Class M certificates on such distribution date has been reduced to
zero and then in reduction of the class principal balance of such
certificates until the class principal balance thereof has been
reduced to zero, and
S-38
<PAGE>
sixth, to the Senior certificates and Senior components, by Pro Rata
Allocation, until the aggregate of the class principal balances and
component principal balances thereof have been reduced to zero.
On each distribution date, if the aggregate class principal balance of all
outstanding classes of certificates exceeds the aggregate principal balance of
the Loans (after giving effect to distributions of principal and the allocation
and reimbursement of all losses on the classes of certificates and components of
the Class A-7 certificates on such distribution date), such excess will be
deemed a principal loss and will be allocated as follows:
(1) first, to the Subordinate certificates in reverse order of seniority
until each of their class principal balances has been reduced to zero,
and
(2) second, to the Senior certificates and Senior components (other than
the Interest Only certificates and Interest Only components) pro rata
according to their certificate principal balances or component
principal balances or, in the case of the Accrual certificates or
Accrual component, the certificate principal balance of that
certificate or component principal balance of that component on the
Closing Date, if lower in reduction thereof.
In the event of a personal bankruptcy of a mortgagor, the bankruptcy court
may establish a Deficient Valuation. The amount of the secured debt could be
reduced to such Deficient Valuation amount, and the holder of such Loan thus
would become an unsecured creditor to the extent the outstanding principal
balance of such Loan exceeds the value so assigned to the mortgaged property by
the bankruptcy court. In addition, certain other modifications of the terms of a
Loan can result from a bankruptcy proceeding, including the reduction of the
amount of the Monthly Payment on the related Loan.
Excess Losses will be allocated to the outstanding class or classes of
Senior certificates and Senior components and to the Subordinate certificates by
Pro Rata Allocation.
Special Hazard Coverage, Fraud Coverage or Bankruptcy Coverage may also be
reduced upon written confirmation from the Rating Agencies that such reduction
will not adversely affect the then current ratings assigned to the offered
certificates by the Rating Agencies. Such a reduction, in the event of Special
Hazard Losses, Fraud Losses or Bankruptcy Losses on the Loans, could adversely
affect the level of protection afforded the Senior certificates by subordination
of the Subordinate certificates or the level of protection afforded the Senior
Subordinate certificates by subordination of the Junior Subordinate
certificates.
THE CLASS R CERTIFICATE
The Class R certificate will be comprised of two Components: Component R-1
and Component R-2. Component R-1 represents the residual interest in REMIC I and
Component R-2 represents the residual interest in REMIC II.
On each distribution date, in addition to payments of interest and principal
to the Class R certificate described in this prospectus supplement, the Trustee
will distribute any amounts remaining (which are expected to be zero) in the
Certificate Account from the
S-39
<PAGE>
Available Distribution Amount after distributions of interest and principal on
the certificates and payment of expenses, if any, of REMIC II to the Class R
certificateholders, together with Excess Liquidation Proceeds, if any.
Distributions of such remaining amounts (but not the Excess Liquidation
Proceeds) to the Class R certificateholders will be subordinate to all payments
required to be made with respect to the other offered certificates on any
distribution date.
Any amounts remaining in the Certificate Account upon reduction of the
aggregate certificate principal balance to zero, payment of any outstanding
expenses and termination of REMIC II will be distributable to the Class R
certificateholder. Such remaining assets are expected to be minimal. See
' -- Optional Termination'.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution date for the Senior and Subordinate
certificates is the distribution date in January 25, 2031, which is the
distribution date occurring in the month after the original scheduled maturity
date for the latest maturing Loan.
The actual last distribution date on any class of certificates will depend
on the rate of payments of principal on the Loans which, in turn, may be
influenced by a variety of economic, geographic and social factors, as well as
the level of prevailing interest rates. No assurance can be given as to the
actual payment experience with respect to the Loans.
OPTIONAL TERMINATION
On any distribution date after the first date on which the aggregate
outstanding principal balance of the Loans is less than 10% of the aggregate
principal balance of the Loans as of the Cut-Off Date, the Depositor may
repurchase the Loans and all property acquired in respect of any Loan remaining
in REMIC I, and thereby, effect the termination of REMIC I and REMIC II and the
retirement of the certificates. The repurchase price will equal the sum of
(1) 100% of the aggregate outstanding principal balance of such Loans (other
than Liquidated Loans), plus accrued interest thereon at the applicable interest
rates through the last day of the month of such repurchase, less any Bankruptcy
Losses realized with respect to the Loans not already allocated to the
certificates, and (2) the fair market value of all other property. The Trustee
will treat the proceeds of such repurchase as a prepayment of the Loans for
purposes of distributions to certificateholders. Accordingly, an optional
termination of REMIC II will cause the outstanding principal balance of the
certificates to be paid in full through the distribution of such proceeds and
the allocation of the associated Realized Losses, if any, on each mortgaged
property in REMIC I having a fair market value less than the aggregate principal
balance of the related Loan as of the time that REMIC I acquired such mortgaged
property. Upon payment in full of the certificates, the Trustee will terminate
REMIC I and REMIC II. In no event will either REMIC I or REMIC II continue
beyond the expiration of 21 years from the death of the survivor of certain
persons identified in the Pooling and Servicing Agreement. See 'Description of
Certificates -- Optional Termination of a Trust or Underlying Trust' in the
prospectus.
S-40
<PAGE>
SERVICING
DELINQUENCY AND FORECLOSURE EXPERIENCE OF ABN AMRO MORTGAGE GROUP, INC.,
COMPENSATION AND PAYMENT OF EXPENSES
The Depositor acquired the Loans from its affiliate, ABN AMRO Mortgage
Group, Inc. ('AAMG'). Pursuant to the Pooling and Servicing Agreement, AAMG will
service the Loans (in this capacity, also referred to as the Servicer).
On June 30, 1999, Standard Federal Bank, an affiliate of the Depositor,
contributed all of its first lien residential one- to four-family mortgage loan
origination and servicing assets to AAMG, which was formed to consolidate all of
the mortgage banking operations of Standard Federal Bank and its affiliates into
one entity. Before this contribution, AAMG did not hold or service any first
lien residential one- to four-family mortgage loans in a loan or servicing
portfolio. After this contribution, AAMG began to originate, directly or
indirectly, and service first lien residential one- to four-family mortgage
loans in its loan and servicing portfolio. The table below reports delinquency
information with respect to AAMG's mortgage loans and servicing assets.
At September 30, 2000, AAMG provided servicing for approximately $12.55
billion aggregate principal amount of one- to four-unit mortgage loans,
substantially all of which were being serviced for third parties.
The table below summarizes the following delinquency and foreclosure
experience:
as of December 31, 1995, 1996, 1997, 1998 and 1999, and September
30, 2000, on approximately $8.41 billion, $10.54 billion, $10.41
billion, $11.95 billion, $12.14 billion and $12.55 billion,
respectively, in outstanding principal balances on one- to
four-family, first lien residential loans originated, directly or
indirectly, and serviced by Standard Federal Bank; and
as of September 30, 2000, on approximately $12.55 billion in
outstanding principal balances on one- to four-family, first lien
residential loans, serviced by AAMG, and originated in the following
manner:
if originated before June 30, 1999, then originated directly or
indirectly by Standard Federal Bank; or
if originated after June 30, 1999, then originated directly or
indirectly by AAMG.
S-41
<PAGE>
STANDARD FEDERAL BANK/ABN AMRO MORTGAGE GROUP, INC.
ONE- TO FOUR-UNIT RESIDENTIAL LOANS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
--------------------------------------- -------------------
1995 1996 1997 1998(2) 1999 2000
---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Delinquent Loans at Period End(1):
30 to 59 days................. 0.31% 0.39% 0.29% 0.44% 0.63% 0.54%
60 to 89 days................. 0.11% 0.13% 0.12% 0.12% 0.20% 0.24%
90 days and over(3)........... 0.27% 0.51% 0.49% 0.51% 0.85% 0.84%
----- ----- ----- ----- ----- -----
Total Delinquencies and
Foreclosures.......... 0.69% 1.03% 0.90% 1.08% 1.68% 1.62%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
------------------
(1) As a percentage of the total dollar amount of loans held and serviced by
Standard Federal Bank or AAMG, as applicable, in its owned loan portfolio
and loans held for sale portfolio at period end.
(2) As a percentage of the total dollar amount of loans held and serviced by
Standard Federal Bank in its owned loan portfolio only. The percentages for
the period ending December 31, 1998 including loans in Standard Federal
Bank's owned loan portfolio and loans held for sale portfolio are 0.35%,
0.10%, 0.39% and 0.84%, respectively.
(3) Includes Foreclosures.
Except as described in footnote 2 to the table above, the above delinquency
and foreclosure statistics represent the total portfolio experience of Standard
Federal Bank or AAMG, as applicable, for the indicated periods. There can be no
assurance that the delinquency and foreclosure experience with respect to the
Loans comprising the Mortgage Pool will correspond to the delinquency and
foreclosure experience of Standard Federal Bank's or AAMG's mortgage portfolio
set forth in the foregoing table. Indeed, the statistics shown above represent
the delinquency and foreclosure experience for the total one-to four-unit
residential mortgage portfolios for each of the years presented, whereas the
aggregate delinquency and foreclosure experience on the Loans will depend on the
results obtained over the life of the Mortgage Pool. In addition, the foregoing
statistics include mortgage loans with a variety of payment and other
characteristics that may not correspond to those of the Loans.
The Loans were not chosen from AAMG's portfolio on the basis of any
methodology which could or would make them representative of the total pool of
mortgage loans in the portfolio.
The likelihood that mortgagors will become delinquent in the payment of
their mortgage loans and the rate of any subsequent foreclosures may be affected
by a number of factors related to mortgagors' personal circumstances, including,
but not limited to, unemployment or change in employment (or in the case of
self-employed mortgagors or mortgagors relying on commission income,
fluctuations in income), marital separation and a mortgagor's equity in the
related mortgaged property. In addition, the timely payment by mortgagors of
scheduled payments of principal and interest on the Loans and, accordingly, the
rates of delinquencies, foreclosures, bankruptcies and losses with respect to
the
S-42
<PAGE>
Mortgage Pool may be sensitive to adverse economic conditions (which may or may
not affect real property values), either nationally or regionally, may exhibit
seasonal variations and may be influenced by the level of interest rates and
servicing decisions on the applicable mortgage loans. Regional economic
conditions (including declining real estate values) may particularly affect
delinquency and foreclosure experience on mortgage loans to the extent that
mortgaged properties are concentrated in certain geographic areas. Moreover, if
the one- to four-unit real estate market should experience an overall decline in
property values such that the principal balances of the Loans comprising the
Mortgage Pool become equal to or greater than the value of the related mortgaged
properties, the actual rates of delinquencies and foreclosures could be
significantly higher than those previously experienced by Standard Federal Bank
or AAMG. To the extent that such losses are not covered by subordination
provisions or shifting interest credit enhancement described in this prospectus
supplement, such losses will be borne, at least in part, by the holders of the
Class A certificates and Class R certificate. See 'Description of the
Certificates' in this prospectus supplement and in the prospectus.
The Servicer will receive a servicing fee of 0.2500% per annum for its
services under the Pooling and Servicing Agreement. The servicing fee will be
calculated monthly as a per annum percentage of the outstanding principal
balance of each Loan. Out of this servicing fee, the Servicer will pay fees to
the Trustee equal to 0.0100% per annum.
In addition, the Servicer is obligated to remit Compensating Interest to the
Certificate Account on the day before each distribution date.
The Servicer will pay all expenses incurred in connection with its
activities as Servicer. The Servicer is entitled to reimbursement for certain
expenses incurred by it in connection with the liquidation of defaulted Loans.
In addition, the Servicer is entitled to reimbursement of expenditures incurred
by it in connection with the restoration of a damaged mortgaged property.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement permits the Servicer to enter into a
special servicing agreement with an unaffiliated holder of the Subordinate
certificates. Pursuant to this special servicing agreement, the holder may,
among other things, instruct the Servicer to commence or delay foreclosure
proceedings on delinquent Loans.
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity of each class of certificates will depend upon, among
other things, the price at which such certificates are purchased, the applicable
interest rate, the actual characteristics of the Loans, the rate of principal
payments (including principal prepayments) on the Loans and the rate of
liquidations on the Loans. The yield to maturity to holders of the certificates
will be lower than the yield to maturity otherwise produced by the applicable
interest rate and purchase price of such certificates, because principal and
interest distributions will not be payable to such certificateholders until the
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<PAGE>
25th day of the month following the month of accrual (without any additional
distribution of interest or earnings thereon with respect to such delay).
Any net interest shortfalls, as described under the heading 'Description of
the Certificates -- Priority of Distributions' in this prospectus supplement,
will adversely affect the yields on the offered certificates. In addition,
although all Realized Losses (other than Excess Losses) initially will be borne
by the Subordinate certificates, in the reverse order of their numerical class
designations (either directly or through distributions in respect of Discount
Fractional Principal Shortfalls on Component A-7-6 of the Class A-7
certificates), Excess Losses will be allocated to the outstanding class or
classes of related Senior certificates and to the Subordinate certificates by
Pro Rata Allocation. Moreover, since the Subordinate Principal Amount for each
distribution date will be reduced by the amount of any distributions on the
distribution date in respect of Discount Fractional Principal Shortfalls, the
amount distributable as principal on each distribution date to each class of
Subordinate certificates then entitled to a distribution of principal will be
less than it otherwise would be in the absence of the Discount Fractional
Principal Shortfalls. As a result, the yields on the offered certificates will
depend on the rate and timing of Realized Losses, including Excess Losses.
Excess Losses could occur at a time when one or more classes of Subordinate
certificates are still outstanding and otherwise available to absorb Realized
Losses.
PRINCIPAL PREPAYMENTS AND COMPENSATING INTEREST
When a mortgagor prepays a Loan in full between Due Dates for such Loan, the
mortgagor pays interest on the amount prepaid only to the date of prepayment,
instead of for the entire month. Also, when a partial principal prepayment is
made on a Loan together with the scheduled monthly payment for a month on or
after the related Due Date, the principal balance of the Loan is reduced by the
amount of the partial principal prepayment as of such Due Date. However, the
additional principal is not distributed to related certificateholders until the
distribution date in the next month. Therefore, one month of interest shortfall
accrues on the amount of such partial principal prepayment.
The Servicer will pass through Compensating Interest to the related
certificateholders to the limited extent and in the manner set forth below to
reduce the adverse effect on certificateholders from the deficiency in interest
payable as a result of a prepayment in full on a Loan between its Due Dates. The
Servicer is obligated to remit to the Certificate Account on the day before each
distribution date, an amount equal to the lesser of (a) any shortfall for the
related month in interest collections resulting from the timing of prepayments
in full on the related Loans made during the related Prepayment Period and (b)
the sum of (i) one-twelfth of 0.125% of the aggregate outstanding principal
balance of each Loan on such distribution date, (ii) any reinvestment income
realized by the Servicer during the related Prepayment Period relating to
prepayments in full on the related Loans made during the related Prepayment
Period and (iii) interest payments on such prepayments in full received during
the related Prepayment Period. Full principal prepayments of any Loans received
during the period from the first day through the last day of any month will be
passed through on the distribution date in the following month.
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<PAGE>
The Servicer will pass through such Compensating Interest to related
certificateholders with respect to such period to provide for a full month's
interest payment with respect to the prior month. No Compensating Interest or
other payment will be made by the Servicer with respect to interest shortfalls
due to partial principal prepayments.
To the extent that the amount allocated to pay Compensating Interest is
insufficient to cover the deficiency in interest payable as a result of a full
or partial principal prepayment on a Loan, such remaining deficiency will be
allocated to the certificates pro rata according to the amount of interest to
which each related class of certificates would otherwise be entitled in
reduction thereof.
THE SUBORDINATE CERTIFICATES
The weighted average life of, and the yield to maturity on, the Subordinate
certificates, in decreasing order of their priority of distributions, will be
progressively more sensitive to the rate and timing of mortgagor defaults and
the severity of ensuing losses on the Loans. If the actual rate and severity of
losses on the Loans is higher than those assumed by a holder of a Subordinate
certificate, the actual yield to maturity of such certificate may be lower than
the yield expected by such holder based on such assumption. The timing of losses
on the Loans will also affect an investor's actual yield to maturity, even if
the rate of defaults and severity of losses over the life of the Loans are
consistent with such investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Losses on the
Loans will reduce the certificate principal balances of the Subordinate
certificates to the extent of any losses allocated thereto without the receipt
of cash attributable to such reduction. See 'Description of the Certificates --
Subordination and Allocation of Losses'. As a result of such reductions, less
interest will accrue on such classes of Subordinate certificates than otherwise
would be the case. The yield to maturity of the Subordinate certificates will
also be affected by disproportionate allocations of principal prepayments to the
Senior certificates, net interest shortfalls and other cash shortfalls in
Available Funds. See 'Description of the Certificates -- Subordination and
Allocation of Losses'.
RATE OF PAYMENTS
The rate of principal payments on the certificates entitled to receive
principal generally is directly related to the rate of principal payments on the
Loans, which may be in the form of scheduled payments or principal prepayments.
See 'Risk Factors' in this prospectus supplement and 'Prepayment, Yield and
Maturity Considerations' in the prospectus. Mortgagors may prepay the Loans at
any time without penalty. A higher-than-anticipated rate of principal
prepayments would reduce the aggregate principal balance of the Loans more
quickly than expected. As a consequence, aggregate interest payments with
respect to the Loans would be substantially less than expected; therefore, a
higher rate of principal prepayments could result in a lower-than-expected yield
to maturity on each class of Senior certificates (except for the Class A-7
certificates to the extent of Component A-7-6) and any class of Subordinate
certificates purchased at a premium, and in certain circumstances such investors
may not fully recoup their initial investments. Conversely, a
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lower-than-anticipated rate of principal prepayments would reduce the return to
investors on any classes of Senior certificates (except for the Interest Only
certificates and the Class A-7 certificates to the extent of the Interest Only
Components) and any class of Subordinate certificates purchased at a discount,
in that principal payments with respect to the Loans would occur later than
anticipated. There can be no assurance that certificateholders will be able to
reinvest amounts received with respect to the certificates at a rate which is
comparable to the applicable interest rate. Investors should fully consider all
of the associated risks.
SPECIAL SENSITIVITIES
The yield to maturity on the Class A-X certificates and the Class A-7
certificates to the extent of Component A-7-5 will be extremely sensitive to the
level of principal prepayments on the Premium Loans. The interest payable to the
Class A-X certificates and the Class A-7 certificates to the extent of Component
A-7-5 is based on the weighted average of the excess of the Pass-Through Rate
for each Premium Loan over 7.75%. Therefore, the yield to maturity on the
Class A-X certificates and the Class A-7 certificates to the extent of Component
A-7-5 will be adversely affected as a result of faster-than-expected principal
prepayments on the Premium Loans. Prospective investors should fully consider
the risks associated with an investment in the Class A-X certificates and the
Class A-7 certificates to the extent of Component A-7-5, including the
possibility that if the rate of principal prepayments on the Premium Loans is
rapid, such investors may not fully recoup their initial investments.
The yield to maturity on the Class A-7 certificates to the extent of
Component A-7-6 will be extremely sensitive to the level of principal
prepayments on the Discount Loans. The principal payable to the Class A-7
certificates to the extent of Component A-7-6 is derived from Discount Loans.
Therefore, the yield to maturity on the Class A-7 certificates to the extent of
Component A-7-6 will be adversely affected by slower-than-expected prepayments
of the Discount Loans.
Because the interest payable on the Class A-X certificates and the
Class A-7 certificates to the extent of Component A-7-5 is based upon only the
Premium Loans, and the principal distributable to the Class A-7 certificates to
the extent of Component A-7-6 is derived only from the Discount Loans, it is
possible that faster-than-expected principal prepayments on the Premium Loans
may occur at the same time as slower-than-expected principal prepayments on the
Discount Loans, which would result in a lower yield to maturity for the
Class A-X certificates and the Class A-7 certificates to the extent of
Components A-7-5 and A-7-6.
PREPAYMENT SPEED ASSUMPTION AND MODELING ASSUMPTIONS
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The prepayment model used in this prospectus supplement (the
'PREPAYMENT SPEED ASSUMPTION' or 'PSA') assumes that mortgages will prepay at an
annual rate of 0.2% in the first month after origination, that the prepayment
rate increases at an annual rate of 0.2% per month up to the 30th month after
origination and that the
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prepayment rate is constant at 6% per annum in the 30th and later months (this
assumption is called '100% PSA'). For example, at 100% PSA, mortgages with a
loan age of three months (i.e. mortgages in their fourth month after
origination) are assumed to prepay at an annual rate of 0.8%. '0% PSA' assumes
no prepayments; '50% PSA' assumes prepayment rates equal to one-half times 100%
PSA; '200% PSA' assumes prepayment rates equal to two times 100% PSA; and so
forth. PSA is not a description of historical prepayment experiences or a
prediction of the mortgages' rate of prepayment.
PSA does not purport to be either an historical description of the
prepayment experience of any pool of mortgage loans or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Pool, and there is no assurance that the Loans will prepay at any given
percentage of PSA. The actual rate of principal prepayments on the Loans may be
influenced by a variety of economic, geographic, social and other factors. In
general, if prevailing interest rates fall significantly below the interest
rates on the Loans, the Loans are likely to be subject to higher prepayment
rates than if prevailing rates remain at or above the interest rates on the
Loans. Conversely, if interest rates rise above the interest rates on the Loans,
the rate of prepayment would be expected to decrease. A comparatively low
interest rate environment may result in a higher-than-expected rate of
prepayments on the Loans and an earlier-than-expected retirement of the
certificates.
The Depositor makes no representation as to the specific factors that will
affect the prepayment of the Loans or the relative importance of such factors.
Factors not identified by the Depositor or discussed in this prospectus
supplement may significantly affect the prepayment rate of the Loans. In
particular, the Depositor makes no representation as to the percentage of the
principal amount of the Loans that will be paid as of any date or as to the
overall rate of prepayment.
The tables set forth in Appendix C have been prepared on the basis of the
characteristics of the Loans that are expected to be included in the Mortgage
Pool, as described under 'Description of the Mortgage Pool.' The tables set
forth in Appendix C have been prepared assuming, among other things, the
following modeling assumptions (collectively, the 'MODELING ASSUMPTIONS'):
scheduled payments on all Loans are received on the first day of each
month beginning January 1, 2001,
any prepayments in full on the Loans are received on the last day of each
month, beginning on December 31, 2000 and include a full month's interest
thereon,
there are no defaults or delinquencies on the Loans,
optional termination of the REMICs does not occur,
there are no partial prepayments on the Loans and prepayments are
computed after giving effect to scheduled payments received on the
following day,
the Loans prepay at the indicated constant percentages of PSA,
the date of issuance for the certificates is December 21, 2000,
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cash distributions are received by the certificateholders on the 25th day
of each month when due, and
the scheduled monthly payments for each Loan are computed based upon its
unpaid principal balance, mortgage interest rate and amortized remaining
term, such that the Loan will fully amortize on its maturity date.
Variations in actual prepayment experience may increase or decrease the
percentages of the original outstanding class principal balances and the
weighted average lives shown in the tables in Appendix C. Such variations may
occur even if the average prepayment experience of all the Loans equals the
indicated percentage of the Prepayment Speed Assumption. There is no assurance,
however, that prepayment of the Loans will conform to any given percentage of
the Prepayment Speed Assumption. The Depositor makes no representation that the
actual rates of prepayments on the Loans will in any way correspond to any of
the assumptions made in this prospectus supplement.
Based on the foregoing assumptions, the tables in Appendix C indicate the
weighted average lives of the offered certificates and set forth the percentages
of the initial class principal balances of each such class of offered
certificates that would be outstanding after each of the distribution dates
shown at various constant percentages of the Prepayment Speed Assumption.
There are no historical prepayment data available for the Mortgage Pool, and
comparable data is not available because the Loans do not constitute a
representative sample of mortgage loans generally. In addition, historical data
available with respect to mortgage loans underlying mortgage pass-through
certificates issued by the Government National Mortgage Association, Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation may not
be comparable to prepayments expected to be experienced by the Mortgage Pool
because the Loans may have characteristics which differ from the mortgage loans
underlying certificates issued by these entities.
The Depositor makes no representation that the Loans will prepay in the
manner or at any of the rates assumed above. Each investor must make its own
decision as to the appropriate prepayment assumptions to be used in deciding
whether or not to purchase any of the certificates. Since the rate of principal
payments (including prepayments) with respect to, and repurchases of, the Loans
will significantly affect the yields to maturity on the offered certificates,
prospective investors are urged to consult their investment advisors as to both
the anticipated rate of future principal payments (including prepayments) on the
Loans and the suitability of the certificates to their investment objectives.
YIELD CONSIDERATIONS OF THE INTEREST ONLY CERTIFICATES, INTEREST ONLY COMPONENTS
AND PRINCIPAL ONLY COMPONENT
The yield to maturity on the Class A-4, Class A-5, Class A-X and Class B-X
certificates and the Class A-7 certificates to the extent of Components A-7-2,
A-7-3, A-7-5 and A-7-6 will be extremely sensitive to the level of principal
prepayments on certain of the Loans as described in 'Prepayment and Yield
Considerations Rate of Payments' and 'Special Sensitivities'.
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To illustrate the significance of different rates of prepayment on the
distributions to the Class A-4, Class A-5, Class A-7, Class A-X and Class B-X,
the following tables indicate the approximate pre-tax yields to maturity (on a
corporate bond equivalent basis) under the different constant percentages of PSA
indicated. Because the rate of distribution of interest on the Interest Only
certificates and Interest Only components, and the rate of distribution of
principal on the Principal Only component will be directly related to the actual
amortization (including prepayments) of the Loans, which will include Loans that
have remaining terms to maturity shorter or longer than those assumed and
interest rates higher or lower than those assumed, the pre-tax yields to
maturity on these certificates are likely to differ from those shown in the
following tables even if all the Loans prepay at the indicated constant
percentages of PSA. Any differences between such assumptions and the actual
characteristics and performance of the Loans and of the certificates may result
in yields to maturity being different from those shown in such tables.
Discrepancies between assumed and actual characteristics and performances
underscore the hypothetical nature of the tables, which are provided only to
give a general sense of the sensitivity of yields to maturity in varying
prepayment scenarios. In addition, it is highly unlikely that the Loans will
prepay at a constant level of PSA until maturity or that all of such Loans will
prepay at the same rate. The timing of changes to the rate of principal
prepayments may significantly affect the actual yield to maturity to an
investor, even if the average rate of principal prepayments is consistent with
an investor's expectation. In general, the earlier a payment of principal of the
Loans, the greater the effect on an investor's yield to maturity. As a result,
the effect on an investor's yield to maturity of principal prepayments occurring
at a rate higher (or lower) than the rate anticipated by the investor during the
period immediately following the issuance of the certificates will not be
equally offset by a subsequent like reduction (or increase) in the rate of
principal prepayments.
In addition, the yield to maturity on the Class A-4, Class A-5, Class A-X
and Class B-X certificates and the Class A-7 certificates to the extent of the
Interest Only components may be adversely affected if an optional termination of
REMIC II occurs.
The sensitivity tables for the Class A-4, Class A-5, Class A-7, Class A-X
and Class B-X certificates set forth below are based on the Modeling Assumptions
and assume further that the certificates are purchased at prices equal to that
set forth in the tables plus accrued interest, if any. There can be no assurance
that the Loans will have the assumed characteristics, will prepay at any of the
rates shown in this prospectus supplement, or that the purchase prices of the
certificates will be as assumed or that the pre-tax yields to maturity will
correspond to any of the pre-tax yields shown in this prospectus supplement. In
addition to any other factors an investor may deem material, each investor must
make its own decision as to the appropriate prepayment assumptions to be used in
deciding whether or not to purchase a class of certificates.
The pre-tax yields for the Class A-4, Class A-5, Class A-7, Class A-X and
Class B-X certificates could differ significantly from those shown in the tables
below if the Loans were to prepay at a different rate than shown.
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<PAGE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-4 CERTIFICATES TO
PRINCIPAL PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 23.00%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield......................... 31.57% 11.51% 11.51% 11.51% 11.51%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-5 CERTIFICATES TO
PRINCIPAL PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 13.50%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
-------------------------------------------
0% 100% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield........................ 54.78% 52.21% 25.62% 13.45% (0.57)%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-7 CERTIFICATES TO
PRINCIPAL PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 103.00%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield......................... 8.46% 8.37% 8.29% 8.25% 8.35%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS A-X CERTIFICATES TO
PRINCIPAL PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 21.00%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield......................... 37.68% 32.82% 25.39% 19.08% 12.66%
</TABLE>
SENSITIVITY OF PRE-TAX YIELD TO MATURITY OF THE CLASS B-X CERTIFICATES TO
PRINCIPAL PREPAYMENTS AT AN ASSUMED PURCHASE PRICE OF 35.00%
<TABLE>
<CAPTION>
PERCENTAGE OF PSA
------------------------------------------
0% 100% 250% 375% 500%
-- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pre-Tax Yield......................... 21.36% 20.08% 18.43% 17.26% 16.24%
</TABLE>
The pre-tax yields to maturity set forth in the preceding tables were
calculated by determining the monthly discount rates (whether positive or
negative) which, when applied to the assumed streams of cash flows to be paid on
the Class A-4, Class A-5, Class A-7, Class A-X and Class B-X certificates, would
cause the discounted present values of such assumed streams of cash flows to
equal the assumed purchase price, including accrued interest if applicable.
These monthly discount rates were converted to corporate bond equivalent rates,
which are higher than the monthly discount rates because they are based on
semiannual compounding. These yields to maturity do not take into account the
different interest rates at which investors may be able to reinvest funds
received by them as distributions on the certificates and thus do not reflect
the return on any investment in the Class A-4, Class A-5, Class A-7, Class A-X
and Class B-X certificates when any reinvestment rates other than the discount
rates are considered.
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<PAGE>
ADDITIONAL YIELD CONSIDERATIONS APPLICABLE SOLELY TO THE CLASS R CERTIFICATE
Holders of interests in the Class R certificate may have tax liabilities
with respect to their certificates during the early years of the REMICs' term
that substantially exceed any distributions payable thereon during any such
period. In addition, holders of interests in the Class R certificate may have
tax liabilities with respect to their certificates, the present value of which
substantially exceeds the present value of distributions payable thereon and of
any tax benefits that may arise with respect thereto. Accordingly, the after-tax
rate of return on the Class R certificate may be negative or may otherwise be
significantly adversely affected. The timing and amount of taxable income
attributable to the Class R certificate will depend on, among other things, the
timing and amounts of prepayments and losses experienced with respect to the
Mortgage Pool.
The Class R certificateholders should consult their own tax advisors as to
the effect of taxes and the receipt of any payments made to such holders in
connection with the acquisition of interests in the Class R certificate on
after-tax rates of return on the Class R certificate. See 'Federal Income Tax
Consequences' in this prospectus supplement and in the prospectus.
ADDITIONAL INFORMATION
The Depositor intends to file with the Securities and Exchange Commission
certain additional yield tables and other computational materials with respect
to one or more classes of the offered certificates on a Current Report on Form
8-K. Lehman Brothers Inc. prepared such tables and materials at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such prospective investors. Such tables and
materials are preliminary in nature, and the information contained therein is
subject to, and superseded by, the information in this prospectus supplement.
LEGAL ASPECTS OF THE MORTGAGE LOANS UNDER CALIFORNIA LAW
As of the Cut-Off Date, approximately 37.26% of the initial principal
balance of the Loans are secured by liens on mortgaged properties located in
California. See also 'Legal Aspects of the Loans' in the prospectus.
FEDERAL INCOME TAX CONSEQUENCES
The Depositor will cause an election to be made to treat each of REMIC I and
REMIC II as a REMIC for federal income tax purposes. The certificates issued by
REMIC II, other than the Class R certificate, will be designated as REMIC
regular interests. As REMIC regular interests, such certificates will generally
be treated as debt of REMIC II for federal income tax purposes.
Certificateholders will be required to include in income all interest and
original issue discount ('OID') on such certificates in accordance with the
accrual method of accounting regardless of the certificateholders' usual methods
of accounting. For federal income tax purposes, the Class R certificate will
represent
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<PAGE>
beneficial ownership of two residual interests, each of which will constitute
the sole class of residual interests in each of REMIC I and REMIC II.
Upon the issuance of the certificates, Mayer, Brown & Platt will deliver its
opinion generally to the effect that, assuming a REMIC election is made timely
in the required form, and the Servicer complies with all provisions of the
Pooling and Servicing Agreement and certain representations in the Pooling and
Servicing Agreement are true, (1) REMIC I and REMIC II each will be treated as a
REMIC within the meaning of the REMIC provisions of the Internal Revenue Code of
1986, as amended (the 'CODE'), (2) the certificates (other than the Class R
certificate) will represent regular interests in REMIC II and (3) Component R-1
of the Class R certificate will be the sole class of residual interests in
REMIC I and Component R-2 of the Class R certificate will be the sole class of
residual interests in REMIC II.
The Class A-4, Class A-5, Class A-7, Class A-8, Class A-9, Class A-X and
Class B-X certificates will (and certain other offered certificate classes may)
be issued with OID. The prepayment assumption that will be used in determining
the rate of accrual of OID, and market discount or premium, if any, for federal
income tax purposes is 250% of PSA as described in this prospectus supplement
under 'Prepayment and Yield Considerations'. No representation is made that the
Loans will prepay at any given percentage of PSA.
It is not entirely clear how income should be accrued with respect to
regular interest certificates such as the Interest Only certificates and
Interest Only components, the payments on which consist of interest on notional
principal amounts. In the absence of definitive guidance, the most reasonable
interpretation would be to treat all of the income attributable to such payments
as constituting OID, and this is the position which will be taken by REMIC II.
Among other possibilities, the Internal Revenue Service could assert that the
Interest Only certificates and Interest Only components should instead be
taxable under certain rules applicable to debt obligations providing for
contingent payments.
The Internal Revenue Service (the 'IRS') has issued regulations (the 'OID
REGULATIONS') under sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. The OID
Regulations suggest that original issue discount with respect to securities such
as the Class A-7 certificates that represent multiple uncertificated REMIC
regular interests, in which ownership interests will be issued simultaneously to
the same buyer, should be computed on an aggregate method. In the absence of
further guidance from the IRS, original issue discount with respect to the
uncertificated regular interests represented by the Class A-7 certificates will
be reported to the IRS and the certificateholders on an aggregate method based
on a single overall constant yield and the prepayment assumption stated above,
treating all such uncertificated regular interests as a single debt instrument
as set forth in the OID Regulations.
If actual prepayments differ sufficiently from the prepayment assumption,
the calculation of OID for certain offered certificates might produce a negative
number for certain accrual periods. In such event, certificateholders will not
be entitled to a deduction for such amount, but will be required to carry such
amount forward as an offset to OID, if any, accruing in future accrual periods.
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<PAGE>
Certain classes of certificates may be treated for federal income tax
purposes as having been issued at a premium. Holders should consult their own
tax advisors regarding the possibility of making an election to amortize any
such premium. See 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Taxation of Owners of Regular Certificates' in the prospectus.
The offered certificates will generally be treated as 'qualifying real
property loans' for mutual savings banks and domestic building and loan
associations, 'loans secured by an interest in real property' for domestic
building and loan associations, and 'real estate assets' for real estate
investment trusts ('REITS') in the same proportion that the assets in the REMICs
would be so treated. In addition, interest on the offered certificates will
generally be treated as 'interest on obligations secured by mortgages on real
property' for REITs to the extent that such offered certificates are treated as
'real estate assets'. See 'Federal Income Tax Consequences -- Qualification as a
REMIC -- Characterization of Investments in Certificates' in the prospectus.
NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations (the 'NEW REGULATIONS')
which make certain modifications to the withholding, backup withholding, and
information reporting rules described in the prospectus. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will be effective for payments made after December 31, 2000,
subject to certain transition rules. Prospective investors are urged to consult
their own tax advisors regarding the New Regulations.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE RESIDUAL CERTIFICATE
The Class R certificateholders will be required to report on their federal
income tax returns as ordinary income their pro rata share of taxable income of
the REMIC regardless of the amount or timing of their receipt of cash payments.
See 'Federal Income Tax Consequences -- Qualification as a REMIC -- Taxation of
Owners of Residual Certificates' in the prospectus. The requirement that the
Class R certificateholders report their pro rata share of the taxable income and
net loss of the REMIC will continue until the principal balances of all classes
of certificates have been reduced to zero, even though the Class R
certificateholders have received full payment of their stated interest and
principal.
The Class R certificateholders may be required to report an amount of
taxable income with respect to the early accrual periods that significantly
exceeds the amount of cash distributions received by such Class R
certificateholders with respect to such periods. Consequently, the Class R
certificateholders should have other sources of funds sufficient to pay any
federal income taxes due in the early years as a result of their ownership of
interests in such Class R certificate. In addition, the required inclusion of
this amount of taxable income during the early accrual periods and the deferral
of corresponding tax losses or deductions until later accrual periods or until
the ultimate sale or disposition of interests in the Class R certificate (or
possibly later under the 'wash sale' rules of Section 1091 of the Code) may
cause the Class R certificateholder's after-tax rate of return to be
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<PAGE>
zero or negative even if the Class R certificateholder's pre-tax rate of return
is positive. That is, on a present value basis, the Class R certificateholder's
resulting tax liabilities could substantially exceed the sum of any tax benefits
and the amount of any cash distributions on such Class R certificate over its
life.
It is expected that all or a substantial portion of the REMIC taxable income
of the Class R certificateholders will be treated as 'excess inclusion' income
to the holders in which case it could not be offset by losses from other
sources. For Class R certificateholders that are subject to tax on unrelated
business taxable income (as defined by Code Section 511), an excess inclusion is
treated as unrelated business taxable income. With respect to Class R
certificateholders that are nonresident alien individuals or foreign
corporations generally subject to United States 30% withholding tax, an excess
inclusion will be subject to such tax and will be ineligible for any statutory
exemption or tax treaty reduction otherwise available to such Class R
certificateholders.
The Small Business Job Protection Act of 1996 eliminated the special rule
permitting Section 593 institutions ('THRIFT INSTITUTIONS') to use net operating
losses and other allowable deductions to offset their excess inclusion income
from REMIC residual certificates that have 'significant value' within the
meaning of the REMIC Regulations (as defined in 'Federal Income Tax
Consequences' in the prospectus), effective for taxable years beginning after
December 31, 1995, except with respect to residual certificates continuously
held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect of excess inclusions attributable to a REMIC
residual interest on the alternative minimum taxable income of the holder of the
interest. First, alternative minimum taxable income for such residual holder is
determined without regard to the special rule that taxable income cannot be less
than excess inclusions. Second, a residual holder's alternative minimum taxable
income for a tax year cannot be less than excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deductions must be
computed without regard to any excess inclusions.
The REMIC Regulations impose restrictions on the transfer or acquisition of
certain residual interests, including the Class R certificate. In addition, the
REMIC Regulations contain restrictions that apply to the transfer of
'noneconomic' residual interests to United States persons. Pursuant to the
Pooling and Servicing Agreement, the Class R certificate may not be transferred
to non-United States persons.
The REMIC Regulations provide that a transfer to a United States person of
'noneconomic' residual interests will be disregarded for federal income tax
purposes, and that the purported transferor of 'noneconomic' residual interests
will continue to remain liable for any taxes due with respect to the income on
such residual interests, unless 'no significant purpose of the transfer was to
impede the assessment or collection of tax'. The Class R certificate will likely
constitute noneconomic residual interests during all of its term for purposes of
the REMIC Regulations and, accordingly, unless no significant purpose of a
transfer is to impede the assessment or collection of tax, transfers of
interests in the Class R certificate will likely be disregarded and purported
transferors will likely remain liable for any taxes due with respect to the
income of the Class R certificate. All
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<PAGE>
transfers of interests in the Class R certificate will be subject to certain
restrictions under the terms of the Pooling and Servicing Agreement that are
intended to reduce the possibility of any such transfer being disregarded. See
'Federal Income Tax Consequences -- Qualification as a REMIC -- Taxation of
Owners of Residual Certificates' in the prospectus.
Recently issued Internal Revenue Service guidance (which applies
retroactively) provides two alternative safe harbors for determining whether no
significant purpose is present to impede the assessment or collection of tax (as
discussed in the preceding paragraph) with respect to a 'noneconomic' residual
interest. Among other requirements, these safe harbors allow compliance, in very
general terms, if either (i) the present value of the amounts received by the
transferee (from the transferor) and from holding the residual interest
(including the present value of the resulting tax benefits) at least equals the
present value of the tax liabilities arising from holding the residual interest,
or (ii) the transferee is a domestic corporation (with certain exceptions)
having at the time of the transfer and in recent periods for financial reporting
purposes gross assets exceeding $100 million and net assets exceeding $10
million. A prospective investor in the Class R certificate is urged to consult
its own tax advisor concerning possible compliance with either of such safe
harbors.
As discussed above and in the prospectus, the rules for accrual of OID with
respect to certain classes of certificates are subject to significant complexity
and uncertainty. Because OID on certain certificates will be deducted in
determining REMIC taxable income, any changes required by the Internal Revenue
Service in the application of those rules to such certificates may significantly
affect the timing of the REMIC's OID deductions and therefore the amount of
taxable income allocable to holders of interests in the Class R certificate.
An individual, trust or estate that holds (whether directly or indirectly
through certain pass-through entities) an interest in the Class R certificate
may have significant additional gross income with respect to, but may be subject
to limitations on the deductibility of, servicing and trustee's fees and other
administrative expenses properly allocable to the related REMIC in computing
such certificateholder's regular tax liability and will not be able to deduct
such fees or expenses to any extent in computing such certificateholder's
alternative minimum tax liability. Such expenses will be allocated for federal
income tax information reporting purposes entirely to the Class R certificate.
See 'Federal Income Tax Consequences -- Qualification as a REMIC -- Taxation of
Owners of Residual Certificates and Pass-Through of Miscellaneous Itemized
Deductions' in the prospectus.
Because of the special tax treatment of REMIC residual interests, the
taxable income in a given year on a REMIC residual interest will not be equal to
the taxable income associated with an investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the Class R certificate may be significantly
less than that of a corporate bond or stripped instrument having similar cash
flow characteristics. See 'Federal Income Tax Consequences' in the prospectus.
S-55
<PAGE>
Purchasers of interests in the Class R certificate are strongly advised to
consult their own tax advisors as to the economic and tax consequences of an
investment in such certificate.
For further information regarding the federal income tax consequences of
investing in the Class R certificate, see 'Prepayment Yield
Considerations -- Additional Yield Considerations Applicable Solely to the
Class R Certificate' in this prospectus supplement and 'Federal Income Tax
Consequences -- Qualification as a REMIC -- Taxation of Owners of Residual
Certificates' in the prospectus.
LEGAL INVESTMENT ASPECTS
As of the date of their issuance, the offered certificates, other than the
Class B-X, Class B-1 and Class B-2 certificates, will constitute
'mortgage-related securities' for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ('SMMEA'), and as such will be legal investments for
persons, trusts, corporations, partnerships, associations, business trusts and
business entities (including depository institutions, life insurance companies
and pension funds) created pursuant to or existing under the laws of the United
States or of any state whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Under
SMMEA, if a state enacted legislation before October 4, 1991 specifically
limiting the legal investment authority of any of such entities with respect to
'mortgage-related securities', the offered certificates, other than the
Class B-X, Class B-1 and Class B-2 certificates, will constitute legal
investments for entities subject to such legislation only to the extent provided
therein. Certain states have enacted such legislation. Investors should consult
their own legal advisors in determining whether and to what extent the offered
certificates constitute legal investments for such investors.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with the offered
certificates, other than the Class B-X, Class B-1 and Class B-2 certificates,
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in the offered certificates, other than the
Class B-X, Class B-1 and Class B-2 certificates and national banks may purchase
the offered certificates, other than the Class B-X, Class B-1 and Class B-2
certificates, for their own accounts without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. 24 (Seventh); in each
case subject to such regulations as the applicable federal regulatory authority
may prescribe. See 'Legal Investment Matters' in the prospectus.
Investors should consult their own legal advisors in determining whether and
to what extent the offered certificates constitute legal investments for such
investors.
S-56
<PAGE>
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit plan or other benefit plan or
arrangement which is subject to the Employee Retirement Income Security Act of
1974, as amended ('ERISA'), or Section 4975 of the Code, or other person that
proposes to use 'plan assets' of any of the foregoing (each, a 'PLAN') to
acquire any offered certificates should consult with its counsel with respect to
the potential consequences under ERISA and Section 4975 of the Code of the
acquisition and ownership of such certificates by, on behalf of, or with 'plan
assets' of any Plan. See 'ERISA Considerations' in the prospectus (but note that
the prospectus does not address the 2000 Amendment (as defined below)).
UNDERWRITER'S PTE
Lehman Brothers Inc. is the recipient of a final prohibited transaction
exemption, Prohibited Transaction Exemption 91-14, 56 Fed. Reg. 7,414 (1991) as
amended by Prohibited Transaction Exemption 97-34, 62 Fed. Reg. 39,021 (1997)
and Prohibited Transaction Exemption 2000-58, 65 Fed. Reg. 67,765 (2000) (the
'2000 AMENDMENT', taken together, the 'UNDERWRITER'S PTE') which may afford
protection from violations under Sections 406 and 407 of ERISA and Section 4975
of the Code for Plans that acquire offered certificates. Plans that acquire
offered certificates may be eligible for exemptive relief under the
Underwriter's PTE if the current requirements of the Underwriter's PTE, as
amended by the 2000 Amendment which changed certain of the technical
requirements of the Underwriter's PTE (the prospectus, under the heading 'ERISA
Considerations', does not address the 2000 Amendment), are satisfied, including
the following:
(a) the Plan is an 'accredited investor' (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act of 1933, as amended (the
'ACT'));
(b) the acquisition of such certificates by the Plan is on terms
(including the price paid for the certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party;
(c) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of such certificates represents not
more than reasonable compensation for underwriting such certificates;
the sum of all payments made to and retained by the Depositor pursuant
to the sale of the Loans to the trust represents not more than the
fair market value of the Loans, and the sum of all payments made to
and retained by the Depositor or any other servicer represents not
more than reasonable compensation for their services under the Pooling
and Servicing Agreement and reimbursement of their reasonable expenses
in connection therewith;
(d) the certificates acquired by the Plan have received a rating at the
time of their acquisition by the Plan from S&P or Fitch that is in the
four highest generic rating categories; and
S-57
<PAGE>
(e) the Trustee is not an affiliate of any other member of the Restricted
Group (as defined below).
The Underwriter's PTE will not provide exemptive relief for certain
transactions prohibited by Section 406(b)(1) and 406(b)(2) of ERISA or Section
4975(c)(1)(E) of the Code that may result from an investment of any 'plan
assets' of any Plan in such certificates if:
(a) the Plan's investment in any class of such certificates exceeds 25% of
the outstanding certificates of that class at the time of acquisition;
(b) immediately after the acquisition, 25% or more of the Plan assets with
respect to which the investing fiduciary has discretionary authority
or renders investment advice are invested in certificates evidencing
interests in trusts sponsored or containing assets sold by the
Depositor or serviced by the Servicer;
(c) the Plan is sponsored by the Depositor, the Underwriters, the Trustee,
any servicer, the obligor under any credit support mechanism, or any
mortgagor with respect to Loans constituting more than 5% of the
aggregate unamortized principal balance of the assets of the trust on
the Closing Date (a 'MAJOR OBLIGOR') or their affiliates
(collectively, the 'RESTRICTED GROUP');
(d) the Plan fiduciary responsible for the decision to invest or any of
its affiliates is a Major Obligor; or
(e) in connection with an acquisition of certificates in the initial
issuance, less than 50% of each class of certificates in which Plans
have invested and less than 50% of the aggregate interests in the
trust are acquired by persons independent of members of the Restricted
Group.
Whether the conditions of the Underwriter's PTE will be satisfied with
respect to offered certificates of a particular class will depend upon the facts
and circumstances existing at the time the Plan acquires certificates of that
class. Any Plan fiduciary or other person that proposes to use 'plan assets' of
any Plan to acquire such offered certificates in reliance upon the Underwriter's
PTE should determine whether such acquisition will satisfy all applicable
conditions and should consult with its counsel regarding other factors that may
affect the applicability of the Underwriter's PTE. Each purchaser that proposes
to purchase an offered certificate with the assets of a Plan shall be deemed to
represent that each such purchaser qualifies as an 'accredited investor' as
defined in Rule 501(a)(1) of Regulation D under the Securities Act. Purchasers
of offered certificates should consider the possibility that the rating of a
certificate could change during the period the security is held. If the rating
were to decline below BBB-, the security could no longer be re-sold to a Plan in
reliance on the Underwriter's PTE.
The sale of any certificate to a Plan is in no respect a representation by
the Underwriters that such an investment meets all relevant legal requirements
with respect to investments by Plans generally or any particular Plan or that
such an investment is appropriate for Plans generally or any particular Plan.
S-58
<PAGE>
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Depositor has agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase, all of the offered certificates. The aggregate proceeds
(excluding accrued interest) to the Depositor from the sale of the offered
certificates, before deducting expenses payable by the Depositor (which are
estimated to be $400,000), will be approximately 99.77% of the initial aggregate
certificate principal balance of the offered certificates. Under the terms and
conditions of the Underwriting Agreement, the Underwriters are committed to take
and pay for all of such offered certificates, if any are taken. Distribution of
such offered certificates will be made by the Underwriters from time to time in
negotiated transactions or otherwise at varying prices to be determined at the
time of sale. The difference between the purchase price for the offered
certificates paid to the Depositor and the proceeds from the sale of such
certificates realized by the Underwriters will constitute underwriting discounts
and commissions. The Underwriters may effect such transactions by selling the
offered certificates to or through dealers, and such dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Underwriter for whom they act.
In the Underwriting Agreement, the Underwriters have severally, but not
jointly, agreed, subject to the terms and conditions set forth therein, to
purchase all of the offered certificates if any are purchased. In the event of
default by any Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the underwriting commitment of the nondefaulting Underwriter may
be increased or the underwriting may be terminated.
The obligations of the Underwriters under the Underwriting Agreement are
subject to certain conditions precedent.
The Depositor has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Act, or to contribute to payments
the Underwriters may be obligated to make in respect thereof.
ABN AMRO Incorporated is an affiliate of the Depositor.
The Underwriters intend to make a market for the purchase and sale of the
offered certificates after their initial issuance but have no obligation to do
so. There is no assurance that such a secondary market will develop or, if it
develops, that it will continue.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Kirk Flores,
Counsel of the Depositor and by Mayer, Brown & Platt, New York, New York. Mayer,
Brown & Platt will also pass upon certain legal matters for ABN AMRO
Incorporated. Thacher Proffitt & Wood, New York, New York, will pass upon
certain legal matters on behalf of Lehman Brothers Inc.
S-59
<PAGE>
CERTIFICATE RATINGS
It is a condition to the issuance of the offered certificates that the
Senior certificates each be rated 'AAA' by S&P and 'AAA' by Fitch, that the
Class M certificates be rated not less than 'AA' by Fitch, that the Class B-X
and Class B-1 certificates be rated not less than 'A' by Fitch; and that the
Class B-2 certificates be rated not less than 'BBB' by Fitch.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. Each security rating should be evaluated independently of any other
security rating.
THE RATINGS ASSIGNED BY FITCH TO MORTGAGE PASS-THROUGH CERTIFICATES ADDRESS
THE LIKELIHOOD OF THE RECEIPT BY CERTIFICATEHOLDERS OF ALL DISTRIBUTIONS TO
WHICH SUCH CERTIFICATEHOLDERS ARE ENTITLED. FITCH'S RATINGS ADDRESS THE
STRUCTURAL AND LEGAL ASPECTS ASSOCIATED WITH THE CERTIFICATES, INCLUDING THE
NATURE OF THE UNDERLYING MORTGAGE LOANS. FITCH'S RATINGS ON MORTGAGE
PASS-THROUGH CERTIFICATES DO NOT REPRESENT ANY ASSESSMENT OF THE LIKELIHOOD OR
RATE OF PRINCIPAL PREPAYMENTS. THE RATINGS DO NOT ADDRESS THE POSSIBILITY THAT
CERTIFICATEHOLDERS MIGHT SUFFER A LOWER-THAN-ANTICIPATED YIELD.
S&P'S RATINGS ON MORTGAGE PASS-THROUGH CERTIFICATES ADDRESS THE LIKELIHOOD
OF RECEIPT BY CERTIFICATEHOLDERS OF PAYMENTS REQUIRED UNDER THE OPERATIVE
AGREEMENTS. S&P'S RATINGS TAKE INTO CONSIDERATION THE CREDIT QUALITY OF THE
MORTGAGE POOL, INCLUDING ANY CREDIT SUPPORT PROVIDERS, STRUCTURAL AND LEGAL
ASPECTS ASSOCIATED WITH THE CERTIFICATES, AND THE EXTENT TO WHICH THE PAYMENT
STREAM OF THE MORTGAGE POOL IS ADEQUATE TO MAKE PAYMENT REQUIRED UNDER THE
CERTIFICATES. S&P'S RATINGS ON MORTGAGE PASS-THROUGH CERTIFICATES DO NOT,
HOWEVER, CONSTITUTE A STATEMENT REGARDING THE FREQUENCY OF PREPAYMENTS ON THE
MORTGAGE LOANS. S&P'S RATINGS DO NOT ADDRESS THE POSSIBILITY THAT INVESTORS MAY
SUFFER A LOWER-THAN-ANTICIPATED YIELD.
The ratings on the offered certificates address the likelihood of the
receipt by certificateholders of all distributions with respect to the
underlying Loans to which they are entitled. The ratings do not represent any
assessment of the likelihood that the rate of principal prepayments by
mortgagors might differ from those originally anticipated. As a result of such
differences in the rate of principal prepayments, certificateholders might
suffer a lower-than-anticipated yield to maturity. See 'Risk Factors' and
'Prepayment and Yield Considerations'.
The Depositor has not requested a rating on the offered certificates by any
rating agency other than S&P and Fitch. However, there can be no assurance as to
whether any other rating agency will rate the offered certificates, or, if it
does, what rating would be assigned by any such other rating agency. A rating on
the offered certificates by another rating agency, if assigned at all, may be
lower than the rating assigned to the offered certificates by S&P and Fitch.
S-60
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Set forth below is a list of certain of the more significant terms used in
this prospectus supplement and the pages on which the definitions of such terms
may be found.
<TABLE>
<S> <C>
2000 Amendment.............. S-57
AAMG........................ S-41
Accretion Directed.......... S-7
Accretion Directed
Certificates.............. S-2
Accretion Directed
Components................ S-2
Accrual..................... S-7
Accrual Certificates........ S-2
Accrual Component........... S-2
Act......................... S-57
Available Distribution
Amount.................... S-5, S-26
Bankruptcy Coverage......... S-28
Bankruptcy Losses........... S-28
Book-Entry Certificates..... S-2
Cede........................ S-24
Certificate Account......... S-20
Class A Certificates........ S-2
Class A-4 Notional Amount... S-28
Class A-5 Notional Amount... S-28
Class A-X Notional Amount... S-28
Class B-X Notional Amount... S-28
Closing Date................ S-1
Code........................ S-52
Compensating Interest....... S-27
Component A-7-2 Notional
Amount.................... S-28
Component A-7-3 Notional
Amount.................... S-29
Component A-7-5 Notional
Amount.................... S-29
Credit Support Depletion
Date...................... S-29
Cut-Off Date................ S-1
Debt Service Reduction...... S-29
Deficient Valuation......... S-29
Definitive Certificates..... S-24
Depositor................... S-1
Determination Date.......... S-26
Discount Fraction........... S-29
Discount Fractional
Principal Amount.......... S-29
Discount Fractional
Principal Shortfall....... S-29
Discount Loan............... S-29
Distribution Dates.......... S-1
Due Date.................... S-26
ERISA....................... S-57
Excess Liquidation
Proceeds.................. S-27
Excess Loss................. S-30
FICO Scores................. S-21
Fitch....................... S-23
Fraud Coverage.............. S-30
Fraud Losses................ S-30
Interest Accrual Period..... S-30
Interest Only............... S-6
Interest Only Components.... S-2
Interest Only
Certificates.............. S-2
IRS......................... S-52
Junior Subordinate
Certificates.............. S-2
Liquidated Loan............. S-30
Liquidation Principal....... S-30
Liquidation Proceeds........ S-30
Loans....................... S-20
Major Obligor............... S-58
Modeling Assumptions........ S-47
Mortgage Loan Purchase
Agreement................. S-21
Mortgage Pool............... S-20
New Regulations............. S-53
OID......................... S-51
OID Regulations............. S-52
PAC......................... S-7
PAC Certificates............ S-2
PAC Components.............. S-2
Pass-Through Rate........... S-30
Pass-Through Rates.......... S-6
Plan........................ S-57
Premium Loan................ S-30
Prepayment Period........... S-31
Prepayment Speed
Assumption................ S-46
Principal Only.............. S-7
Principal Only Component.... S-2
Principal Payment Amount.... S-31
</TABLE>
S-61
<PAGE>
<TABLE>
<S> <C>
Principal Prepayment
Amount.................... S-31
Pro Rata Allocation......... S-31
PSA......................... S-46
REITs....................... S-53
Residual Certificate........ S-2
Restricted Group............ S-58
S&P......................... S-23
Seller...................... S-1
Senior Certificates......... S-2
Senior Components........... S-2
Senior Liquidation Amount... S-31
Senior Percentage........... S-32
Senior Prepayment
Percentage................ S-32
Senior Principal Amount..... S-32
Senior Subordinate
Certificates.............. S-2
Servicer.................... S-1
SMMEA....................... S-56
Special Hazard Coverage..... S-32
Special Hazard Losses....... S-32
Subordinate Certificates.... S-2
Subordinate Liquidation
Amount.................... S-33
Subordinate Percentage...... S-33
Subordinate Prepayment
Percentage................ S-33
Subordinate Principal
Amount.................... S-33
Subordinate Principal
Prepayment Amount......... S-33
Subordination Level......... S-33
TAC......................... S-8
TAC Certificates............ S-2
TAC Components.............. S-2
Trustee..................... S-1
Underwriters................ S-1
Underwriter's PTE........... S-57
</TABLE>
S-62
<PAGE>
APPENDIX A
PLANNED PRINCIPAL BALANCE TABLE*
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2,
CLASS A-3 AND
DISTRIBUTION DATES COMPONENT A-7-1
------------------ ---------------
<S> <C>
Initial Balance............................................. $110,400,000.00
January 25, 2001............................................ 110,400,000.00
February 25, 2001........................................... 110,400,000.00
March 25, 2001.............................................. 110,400,000.00
April 25, 2001.............................................. 110,400,000.00
May 25, 2001................................................ 110,400,000.00
June 25, 2001............................................... 110,400,000.00
July 25, 2001............................................... 110,400,000.00
August 25, 2001............................................. 110,400,000.00
September 25, 2001.......................................... 110,400,000.00
October 25, 2001............................................ 110,400,000.00
November 25, 2001........................................... 110,400,000.00
December 25, 2001........................................... 109,622,114.53
January 25, 2002............................................ 108,800,513.81
February 25, 2002........................................... 107,935,526.54
March 25, 2002.............................................. 107,027,503.94
April 25, 2002.............................................. 106,076,819.53
May 25, 2002................................................ 105,083,868.90
June 25, 2002............................................... 104,049,069.43
July 25, 2002............................................... 102,972,860.03
August 25, 2002............................................. 101,855,700.84
September 25, 2002.......................................... 100,698,072.92
October 25, 2002............................................ 99,500,477.93
November 25, 2002........................................... 98,263,437.75
December 25, 2002........................................... 96,987,494.14
January 25, 2003............................................ 95,673,208.34
February 25, 2003........................................... 94,321,160.68
March 25, 2003.............................................. 92,932,571.33
April 25, 2003.............................................. 91,508,980.40
May 25, 2003................................................ 90,071,484.85
June 25, 2003............................................... 88,640,653.63
July 25, 2003............................................... 87,216,969.57
August 25, 2003............................................. 85,800,396.12
September 25, 2003.......................................... 84,390,896.92
October 25, 2003............................................ 82,988,435.79
November 25, 2003........................................... 81,592,976.77
December 25, 2003........................................... 80,204,484.05
January 25, 2004............................................ 78,822,922.05
February 25, 2004........................................... 77,448,255.34
March 25, 2004.............................................. 76,080,448.70
April 25, 2004.............................................. 74,719,467.09
May 25, 2004................................................ 73,365,275.65
</TABLE>
---------
* The aggregate principal balances for the PAC certificates on each distribution
date were calculated assuming that (i) the Loans have the characteristics set
forth in the Modeling Assumptions described under the heading 'Prepayment and
Yield Considerations -- Prepayment Speed Assumption and Modeling Assumptions,'
and (ii) the Loans are prepaid at a constant rate within the range of 100% to
500% PSA.
A-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2,
CLASS A-3 AND
DISTRIBUTION DATES COMPONENT A-7-1
------------------ ---------------
<S> <C>
June 25, 2004............................................... $ 72,017,839.71
July 25, 2004............................................... 70,677,124.77
August 25, 2004............................................. 69,343,096.54
September 25, 2004.......................................... 68,015,720.87
October 25, 2004............................................ 66,694,963.83
November 25, 2004........................................... 65,380,791.64
December 25, 2004........................................... 64,073,170.73
January 25, 2005............................................ 62,772,067.66
February 25, 2005........................................... 61,477,449.22
March 25, 2005.............................................. 60,189,282.33
April 25, 2005.............................................. 58,907,534.12
May 25, 2005................................................ 57,632,171.87
June 25, 2005............................................... 56,363,163.04
July 25, 2005............................................... 55,100,475.28
August 25, 2005............................................. 53,844,076.38
September 25, 2005.......................................... 52,593,934.32
October 25, 2005............................................ 51,350,017.25
November 25, 2005........................................... 50,112,293.48
December 25, 2005........................................... 48,880,731.50
January 25, 2006............................................ 47,672,111.99
February 25, 2006........................................... 46,469,530.87
March 25, 2006.............................................. 45,272,956.88
April 25, 2006.............................................. 44,082,358.93
May 25, 2006................................................ 42,897,706.10
June 25, 2006............................................... 41,718,967.60
July 25, 2006............................................... 40,546,112.84
August 25, 2006............................................. 39,379,111.37
September 25, 2006.......................................... 38,217,932.88
October 25, 2006............................................ 37,062,547.26
November 25, 2006........................................... 35,912,924.52
December 25, 2006........................................... 34,769,034.85
January 25, 2007............................................ 33,636,278.43
February 25, 2007........................................... 32,509,163.97
March 25, 2007.............................................. 31,387,662.10
April 25, 2007.............................................. 30,271,743.59
May 25, 2007................................................ 29,185,422.78
June 25, 2007............................................... 28,133,962.21
July 25, 2007............................................... 27,116,292.83
August 25, 2007............................................. 26,131,377.73
September 25, 2007.......................................... 25,178,211.16
October 25, 2007............................................ 24,255,817.65
November 25, 2007........................................... 23,363,251.04
December 25, 2007........................................... 22,499,593.66
January 25, 2008............................................ 21,712,447.98
February 25, 2008........................................... 20,950,917.91
March 25, 2008.............................................. 20,214,201.86
April 25, 2008.............................................. 19,501,522.77
May 25, 2008................................................ 18,812,127.33
June 25, 2008............................................... 18,145,285.25
July 25, 2008............................................... 17,500,288.64
August 25, 2008............................................. 16,876,451.23
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2,
CLASS A-3 AND
DISTRIBUTION DATES COMPONENT A-7-1
------------------ ---------------
<S> <C>
September 25, 2008.......................................... $ 16,273,107.82
October 25, 2008............................................ 15,689,613.56
November 25, 2008........................................... 15,125,343.41
December 25, 2008........................................... 14,579,691.46
January 25, 2009............................................ 14,090,656.17
February 25, 2009........................................... 13,617,395.76
March 25, 2009.............................................. 13,159,412.82
April 25, 2009.............................................. 12,716,225.40
May 25, 2009................................................ 12,287,366.45
June 25, 2009............................................... 11,872,383.44
July 25, 2009............................................... 11,470,837.87
August 25, 2009............................................. 11,082,304.86
September 25, 2009.......................................... 10,706,372.71
October 25, 2009............................................ 10,342,642.52
November 25, 2009........................................... 9,990,727.81
December 25, 2009........................................... 9,650,254.10
January 25, 2010............................................ 9,349,388.93
February 25, 2010........................................... 9,057,661.41
March 25, 2010.............................................. 8,774,796.53
April 25, 2010.............................................. 8,500,527.51
May 25, 2010................................................ 8,234,595.54
June 25, 2010............................................... 7,976,749.57
July 25, 2010............................................... 7,726,746.02
August 25, 2010............................................. 7,484,348.63
September 25, 2010.......................................... 7,249,328.20
October 25, 2010............................................ 7,021,462.38
November 25, 2010........................................... 6,800,535.49
December 25, 2010........................................... 6,586,338.29
January 25, 2011............................................ 6,378,667.80
February 25, 2011........................................... 6,177,327.15
March 25, 2011.............................................. 5,982,125.32
April 25, 2011.............................................. 5,792,877.06
May 25, 2011................................................ 5,609,402.64
June 25, 2011............................................... 5,431,527.70
July 25, 2011............................................... 5,259,083.16
August 25, 2011............................................. 5,091,904.94
September 25, 2011.......................................... 4,929,833.94
October 25, 2011............................................ 4,772,715.79
November 25, 2011........................................... 4,620,400.77
December 25, 2011........................................... 4,472,743.63
January 25, 2012............................................ 4,329,603.51
February 25, 2012........................................... 4,190,843.74
March 25, 2012.............................................. 4,056,331.77
April 25, 2012.............................................. 3,925,939.04
May 25, 2012................................................ 3,799,540.83
June 25, 2012............................................... 3,677,016.16
July 25, 2012............................................... 3,558,247.72
August 25, 2012............................................. 3,443,121.68
September 25, 2012.......................................... 3,331,527.66
October 25, 2012............................................ 3,223,358.57
November 25, 2012........................................... 3,118,510.57
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2,
CLASS A-3 AND
DISTRIBUTION DATES COMPONENT A-7-1
------------------ ---------------
<S> <C>
December 25, 2012........................................... $ 3,016,882.92
January 25, 2013............................................ 2,918,377.92
February 25, 2013........................................... 2,822,900.79
March 25, 2013.............................................. 2,730,359.63
April 25, 2013.............................................. 2,640,665.27
May 25, 2013................................................ 2,553,731.26
June 25, 2013............................................... 2,469,473.73
July 25, 2013............................................... 2,387,811.33
August 25, 2013............................................. 2,308,665.18
September 25, 2013.......................................... 2,231,958.76
October 25, 2013............................................ 2,157,617.85
November 25, 2013........................................... 2,085,570.48
December 25, 2013........................................... 2,015,746.85
January 25, 2014............................................ 1,948,079.26
February 25, 2014........................................... 1,882,502.03
March 25, 2014.............................................. 1,818,951.50
April 25, 2014.............................................. 1,757,365.90
May 25, 2014................................................ 1,697,685.34
June 25, 2014............................................... 1,639,851.72
July 25, 2014............................................... 1,583,808.71
August 25, 2014............................................. 1,529,501.67
September 25, 2014.......................................... 1,476,877.62
October 25, 2014............................................ 1,425,885.17
November 25, 2014........................................... 1,376,474.50
December 25, 2014........................................... 1,328,597.27
January 25, 2015............................................ 1,282,206.61
February 25, 2015........................................... 1,237,257.08
March 25, 2015.............................................. 1,193,704.61
April 25, 2015.............................................. 1,151,506.45
May 25, 2015................................................ 1,110,621.14
June 25, 2015............................................... 1,071,008.51
July 25, 2015............................................... 1,032,629.57
August 25, 2015............................................. 995,446.52
September 25, 2015.......................................... 959,422.71
October 25, 2015............................................ 924,522.60
November 25, 2015........................................... 890,711.72
December 25, 2015........................................... 857,956.65
January 25, 2016............................................ 826,224.98
February 25, 2016........................................... 795,485.30
March 25, 2016.............................................. 765,707.12
April 25, 2016.............................................. 736,860.90
May 25, 2016................................................ 708,918.00
June 25, 2016............................................... 681,850.62
July 25, 2016............................................... 655,631.84
August 25, 2016............................................. 630,235.54
September 25, 2016.......................................... 605,636.38
October 25, 2016............................................ 581,809.82
November 25, 2016........................................... 558,732.05
December 25, 2016........................................... 536,379.97
January 25, 2017............................................ 514,731.22
February 25, 2017........................................... 493,764.09
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE
CLASS A-1, CLASS A-2,
CLASS A-3 AND
DISTRIBUTION DATES COMPONENT A-7-1
------------------ ---------------
<S> <C>
March 25, 2017.............................................. $ 473,457.53
April 25, 2017.............................................. 453,791.15
May 25, 2017................................................ 434,745.17
June 25, 2017............................................... 416,300.41
July 25, 2017............................................... 398,438.28
August 25, 2017............................................. 381,140.76
September 25, 2017.......................................... 364,390.37
October 25, 2017............................................ 348,170.17
November 25, 2017........................................... 332,463.73
December 25, 2017........................................... 317,255.13
January 25, 2018............................................ 302,528.94
February 25, 2018........................................... 288,270.18
March 25, 2018.............................................. 274,464.34
April 25, 2018.............................................. 261,097.37
May 25, 2018................................................ 248,155.63
June 25, 2018............................................... 235,625.89
July 25, 2018............................................... 223,495.35
August 25, 2018............................................. 211,751.58
September 25, 2018.......................................... 200,382.55
October 25, 2018............................................ 189,376.57
November 25, 2018........................................... 178,722.34
December 25, 2018........................................... 168,408.89
January 25, 2019............................................ 158,425.58
February 25, 2019........................................... 148,762.11
March 25, 2019.............................................. 139,408.50
April 25, 2019.............................................. 130,355.05
May 25, 2019................................................ 121,592.39
June 25, 2019............................................... 113,111.41
July 25, 2019............................................... 104,903.30
August 25, 2019............................................. 96,959.51
September 25, 2019.......................................... 89,271.77
October 25, 2019............................................ 81,832.03
November 25, 2019........................................... 74,632.53
December 25, 2019........................................... 67,665.71
January 25, 2020............................................ 60,924.27
February 25, 2020........................................... 54,401.12
March 25, 2020.............................................. 48,089.41
April 25, 2020.............................................. 41,982.47
May 25, 2020................................................ 36,073.85
June 25, 2020............................................... 30,357.31
July 25, 2020............................................... 24,826.79
August 25, 2020............................................. 19,476.43
September 25, 2020.......................................... 14,300.52
October 25, 2020............................................ 9,293.57
November 25, 2020........................................... 4,450.23
December 25, 2020 and thereafter............................ 0.00
</TABLE>
A-5
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
APPENDIX B
TARGETED PRINCIPAL BALANCES TABLE*
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
CLASS A-6 AND CLASS A-6 AND
CLASS A-10 COMPONENT A-7-4 CLASS A-10 COMPONENT A-7-4
DISTRIBUTION DATES SCHEDULE #1 SCHEDULE #1 SCHEDULE #2 SCHEDULE #2
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Initial Balance............ $99,700,000.00 $38,000,000.00 $99,700,000.00 $38,000,000.00
January 25, 2001........... 98,944,869.96 38,245,416.67 98,944,869.96 38,245,416.67
February 25, 2001.......... 98,074,217.81 38,492,418.32 98,074,217.81 38,492,418.32
March 25, 2001............. 97,088,281.74 38,741,015.18 97,088,281.74 38,741,015.18
April 25, 2001............. 95,987,343.74 38,991,217.57 95,987,343.74 38,991,217.57
May 25, 2001............... 94,771,830.27 39,243,035.85 94,771,830.27 39,243,035.85
June 25, 2001.............. 93,442,312.54 39,496,480.46 93,442,312.54 39,496,480.46
July 25, 2001.............. 91,999,506.50 39,751,561.90 91,999,506.50 39,751,561.90
August 25, 2001............ 90,444,272.54 40,008,290.73 90,444,272.54 37,935,060.46
September 25, 2001......... 88,777,614.90 40,266,677.61 88,777,614.90 35,872,076.70
October 25, 2001........... 87,000,680.71 40,526,733.24 87,000,680.71 33,610,705.73
November 25, 2001.......... 85,114,758.79 40,788,468.39 85,114,758.79 31,160,249.03
December 25, 2001.......... 83,899,163.55 41,051,893.92 83,409,296.94 29,021,011.90
January 25, 2002........... 82,621,292.04 41,317,020.73 80,776,515.38 27,579,707.05
February 25, 2002.......... 81,282,518.92 41,583,859.82 78,005,138.30 26,061,569.22
March 25, 2002............. 79,884,330.02 41,852,422.25 75,101,101.25 24,475,724.18
April 25, 2002............. 78,428,319.77 42,122,719.14 72,070,765.93 22,831,905.57
May 25, 2002............... 76,916,188.38 42,394,761.71 68,920,900.80 21,140,397.82
June 25, 2002.............. 75,349,738.78 42,668,561.21 65,658,659.58 19,411,972.98
July 25, 2002.............. 73,730,873.19 42,944,129.00 62,291,557.99 17,657,821.98
August 25, 2002............ 72,061,589.57 43,221,476.50 58,827,448.51 15,889,480.64
September 25, 2002......... 70,343,977.74 43,500,615.20 55,274,493.60 14,118,751.04
October 25, 2002........... 68,580,215.22 43,781,556.67 51,641,137.21 12,357,618.90
November 25, 2002.......... 66,772,562.94 44,064,312.56 47,936,074.85 10,618,167.39
December 25, 2002.......... 64,923,360.68 44,348,894.58 44,168,222.30 8,912,488.41
January 25, 2003........... 63,035,022.24 44,635,314.52 40,346,683.20 7,252,591.82
February 25, 2003.......... 61,110,030.54 44,923,584.26 36,480,715.48 5,650,313.60
March 25, 2003............. 59,151,820.12 45,213,715.75 32,581,831.14 4,118,662.77
April 25, 2003............. 57,164,279.63 45,505,720.99 28,662,490.54 2,670,666.65
May 25, 2003............... 55,179,137.20 45,799,612.11 24,801,694.65 1,363,077.56
June 25, 2003.............. 53,226,268.21 46,095,401.27 21,071,159.13 240,755.05
July 25, 2003.............. 51,305,882.04 46,393,100.74 17,468,861.05 0.00
August 25, 2003............ 49,417,429.08 46,692,722.84 13,990,982.14 0.00
September 25, 2003......... 47,560,367.15 46,994,280.01 10,633,811.08 0.00
October 25, 2003........... 45,734,161.44 47,297,784.74 7,393,740.48 0.00
November 25, 2003.......... 43,938,284.37 47,603,249.60 4,267,264.00 0.00
December 25, 2003.......... 42,172,215.52 47,910,687.25 1,250,973.50 0.00
January 25, 2004........... 40,435,441.49 48,220,110.44 0.00 0.00
February 25, 2004.......... 38,727,455.86 48,531,531.99 0.00 0.00
</TABLE>
---------
* The targeted principal balances for each class of TAC certificates on each
distribution date were calculated assuming that (i) the Loans have the
characteristics set forth in the Modeling Assumptions described under the
heading 'Prepayment and Yield Considerations -- Prepayment Speed Assumption
and Modeling Assumptions,' and (ii) the Loans, in the case of the principle
balance of the Class A-6 and Class A-10 are prepaid at a constant rate of
(a) 250% PSA in the case of the first targeted principle balances; and
(b) 475% PSA in the case of the second targeted principle balances; and
(iii) the Loans, in the case of Component A-7-4 are prepaid at a constant rate
of (a) 250% PSA in the case of the first targeted principle balances; and
(b) 750% PSA in the case of the second targeted principle balances.
B-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
CLASS A-6 AND CLASS A-6 AND
CLASS A-10 COMPONENT A-7-4 CLASS A-10 COMPONENT A-7-4
DISTRIBUTION DATES SCHEDULE #1 SCHEDULE #1 SCHEDULE #2 SCHEDULE #2
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
March 25, 2004............. $37,047,759.03 $48,844,964.80 $ 0.00 $ 0.00
April 25, 2004............. 35,395,858.16 49,160,421.86 0.00 0.00
May 25, 2004............... 33,771,267.07 49,477,916.25 0.00 0.00
June 25, 2004.............. 32,173,506.15 49,797,461.13 0.00 0.00
July 25, 2004.............. 30,602,102.25 50,119,069.73 0.00 0.00
August 25, 2004............ 29,056,588.61 50,442,755.39 0.00 0.00
September 25, 2004......... 27,536,504.76 50,768,531.52 0.00 0.00
October 25, 2004........... 26,041,396.43 51,096,411.62 0.00 0.00
November 25, 2004.......... 24,570,815.46 51,426,409.28 0.00 0.00
December 25, 2004.......... 23,124,319.75 51,758,538.17 0.00 0.00
January 25, 2005........... 21,701,473.09 52,092,812.06 0.00 0.00
February 25, 2005.......... 20,301,845.19 52,429,244.81 0.00 0.00
March 25, 2005............. 18,925,011.50 52,767,850.35 0.00 0.00
April 25, 2005............. 17,570,553.16 53,108,642.71 0.00 0.00
May 25, 2005............... 16,238,056.96 53,451,636.03 0.00 0.00
June 25, 2005.............. 14,927,115.20 53,796,844.51 0.00 0.00
July 25, 2005.............. 13,637,325.65 54,144,282.47 0.00 0.00
August 25, 2005............ 12,368,291.44 54,493,964.29 0.00 0.00
September 25, 2005......... 11,119,621.04 54,845,904.48 0.00 0.00
October 25, 2005........... 9,890,928.11 55,200,117.61 0.00 0.00
November 25, 2005.......... 8,681,831.49 55,556,618.37 0.00 0.00
December 25, 2005.......... 7,491,955.09 55,915,421.53 0.00 0.00
January 25, 2006........... 6,348,088.98 56,276,541.96 0.00 0.00
February 25, 2006.......... 5,222,498.03 56,639,994.63 0.00 0.00
March 25, 2006............. 4,114,821.55 57,005,794.59 0.00 0.00
April 25, 2006............. 3,024,703.63 57,373,957.02 0.00 0.00
May 25, 2006............... 1,951,793.08 57,744,497.16 0.00 0.00
June 25, 2006.............. 895,743.38 58,117,430.37 0.00 0.00
July 25, 2006.............. 0.00 58,348,984.71 0.00 0.00
August 25, 2006............ 0.00 57,703,401.25 0.00 0.00
September 25, 2006......... 0.00 57,076,106.07 0.00 0.00
October 25, 2006........... 0.00 56,466,786.38 0.00 0.00
November 25, 2006.......... 0.00 55,875,133.81 0.00 0.00
December 25, 2006.......... 0.00 55,300,844.37 0.00 0.00
January 25, 2007........... 0.00 54,751,971.06 0.00 0.00
February 25, 2007.......... 0.00 54,219,736.56 0.00 0.00
March 25, 2007............. 0.00 53,703,850.69 0.00 0.00
April 25, 2007............. 0.00 53,204,027.39 0.00 0.00
May 25, 2007............... 0.00 52,695,941.28 0.00 0.00
June 25, 2007.............. 0.00 52,174,022.94 0.00 0.00
July 25, 2007.............. 0.00 51,639,038.64 0.00 0.00
August 25, 2007............ 0.00 51,091,726.55 0.00 0.00
September 25, 2007......... 0.00 50,532,797.68 0.00 0.00
October 25, 2007........... 0.00 49,962,936.72 0.00 0.00
November 25, 2007.......... 0.00 49,382,802.93 0.00 0.00
December 25, 2007.......... 0.00 48,793,030.90 0.00 0.00
January 25, 2008........... 0.00 48,171,207.96 0.00 0.00
February 25, 2008.......... 0.00 47,542,079.30 0.00 0.00
March 25, 2008............. 0.00 46,906,178.76 0.00 0.00
April 25, 2008............. 0.00 46,264,019.25 0.00 0.00
May 25, 2008............... 0.00 45,616,093.49 0.00 0.00
</TABLE>
B-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
CLASS A-6 AND CLASS A-6 AND
CLASS A-10 COMPONENT A-7-4 CLASS A-10 COMPONENT A-7-4
DISTRIBUTION DATES SCHEDULE #1 SCHEDULE #1 SCHEDULE #2 SCHEDULE #2
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
June 25, 2008.............. $ 0.00 $44,962,874.61 $ 0.00 $ 0.00
July 25, 2008.............. 0.00 44,304,816.87 0.00 0.00
August 25, 2008............ 0.00 43,642,356.22 0.00 0.00
September 25, 2008......... 0.00 42,975,910.97 0.00 0.00
October 25, 2008........... 0.00 42,305,882.31 0.00 0.00
November 25, 2008.......... 0.00 41,632,654.95 0.00 0.00
December 25, 2008.......... 0.00 40,956,597.63 0.00 0.00
January 25, 2009........... 0.00 40,262,224.64 0.00 0.00
February 25, 2009.......... 0.00 39,566,909.32 0.00 0.00
March 25, 2009............. 0.00 38,870,928.52 0.00 0.00
April 25, 2009............. 0.00 38,174,546.60 0.00 0.00
May 25, 2009............... 0.00 37,478,015.90 0.00 0.00
June 25, 2009.............. 0.00 36,781,577.14 0.00 0.00
July 25, 2009.............. 0.00 36,085,459.80 0.00 0.00
August 25, 2009............ 0.00 35,389,882.57 0.00 0.00
September 25, 2009......... 0.00 34,695,053.66 0.00 0.00
October 25, 2009........... 0.00 34,001,171.22 0.00 0.00
November 25, 2009.......... 0.00 33,308,423.67 0.00 0.00
December 25, 2009.......... 0.00 32,616,990.04 0.00 0.00
January 25, 2010........... 0.00 31,918,141.85 0.00 0.00
February 25, 2010.......... 0.00 31,221,993.08 0.00 0.00
March 25, 2010............. 0.00 30,528,641.19 0.00 0.00
April 25, 2010............. 0.00 29,838,177.76 0.00 0.00
May 25, 2010............... 0.00 29,150,688.70 0.00 0.00
June 25, 2010.............. 0.00 28,466,254.40 0.00 0.00
July 25, 2010.............. 0.00 27,784,950.01 0.00 0.00
August 25, 2010............ 0.00 27,106,845.57 0.00 0.00
September 25, 2010......... 0.00 26,432,006.21 0.00 0.00
October 25, 2010........... 0.00 25,760,492.36 0.00 0.00
November 25, 2010.......... 0.00 25,092,359.89 0.00 0.00
December 25, 2010.......... 0.00 24,427,660.29 0.00 0.00
January 25, 2011........... 0.00 23,766,440.85 0.00 0.00
February 25, 2011.......... 0.00 23,108,744.79 0.00 0.00
March 25, 2011............. 0.00 22,454,611.44 0.00 0.00
April 25, 2011............. 0.00 21,804,076.35 0.00 0.00
May 25, 2011............... 0.00 21,157,171.49 0.00 0.00
June 25, 2011.............. 0.00 20,513,925.34 0.00 0.00
July 25, 2011.............. 0.00 19,874,363.03 0.00 0.00
August 25, 2011............ 0.00 19,238,506.51 0.00 0.00
September 25, 2011......... 0.00 18,606,374.61 0.00 0.00
October 25, 2011........... 0.00 17,977,983.23 0.00 0.00
November 25, 2011.......... 0.00 17,353,345.40 0.00 0.00
December 25, 2011.......... 0.00 16,732,471.41 0.00 0.00
January 25, 2012........... 0.00 16,115,368.97 0.00 0.00
February 25, 2012.......... 0.00 15,502,043.21 0.00 0.00
March 25, 2012............. 0.00 14,892,496.90 0.00 0.00
April 25, 2012............. 0.00 14,286,730.45 0.00 0.00
May 25, 2012............... 0.00 13,684,742.09 0.00 0.00
June 25, 2012.............. 0.00 13,086,527.88 0.00 0.00
July 25, 2012.............. 0.00 12,492,081.86 0.00 0.00
August 25, 2012............ 0.00 11,901,396.13 0.00 0.00
</TABLE>
B-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
CLASS A-6 AND CLASS A-6 AND
CLASS A-10 COMPONENT A-7-4 CLASS A-10 COMPONENT A-7-4
DISTRIBUTION DATES SCHEDULE #1 SCHEDULE #1 SCHEDULE #2 SCHEDULE #2
------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
September 25, 2012......... $ 0.00 $11,314,460.89 $ 0.00 $ 0.00
October 25, 2012........... 0.00 10,731,264.56 0.00 0.00
November 25, 2012.......... 0.00 10,151,793.87 0.00 0.00
December 25, 2012.......... 0.00 9,576,033.87 0.00 0.00
January 25, 2013........... 0.00 9,003,968.09 0.00 0.00
February 25, 2013.......... 0.00 8,435,578.52 0.00 0.00
March 25, 2013............. 0.00 7,870,845.77 0.00 0.00
April 25, 2013............. 0.00 7,309,749.05 0.00 0.00
May 25, 2013............... 0.00 6,752,266.28 0.00 0.00
June 25, 2013.............. 0.00 6,198,374.15 0.00 0.00
July 25, 2013.............. 0.00 5,648,048.16 0.00 0.00
August 25, 2013............ 0.00 5,101,262.69 0.00 0.00
September 25, 2013......... 0.00 4,557,991.06 0.00 0.00
October 25, 2013........... 0.00 4,018,205.54 0.00 0.00
November 25, 2013.......... 0.00 3,481,877.48 0.00 0.00
December 25, 2013.......... 0.00 2,948,977.28 0.00 0.00
January 25, 2014........... 0.00 2,419,474.47 0.00 0.00
February 25, 2014.......... 0.00 1,893,337.78 0.00 0.00
March 25, 2014............. 0.00 1,370,535.14 0.00 0.00
April 25, 2014............. 0.00 851,033.75 0.00 0.00
May 25, 2014............... 0.00 334,800.09 0.00 0.00
June 25, 2014 and
thereafter............... 0.00 0.00 0.00 0.00
</TABLE>
B-4
<PAGE>
APPENDIX C
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
DISTRIBUTION ----------------------------- ------------------------------
DATE 0% 100% 250% 375% 500% 0% 100% 250% 375% 500%
---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
December 25, 2001... 99 95 95 95 95 100 100 100 100 100
December 25, 2002... 84 12 12 12 12 100 100 100 100 100
December 25, 2003... 68 0 0 0 0 100 80 80 80 80
December 25, 2004... 51 0 0 0 0 100 59 59 59 59
December 25, 2005... 32 0 0 0 0 100 38 38 38 38
December 25, 2006... 11 0 0 0 0 100 20 20 20 20
December 25, 2007... 0 0 0 0 0 98 3 3 3 3
December 25, 2008... 0 0 0 0 0 93 0 0 0 0
December 25, 2009... 0 0 0 0 0 87 0 0 0 0
December 25, 2010... 0 0 0 0 0 82 0 0 0 0
December 25, 2011... 0 0 0 0 0 75 0 0 0 0
December 25, 2012... 0 0 0 0 0 69 0 0 0 0
December 25, 2013... 0 0 0 0 0 61 0 0 0 0
December 25, 2014... 0 0 0 0 0 53 0 0 0 0
December 25, 2015... 0 0 0 0 0 44 0 0 0 0
December 25, 2016... 0 0 0 0 0 35 0 0 0 0
December 25, 2017... 0 0 0 0 0 25 0 0 0 0
December 25, 2018... 0 0 0 0 0 13 0 0 0 0
December 25, 2019... 0 0 0 0 0 1 0 0 0 0
December 25, 2020... 0 0 0 0 0 0 0 0 0 0
December 25, 2021... 0 0 0 0 0 0 0 0 0 0
December 25, 2022... 0 0 0 0 0 0 0 0 0 0
December 25, 2023... 0 0 0 0 0 0 0 0 0 0
December 25, 2024... 0 0 0 0 0 0 0 0 0 0
December 25, 2025... 0 0 0 0 0 0 0 0 0 0
December 25, 2026... 0 0 0 0 0 0 0 0 0 0
December 25, 2027... 0 0 0 0 0 0 0 0 0 0
December 25, 2028... 0 0 0 0 0 0 0 0 0 0
December 25, 2029... 0 0 0 0 0 0 0 0 0 0
December 25, 2030... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in Years).... 3.98 1.63 1.63 1.63 1.63 13.92 4.54 4.54 4.54 4.54
<CAPTION>
CLASS A-3
DISTRIBUTION -----------------------------
DATE 0% 100% 250% 375% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
December 25, 2001... 100 100 100 100 100
December 25, 2002... 100 100 100 100 100
December 25, 2003... 100 100 100 100 100
December 25, 2004... 100 100 100 100 100
December 25, 2005... 100 100 100 100 100
December 25, 2006... 100 100 100 100 100
December 25, 2007... 100 100 100 100 100
December 25, 2008... 100 63 63 63 63
December 25, 2009... 100 30 30 30 30
December 25, 2010... 100 10 10 10 10
December 25, 2011... 100 0 0 0 0
December 25, 2012... 100 0 0 0 0
December 25, 2013... 100 0 0 0 0
December 25, 2014... 100 0 0 0 0
December 25, 2015... 100 0 0 0 0
December 25, 2016... 100 0 0 0 0
December 25, 2017... 100 0 0 0 0
December 25, 2018... 100 0 0 0 0
December 25, 2019... 100 0 0 0 0
December 25, 2020... 41 0 0 0 0
December 25, 2021... 0 0 0 0 0
December 25, 2022... 0 0 0 0 0
December 25, 2023... 0 0 0 0 0
December 25, 2024... 0 0 0 0 0
December 25, 2025... 0 0 0 0 0
December 25, 2026... 0 0 0 0 0
December 25, 2027... 0 0 0 0 0
December 25, 2028... 0 0 0 0 0
December 25, 2029... 0 0 0 0 0
December 25, 2030... 0 0 0 0 0
Weighted Average
Life (in Years).... 19.91 8.59 8.59 8.59 8.59
</TABLE>
---------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
C-1
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-6 CLASS A-7
DISTRIBUTION ----------------------------- -----------------------------
DATE 0% 100% 250% 375% 500% 0% 100% 250% 375% 500%
---- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
December 25, 2001... 93 89 82 82 81 107 107 107 107 104
December 25, 2002... 89 84 59 51 35 114 114 114 114 106
December 25, 2003... 84 79 33 11 0 122 122 121 121 109
December 25, 2004... 78 74 11 0 0 131 130 130 124 54
December 25, 2005... 72 68 0 0 0 140 139 138 92 24
December 25, 2006... 66 61 0 0 0 150 149 137 76 13
December 25, 2007... 59 53 0 0 0 161 160 122 67 12
December 25, 2008... 51 41 0 0 0 173 171 104 58 12
December 25, 2009... 43 25 0 0 0 185 184 85 49 12
December 25, 2010... 35 7 0 0 0 199 198 67 42 12
December 25, 2011... 25 0 0 0 0 214 211 48 34 10
December 25, 2012... 15 0 0 0 0 230 195 29 26 7
December 25, 2013... 4 0 0 0 0 247 170 12 20 5
December 25, 2014... 0 0 0 0 0 265 147 3 15 3
December 25, 2015... 0 0 0 0 0 276 124 2 11 2
December 25, 2016... 0 0 0 0 0 271 101 1 8 2
December 25, 2017... 0 0 0 0 0 266 80 1 6 1
December 25, 2018... 0 0 0 0 0 260 58 1 5 1
December 25, 2019... 0 0 0 0 0 254 37 * 3 *
December 25, 2020... 0 0 0 0 0 247 17 * 2 *
December 25, 2021... 0 0 0 0 0 229 1 * 2 *
December 25, 2022... 0 0 0 0 0 195 * * 1 *
December 25, 2023... 0 0 0 0 0 159 * * 1 *
December 25, 2024... 0 0 0 0 0 119 * * 1 *
December 25, 2025... 0 0 0 0 0 76 * * * *
December 25, 2026... 0 0 0 0 0 29 * * * *
December 25, 2027... 0 0 0 0 0 1 * * * *
December 25, 2028... 0 0 0 0 0 1 * * * *
December 25, 2029... 0 0 0 0 0 * * * * *
December 25, 2030... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in Years).... 7.69 6.37 2.39 1.98 1.68 23.12 15.92 9.82 8.58 5.02
<CAPTION>
CLASS A-8
DISTRIBUTION -----------------------------
DATE 0% 100% 250% 375% 500%
---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100
December 25, 2001... 108 108 108 0 0
December 25, 2002... 117 117 117 0 0
December 25, 2003... 126 126 126 0 0
December 25, 2004... 136 136 136 0 0
December 25, 2005... 147 147 147 0 0
December 25, 2006... 159 159 159 0 0
December 25, 2007... 172 172 172 0 0
December 25, 2008... 186 186 186 0 0
December 25, 2009... 200 200 200 0 0
December 25, 2010... 217 217 217 0 0
December 25, 2011... 234 234 234 0 0
December 25, 2012... 253 253 253 0 0
December 25, 2013... 273 273 273 0 0
December 25, 2014... 295 295 231 0 0
December 25, 2015... 319 319 140 0 0
December 25, 2016... 344 344 58 0 0
December 25, 2017... 372 372 0 0 0
December 25, 2018... 402 402 0 0 0
December 25, 2019... 434 434 0 0 0
December 25, 2020... 469 469 0 0 0
December 25, 2021... 506 468 0 0 0
December 25, 2022... 547 325 0 0 0
December 25, 2023... 591 186 0 0 0
December 25, 2024... 639 50 0 0 0
December 25, 2025... 690 0 0 0 0
December 25, 2026... 745 0 0 0 0
December 25, 2027... 599 0 0 0 0
December 25, 2028... 172 0 0 0 0
December 25, 2029... 0 0 0 0 0
December 25, 2030... 0 0 0 0 0
Weighted Average
Life (in Years).... 27.55 22.61 15.08 0.68 0.45
</TABLE>
---------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-2
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-9 CLASS A-10
----------------------------- -----------------------------
DISTRIBUTION DATE 0% 100% 250% 375% 500% 0% 100% 250% 375% 500%
----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
December 25, 2001... 108 108 108 107 0 97 95 92 92 92
December 25, 2002... 117 117 117 0 0 95 93 82 78 71
December 25, 2003... 126 126 126 0 0 93 91 70 60 5
December 25, 2004... 136 136 136 0 0 90 88 60 0 0
December 25, 2005... 147 147 147 0 0 88 86 30 0 0
December 25, 2006... 159 159 159 0 0 85 83 0 0 0
December 25, 2007... 172 172 172 0 0 82 79 0 0 0
December 25, 2008... 186 186 186 0 0 78 74 0 0 0
December 25, 2009... 200 200 200 0 0 75 67 0 0 0
December 25, 2010... 217 217 217 0 0 71 59 0 0 0
December 25, 2011... 234 234 234 0 0 67 16 0 0 0
December 25, 2012... 253 253 253 0 0 62 0 0 0 0
December 25, 2013... 273 273 273 0 0 57 0 0 0 0
December 25, 2014... 295 295 295 0 0 28 0 0 0 0
December 25, 2015... 319 319 319 0 0 0 0 0 0 0
December 25, 2016... 344 344 344 0 0 0 0 0 0 0
December 25, 2017... 372 372 349 0 0 0 0 0 0 0
December 25, 2018... 402 402 286 0 0 0 0 0 0 0
December 25, 2019... 434 434 232 0 0 0 0 0 0 0
December 25, 2020... 469 469 187 0 0 0 0 0 0 0
December 25, 2021... 506 506 148 0 0 0 0 0 0 0
December 25, 2022... 547 547 116 0 0 0 0 0 0 0
December 25, 2023... 591 591 89 0 0 0 0 0 0 0
December 25, 2024... 639 639 67 0 0 0 0 0 0 0
December 25, 2025... 690 573 49 0 0 0 0 0 0 0
December 25, 2026... 745 445 35 0 0 0 0 0 0 0
December 25, 2027... 805 322 23 0 0 0 0 0 0 0
December 25, 2028... 870 205 13 0 0 0 0 0 0 0
December 25, 2029... 536 94 5 0 0 0 0 0 0 0
December 25, 2030... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in Years).... 29.2 27.07 20.94 1.26 0.83 11.21 8.86 3.89 2.91 2.36
</TABLE>
---------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
C-3
<PAGE>
PERCENT OF INITIAL CLASS PRINCIPAL BALANCE OUTSTANDING
AT VARIOUS PERCENTAGES OF THE PREPAYMENT SPEED ASSUMPTION
<TABLE>
<CAPTION>
CLASS R CLASS M, CLASS B-1 AND CLASS B-2
----------------------------- ---------------------------------------
DISTRIBUTION DATE 0% 100% 250% 375% 500% 0% 100% 250% 375% 500%
----------------- -- ---- ---- ---- ---- -- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial............. 100 100 100 100 100 100 100 100 100 100
December 25, 2001... 0 0 0 0 0 99 99 99 99 99
December 25, 2002... 0 0 0 0 0 98 98 98 98 98
December 25, 2003... 0 0 0 0 0 97 97 97 97 97
December 25, 2004... 0 0 0 0 0 96 96 96 96 96
December 25, 2005... 0 0 0 0 0 95 95 95 95 95
December 25, 2006... 0 0 0 0 0 94 92 90 87 85
December 25, 2007... 0 0 0 0 0 93 89 83 78 72
December 25, 2008... 0 0 0 0 0 91 84 74 66 58
December 25, 2009... 0 0 0 0 0 90 79 64 53 43
December 25, 2010... 0 0 0 0 0 88 73 53 40 29
December 25, 2011... 0 0 0 0 0 86 67 44 30 20
December 25, 2012... 0 0 0 0 0 84 61 37 23 14
December 25, 2013... 0 0 0 0 0 82 56 30 17 9
December 25, 2014... 0 0 0 0 0 80 51 25 13 6
December 25, 2015... 0 0 0 0 0 77 47 21 10 4
December 25, 2016... 0 0 0 0 0 74 42 17 7 3
December 25, 2017... 0 0 0 0 0 71 38 14 5 2
December 25, 2018... 0 0 0 0 0 68 34 11 4 1
December 25, 2019... 0 0 0 0 0 64 30 9 3 1
December 25, 2020... 0 0 0 0 0 61 27 7 2 1
December 25, 2021... 0 0 0 0 0 56 24 6 2 *
December 25, 2022... 0 0 0 0 0 52 20 4 1 *
December 25, 2023... 0 0 0 0 0 47 17 3 1 *
December 25, 2024... 0 0 0 0 0 42 14 3 1 *
December 25, 2025... 0 0 0 0 0 36 12 2 * *
December 25, 2026... 0 0 0 0 0 30 9 1 * *
December 25, 2027... 0 0 0 0 0 23 7 1 * *
December 25, 2028... 0 0 0 0 0 16 4 1 * *
December 25, 2029... 0 0 0 0 0 8 2 * * *
December 25, 2030... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life (in Years).... 0.09 0.09 0.09 0.09 0.09 20.53 15.21 11.4 9.83 8.88
</TABLE>
---------
(1) The weighted average life of any Class of Certificates is determined by (i)
multiplying the net reduction, if any, of the Certificate Principal Balance
by the number of years from the date of issuance of the Certificates to the
related Distribution Date, (ii) summing the results, and (iii) dividing the
sum by the total net reductions of the Certificate Principal Balance
described in (i) above.
* Represents amounts greater than zero and less than 0.50% of the initial
aggregate Certificate Principal Balance outstanding.
C-4
<PAGE>
APPENDIX D
<TABLE>
<CAPTION>
YEAR OF FIRST PAYMENT
------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
YEAR OF FIRST PAYMENT LOANS OUTSTANDING OUTSTANDING
--------------------- ----- ----------- -----------
<S> <C> <C> <C>
2000................ 692 $266,393,674.19 98.80%
2001................ 9 3,243,200.00 1.20
--- --------------- ------
Total............. 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
ORIGINAL LOAN-TO-VALUE RATIOS(1)
----------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RANGE OF ORIGINAL MORTGAGE BALANCE BALANCE
LOAN-TO-VALUE RATIOS (%) LOANS OUTSTANDING OUTSTANDING
------------------------ ----- ----------- -----------
<S> <C> <C> <C>
50.00 or less........... 19 $ 8,655,158.97 3.21%
50.01 - 55.00........... 20 8,310,058.89 3.08
55.01 - 60.00........... 21 9,711,765.19 3.60
60.01 - 65.00........... 29 12,551,461.79 4.65
65.01 - 70.00........... 61 29,334,335.37 10.88
70.01 - 75.00........... 68 26,635,604.97 9.88
75.01 - 80.00........... 371 139,892,098.66 51.88
80.01 - 85.00........... 19 5,569,207.92 2.07
85.01 - 90.00........... 66 21,306,494.63 7.90
90.01 - 95.00........... 27 7,670,687.80 2.84
--- --------------- ------
Total................. 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) The weighted average original Loan-to-Value Ratio of the Loans is expected
to be approximately 75.46%.
<TABLE>
<CAPTION>
ORIGINAL TERMS TO MATURITY(1)
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
ORIGINAL TERM TO MORTGAGE BALANCE BALANCE
MATURITY LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
360................ 701 $269,636,874.19 100.00%
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) As of the Cut-off Date, the weighted average remaining term to maturity of
the Loans is expected to be approximately 360 months.
<TABLE>
<CAPTION>
MORTGAGE RATES(1)
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
MORTGAGE RATE (%) LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
7.251 - 7.500...... 19 $ 7,522,241.52 2.79%
7.501 - 7.750...... 41 16,426,094.40 6.09
7.751 - 8.000...... 164 64,941,284.17 24.08
8.001 - 8.250...... 258 97,575,849.62 36.19
8.251 - 8.500...... 145 54,063,688.07 20.05
8.501 - 8.750...... 46 17,066,068.45 6.33
8.751 - 9.000...... 27 11,725,985.56 4.35
9.001 and up....... 1 315,662.40 0.12
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) As of the Cut-off Date, the weighted average Mortgage Rate of the Loans is
expected to be approximately 8.195%.
<TABLE>
<CAPTION>
CURRENT MORTGAGE LOAN PRINCIPAL BALANCES(1)
---------------------------------------------------------------------
PERCENTAGE OF
AGGREGATE OF AGGREGATE
RANGE OF CURRENT NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE LOAN MORTGAGE BALANCE BALANCE
PRINCIPAL BALANCES LOANS OUTSTANDING OUTSTANDING
----------------------- ----- ----------- -----------
<S> <C> <C> <C>
200,000.01 - 300,000.00... 196 $ 55,651,480.18 20.64%
300,000.01 - 400,000.00... 301 104,673,152.54 38.82
400,000.01 - 500,000.00... 115 51,975,753.64 19.28
500,000.01 - 600,000.00... 45 24,664,278.98 9.15
600,000.01 - 700,000.00... 26 16,599,947.64 6.16
700,000.01 - 800,000.00... 5 3,847,482.32 1.43
800,000.01 - 900,000.00... 3 2,455,879.89 0.91
900,000.01 - 1,000,000.00... 10 9,768,899.00 3.62
--- --------------- ------
Total................ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) As of the Cut-off Date, the average current Loan principal balance is
expected to be approximately $384,646.
<TABLE>
<CAPTION>
PURPOSE OF MORTGAGE LOANS
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
LOAN PURPOSE LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
Purchase........... 550 $210,195,838.14 77.96%
Rate/Term
Refinance......... 87 34,879,446.24 12.94
Cash Out
Refinance......... 55 20,760,535.52 7.70
Construction
Permanent......... 9 3,801,054.29 1.41
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
D-1
<PAGE>
<TABLE>
<CAPTION>
DOCUMENTATION PROGRAMS FOR MORTGAGE LOANS
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
DOCUMENTATION TYPE LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
Full............... 701 $269,636,874.19 100.00%
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY TYPES(1)
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
OCCUPANCY TYPE LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
Primary Home....... 666 $256,333,867.01 95.07%
Second Home........ 35 13,303,007.18 4.93
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) Based upon representations of the related mortgagors at the time of
origination.
<TABLE>
<CAPTION>
TYPES OF MORTGAGED PROPERTIES
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
PROPERTY TYPE LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
Single Family...... 552 $212,292,475.95 78.73%
PUD Detached....... 78 30,060,766.87 11.15
Condominium........ 54 20,601,539.02 7.64
PUD Attached....... 8 2,880,726.70 1.07
Condominium High
Rise.............. 6 2,793,603.90 1.04
Townhouse.......... 2 568,649.18 0.21
2 - 4 Family....... 1 439,112.57 0.16
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
<TABLE>
<CAPTION>
SEASONING(1)
----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
SEASONING LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
0.................. 9 $ 3,243,200.00 1.20%
1 - 12............. 692 266,393,674.19 98.80
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
------------------------
(1) As of the Cut-off Date, the weighted average seasoning of the Loans is
expected to be approximately 2 months.
<TABLE>
<CAPTION>
STATE DISTRIBUTION OF THE MORTGAGED PROPERTIES
-----------------------------------------------------------------
PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
MORTGAGE BALANCE BALANCE
STATE LOANS OUTSTANDING OUTSTANDING
------------------- ----- ----------- -----------
<S> <C> <C> <C>
Alabama............ 4 $ 1,213,570.23 0.45%
Arizona............ 8 3,079,648.15 1.14
California......... 252 100,476,309.11 37.26
Colorado........... 16 6,335,741.68 2.35
Connecticut........ 12 4,641,525.86 1.72
District of
Columbia.......... 2 818,248.69 0.30
Florida............ 24 9,306,362.01 3.45
Georgia............ 7 2,713,773.51 1.01
Idaho.............. 3 1,035,322.94 0.38
Illinois........... 51 19,453,048.30 7.21
Indiana............ 4 1,567,600.08 0.58
Kansas............. 1 272,775.95 0.10
Kentucky........... 1 371,750.39 0.14
Louisiana.......... 4 1,239,805.50 0.46
Maine.............. 1 290,327.97 0.11
Maryland........... 7 2,405,427.67 0.89
Massachusetts...... 13 5,071,622.46 1.88
Michigan........... 83 30,778,740.57 11.41
Minnesota.......... 15 6,109,650.56 2.27
Missouri........... 4 1,344,829.15 0.50
Montana............ 2 707,730.76 0.26
Nevada............. 2 1,293,361.50 0.48
New Hampshire...... 2 583,260.85 0.22
New Jersey......... 15 5,200,032.18 1.93
New Mexico......... 2 753,622.01 0.28
New York........... 43 17,252,457.46 6.40
North Carolina..... 9 3,050,802.73 1.13
Ohio............... 10 3,308,100.06 1.23
Oklahoma........... 2 630,277.15 0.23
Oregon............. 7 2,609,755.09 0.97
Pennsylvania....... 5 1,913,158.09 0.71
South Corolina..... 3 1,213,595.85 0.45
Tennessee.......... 2 830,220.16 0.31
Texas.............. 36 13,966,195.47 5.18
Utah............... 5 1,789,567.29 0.66
Virginia........... 17 5,556,581.00 2.06
Vermont............ 1 545,336.12 0.20
Washington......... 24 9,081,261.91 3.37
Wisconsin.......... 2 825,477.73 0.31
--- --------------- ------
Total............ 701 $269,636,874.19 100.00%
--- --------------- ------
--- --------------- ------
</TABLE>
D-2
<PAGE>
ABN AMRO MORTGAGE CORPORATION, DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
ISSUABLE IN SERIES BY SEPARATE TRUSTS
--------------
EACH SERIES OF CERTIFICATES:
will consist of one or more classes of mortgage pass-through certificates
representing interests in the assets of a trust;
will receive principal and interest only from payments collected on the assets
of the related trust; and
will not be insured or guaranteed by any government agency or instrumentality
and will not be obligations of ABN AMRO Mortgage Corporation or any related
companies.
EACH TRUST:
will own a pool of mortgage assets sold to the trust by ABN AMRO Mortgage
Corporation that may include:
-- mortgage loans;
-- certificates backed by mortgage loans;
-- principal and interest payments due on these mortgage assets
will include mortgage loans secured by first liens on:
-- one- to four-family residential properties; and
-- rights to own and occupy apartments in cooperative buildings.
--------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 12, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of the Certificates........ 1
Source of Funds for Payment........ 1
Form of Certificates............... 2
Classes of Certificates............ 3
Distributions of Principal and
Interest......................... 6
General........................ 6
Distributions of Interest...... 8
Distributions of Principal..... 8
Example of Distributions........... 9
Optional Termination of a Trust or
Underlying Trust................. 11
The Trusts............................. 12
General............................ 12
The Loans.......................... 14
Description of the Loans....... 14
Payment Provisions of the
Loans........................ 14
Loan Underwriting Policies..... 17
Mortgage Certificates.............. 19
Description of the Mortgage
Certificates................. 19
Substitution of Mortgage
Certificates................. 25
The Depositor.......................... 25
Generally.......................... 25
Year 2000 Project.................. 26
State of Readiness............. 26
Risks.......................... 27
Use of Proceeds........................ 27
Credit Enhancement..................... 28
Types of Enhancements.............. 28
Subordination...................... 28
Shifting Interest Credit
Enhancement...................... 29
Cross-Support...................... 30
Pool Insurance..................... 30
Special Hazard Insurance........... 31
Bankruptcy Bond.................... 32
Reserve Fund....................... 32
Overcollateralization.............. 33
Letter of Credit................... 33
Surety Bond........................ 33
Other Insurance, Guarantees and
Similar Instruments or
Agreements....................... 33
Prepayment, Yield and Maturity
Considerations....................... 34
General............................ 34
Determination of Pass-Through
Rates........................ 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Determination of Remittance
Rate......................... 34
Yield.............................. 35
Price.......................... 35
Effective Pass-Through Rate.... 36
Other Yield Considerations..... 37
Prepayment Considerations.......... 38
General........................ 38
Substitutions.................. 40
Loan Assumptions............... 40
ARMs........................... 40
Foreclosures................... 41
Pre-Funding.................... 42
Prepayment Assumptions......... 42
Optional Termination........... 43
Distributions on the Certificates...... 43
Servicing of the Loans................. 45
Collection and Other Servicing
Procedures....................... 45
Primary Mortgage Insurance......... 48
Hazard Insurance................... 49
Unanticipated Recoveries of Losses
on the Loans..................... 50
Advances........................... 51
Payments on Mortgage Assets........ 52
Administration Fees, Compensation
and Payment of Expenses.......... 52
Resignation of the Master Servicer;
Scope of Indemnities............. 53
Back-Up Master Servicer............ 54
Special Servicing Agreements....... 54
Servicing of the Underlying
Loans............................ 54
The Pooling and Servicing Agreement.... 55
Assignment of Loans................ 55
Representations and Warranties..... 57
Repurchase or Substitution......... 59
Forward Commitments: Pre-Funding
Account.......................... 60
Adjustment to Administration Fees
in Connection with Prepayment
Interest Shortfall............... 61
Book-Entry Registration............ 61
Global Clearance, Settlement and
Tax Documentation Procedures..... 65
Initial Settlement............. 66
Secondary Market Trading....... 66
U.S. Federal Income Tax
Documentation Requirements... 68
Definitive Certificates............ 70
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Evidence as to Compliance.......... 70
Reports to Certificateholders...... 71
Reports to the Trustee............. 72
Events of Default.................. 72
Rights Upon Event of Default....... 73
Amendment.......................... 74
Termination........................ 75
Governing Law...................... 75
Legal Aspects of the Loans............. 75
General............................ 76
Foreclosure........................ 76
Rights of Redemption............... 77
Anti-Deficiency Legislation and
Other Limitations on Lenders..... 78
Junior Liens; Rights of Senior
Lienholders...................... 79
'Due-on-Sale' Clauses.............. 81
Environmental Legislation.......... 82
Subordinate Financing.............. 82
Applicability of Usury Laws........ 83
Enforceability of Some
Provisions....................... 83
Legal Aspects of the Loans Under
California Law................... 84
Co-op Loans........................ 84
Legal Investment Matters............... 85
ERISA Considerations................... 87
Federal Income Tax Consequences........ 92
General............................ 92
REMIC.............................. 93
Classification of REMICs....... 93
Qualification as a REMIC........... 93
Characterization of Investments
in Certificates.............. 95
Taxation of Owners of Regular
Certificates................. 96
Constant Yield Election........ 99
Effects of Defaults and
Delinquencies................ 100
Taxation of Owners of Residual
Certificates................. 100
Pass-Through of Miscellaneous
Itemized Deductions.......... 103
Sales of Certificates.......... 104
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prohibited Transactions and
Other REMIC-Level Taxes...... 105
Tax on Transfers of Residual
Certificates to Certain
Organizations................ 106
Disregard of Some Types of
Transfers.................... 107
Termination.................... 107
Reporting and Other
Administrative Matters....... 108
Backup Withholding............. 109
Foreign Investors.............. 109
Purchase of Both Regular and
Residual Certificates........ 110
Trusts With Negatively Amortizing
ARMs............................. 110
Investment in Certificates Not
Representing Interests in a
REMIC............................ 110
Classification of Trust and
Characterization of
Investment in Certificates... 110
Taxation of Owners of P&I
Certificates................. 111
Taxation of Owners of IO
Certificates................. 115
Administration Fee, Voluntary
Advances and Subordinated
Amount....................... 117
Sales of Certificates.......... 117
Reporting...................... 118
Backup Withholding............. 119
Foreign Investors.............. 119
State Tax Considerations............... 120
Plan of Distribution................... 120
Legal Matters.......................... 122
Rating................................. 122
Where You Can Find More Information.... 123
ABN AMRO Mortgage Corporation...... 123
Additional Information Relating to
the Mortgage Certificates........ 123
Index to the Prospectus Definitions.... 124
</TABLE>
<PAGE>
------------------------------------------------
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We describe the offered certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to all series of certificates; and (2)
the prospectus supplement for a series of certificates, which describes the
specific terms of that series of securities and may be different from the
information in the prospectus. Neither this prospectus nor any prospectus
supplement will contain all the information included in the registration
statement. The registration statement also includes copies of the various
contracts and documents referred to in this prospectus and any prospectus
supplement. You may obtain copies of these documents for review. See 'Where You
Can Find More Information.'
IF THE DESCRIPTION OF THE TERMS OF THE CERTIFICATES VARIES BETWEEN THE
PROSPECTUS SUPPLEMENT AND THIS PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN
THE PROSPECTUS SUPPLEMENT.
We include cross-references in each prospectus supplement and in this
prospectus to captions in these materials where you can find further related
discussions. The Table of Contents which appears before this page and the Table
of Contents included in each prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption 'Index of Significant Definitions' in
this prospectus and in the prospectus supplement for each series.
----------------------------------------------------
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The certificates comprising each series will represent the entire beneficial
ownership interest in a distinct trust (the 'TRUST') that will issue those
certificates. The Trust will be comprised primarily of mortgage assets (the
'MORTGAGE ASSETS') consisting of:
mortgage loans (the 'LOANS') secured by first liens on one- to four-family
residential properties and rights to own and occupy apartments in
cooperative buildings,
mortgage certificates (the 'MORTGAGE CERTIFICATES') secured by mortgage
loans (the 'UNDERLYING LOANS'), and
the principal and interest payments due on the Mortgage Assets.
One or more entities, which may include an affiliate of ABN AMRO Mortgage
Corporation (the 'DEPOSITOR'), will be specified in the prospectus supplement as
the master servicer (the 'MASTER SERVICER') for a series of certificates. Each
series of certificates will be issued under a separate pooling and servicing
agreement (the 'POOLING AND SERVICING AGREEMENT') entered into among ABN AMRO
Mortgage Corporation, as Depositor, the Master Servicer, and a commercial bank
or trust company acting as trustee (the 'TRUSTEE') for the benefit of
certificateholders of the related series.
The provisions of each Pooling and Servicing Agreement will vary depending
upon the nature of the certificates to be issued and the nature of the related
Trust. This prospectus summarizes the material provisions which may appear in
each Pooling and Servicing Agreement. The prospectus supplement for a series of
certificates will describe any other material provisions of the Pooling and
Servicing Agreement relating to that series. On written request, the Depositor
will provide certificateholders with a copy of the Pooling and Servicing
Agreement for any series without charge. You should send your request to ABN
AMRO Mortgage Corporation, 181 West Madison Street, Suite 3250, Chicago,
Illinois 60602-4510, Attention: Maria Fregosi-Director-ABN AMRO Mortgage
Operations. The Depositor will file the Pooling and Servicing Agreement relating
to a series of certificates with the SEC within 15 days after the date of
issuance of a series of certificates. See 'The Trusts -- General.'
SOURCE OF FUNDS FOR PAYMENT
The certificates of a series will be entitled to payment only from the
proceeds from the Mortgage Assets included in the Trust issuing that series. You
will not be entitled to payments from the Mortgage Assets included in any other
Trust established by the Depositor. The certificates are not obligations of ABN
AMRO Mortgage Corporation or any of its affiliates. The certificates will not be
guaranteed by any governmental agency or any other entity.
The Depositor and the Master Servicer of the Mortgage Assets for a Trust
will each have limited obligations to the Trust.
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The Depositor's obligations will be limited to repurchasing Mortgage
Assets in the Trust or substituting different Mortgage Assets into the
Trust if the Depositor breaches its representations and warranties
concerning the Mortgage Assets.
The only obligations of the Master Servicer for the Trust will be its
contractual servicing and/or master servicing obligations. This may
include an obligation to make advances of delinquent installments of
principal, interest or both under limited circumstances.
The prospectus supplement may describe additional obligations of the
Depositor and the Master Servicer to the Trust. You should refer to 'The Pooling
and Servicing Agreement -- Repurchase or Substitution' and 'Servicing of the
Loans -- Advances' in this prospectus.
The Mortgage Assets in the Trust will not be insured or guaranteed by any
governmental agency or any other entity. You may experience delays in
distributions on your certificates or losses on your certificates if:
delinquent payments or losses on defaulted Loans are not advanced by the
Master Servicer or another person or paid from any credit enhancement
arrangement in your Trust;
payments on Mortgage Certificates are delayed or the Mortgage Certificates
experience losses.
FORM OF CERTIFICATES
The certificates of each series will be issued in fully registered
certificated or book-entry form only. The minimum original principal balance or
notional balance that may be represented by a certificate is referred to as its
denomination. Each prospectus supplement will specify the minimum denominations
for that series. The original principal balance of each certificate will equal
the aggregate distributions of principal to which that certificate is entitled.
Unless otherwise stated in the prospectus supplement, interest distributions on
each certificate that is not entitled to distributions of principal will be
calculated based on the notional balance of the certificate. The notional
balance will not evidence an interest in or entitlement to distributions of
principal. It will be used solely for convenience in determining the interest
payable on the certificate, the denomination of the certificate and the voting
rights of its holder. You will not receive payment of the notional balance of
your certificate.
When we refer to interests in the certificates, we sometimes reference two
different types of interests. The first is a 'FRACTIONAL UNDIVIDED INTEREST'
which means the percentage of the principal portion of a Trust evidenced by a
certificate. The second term is 'PERCENTAGE INTEREST' which means the percentage
that a certificate represents of a particular class of certificates. When we
refer to a 'RESIDUAL HOLDER,' we are referring to a certificateholder entitled
to receive the 'residual interest' in the REMIC as defined in Section 860G(a)(2)
of the Internal Revenue Code of 1986, as amended (the 'CODE').
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<PAGE>
Except for global certificates described in the next paragraph, you may
transfer and exchange your certificates on a certificate register to be
maintained at the corporate trust office of the Trustee or an office or agency
maintained by the Trustee for that purpose. Unless otherwise stated in the
prospectus supplement, the Trustee will not charge a fee for any registration of
transfer or exchange of certificates, but may require you to pay an amount
sufficient to cover any tax or other governmental charge. Before a certificate
is properly presented for transfer, the Master Servicer, the Trustee, the
certificate registrar and any of their agents may treat the person in whose name
a certificate is registered as the owner of the certificate for the purpose of
receiving distributions of principal and interest and for all other purposes
under the Pooling and Servicing Agreement.
For the classes of certificates specified in the applicable prospectus
supplement, investors will not have the right to receive physical certificates
evidencing their ownership except under limited circumstances. Instead, the
Trust will issue the certificates in the form of global certificates, which will
be held by The Depository Trust Company, known as DTC, or its nominee or a
similar institution. Financial institutions that are direct or indirect
participants in DTC will record beneficial ownership of a certificate by
individual investors in the authorized denominations.
CLASSES OF CERTIFICATES
Each series of certificates will be issued in one or more classes. Each
class of certificates may have multiple components and may be entitled to
receive all amounts payable on a specific group of assets in the related Trust.
The certificates of each class will be entitled to receive:
any distributions from the Mortgage Assets of the Trust that are allocable
to principal, in the aggregate amount of the original principal balance,
if any, of that class of certificates; and
any distributions from the Mortgage Assets of the Trust that are allocable
to interest on the principal balance or notional balance of the
certificates at the interest rate, if any, payable on that class of
certificates.
If stated in the prospectus supplement, the certificates will have an
aggregate original principal balance equal to the aggregate unpaid principal
balance of the Loans and Mortgage Certificates as of the close of business on
the first day of the month of creation of the Trust (the 'CUT-OFF DATE') after
deducting payments of principal due on or before, and prepayments of principal
received before, the Cut-off Date. The principal balance of a Loan refers to the
scheduled principal balance remaining to be paid at the close of business on the
Cut-Off Date:
reduced by all amounts collected by the Master Servicer and allocable to
principal of that Loan;
plus for any Loan which is not payable in self amortizing payments, the
shortfall, if any, in interest that is added to the principal balance of
the Loan.
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<PAGE>
The principal balance of a Mortgage Certificate refers to the principal
balance remaining to be paid at the close of business on the Cut-Off Date;
reduced by distributions of principal made after the Cut-Off Date and any
allocation of losses;
plus, any interest not distributed that may be added to the principal
balance of the Mortgage Certificate.
If a Trust or underlying trust includes Loans or Underlying Loans with payments
due on a day other than on the first day of each month, the prospectus
supplement will more fully describe any resulting effect on certificateholders.
Each class of certificates may bear interest at a different Remittance Rate.
The 'REMITTANCE RATE' will equal the rate of interest payable on each Mortgage
Asset in the Trust minus the Master Servicer's administration fee, the servicing
fee of any third party servicer of the Loans and any other amounts stated in the
prospectus supplement. If stated in the prospectus supplement, the original
principal balance of the certificates and the interest rate on the classes of
certificates will be determined based on the cash flows on the Mortgage Assets.
In addition, the related prospectus supplement will specify whether the
Pooling and Servicing Agreement will provide that all or a portion of principal
collected on the Mortgage Assets may be retained by the Trustee and held in
temporary investments, including mortgage loans, for a specified period prior to
being used to distribute payments of principal to certificateholders.
The result of any retention and temporary investment of principal by the
Trustee would be to slow the repayment rate of the related certificates relative
to the repayment rate of the related Mortgage Assets, or to attempt to match the
repayment rate of the related certificates to a repayment schedule established
at the time the certificates are issued. Any feature of this type applicable to
any certificates may terminate, resulting in the current funding of principal
payments to the related certificateholders and an acceleration of the repayment
of those certificates upon the occurrence of specified events described in the
related prospectus supplement.
Each series of certificates may include different classes of certificates
that have different rights to receive or not receive distributions of principal
and interest on each 'DISTRIBUTION DATE' as specified in the prospectus
supplement. The prospectus supplement for each series will outline these classes
and their rights. A summary of some of the possible categories of certificates
and their rights are described below:
Senior and Subordinated Certificates. The rights of a 'SENIOR' certificate
to receive any or a specified portion of distributions will be superior to the
rights of a 'SUBORDINATE' certificate up to an amount specified in the related
prospectus supplement (the 'SUBORDINATED AMOUNT'). See 'Credit
Enhancements -- Subordination.'
Accrual Certificates. Interest will accrue at the applicable Remittance Rate
on 'ACCRUAL' certificates, but the Trustee will not distribute interest until
the termination of
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<PAGE>
the accrual period specified in the prospectus supplement. Instead, the amount
of interest accrued during the accrual period will be added to the principal
balance of the certificate.
Accretion Directed Certificates. In addition to receiving distributions of
principal on the Mortgage Assets, 'ACCRETION DIRECTED' certificates are entitled
to receive principal distributions from the interest accrued but not paid to the
Accrual certificates.
Principal Only Certificates. 'PRINCIPAL ONLY' certificates are entitled to
receive distributions of principal on Mortgage Assets, but not to receive
distributions of interest.
Interest Only Certificates. 'INTEREST ONLY' certificates are entitled to
receive distributions of interest on the Mortgage Assets, but not distributions
of principal. These certificates will be denominated in notional balances. The
notional balance is the amount specified on the certificate, reduced by
distributions allocable to principal on the corresponding class or classes, all
as described in the prospectus supplement. The Trustee will calculate each
Interest Only Certificate's pro rata share of the interest distributions on the
Mortgage Assets by multiplying the amount of interest by the following fraction:
notional balance of the Interest Only certificate
notional balance of all Interest Only certificates of its
class
Stripped Certificates. 'STRIPPED' certificates may consist of the following:
Principal Only certificates;
Interest Only certificates;
certificates entitled to distributions of principal with disproportionate
or nominal interest distributions; or
certificates entitled to distributions of interest with disproportionate
or nominal principal distributions.
Sequential Pay Certificates. 'SEQUENTIAL PAY' certificates receive
distributions of principal in order so that no class will receive a principal
distribution until classes having earlier scheduled maturity dates or prior
designations have been fully repaid.
Prepayment Certificates. 'PREPAYMENT' certificates are entitled to minimum
distributions of principal based on the assumption that the Loans in the related
Trust or the Underlying Loans related to the Mortgage Certificates in the
related Trust prepay at a rate specified in the prospectus supplement.
Distributions of principal to these certificates will commence on the
Distribution Date specified in the prospectus supplement.
Residual Certificates. A series of REMIC certificates will include a class
of 'RESIDUAL' certificates representing the right to receive, in addition to any
other distributions to which they are entitled in accordance with their terms,
distributions of all of the Surplus, if any, for each Distribution Date. The
'SURPLUS' for a series of REMIC certificates as of any Distribution Date equals
the amount by which the sum of distributions, payments and other amounts
received exceeds the sum of (1) the amount required to be distributed to
certificateholders on that Distribution Date and (2) expenses described in the
prospectus supplement. In addition, after the aggregate principal balances
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of all of the certificates other than the Residual certificates have been fully
repaid, the holders of the Residual certificates will be the sole owners of the
related Trust and will have sole rights to the Loans and/or Mortgage
Certificates and other assets remaining in the Trust. Some or all of the
Residual certificates of a series may be offered by the related prospectus
supplement; if so, the terms of the Residual certificates will be described in
the prospectus supplement. Any qualifications on direct or indirect ownership of
Residual certificates offered by a prospectus supplement, as well as
restrictions on the transfer of the Residual certificates, will be described in
the related prospectus supplement. If the Residual certificates are not so
offered, the Depositor may, but need not, sell some or all of the Residual
certificates on or after the date of original issuance of a series in
transactions exempt from registration under the Securities Act of 1933 and
otherwise under circumstances that will not adversely affect the REMIC status of
the Trust. If Residual certificates offered by this prospectus and the related
prospectus supplement have a certificate balance or a Remittance Rate,
references in this prospectus to distributions on certificates and related
matters should be interpreted to include Residual certificates, as appropriate.
Non-Accelerated Certificates. 'NON-ACCELERATED' certificates are entitled to
distributions of principal according to a repayment schedule established at the
time the certificates are issued. The scheduled repayment rate of the
certificates is intended to be slower than the repayment rate of the related
Mortgage Assets.
Each class of certificates that is entitled to distributions allocable to
interest will bear interest at a fixed rate or a rate that may change from time
to time:
in accordance with a schedule;
in reference to a widely published interest rate index like the London
Interbank Offered Rate (LIBOR); or
as otherwise specified in the prospectus supplement.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
GENERAL
The Trustee will distribute principal and interest at the applicable
Remittance Rate, if any, on the certificates out of funds available on the
Distribution Dates specified in the prospectus supplement. Distribution Dates
may be monthly, quarterly, semiannually or at another interval specified in the
prospectus supplement. The Trustee will make distributions to the persons in
whose names the certificates are registered at the close of business on the last
business day of the month before the Distribution Date (each, a 'RECORD DATE').
Unless otherwise specified in the prospectus supplement, distributions will
begin in the month after the month in which the Cut-off Date occurs. The Trustee
will distribute funds by check or money order mailed to the person entitled to
receive them at the address appearing in the certificate register. The
prospectus supplement may also specify that in the case of certificates that are
of a specified minimum denomination, upon written request by
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<PAGE>
the certificateholder, the Trustee will remit funds by wire transfer or by other
means agreed upon. The Trustee will make the final distribution in retirement of
the certificates only upon presentation and surrender of the certificates at the
office or agency of the Trustee specified in the final distribution notice to
certificateholders. The Trustee will make all distributions on global
certificates held by DTC to DTC, which will credit the accounts of its direct
participants. If you hold an interest in a global certificate, you will have to
rely on your financial intermediary to forward you payments. The Pooling and
Servicing Agreement may permit the Trustee to appoint a paying agent for
purposes of remitting distributions.
The Trustee will make distributions on the certificates out of, and only to
the extent of, funds in a separate account established and maintained under the
Pooling and Servicing Agreement for the benefit of holders of the certificates
of the related series (the 'CERTIFICATE ACCOUNT'). The Trustee will distribute
principal, principal prepayments, scheduled payments of principal and interest
in the manner specified in the prospectus supplement. Unless otherwise stated in
the prospectus supplement, distributions to any class of certificates will be
made pro rata to all certificateholders of that class.
Unless otherwise specified in the related prospectus supplement, the Pooling
and Servicing Agreement will provide that amounts deposited in the Certificate
Account may be invested in the following 'ELIGIBLE INVESTMENTS':
direct obligations of, or guaranteed as to full and timely payment of
principal and interest by, the United States or any United States agency
or instrumentality;
direct obligations of, or guaranteed as to timely payment of principal and
interest by, FHLMC, FNMA or the Federal Farm Credit System, qualified by a
rating agency as investment grade;
demand and time deposits in or certificates of deposit of, or bankers'
acceptances issued by, a qualified bank or trust company, savings and loan
association or savings bank;
general obligations of or obligations guaranteed by any state of the
United States or the District of Columbia with an investment grade rating;
investment grade commercial or finance company paper;
guaranteed reinvestment agreements issued by any bank, insurance company
or other corporation rated in one of the two highest rating levels
available to the issuers by each rating agency at the time of the
investment; and
other obligations that are acceptable as Eligible Investments to each of
the rating agencies rating then rating the certificate series as provided
in the related Pooling and Servicing Agreement.
Eligible Investments made by the Trustee must mature no later than the business
day before the next Distribution Date. If a REMIC election (see 'Federal Income
Tax Consequences') is made for a series of certificates, then:
earnings on those Eligible Investments will belong to the Depositor unless
otherwise specified in the related prospectus supplement; and
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<PAGE>
investments will be so that they qualify as 'permitted investments' (as
defined in Section 860G(a)(5) of the Code) and the Trustee will not sell
these investments if the sale would cause any part of the proceeds to be
subject to the 100 Percent Tax on Prohibited Transactions imposed by
Section 860F(a)(1) of the Code or would be to cause a loss of REMIC
status.
DISTRIBUTIONS OF INTEREST
Each class of certificates of a series will accrue interest from the date
and at the fixed or adjustable Remittance Rate described in the prospectus
supplement. For each Distribution Date, unless described differently in the
prospectus supplement, interest will accrue on each class of certificates
entitled to interest from the first day to the last day of the month before the
month in which the distribution occurs (each, an 'ACCRUAL PERIOD'). Interest
will accrue on the aggregate principal balance of your certificate, or if your
certificate is an Interest Only class, interest will accrue on its notional
balance. To the extent funds are available, the Trustee will distribute interest
accrued during each Accrual Period on the Distribution Dates specified in the
prospectus supplement. The Trustee will distribute interest until the aggregate
principal balance of a class of certificates is reduced to zero or, in the case
of Interest Only classes, until the aggregate notional balance of the
certificates is reduced to zero. Distributions of interest on each class of
Accrual certificates will commence only after the occurrence of the events
specified in the prospectus supplement. Before any of the specified events
occur, the aggregate principal balance of any class of Accrual certificates will
increase on each Distribution Date by the amount of interest that would have
been distributed to that class. Any class of Accrual certificates will
thereafter accrue interest on its outstanding principal balance. Interest
accrued but not paid to the Accrual certificates may be distributed as principal
to some classes of Accretion Directed certificates. Each prospectus supplement
may provide for interest to accrue and/or to be distributed differently from the
description in this paragraph.
DISTRIBUTIONS OF PRINCIPAL
Unless otherwise stated in the prospectus supplement, the outstanding
principal balance of any class of certificates at any point in time will be:
the original principal balance of that class of certificates; minus
all distributions of principal made on those certificates; minus
all realized losses allocated to that class; plus
in the case of Accrual certificates, all interest accrued, but not then
paid less its allocable share of shortfalls.
The aggregate amount of principal distributable for a certificate series
will generally be equal to the amount of principal received on the Mortgage
Assets in the related Trust. The prospectus supplement will specify the method
by which the Master Servicer will calculate principal distributions and the
manner in which that amount will be allocated among the classes of certificates
entitled to distributions of principal. The Trustee will
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distribute principal on a pro rata basis among certificates of the same class
entitled to receive distributions. The certificate balance of a class or classes
of certificates may increase in accordance with any negative amortization
experienced by the Mortgage Assets in the related Trust.
The 'DUE DATE' related to each Distribution Date is the first day of the
month in which that Distribution Date occurs. The 'DETERMINATION DATE' is a day
not later than the 10th day before the related Distribution Date in the month in
which the Distribution Date occurs.
If stated in the prospectus supplement, one or more classes of Senior
certificates may be entitled to receive all or a disproportionate percentage of
Principal Prepayments. 'PRINCIPAL PREPAYMENTS' consist of the payments or other
recoveries of principal on a Loan that are received in advance of their
scheduled Due Dates and not accompanied by amounts of interest representing
scheduled interest due after the month in which the payment was received. The
allocation of Principal Prepayments to the Senior classes will accelerate the
reduction of the principal balance of the relevant Senior class while
simultaneously increasing the interests in the Trust held by the Subordinate
classes. Increasing the interests of the Subordinate certificates relative to
that of the Senior certificates is intended to preserve the benefits to the
Senior certificates of the subordination provided by the Subordinate
certificates. See 'Credit Enhancement -- Subordination.'
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of hypothetical distributions on a
series of certificates. The chart assumes the certificates are issued in October
1999, are paid monthly and relate to a Trust comprised of Mortgage Assets. All
references to the Trust, certificateholders, Mortgage Assets and Certificate
Account refer to those related to a series of certificates. We have assumed that
all dates are business days.
<TABLE>
<S> <C>
October 1............ Cut-off Date. The Trust will include the aggregate unpaid
principal balance of the Mortgage Assets, after deducting
principal payments due and payable on or before October 1,
and Principal Prepayments received before October 1. These
deducted principal payments, interest payments and
Principal Prepayments will not be included in the Trust or
passed through to certificateholders. They will be paid to
the Depositor when received.
</TABLE>
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<TABLE>
<S> <C>
October 1-31......... Principal Prepayments received by the Master Servicer
during this period would be credited to the Certificate
Account for distribution to certificateholders on the
November 25 Distribution Date. When a Loan is prepaid in
full or liquidated, interest on the amount prepaid or
liquidated is collected only to the date of prepayment or
liquidation. Unless otherwise specified in the prospectus
supplement, to the extent funds are available from the
current administration fees, and in order to minimize a
shortfall in interest payable to Certificateholders, the
Master Servicer will make an additional payment to
certificateholders on any Loan that is prepaid or
liquidated by October 31. The payment may be in an amount
up to the amount necessary to assure that on the related
Distribution Date the funds available for distribution will
include one month's interest at the Pass-Through Rate for
each prepaid or liquidated Loan. For example, assume a
mortgagor prepays a mortgage in full on October 10. The
prepayment includes interest from October 1 to October 10.
The Master Servicer will make an additional payment to
certificateholders to minimize the interest shortfall from
October 11 to October 31.
October 31........... Record Date. Distributions on November 25 will be made to
certificateholders of record at the close of business on
the last business day of October.
November 1-15........ The Master Servicer receives scheduled payments of
principal and interest due November 1, and deposits these
amounts in a custodial account as they are received. Under
the terms of the related mortgage, the Master Servicer may
collect a late charge on payments received after their due
date and any applicable grace period. The Master Servicer,
or servicer, will retain these late charges as additional
servicing compensation.
November 15.......... Determination Date. On November 15, the Master Servicer
determines the aggregate amount of collections available
for distribution to certificateholders on the Distribution
Date and provides the Trustee with a report outlining these
amounts and the Trustee will determine amounts payable on
the certificates. These amounts will include:
scheduled principal payments and principal prepayments that
are distributable on the November Distribution Date,
the amount of funds the Master Servicer is required to
advance for scheduled payments due on November 1 but not
received by the close of business on the Determination
Date, and
</TABLE>
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<TABLE>
<S> <C>
the portion of current administrative fees that it will
distribute in order to minimize prepayment interest
shortfalls on any Loan that is prepaid by October 31.
November 24.......... Withdrawal date. On the business day before the
Distribution Date, the Master Servicer transfers amounts to
be distributed to certificateholders to the Certificate
Account.
November 25.......... Distribution Date. The Trustee will distribute to
certificateholders the aggregate amounts described in the
notice it received from the Master Servicer, unless
provided otherwise in the prospectus supplement.
</TABLE>
OPTIONAL TERMINATION OF A TRUST OR UNDERLYING TRUST
Unless otherwise specified in the prospectus supplement, the Depositor, the
Master Servicer or the Residual Holder may, at its option, effect early
termination of the Trust, by purchasing all of the Mortgage Assets in the Trust.
The Depositor or the Master Servicer may exercise this option on any
Distribution Date after the aggregate outstanding principal balance of the
Mortgage Assets is less than a specified percentage of the aggregate outstanding
principal balance of the Mortgage Assets as of the Cut-off Date as specified in
the prospectus supplement. The Trustee will apply the proceeds of this sale on
that Distribution Date to each certificate entitled to distributions. The
proceeds realized upon an early termination may be less than the total principal
balance of all outstanding certificates plus accrued and unpaid interest. In
this case, the resulting shortfall will be allocated among the certificates as
described in the prospectus supplement.
We anticipate that the Depositor or the Master Servicer will buy the assets
in the Trust for a price equal to the sum of the following:
the principal balance of each Mortgage Asset, plus accrued interest
thereon at the applicable Pass-Through Rate; plus
the fair market value of all acquired property in respect of any Mortgage
Assets; minus
unreimbursed monthly advances of principal or interest by the Master
Servicer.
The Trust will sell the Mortgage Assets in connection with any early
termination without representation or warranty, except as to the Trust's title,
and without recourse. No holder of any class of certificates will be entitled to
any share of unanticipated recoveries received after the termination of the
Trust. See 'Servicing of the Loans -- Unanticipated Recoveries of Losses on the
Mortgage Assets' in this prospectus.
The Master Servicer of the Underlying Loans held in an underlying trust
which secures the Mortgage Certificates or another party may have the ability to
terminate the underlying trust on any Distribution Date after the aggregate
outstanding principal balance of the Underlying Loans is less than a specified
percentage of the aggregate outstanding principal balance of the Underlying
Loans as of a specified date. The proceeds realized
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upon an early termination of the Underlying Loans may be less than the total
principal balance of the Mortgage Certificates secured by those loans plus
accrued and unpaid interest.
THE TRUSTS
GENERAL
The Trust issuing a series of certificates may include the following assets:
the Mortgage Assets consisting of Loans and Mortgage Certificates backed
by Underlying Loans;
amounts held from time to time in the Certificate Account and any
segregated account established by the Master Servicer in connection with a
particular form of credit enhancement for a particular series (the
'PRE-FUNDING ACCOUNT');
all payments, except for any exclusions identified in the prospectus
supplement, in respect of the Mortgage Assets, adjusted for the applicable
Pass-Through Rates;
all property acquired by foreclosure or deed in lieu of foreclosure for
any property that secured a Loan;
all rights of the Depositor under any primary mortgage insurance policies
and any other insurance policies required to be maintained in respect of
the Loans;
the Depositor's rights and remedies under any purchase agreement by which
it acquires the Mortgage Assets; and
rights under any form of credit enhancement specified in the prospectus
supplement.
The Depositor will purchase or acquire each Loan from a qualified lender or
mortgage asset seller pursuant to a mortgage loan purchase agreement. Qualified
lenders and mortgage asset sellers may be affiliates of the Depositor. Each Loan
will have been originated or purchased by a qualified lender. All qualified
lenders will be or will have been at the time of the origination of the Loans
either:
(1) mortgagees approved by the Secretary of Housing and Urban Development
('HUD'), the Federal Home Loan Mortgage Corporation ('FHLMC'), or the
Federal National Mortgage Association ('FNMA'), or state-chartered or
federally-chartered savings and loan associations, banks or similar
financial institutions whose deposits or accounts are insured by
either the Savings Association Insurance Fund (the 'SAIF') or the Bank
Insurance Fund (the 'BIF') administered by the Federal Deposit
Insurance Corporation (the 'FDIC'); or
(2) originated or underwritten by an entity employing underwriting
standards consistent with the underwriting standards of an institution
described in subclause (1) above.
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The Depositor has approved, or will approve, individual institutions as
eligible qualified lenders by applying specific criteria, including the
qualified lender's depth of mortgage origination experience, servicing
experience and financial stability. In general, each qualified lender must have
experience in originating residential mortgages and net worth acceptable to the
Depositor and must use the services of qualified underwriters, appraisers and
attorneys. However, from time to time, the Depositor may purchase Loans for
inclusion in a Trust from lenders not meeting the generally applicable criteria
described above. In each of these cases, the Depositor must review the lender
and find it acceptable. In connection with these types of purchases by the
Depositor, the Depositor will reunderwrite the applicable Loans. See ' -- Loan
Underwriting Policies' below.
The prospectus supplement for each certificate series will include
information describing the Mortgage Assets. If definitive information respecting
the final pool of Mortgage Assets is not known at the time the related series of
certificates initially is offered, information of the nature described below for
the anticipated pool will be provided in the prospectus supplement. Definitive
information for the final pool will be described in a report on Form 8-K and
filed with the Securities and Exchange Commission within fifteen days after the
initial issuance of the certificates. The definitive description of the mortgage
asset pool will specify:
the range of the aggregate outstanding scheduled principal balance of the
Mortgage Assets at origination and as of the Cut-off Date;
any special payment features of the Mortgage Assets;
years of origination of the Loans;
insurance policies, letters of credit or other terms of credit
enhancement, if any, applicable to any Mortgage Asset;
the original maturities of the Loans and the last maturity date of the
latest maturing in the Trust;
mortgage interest rates borne by the Loans and for adjustable rate Loans:
the initial and current mortgage interest rates;
the index or formula used to calculate the adjustable mortgage interest
rate;
the weighted average minimum and maximum rates and maximum adjustment;
and
the frequency of interest rate adjustments;
original loan-to-value ratios;
distribution by number and aggregate unpaid principal balance of the types
of properties securing the Loans; and
geographical distribution of the Loans by state.
The definitive description of the pool of Mortgage Assets comprising a Trust
will also specify the original principal balance, or, in the case of Interest
Only certificates, the notional balance, of each class of certificates on the
date of issuance of the certificates, and information regarding the exact amount
of any forms of credit enhancement, if applicable.
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THE LOANS
DESCRIPTION OF THE LOANS
The Loans will be evidenced by promissory notes secured by mortgages or
deeds of Trust. The mortgages create first liens on one- to four-unit
residential properties, condominium units, townhouses and units located within
planned unit developments ('PUDS') and that are secured by shares of cooperative
corporations ('CO-OP LOANS').
The Loans will be 'conventional' Loans which means they will not be insured
or guaranteed by any governmental agency. The mortgaged properties securing the
Loans may be located in any jurisdiction within the United States and many
include investment properties and vacation and second homes. Unless otherwise
stated in the prospectus supplement, the Loans will have the following
characteristics:
initial principal balances at origination of not more than $2,000,000;
monthly payments due on the first day of each month;
5- to 40-year term at origination;
adjustable or fixed rates of interest;
level or variable monthly payments over the term of the Loan; and
secured by a lien on the underlying mortgaged property or by a leasehold
interest in the property.
Unless otherwise stated in the prospectus supplement, the loan-to-value
ratio of any Loan will be determined by dividing (1) the original principal
balance of the Loan by (2) the original value of the related mortgaged property.
The principal balance of the Loan, for purposes of computation of the
loan-to-value ratio of any Loan, will include any part of an origination fee or
closing costs that have been financed. The original value of a mortgaged
property is:
in the case of a purchase money Loan, the lesser of the appraised value of
the mortgaged property and the selling price; and
in the case of any non-purchase money Loan, the value of the mortgaged
property, based on the appraised value determined in an appraisal obtained
at the time of refinancing or origination of the loan or the sales price,
if the mortgaged property was purchased within the previous twelve months.
PAYMENT PROVISIONS OF THE LOANS
Each Loan may be fully amortizing or may be a balloon loan. A 'BALLOON LOAN'
is a Loan that requires the borrower to make a substantial payment on the Loan's
stated maturity date. The ability of a borrower to make a balloon payment will
frequently depend upon the borrower's ability to refinance the Loan. Each
Balloon Loan may require payment of a premium or a yield maintenance penalty in
connection with a prepayment. The prospectus supplement will describe any
balloon loans, any applicable prepayment premiums or yield maintenance penalties
and the allocation of any premiums or penalties.
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A Trust may contain buydown loans. A 'BUYDOWN LOAN' is a Loan that includes
a provision whereby the originator or a third party partially subsidizes the
monthly payments of the mortgagor during the early years of the Loan. At the
time of origination of the Loan, the originator or a third party establishes a
buydown fund from which the difference in the amount of principal and interest
due on the Loan and the payment due from the mortgagor will be made. A buydown
fund will be in an amount equal either to the discounted value or full aggregate
amount of future payment subsidies. The underlying assumption of buydown plans
is that the income of the mortgagor will increase during the buydown period as a
result of normal increases in compensation and of inflation. As a result, the
mortgagor should be able to meet the full mortgage payments at the end of the
buydown period. To the extent that a mortgagor does not experience an increase
in income, the possibility of defaults on buydown loans is increased. The
prospectus supplement will contain information for any buydown loan concerning
limitations on the interest rate paid by the mortgagor initially, on annual
increases in the interest rate and on the length of the buydown period.
The Loans in any Trust may include loans that bear simple interest at fixed
annual rates (the 'FIXED-RATE LOANS') and have original terms up to 40 years.
These Loans provide for monthly payments of principal and interest in
substantially equal installments for the contractual term of the mortgage note
in sufficient amounts to fully repay the principal amount of the note by
maturity.
The Loans may include fully or negatively amortizing adjustable rate loans
('ARMS'). Unless otherwise specified in the related prospectus supplement, ARMs
eligible for inclusion in a Trust provide for a fixed initial mortgage interest
rate for an initial period of time ranging from 1 month to 120 months.
Thereafter, the mortgage interest rates are subject to periodic adjustment based
on changes in a formula or index (the 'INDEX'). The Index applicable as of any
interest adjustment date will be the most recent index figure available during a
period specified in the prospectus supplement. A lender may set the initial
mortgage interest rate independently of the Index otherwise applicable at the
time of origination. The initial mortgage interest rate is based on competitive
factors and on other various factors including the lender's:
lending policy at the time of origination;
availability of funds for lending purposes;
rate of return obtainable on other investments; and
cost of doing business.
The initial mortgage interest rate may be higher for mortgage loans with a
relatively higher loan-to-value ratio. After the initial period, the mortgage
interest rates are adjusted periodically to a rate equal to the Index plus a
fixed percentage spread over the Index established contractually for each ARM at
the time of its origination (the 'GROSS MARGIN'). Some ARMs can be converted
into Fixed-Rate Loans at the option of the mortgagor subject to any maximum
rate, minimum rate and maximum adjustment. The mortgagor's option to convert is
usually limited to a set period after origination and the fulfillment of
specific conditions described in the related mortgage note. To the extent
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specified in the related prospectus supplement, any ARM converted to a
fixed-rate mortgage may be subject to repurchase by the Depositor.
Adjustable interest rates can cause payment increases that some mortgagors
may find difficult to make. However, many ARMs provide that the mortgage
interest rate may not be adjusted to a rate above a lifetime maximum rate or
below a lifetime minimum rate. In addition, some ARMs provide for limitations on
the maximum amount by which mortgage interest rates may adjust for any single
adjustment period. These limits are established at the time of origination of
the ARM and are based on a variety of factors, including competitive conditions
at the time of origination in the area in which the mortgaged property is
located. Because of the maximum rate, minimum rate and, if applicable, the
periodic maximum adjustment, the mortgage interest rate in effect from time to
time on an ARM may not be equal to the applicable Index plus the Gross Margin.
The mortgage interest rates on ARMs that do not provide for negative
amortization adjust at specified intervals which will be specified in the
prospectus supplement. To accommodate changes in the adjustable mortgage
interest rate, the monthly payment for an ARM which does not provide for
negative amortization will be adjusted at the time the rate adjustment occurs to
an amount that would fully repay the Loan over its remaining term at the
mortgage interest rate in effect as of the adjustment date. The Loans which
comprise any Trust may have been originated at different times, and therefore
the monthly payments on these Loans will adjust periodically in different
months.
Some ARMs are payable in self amortizing payments of principal and interest.
Other ARMs ('NEGATIVELY AMORTIZING ARMS') instead provide for limitations on
changes in the monthly payment on the ARMs ('PAYMENT CAPS'). Limitations on
monthly payments can result in monthly payments which are greater or less than
the amount necessary to repay the Loan by its maturity at the mortgage interest
rate in effect in any particular month. If a monthly payment is not sufficient
to pay the interest accruing on a Negatively Amortizing ARM, the amount of the
shortfall in interest ('DEFERRED INTEREST') is added to the principal balance of
the Loans, causing negative amortization of the Loan, and will be repaid through
future monthly payments. If a monthly payment exceeds the sum of the interest
accrued at the applicable mortgage interest rate and the principal payment which
would have been necessary to repay the outstanding principal balance over the
remaining term of the loan, the excess reduces the principal balance of the ARM.
See 'Prepayment, Yield and Maturity Considerations -- Prepayment
Considerations.' Negatively Amortizing ARMs do not provide for the extension of
their original maturity to accommodate changes in their mortgage interest rate.
All of the limitations on periodic increases in interest rates and on changes in
monthly payments protect borrowers from unlimited interest rate and payment
increases. For any Trust that includes ARMs, the related prospectus supplement
will specify whether the Trust includes Negatively Amortizing ARMs.
The Loans included in a Trust are by their terms assumable under limited
conditions. However, they also contain 'due-on-sale' provisions under which the
Loans become due and payable, at the option of the mortgage holder, upon the
sale of the related mortgaged property. We expect that the Master Servicer will
enforce 'due-on-sale' provisions on most
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Fixed-Rate Loans and some ARMs. In instances where the Master Servicer does not
enforce these provisions, the prospective purchaser must meet the Master
Servicer's creditworthiness standards or the Master Servicer must reasonably
believe that it may be restricted by law from enforcing a due-on-sale clause. In
addition, applicable law at the time of transfer must not limit the Master
Servicer's ability to make the interest rate and payment adjustments permitted
by the related mortgage note. Upon any assumption, the Master Servicer may enter
into an assumption and modification agreement with the person to whom the
property has been or is about to be conveyed, pursuant to which that person
becomes liable under the promissory note evidencing the Loan. If a REMIC
election is made for the related Trust, in connection with any assumption or
substitution agreement, the Master Servicer may not change the interest rate of
the related mortgage note. The person assuming the Loan will generally pay a fee
based on a percentage of the outstanding principal balance of the Loan. The
Master Servicer will retain this fee as additional servicing compensation. In
some cases the maximum rate or minimum rate applicable to ARMs may change upon
assumption. Upon assumption, the terms of Fixed-Rate Loans generally are not
modified to current market rates, unless the loan bears a higher interest rate
than the prevailing market rate. For a description of circumstances in which the
Master Servicer may be unable to enforce due-on-sale clauses, see 'Legal Aspects
of the Loans -- `Due on Sale' Clauses.'
LOAN UNDERWRITING POLICIES
The Loans to be included in each Trust will be subject to the various
credit, appraisal and underwriting standards described in this section. The
Depositor's credit, appraisal and underwriting standards for the Loans will
generally conform to those published in the Depositor's selling guide. We refer
to the Depositor's selling guide, together with the Depositor's servicing guide,
as modified from time to time, as the 'GUIDE.' The credit, appraisal and
underwriting standards in the Guide are continuously revised based on
opportunities and prevailing conditions in the residential mortgage market and
the market for the Depositor's mortgage pass-through certificates. The Loans may
be underwritten by the Depositor or by designated third parties.
In addition, the Depositor may purchase Loans which do not conform to the
underwriting standards described in the Guide. The Depositor may purchase these
Loans from qualified lenders and mortgage asset sellers who will represent that
the Loans have been originated in accordance with credit, appraisal and
underwriting standards agreed to by the Depositor. The Depositor will generally
review only a limited portion of these Loans for conformity with the applicable
credit, appraisal and underwriting standards. The Depositor may also purchase
Loans from qualified lenders and mortgage asset sellers who will represent that
the Loans were originated pursuant to credit, appraisal and underwriting
standards determined by a mortgage insurance company acceptable to the
Depositor. The Depositor will accept a certification from the insurance company
as to a Loan's insurability in a mortgage pool as evidence that the Loan
conforms to applicable underwriting standards. The certificates will likely have
been issued before the purchase of the Loans by
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the Depositor. The Depositor will perform only random quality assurance reviews
on Loans delivered with this certification.
The credit, appraisal and underwriting standards utilized in negotiated
transactions and the credit, appraisal and underwriting standards of insurance
companies issuing certificates may vary substantially from the credit, appraisal
and underwriting standards described in the Guide. All of the credit, appraisal
and underwriting standards will provide an underwriter with sufficient
information to evaluate the borrower's repayment ability and the adequacy of the
mortgaged property as collateral. Due to the variety of underwriting standards
and review procedures that may be applicable to the Loans included in any Trust,
the prospectus supplement will not distinguish among the various credit,
appraisal and underwriting standards applicable to the Loans nor describe any
review for compliance with applicable credit, appraisal and underwriting
standards performed by the Depositor. Moreover, we cannot assure you that every
Loan was originated in conformity with the applicable credit, appraisal and
underwriting standards in all material respects, or that the quality or
performance of Loans underwritten pursuant to varying standards as described
above will be equivalent under all circumstances.
The Depositor's underwriting standards are intended to evaluate the
prospective mortgagor's credit standing and repayment ability, and the value and
adequacy of the proposed mortgaged property as collateral. The Depositor expects
that each prospective mortgagor will be required to complete an application
which will include information about the applicant's assets, liabilities,
income, credit history, employment history and other related items, and furnish
an authorization to apply for a credit report which summarizes the mortgagor's
credit history. In order to establish the prospective mortgagor's ability to
make timely payments, the Depositor will require evidence regarding the
mortgagor's employment and income, and of the amount of deposits made to
financial institutions where the mortgagor maintains demand or savings accounts.
The Depositor may purchase Loans which were originated under a limited mortgage
documentation program. However, the mortgagors on these types of loans must have
a good credit history and be financially capable of making a larger cash down
payment in a purchase, or be willing to finance less of the appraised value, in
a refinancing, than would otherwise be required by the Depositor. Currently, the
Depositor's underwriting standards provide that under this type of program, only
Loans with specified loan-to-value ratios will qualify for purchase. If the Loan
qualifies, the Depositor waives some of its documentation requirements and
eliminates verification of income and employment for the prospective mortgagor.
The Depositor's underwriting standards generally follow guidelines
acceptable to FNMA and FHLMC. In determining the adequacy of the property as
collateral, an independent appraisal is generally made of each property
considered for financing. The appraiser may be required to inspect the property
and verify that it is in good condition and that construction, if new, has been
completed. Alternatively, the appraisal may be conducted by comparing values of
similar properties in an automated system or electronic data base, inspecting
the exterior of the property or another method described in the Guide. The
appraisal is based on the appraiser's judgment of values, giving appropriate
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weight to both the market value of comparable homes and the cost of replacing
the property. The Depositor expects that the underwriting standards will require
that the underwriters be satisfied that the value of the property being financed
supports, and will continue to support, the outstanding Loan balance, and
provides sufficient value to mitigate the effects of adverse shifts in real
estate values.
Some states where the mortgaged properties may be located are
'anti-deficiency' states where, in general, lenders providing credit on one- to
four-family properties look solely to the property for repayment in the event of
foreclosure. See 'Legal Aspects of the Mortgage Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders.' The Depositor expects that the
underwriting standards applied to the Loans will require that the underwriters
be satisfied that the value of the property being financed, as indicated by the
appraisal, currently supports and is anticipated to support in the future the
outstanding loan balance, and provides sufficient value to mitigate the effects
of adverse shifts in real estate values. The general appreciation of real estate
values experienced in the past has been a factor in limiting the general loss
experience on conventional one- to-four-unit residential first mortgage loans.
We cannot assure you, however, that the past pattern of appreciation in value of
the real property securing these loans will continue.
The Depositor will obtain representations and warranties from the applicable
qualified lender that the Loan was originated in accordance with the
underwriting guidelines described above or other policies that the Depositor may
require or approve from time to time. The qualified lender providing this
representation may or may not be the party that originated the Loan. The
Depositor will review, or cause to be reviewed, all or a representative sample
of the Loans, and perform other reviews that it deems appropriate to determine
compliance with these standards. The Depositor will have 90 days following
delivery of a certificate series to complete its review. If the Depositor finds
any Loan fails to comply with these standards, the mortgage asset seller must
repurchase the defective Loan or provide a substitute Loan. However, the
mortgage asset seller will not be obligated to make a repurchase or substitution
if it can demonstrate to the satisfaction of the Depositor that the defective
Loan is includible in the pool. See 'The Pooling and Servicing
Agreement -- Repurchase or Substitution.'
The underwriting policies described in this section may be varied for
particular certificate series to the extent described in the prospectus
supplement.
MORTGAGE CERTIFICATES
DESCRIPTION OF THE MORTGAGE CERTIFICATES
All of the Mortgage Certificates will be registered in the name of the
Trustee or its nominee or, in the case of Mortgage Certificates issued only in
book-entry form, a financial intermediary that is a member of the Federal
Reserve System or of a clearing corporation on the books of which the security
is held. In some cases the financial intermediary may be the Trustee. Each
Mortgage Certificate will evidence an interest in a
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Trust consisting of a pool of Mortgage Assets and/or in principal distributions
and interest distributions thereon.
The descriptions of Government National Mortgage Association ('GNMA'),
FHLMC, FNMA and Private certificates in this section are descriptions of
certificates representing proportionate interests in a pool of mortgage loans
and in the payments of principal and interest thereon. These issuers may also
issue asset-backed securities that represent a right to receive distributions
of:
interest only; or
principal only; or
disproportionate distributions of principal or interest; or
principal and/or interest prior or subsequent to distributions on other
certificates representing interests in the same pool of mortgage loans.
In addition, any of these issuers may issue certificates representing
interests in mortgage loans having characteristics that are different from the
types of mortgage loans described below. The terms of any Mortgage Certificates
to be included in a Trust and the Underlying Loans will be described in the
prospectus supplement. The descriptions that follow are subject to modification
in each prospectus supplement as appropriate to reflect the terms of the
Mortgage Certificates that are actually included in a Trust.
GNMA. GNMA is a wholly owned corporate instrumentality of the United States
within HUD. Section 306(g) of Title III of the National Housing Act of 1934, as
amended (the 'HOUSING ACT'), authorizes GNMA to guarantee the timely payment of
the principal of and interest on certificates that are based on and backed by a
pool of loans. The pool will consist of:
loans insured by the United States Federal Housing Administration (the
'FHA') under the Housing Act or Title V of the Housing Act of 1949 ('FHA
LOANS');
loans guaranteed by the United States Department of Veteran Affairs (the
'VA') under the Servicemen's Readjustment Act of 1944, as amended, or
Chapter 37 of Title 38, United States Code; or
other eligible loans.
Section 306(g) of the Housing Act provides that 'the full faith and credit
of the United States is pledged to the payment of all amounts which may be
required to be paid under any guaranty under this subsection.' In order to meet
its obligations under a guaranty, GNMA is authorized, under Section 306(d) of
the Housing Act, to borrow from the United States Treasury with no limitations
as to amount.
GNMA Certificates. All of the GNMA certificates will be mortgage-backed
certificates issued and serviced by GNMA- or FNMA-approved mortgage servicers.
The mortgage loans underlying GNMA certificates may consist of:
FHA Loans secured by mortgages on one- to four-family residential
properties or multi-family residential properties,
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loans secured by mortgages on one- to four-family residential properties
or multi-family residential properties,
mortgage loans which are partially guaranteed by the VA, and
other mortgage loans eligible for inclusion in mortgage pools underlying
GNMA certificates.
Each GNMA certificate provides for the payment by or on behalf of the issuer
of the GNMA certificate to the registered certificateholder of monthly payments
of principal and interest equal to the registered holder's proportionate
interest in the aggregate amount of:
the monthly scheduled principal and interest payments on each underlying
eligible mortgage loan, less
servicing and guaranty fees aggregating the excess of the interest on each
underlying mortgage loan over the GNMA certificate pass-through rate.
In addition, each payment to a GNMA certificateholder will include
proportionate pass-through payments of any prepayments of principal on the
underlying loans, and the holder's proportionate interest in the remaining
principal balance in the event of a foreclosure or other disposition of any
underlying loan.
Unless otherwise specified in the related prospectus supplement, the GNMA
certificates included in a Trust may be issued under either or both of the
GNMA I program and the GNMA II program. All mortgages underlying a particular
GNMA I certificate must be of the same type. An example of type would be
'single-family level payment mortgage loans.' The mortgages must also have the
same annual interest rate, except for pools of mortgage loans secured by mobile
homes. The annual interest rate on each GNMA I certificate is one-half
percentage point less than the annual interest rate on the mortgage loans
included in the pool of mortgages backing the GNMA I certificate. Mortgages
underlying a particular GNMA II certificate must also be of the same type, but
may have annual interest rates that vary from each other by up to one percentage
point. The annual interest rate on each GNMA II certificate will be between
one-half percentage point and one and one-half percentage points less than the
highest annual interest rate on any mortgage loan included in the pool of
mortgages backing the GNMA II certificate.
GNMA will have approved the issuance of each of the GNMA certificates in
accordance with a guaranty agreement between GNMA and the Master Servicer of the
mortgage loans underlying the GNMA certificate. Pursuant to the guaranty
agreement, the servicer is required to advance its own funds in order to make
timely payments of all amounts due on the GNMA certificate, even if the payments
received by the servicer on the mortgage loans backing the GNMA certificate are
less than the amounts due on the GNMA certificate. If a servicer is unable to
make payments on a GNMA certificate as it becomes due, it must promptly notify
GNMA and request GNMA to make the payment. Upon notification and request, GNMA
will make the payments directly to the registered holder of the GNMA
certificate. If no payment is made by the servicer and it fails to notify and
request GNMA to make the payment, the registered holder of the GNMA certificate
has recourse only against GNMA to obtain the payment. The registered holder is
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entitled to proceed directly against GNMA under the terms of each GNMA
certificate or the guaranty agreement or contract relating to the GNMA
certificate for any amounts that are not paid when due under the GNMA
certificate.
FHLMC. FHLMC is a corporate instrumentality of the United States created
pursuant to Title III of the Emergency Home Finance Act of 1970, as amended (the
'FHLMC ACT'). FHLMC is a stockholder-owned corporation. FHLMC was established
primarily for the purpose of increasing the availability of mortgage credit for
the financing of urgently needed housing. It seeks to provide an enhanced degree
of liquidity for residential mortgage investments primarily by assisting in the
development of secondary markets for conventional one-to-four-unit residential
first mortgages. The principal activity of FHLMC currently consists of:
the purchase of first lien conventional one- to four-unit residential
mortgage loans,
the purchase of participation interests in these types of loans, and
the resale of the purchased mortgage loans in the form of mortgage
securities.
FHLMC is confined to purchasing, so far as practicable, conventional
one-to-four-unit residential first mortgage loans and participation interests in
conventional one-to-four-unit residential first mortgage loans which it deems to
be of the quality, type and class as to generally meet the purchase standards
imposed by private institutional mortgage investors.
FHLMC Certificates. FHLMC certificates represent an undivided interest in a
group of mortgage loans purchased by FHLMC. Mortgage loans underlying the FHLMC
certificates included in a Trust will consist principally of fixed or
adjustable-rate mortgage loans with original terms to maturity of approximately
5, 7, 15, 20 and 30 years. First liens on one-to four-family residential
properties secure these loans.
FHLMC certificates are issued and maintained and may be transferred only on
the book-entry system of a Federal Reserve Bank and may only be held of record
by entities eligible to maintain book-entry accounts at a Federal Reserve Bank.
Beneficial owners will hold FHLMC certificates ordinarily through one or more
financial intermediaries. The rights of a beneficial owner of a FHLMC
certificate against FHLMC or a Federal Reserve Bank may be exercised only
through the Federal Reserve Bank on whose book-entry system the certificate is
held.
Under its cash and guarantor programs, FHLMC guarantees to each registered
holder of a FHLMC certificate the timely payment of interest at the rate
provided for by the FHLMC certificate on the registered holder's pro rata share
of the outstanding unpaid principal balance of the related mortgage loans,
whether or not received. FHLMC also guarantees to each registered holder
ultimate collection of all principal of the related mortgage loans, without any
offset or deduction, to the extent of the holder's pro rata share. It does not
guarantee the timely payment of scheduled principal. Pursuant to its guarantees,
FHLMC generally indemnifies holders of FHLMC certificates against any diminution
in principal by reason of charges for property repairs, maintenance and
foreclosure. FHLMC may remit the amount due on account of its guarantee of
ultimate
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collection of principal at any time after default on an underlying mortgage
loan, but not later than 30 days following the latest to occur of:
foreclosure sale,
payment of a claim by any mortgage insurer, or
the expiration of any right of redemption.
In any event, FHLMC shall remit the guaranteed amount no later than one year
after demand has been made upon the mortgagor for accelerated payment of
principal or for payment of principal due on the maturity of the mortgage. In
taking actions regarding the collection of principal after default on the
mortgage loans underlying FHLMC certificates, including the timing of demand for
acceleration, FHLMC reserves the right to exercise its servicing judgment on the
mortgages in the same manner as for mortgages that it has purchased but not
sold. In lieu of guaranteeing only the ultimate collection of principal payments
in the manner described above, FHLMC may, but will not be obligated to, enter
into one or more agreements with the issuer and the Trustee of the FHLMC
certificates pursuant to which FHLMC will agree to guarantee the timely receipt
of scheduled principal payments. If this type of agreement is entered into and
is applicable to all or any part of the FHLMC certificates included in a Trust,
its existence will be disclosed in the prospectus supplement.
Under its Gold PC Program, FHLMC guarantees to each registered holder of a
FHLMC certificate the timely payment of interest calculated in the same manner
as described above. In addition, it guarantees timely installments of scheduled
principal calculated on the basis of the weighted average remaining term to
maturity of the mortgage loans in the pool underlying the related FHLMC
certificate.
FHLMC certificates are not guaranteed by the United States or by any Federal
Home Loan Bank and do not constitute debts or obligations of the United States
or any Federal Home Loan Bank. The obligations of FHLMC under its guarantee are
obligations solely of FHLMC and are not backed by, nor entitled to, the full
faith and credit of the United States.
FNMA. FNMA is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, as amended. FNMA was originally established in 1938 as a United States
government agency to provide supplemental liquidity to the mortgage market and
was transformed into a stockholder-owned and privately managed corporation by
legislation enacted in 1968.
FNMA provides funds to the mortgage market primarily by purchasing home
mortgage loans from local lenders, thereby replenishing their funds for
additional lending. FNMA acquires funds to purchase home mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, FNMA helps to redistribute mortgage funds from capital-surplus to
capital-short areas. In addition, FNMA issues mortgage-backed securities
primarily in exchange for pools of mortgage loans from lenders.
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FNMA Certificates. FNMA certificates represent fractional interests in a
pool of mortgage loans formed by FNMA.
FNMA guarantees to each registered holder of a FNMA certificate that it will
distribute amounts representing scheduled principal and interest at the
applicable pass-through rate on the underlying loans, whether or not received.
It also guarantees each holder's proportionate share of the full principal
amount of any foreclosed or other finally liquidated mortgage loan, whether or
not the full principal amount is actually recovered. If FNMA were unable to
perform its obligations, distributions on FNMA certificates would consist solely
of payments and other recoveries on the underlying mortgage loans. Accordingly,
delinquencies and defaults would affect monthly distributions to holders of FNMA
certificates. The obligations of FNMA under its guarantees are obligations
solely of FNMA and are not backed by, nor entitled to, the full faith and credit
of the United States. The FNMA certificates are not guaranteed by the United
States and do not constitute debts or obligations of the United States.
Private Certificates. Each 'PRIVATE' certificate will evidence an undivided
interest in a pool of:
FNMA certificates,
FHLMC certificates,
GNMA certificates,
mortgage loans, or
any combination of FNMA, FHLMC and GNMA certificates and mortgage loans.
We expect that Private certificates will be issued pursuant to participation or
agreements entered into from time to time between the related seller and the
related trustee or custodian for the certificates. In addition, an affiliate of
the seller or of the Depositor under the agreement may be a Master Servicer for
these certificates or for the mortgage loans in which the Mortgage Certificates
represent a beneficial interest. The mortgage loans underlying the Private
certificates may be subserviced by one or more loan servicing institutions under
the supervision of the Master Servicer. Each Private certificate will have been
acquired in a secondary transaction and not from the issuer or any affiliate of
the issuer of the Private certificate. Unless otherwise specified in the related
prospectus supplement, each Private certificate will evidence an interest in, or
will be secured by a pledge of mortgage loans that conform to the descriptions
of Loans in this prospectus. Each Private certificate included in any Trust that
is not a FNMA, FHLMC or GNMA certificate must either: (1) have been previously
registered under the Securities Act of 1933 or (2) if not registered, be
eligible for sale under Rule 144(k) under the Securities Act of 1933.
We expect that all collections received by the servicers on the mortgage
loans securing the Private Certificates will be deposited with the trustee for
the Private certificates. However, the Master Servicer will be entitled to
retain servicing fees and other amounts specified in the related Pooling and
Servicing Agreement from collections. Monthly distributions of the principal and
interest components of the collections will be
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made to the Trustee for the certificates of the related series for deposit into
the Certificate Account for that series.
More specific information concerning the Private certificates underlying a
particular series of certificates, the mortgage loans underlying those Private
certificates, and related servicing and insurance, subordination or other credit
support arrangements will be described in the prospectus supplement.
SUBSTITUTION OF MORTGAGE CERTIFICATES
The Pooling and Servicing Agreement for a series that includes Mortgage
Certificates may permit substitution of Mortgage Certificates if the seller of
the Mortgage Certificates breaches a representation or warranty, or the
documentation related to any Mortgage Certificate is incomplete. The prospectus
supplement for each series will further describe the conditions under which a
substitution may occur.
THE DEPOSITOR
GENERALLY
The Depositor was incorporated in Delaware in 1991 and is a wholly owned
limited purpose indirect subsidiary of ABN AMRO Bank N.V. The limited purposes
of the Depositor are, in general:
to acquire, own, pledge and sell mortgage loans and certificates
representing proportionate interests in pools of mortgage loans;
to issue, acquire, own, pledge and sell mortgage pass-through securities
which represent ownership interests in mortgage loans and certificates
representing proportionate interests in pools of mortgage loans,
collections thereon and related properties; and
to engage in any acts which are incidental to, or necessary, suitable or
convenient to accomplish the foregoing.
We do not expect that the Depositor will have any business operations other than
offering series of certificates and related activities. The principal executive
offices of the Depositor are located at 181 West Madison Street, Suite 3250,
Chicago, Illinois 60602-4510, and its telephone number is (312) 904-0800.
Unless otherwise specified in the related prospectus supplement, neither the
Depositor, its parents nor any of the Depositor's affiliates will insure or
guarantee distributions on the certificates of any series. As described in this
prospectus, the only obligations of the Depositor will be pursuant to
representations and warranties related to the Mortgage Assets. See 'Pooling and
Servicing Agreement -- Representations and Warranties.' The Depositor will have
no ongoing servicing responsibilities or other responsibilities for any Mortgage
Asset. The Depositor does not have nor is it expected in the future to have any
significant assets with which to meet any obligations with respect to any Trust.
If the
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Depositor were required to repurchase or substitute a Mortgage Asset, its only
source of funds to make the required payment would be funds obtained from the
related Mortgage Asset seller or, if applicable, the Master Servicer or the
servicer.
YEAR 2000 PROJECT
STATE OF READINESS
The Depositor is part of ABN AMRO Bank N.V.'s U.S. operations, which are
managed by ABN AMRO North America, Inc. ('AANA'). AANA began addressing the year
2000 problem in 1996 by assembling a corporate project team to develop a year
2000 readiness program for ABN AMRO entities within North America. The project
team is comprised of AANA business leaders and representatives from the
Information Technology Division and is assisted by outside consulting firms and
contract personnel who are experts in the area of year 2000 readiness.
The project team's efforts are generally divided into four phases:
awareness, assessment, renovation and validation. The project team has completed
the initial awareness phase. At present, all AANA staff are aware of the year
2000 problem and its potential impact to their business units and the
organization as a whole. The effort to improve management and staff
understanding of the problem will continue throughout the life of the project.
In addition, the project team has initiated efforts to continue to improve
awareness of the year 2000 problem among all of AANA's customers and business
partners by coordinating mass mailings and responding to customer requests for
information.
The assessment phase of the year 2000 project is complete. The project team
has surveyed and documented its year 2000 readiness requirements, and has
prepared a project plan that addresses remediation, renovation, replacement,
upgrade or obsolescence of current systems. At present, the project team has
estimated and scheduled all efforts of renovation, testing, certification and
implementation.
The renovation phase of the year 2000 project is substantially complete. All
internal 'mission critical' systems and applications are in place and fully
tested.
The project team has also launched the validation phase of the year 2000
project. It developed a comprehensive plan to validate the readiness of all of
the systems utilized by ABN AMRO entities in North America for the year 2000.
In addition, to address potential disruptions in business due to year 2000
issues, AANA has developed a general year 2000 business continuity planning
process for all ABN AMRO entities in North America. The project team will
complete specific business unit year 2000 contingency plans for all ABN AMRO
entities in North America by December 31, 1999.
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RISKS
Although the project team for the ABN AMRO entities in North America expects
its year 2000 remediation efforts to be fully completed, validated and
implemented well before the year 2000, there can be no assurance that these
efforts will be completed on time, or that they will fully remediate all
problems associated with the year 2000. In addition, there can be no assurance
that the Trustee, or unaffiliated businesses and entities who provide services
to the Depositor, the Servicer or the Trustee, will adequately address year 2000
issues.
If the Servicer, the Trustee or any of their respective vendors or third
party service providers are not year 2000 ready, the ability of the Servicer to
service the Loans, and the ability of the Trustee to make timely distributions
and required reports to certificateholders, may be materially and adversely
affected.
Some of the statements made in this section regarding the likelihood of the
Depositor successfully addressing problems associated with the year 2000
constitute forward-looking statements as defined in Section 27A(i)(1) of the
Securities Act. Generally, all statements in this section that are not
statements of historical fact are forward-looking statements. Because
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by forward-looking statements. These factors include the
ability of the Depositor to successfully identify systems and components that
may pose year 2000 issues, the nature and the amount of programming required to
correct these systems and components, the ability of third party consultants and
service providers to timely complete portions of the Depositor's year 2000
remediation plans, and the ability of the business partners of the Trustee, the
Depositor and the Servicer to successfully address their year 2000 issues.
USE OF PROCEEDS
Unless otherwise stated in the prospectus supplement, the Depositor will use
substantially all of the net proceeds from sales of certificates to purchase
Mortgage Assets or to reimburse itself for previous purchases of Mortgage
Assets. Reimbursement amounts to the Depositor may include the following:
amounts sufficient to repay any loans made to the Depositor to facilitate
mortgage asset purchases;
the costs of carrying the Mortgage Assets until the sale of the
certificates; and
expenses connected with pooling the Mortgage Assets and issuing the
certificates.
Any remaining proceeds will be used by the Depositor for its general
corporate purposes which are related to the activities described above.
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CREDIT ENHANCEMENT
TYPES OF ENHANCEMENTS
Credit enhancement may be provided for one or more classes of a series of
certificates or for the Mortgage Assets in the related Trust. Credit enhancement
may be in one or more of the following forms:
the subordination of one or more classes of the certificates of the
series;
the use of a cross-support feature;
a pool insurance policy;
a special hazard insurance policy;
a bankruptcy bond;
the establishment of one or more reserve funds;
shifting interest credit enhancement;
overcollateralization;
letters of credit;
surety bond; or
another method of credit enhancement described in the related prospectus
supplement.
Unless otherwise stated in the prospectus supplement, any credit enhancement
will not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance of the certificates and interest
thereon. If losses occur which exceed the amount covered by credit enhancement
or which are not covered by the credit enhancement, certificateholders will bear
their allocable share of deficiencies.
SUBORDINATION
If so stated in the prospectus supplement, distributions in respect of
scheduled principal, Principal Prepayments, interest or any combination of these
items that otherwise would have been payable to one or more classes of
Subordinate certificates of a series will instead be payable to holders of one
or more classes of Senior certificates of that series under the circumstances
and to the extent specified in the prospectus supplement. If stated in the
prospectus supplement, delays in receipt of scheduled payments on the Loans and
losses on defaulted Loans will be borne first by the various classes of
Subordinate certificates and thereafter by the various classes of Senior
certificates, in each case under the circumstances and subject to the
limitations specified in the prospectus supplement. The prospectus supplement
may limit the subordination of payments to Subordinate certificateholders that
the Trustee will distribute to Senior certificateholders as follows:
limiting the aggregate distributions from delinquent payments on the Loans
over the lives of the certificates or at any time,
limiting the aggregate losses in respect of defaulted Loans which must be
borne by the Subordinate certificates by virtue of subordination.
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If aggregate distributions in respect of delinquent payments on the Loans or
aggregate losses in respect of these Loans were to exceed the total amounts
payable and available for distribution to holders of Subordinate certificates
or, if applicable, were to exceed the specified maximum amount, holders of
Senior certificates could experience losses on the certificates.
In addition to or in lieu of the foregoing, if so stated in the prospectus
supplement, the Trustee may deposit all or any portion of distributions
otherwise payable to holders of Subordinate certificates on any Distribution
Date into one or more reserve funds established by the Trustee. See ' -- Reserve
Fund.'
The prospectus supplement may specify that one or more classes of
certificates will bear the risk of specified losses on defaulted Loans not
covered by other forms of credit enhancement prior to other classes of
certificates. This subordination might be effected by reducing the principal
balance of the Subordinate certificates on account of losses, thereby decreasing
the proportionate share of distributions allocable to the Subordinate
certificates, or by another means specified in the prospectus supplement.
If stated in the prospectus supplement, various classes of Senior
certificates and Subordinate certificates may themselves be subordinate in their
right to receive distributions to other classes of Senior and Subordinate
certificates, respectively, through a cross-support mechanism or otherwise.
Unless otherwise stated in the prospectus supplement, the Pooling and
Servicing Agreement may permit the Master Servicer, at its option, to grant to
the holders of some classes of Subordinate certificates particular rights in
connection with the foreclosure of defaulted Loans in the related Trust. See
'Servicing of the Loans -- Collection and Other Servicing Procedures.'
SHIFTING INTEREST CREDIT ENHANCEMENT
The protection afforded to the Senior certificateholders of a series of
certificates by the subordination feature described above under 'Subordination'
will be effected by the preferential right of the Senior certificateholders to
receive current distributions from the Trust. Also, if specified in the related
prospectus supplement, the subordination feature will be enhanced by
distributing to one or more classes of Senior certificates on specified
Distribution Dates, as payments of principal, specified Principal Prepayments in
the pool of Mortgage Assets under the circumstances and for the period of time
set forth in the prospectus supplement ('SHIFTING INTEREST CREDIT ENHANCEMENT').
Shifting Interest Credit Enhancement will have the effect of accelerating the
repayment of the Senior certificates while increasing the respective interest
evidenced by the Subordinate certificates in the related Trust. Increasing the
respective interest of the Subordinate certificates relative to that of the
Senior certificates is intended to preserve the availability of the
subordination provided by the Subordinate certificates.
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CROSS-SUPPORT
If stated in the prospectus supplement, the Trustee may issue different
classes of certificates of the series that evidence a beneficial ownership in
separate groups of assets included in a Trust. In this case, credit enhancement
may be provided by a cross-support feature which may require the Trustee to make
distributions on certificates evidencing beneficial ownership of one or more
asset groups prior to distributions to certificates evidencing a beneficial
ownership interest in other asset groups within the same Trust. The prospectus
supplement for a series which includes a cross-support feature will describe the
manner and conditions for applying the cross-support feature.
If stated in the prospectus supplement, the coverage provided by one or more
forms of credit enhancement may apply concurrently to two or more separate
Trusts. If applicable, the prospectus supplement will identify the Trusts to
which the credit enhancement relates and the manner of determining the amount of
the coverage provided and the application of coverage to the identified Trusts.
POOL INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the Mortgage Assets, if stated in the prospectus
supplement, the Depositor will obtain one or more pool insurance policies. The
pool insurance policy will, subject to the limitations described in the
prospectus supplement, cover loss by reason of default in payments on the Loans
up to the amounts specified in the prospectus supplement and for the periods
specified in the prospectus supplement. The Master Servicer will agree to use
its best reasonable efforts to maintain in effect any pool insurance policy and
to present claims thereunder to the pool insurer on behalf of itself, the
Trustee and the certificateholders. The pool insurance policy, however, is not a
blanket policy against loss. Claims under a pool insurance policy may only be
made respecting particular defaulted Loans and only upon satisfaction of
specific conditions precedent described below. The pool insurance policy, if
any, will not cover losses due to a failure to pay or denial of a claim under a
primary mortgage insurance policy, irrespective of the reason therefore.
Unless otherwise stated in the prospectus supplement, the original amount of
coverage under any pool insurance policy will be reduced over the life of the
related series of certificates by the aggregate dollar amount of claims paid
less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
expenses incurred by the Master Servicer on the foreclosed properties for the
following:
hazard insurance premiums;
amounts paid for property taxes that have been approved by the pool
insurer;
the discharge of liens;
expenses required to preserve and repair the properties;
foreclosure costs; and
accrued interest on delinquent Loans to the date of payment of the claim.
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See 'Legal Aspects of the Loans -- Foreclosure.' Accordingly, if aggregate net
claims paid under any pool insurance policy reach the original policy limit,
coverage under that pool insurance policy will be exhausted and any further
losses will be borne by one or more classes of certificateholders.
Since any mortgage pool insurance policy may require that the property
subject to a defaulted Loan be restored to its original condition prior to
claiming against the pool insurer, the policy may not provide coverage against
hazard losses. As described under 'Servicing of the Loans -- Hazard Insurance,'
the hazard policies concerning the Loans typically exclude from coverage
physical damage resulting from a number of causes. Even when the damage is
covered, the hazard policies may afford recoveries which are significantly less
than the full replacement cost of losses. Even if special hazard insurance is
applicable as specified in the prospectus supplement, no coverage in respect of
special hazard losses will cover all risks, and the amount of any coverage will
be limited. See 'Special Hazard Insurance' below. As a result, some hazard risks
will not be insured against and will therefore be borne by certificateholders.
SPECIAL HAZARD INSURANCE
In order to decrease the likelihood that certificateholders will experience
losses in respect of the Loans, if specified in the prospectus supplement, the
Depositor will obtain one or more special hazard insurance policies on the
Loans. The special hazard insurance policy will, subject to limitations
described below and in the prospectus supplement, protect holders of
certificates from loss by reason of damage to mortgaged properties caused by
specified hazards (including earthquakes and, to a limited extent, tidal waves
and related water damage) not covered in the standard form of hazard insurance
policy for the respective states in which the mortgaged properties are located
or under flood insurance policies, if any, covering the mortgaged properties. It
also protects holders from loss from partial damage caused by reason of the
application of the co-insurance clause contained in hazard insurance policies.
Any special hazard insurance policy may not cover losses occasioned by war,
civil insurrection, specified governmental actions, errors in design, faulty
workmanship or materials (except under specific circumstances), nuclear
reaction, flood (if the mortgaged property is located in a federally designated
flood area), chemical contamination and other risks. Aggregate claims under each
special hazard insurance policy may be limited to a specified percentage of the
aggregate principal balance as of the Cut-off Date of the Loans. Any special
hazard insurance policy may also provide that no claim may be paid unless hazard
and, if applicable, flood insurance on the mortgaged property has been kept in
force and other protection and preservation expenses have been paid by the
Master Servicer. The terms of any special hazard insurance policy will be more
fully described in the prospectus supplement.
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BANKRUPTCY BOND
In the event of a bankruptcy of a borrower, the bankruptcy court may
establish the value of the mortgaged property securing the related Loan at an
amount less than the then outstanding principal balance of the Loan secured by
the mortgaged property and could reduce the secured debt to that value. In this
case, the holder of the Loan would become an unsecured creditor to the extent of
the difference between the outstanding principal balance of the Loan and the
reduced secured debt. In addition, the bankruptcy court can make other
modifications of the terms of a Loan, including reducing the monthly payments
required to be made by the borrower. See 'Legal Aspects of the
Loans -- Enforceability of Some Provisions.' If so stated in the related
prospectus supplement, the Depositor will obtain a bankruptcy bond or similar
insurance contract for proceedings of borrowers under the Bankruptcy Code. The
bankruptcy bond will cover specified losses resulting from a reduction by a
bankruptcy court of scheduled payments of principal of and interest on a Loan or
a reduction by the court of the principal amount of a Loan. It will also cover
some amounts of unpaid interest on the amount of a principal reduction from the
date of the filing of a bankruptcy petition.
The bankruptcy bond will provide coverage in the aggregate amount specified
in the related prospectus supplement. Payments made under the bankruptcy bond
will reduce the coverage amounts unless otherwise stated in the related
prospectus supplement, and will not be restored.
In lieu of a bankruptcy bond, the Depositor may obtain a limited guarantee
to cover bankruptcy-related losses.
RESERVE FUND
If in the related prospectus supplement the Master Servicer will establish
and maintain a reserve fund (the 'RESERVE FUND') with the Trustee. The
prospectus supplement will state whether or not the Reserve Fund will be part of
the Trust assets. Unless otherwise specified in the related prospectus
supplement, the Depositor will make an initial cash deposit to the Reserve Fund
equal to the amount specified in the related prospectus supplement. Following
the initial issuance of the certificates and until the balance of the Reserve
Fund equals the amount specified in the prospectus supplement (the 'SPECIFIED
RESERVE FUND BALANCE'), the Trustee or the applicable paying agent will withhold
distributions of principal and interest otherwise available to the Subordinate
certificateholders and deposit those amounts in the Reserve Fund. After the
Specified Reserve Fund Balance is attained, the Trustee or the applicable paying
agent will withhold distributions of principal only from the Subordinate
certificateholders and deposit those amounts in the Reserve Fund as necessary to
maintain the Specified Reserve Fund Balance applicable at the time. Amounts in
the Reserve Fund, if any, will be transferred to the Certificate Account for
distribution to Senior certificateholders to the extent required to make full
distributions to them on a particular Distribution Date. The related prospectus
supplement will set forth when and to what extent the Specified Reserve Fund
Balance
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may be reduced. The Prospectus Supplement will further specify how any funds
remaining in the Reserve Fund will be distributed after termination of the Trust
or reduction of the Subordinated Amount to zero.
OVERCOLLATERALIZATION
Credit enhancement for a series of Certificates may be provided by
overcollateralization. Principal and/or interest collections on the Mortgage
Assets may exceed principal and/or interest payments on the certificates for the
related Distribution Date. These excess amounts may be deposited into the
Reserve Fund or applied as a payment of principal on the certificates. To the
extent these amounts are applied as principal payments on the certificates, the
effect will be to reduce the principal balance of the certificates relative to
the outstanding balance of the Mortgage Assets.
LETTER OF CREDIT
Credit enhancement for a series of certificates may be provided by the
issuance of a letter of credit by a bank or financial institution specified in
the prospectus supplement. The maximum obligation of the issuer of the letter of
credit will be to honor requests for payment in an aggregate fixed dollar
amount, net of unreimbursed payments under the letter of credit, equal to the
percentage described in the prospectus supplement of the aggregate principal
balance on the related Cut-off Date of the Mortgage Assets evidenced by each
series. The duration of coverage and the amount and frequency and circumstances
of any reduction in coverage provided by the letter of credit for a series of
certificates will be in compliance with the requirements established by the
rating agency or agencies rating the series, and will be described in the
prospectus supplement.
SURETY BOND
If so specified in the related prospectus supplement for a series of
certificates, credit enhancement may be provided in the form of a surety bond
issued by an insurer named in the prospectus supplement.
OTHER INSURANCE, GUARANTEES AND SIMILAR INSTRUMENTS OR AGREEMENTS
If stated in the prospectus supplement, the related Trust may also include
insurance, guarantees or similar arrangements for the purpose of:
maintaining timely payments or providing protection against losses on the
assets included in a Trust;
paying administrative expenses; or
establishing a minimum reinvestment rate on the payments made in respect
of the assets or principal payment rate on the assets.
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These arrangements may include agreements under which certificateholders are
entitled to receive amounts deposited in various accounts held by the Trustee
based on the terms specified in the prospectus supplement. In addition, unless
otherwise provided in the prospectus supplement, at any time a surety bond,
letter of credit or other form of credit enhancement may be substituted for the
credit support arrangement in effect initially for the series to the extent
permitted by the rating agency or agencies rating the certificate series,
without resulting in a downgrading of the current rating of the certificates of
that series.
PREPAYMENT, YIELD AND MATURITY CONSIDERATIONS
GENERAL
DETERMINATION OF PASS-THROUGH RATES
Unless otherwise specified in the related prospectus supplement, the
'PASS-THROUGH RATE' for each Loan will equal the mortgage interest rate on the
Loan less the servicing fee due to the Master Servicer for that Loan (the
'ADMINISTRATION FEE') and for each Mortgage Certificate will equal the interest
rate on the Mortgage Certificate less the Administration Fee. The Administration
Fee will be specified in the Pooling and Servicing Agreement. It may be uniform
for all Loans in a pool or may vary on a loan-by-loan basis. For ARMs, the
Administration Fee will generally vary on a loan-by-loan basis to produce a
uniform margin (the 'NET MARGIN') by which the Pass-Through Rate for each Loan
in a Trust will exceed the applicable Index for the loan. For example, if the
Net Margin for a class or series of certificates were established to be 125
basis points over the Index applicable to the ARMs included in the Trust for
that class or series, an individual Loan whose terms provide for a mortgage
interest rate of 200 basis points over the applicable Index would be assigned an
Administration Fee totaling 75 basis points. Similarly, a Loan whose mortgage
interest rate is 175 basis points over the Index would be assigned an
Administration Fee totaling 50 basis points. The prospectus supplement will
specify whether the Administration Fee assigned to a Loan at the time of
formation of a Trust will be fixed throughout the term of the related Pooling
and Servicing Agreement or will vary. If the lifetime maximum rate or the
periodic maximum adjustment applicable to a Loan prevents its mortgage interest
rate from adjusting at any adjustment date to the full extent of the Index plus
the Gross Margin applicable to that loan, the Pass-Through Rate for the loan may
be less than the Index plus the Net Margin. Similarly, if the lifetime minimum
rate or, if applicable, the periodic maximum adjustment prevents the mortgage
interest rate from fully adjusting, the Pass-Through Rate for the loan may
exceed the Index plus the Net Margin.
DETERMINATION OF REMITTANCE RATE
Unless otherwise specified in the related prospectus supplement, the
Remittance Rate for each class of certificates of a series will, for Trusts
consisting of ARMs, and may, for
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Trusts consisting of Fixed-Rate Loans, be all, or a portion specified in the
related prospectus supplement, of the weighted average of the Pass-Through Rates
of the Loans included in the Trust. The weighted average Pass-Through Rate for
Trusts comprised of ARMs generally will change with any changes in the
adjustable mortgage interest rates borne by or accruing on the underlying ARMs
and may change with principal prepayments, negative amortization or accelerated
repayment of the ARMs. The weighted average Pass-Through Rate for a Trust
consisting of Fixed-Rate Loans with different Pass-Through Rates may change due
to differing prepayment rates and differing repayment rates of the Loans
included in the Trust.
YIELD
The following discussions of yield considerations is intended to be general
in nature and reference is made to the discussion in each prospectus supplement
regarding yield and prepayment considerations and other risks.
The yield on any certificate will depend on, among other things, the price
paid by the certificateholder, the Remittance Rate of the certificate, the
weighted average life and the prepayment experience of the Mortgage Assets
represented by the certificate. The actual yield to maturity realized on the
certificates listed below may be dramatically affected by the prepayment
experience or repurchases of the Mortgage Assets comprising the related Trust:
certificates offered at a discount from or premium over its original
principal amount,
Interest Only certificates, or
certificates offered with a lower proportionate share of the principal
amount of the Mortgage Assets.
In extreme cases, holders of some certificates could fail to recoup their
investment.
PRICE
Prepayments of principal in whole or in part or accelerated repayment, if
any, on the Mortgage Assets comprising a Trust will:
increase the yield to maturity on a certificate purchased at a price less
than the aggregate principal balance of the Mortgage Assets represented by
that certificate, and
decrease the yield to maturity on a certificate purchased at a price equal
to, slightly less than (due to effects of payment delays), or greater than
the aggregate principal balance of the Mortgage Assets represented by that
certificate. However, the amount of interest payable in connection with
prepayments as described in the prospectus supplement may alter the effect
on the price of certificates.
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Additionally, and as more fully described in the prospectus supplement, if
any certificate is offered without any principal amount or with a lower
disproportionate share of the principal amount of the underlying Mortgage
Assets, the yield realized on the certificate will be extremely sensitive to
levels of prepayments of the Mortgage Assets represented by that certificate. In
extreme cases, holders of these certificates could fail to recoup their original
investment.
EFFECTIVE PASS-THROUGH RATE
Each monthly interest payment on a Loan is calculated as 1/12 of the
applicable mortgage interest rate times the outstanding principal balance of the
Loan on the first day of the month. The Pass-Through Rate for each Loan will be
similarly calculated on a loan-by-loan basis, after subtracting the
Administration Fee applicable to each Loan from the applicable mortgage interest
rate, unless otherwise specified in the related prospectus supplement. In the
case of a Trust with a range of Pass-Through Rates, disproportionate prepayments
of Loans with higher Pass-Through Rates will result in a lower effective
Remittance Rate to certificateholders.
Except as otherwise specified in the prospectus supplement, the interest
accrual period for your certificates will be from the first day of each month
through the end of the month, but the Trustee will not distribute that interest
until a later date which is the Distribution Date occurring in the following
month. As a result, the effective yield to maturity on certificates entitled to
interest distributions will be slightly lower than the yield otherwise produced
by the applicable Remittance Rate and the applicable purchase prices of
certificates.
When a mortgagor prepays the entire Loan prior to the next scheduled Due
Date, the mortgagor pays interest on the amount prepaid only to the date of
prepayment. In addition, a mortgagor may make a partial prepayment that reduces
the principal balance of the related Loan as of a date prior to the Due Date of
the payment. In this case, on the next Due Date, the mortgagor would not pay
interest on the amount of the partial prepayment. The difference between one
full month's interest at the applicable Pass-Through Rate and the amount of
interest actually paid by the mortgagor is referred to as 'PREPAYMENT INTEREST
SHORTFALL'. Unless otherwise specified in the related prospectus supplement, in
order to prevent certificateholders from being adversely affected by a
Prepayment Interest Shortfall, the Master Servicer may forego all or a portion
of the current Administration Fees as compensating interest, so that up to a
full month's interest payment will be passed through to the certificateholders.
To the extent sufficient current Administration Fees due to the Master Servicer
are not available to cover compensating interest, the yield to
certificateholders will be slightly less than it would be if the current
administration fees were adequate to cover compensating interest. See
'Description of the Certificates -- Example of Distributions.' The occurrence of
any of the following events may also reduce the amount of interest passed
through to certificateholders and any resulting shortfall will be borne by
certificateholders:
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the payment of a claim under insurance policies or the purchase of a
defaulted Loan by a private mortgage insurer, or
a reduction in the interest rate of any Loan due to the application of the
Soldiers' and Sailors' Civil Relief Act of 1940.
OTHER YIELD CONSIDERATIONS
Mortgage Interest Rates on Negatively Amortizing ARMs. Since a portion of
the interest accrued on Negatively Amortizing ARMs may be deferred and payable
at a future time, the interest paid by a mortgagor on this type of Loan on a
given Due Date (the 'INTEREST REMITTANCE AMOUNT') may not be equal to interest
at the applicable Pass-Through Rate on the Loan. During periods of negative
amortization, any Deferred Interest that is added to the principal balance of a
Loan bears interest at the applicable mortgage interest rate. The distribution
to certificateholders of the Interest Remittance Amount, rather than interest
calculated at the applicable Pass-Through Rate, will not materially affect the
yield to certificateholders if the certificates are purchased at or near par.
Negative Amortization will lengthen the average life of the certificates, and if
the certificates are purchased at a discount or premium, a yield effect can
occur. See ' -- Price' and ' -- Prepayment Considerations.' Any Deferred
Interest will be includible in taxable income of classes entitled thereto as it
accrues, rather than when it is received. See 'Federal Income Tax Consequences.'
Mortgage Interest Rates on Non Negatively Amortizing ARMs. The mortgage
interest rates on ARMs adjust periodically in response to movements in the
applicable Index. In addition, because ARMs included in a Trust may have
different origination dates, the mortgage interest rates on the ARMs comprising
a Trust will not necessarily adjust on the same dates. Accordingly, the yield to
certificateholders on Trusts comprised of ARMs will be adjusted on a delayed
basis relative to movements in the applicable Index.
ARMs. In the case of a Trust containing ARMs, the readjustment mechanics of
the ARM could affect the yield on the related series of certificates. In the
event that despite prevailing market interest rates the mortgage interest rate
on an ARM cannot increase due to the maximum rate or, if applicable, the maximum
adjustment, the yield on the related certificates could be impacted adversely.
Conversely, should the mortgage interest rate on an ARM not be able to decrease
due to the minimum rate or, if applicable, the maximum adjustment at a time when
market interest rates are below that level, the yield on the related
certificates could be higher than that which would otherwise be the case. In
that event, the mortgagor may be more likely to prepay the Loan in full and
obtain financing at a lower rate. In addition, to the extent that a Payment Cap
on a Negatively Amortizing ARM restricts an increase in the related mortgagor's
monthly payment or because the adjustable mortgage interest rate changes more
frequently than the adjustments in a monthly payment, Deferred Interest could
result and impact the yield on the related certificates.
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Distribution Shortfalls. The Trustee will use the following funds to make
distributions to certificateholders:
the aggregate amount of payments received from mortgagors on the Loans;
any servicing advances;
funds otherwise payable to the Subordinate certificateholders; and
monies available in the Reserve Fund.
If these amounts are insufficient to make full distributions to the Senior
certificateholders, unless otherwise specified in the related prospectus
supplement, the amount of the shortfall together with interest at the related
applicable Remittance Rates, will be added to the amount the Senior
certificateholders are entitled to receive on the next Distribution Date. The
allocation of any shortfall and shortfall recoveries between the classes of
Senior certificates, and the effect of any shortfall on yield will be discussed
in the prospectus supplement relating to those certificates.
Classes of Certificates. The certificates of a series may consist of one or
more classes, in which each class will evidence interests in specified
allocations of the principal payments only, or of the interest payments only, or
both principal and interest payments in respect of the Mortgage Assets in the
related Trust. If certificates are subdivided, the yield of any class evidencing
interest payments only will be adversely impacted by prepayments in full and
partial prepayments. If appropriate, the prospectus supplement for that series
will offer examples of cash flows on the certificates, based on specified
mortgage interest rates.
PREPAYMENT CONSIDERATIONS
GENERAL
The yields to maturity and weighted average lives of the certificates will
be affected primarily by the rate and timing of principal payments received on
or in respect of the Mortgage Assets included in the related Trust. The yields
to investors will be sensitive in varying degrees to the rate of prepayments on
the Mortgage Assets. The extent to which the yield to maturity of a certificate
is sensitive to prepayments will depend upon the degree to which it is purchased
at a discount or premium. In the case of certificates purchased at a premium,
faster than anticipated rates of principal payments on the Mortgage Assets could
result in actual yields to investors that are lower than the anticipated yields.
In the case of some classes of these certificates, investors could fail to
recover their investments. In the case of certificates purchased at a discount,
slower than anticipated rates of principal payments on the Mortgage Assets could
result in actual yields to investors that are lower than the anticipated yields.
This could result in an extension of the weighted average lives of these
certificates. Principal payments will include:
scheduled payments;
Principal Prepayments;
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prepayments resulting from foreclosure, condemnation and other
dispositions of the mortgaged properties and include amounts paid by
insurers under insurance policies;
repurchases by the Depositor of any Loan as to which there has been a
material breach of warranty or defect in documentation or deposit of
additional amounts in respect of delivery of a substitute loan; and
repurchases by the Depositor or the Master Servicer of all of the
certificates or all of the Mortgage Assets resulting from an optional
termination of a Trust.
The yield to maturity and weighted average lives of the certificates may
also be affected by the amount and timing of delinquencies and losses on the
Mortgage Assets.
A number of social, economic, tax, geographic, demographic, legal and other
factors may influence prepayments, delinquencies and losses on the Mortgage
Assets. These factors may include:
the age of the Loans and/or Underlying Loans;
the geographic distribution of mortgaged properties;
the terms of the mortgages;
the characteristics of the mortgagors;
homeowner mobility;
economic conditions generally and in the geographic area in which the
mortgaged properties are located;
enforceability of due-on-sale clauses;
servicing decisions;
prevailing mortgage market interest rates in relation to the interest
rates on the Loans and/or the Underlying Loans;
the availability of mortgage funds;
the use of second or home equity loans by mortgagors;
the availability of refinancing opportunities; and
the use of the properties as second or vacation homes.
The rate of principal prepayments on pools of conventional housing loans has
fluctuated significantly in recent years. Generally, if prevailing interest
rates were to fall significantly below the interest rates on the Loans and/or
Underlying Loans, the Loans and/or Underlying Loans would be expected to prepay
at higher rates than if prevailing rates were to remain at or above the interest
rates on the Loans and/or Underlying Loans. During these periods, the yields at
which an investor in the certificates may be able to reinvest amounts received
as payments on the investor's certificates may be lower than the yield on those
certificates. Conversely, if interest rates were to rise above the interest
rates on the Loans and/or Underlying Loans, the Loans and/or Underlying Loans
would be expected to prepay at lower rates than if prevailing rates were to
remain at or below interest rates on the Loans and/or Underlying Loans. During
these periods, the amount of payments available to an investor for reinvestment
at these high rates may be relatively low. The Loans and/or Underlying Loans
will not prepay at any constant rate, nor will all of the Loans and/or
Underlying Loans prepay at the same rate at any one time. The
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timing of changes in the rate of prepayments may significantly affect a
certificateholder's actual yield to maturity, even if the average rate of
principal payments is consistent with a certificateholder's expectation. In
general, the earlier a prepayment of principal the greater the effect on the
certificateholder's yield to maturity. As a result, the effect on a
certificateholder's yield of principal payments occurring at a rate higher or
lower than the rate anticipated by the investor during the period immediately
following the issuance of the related series of certificates will not be offset
by a subsequent like reduction or increase in the rate of principal payments.
SUBSTITUTIONS
Substitutions of Loans by the Depositor under the conditions in the Pooling
and Servicing Agreement may also be treated as partial prepayments. If the
principal balance of the substituted loan is less than the principal balance of
the Loan replaced, the Depositor must pay the Trust the difference. The Trustee
will pass this amount through to the certificateholders as a prepayment.
LOAN ASSUMPTIONS
The Loans may allow the mortgagor to sell the mortgaged property and have
the purchaser assume the mortgagor's obligations under the mortgage. Assumptions
of the Loans will reduce the level of principal prepayments in the related Trust
that would otherwise occur if the Loans had been accelerated. To the extent it
has knowledge of any conveyance or prospective conveyance by any mortgagor of
the related mortgaged property, the Master Servicer will retain the right to
accelerate the maturity of the Loan under any applicable 'due-on-sale' clause if
credit or other factors warrant enforcement. However, the Loans provide for
assumption by qualifying buyers, and the Master Servicer may in some cases
encourage the assumption of Loans by persons meeting relevant underwriting
standards. In no event will the Master Servicer exercise any right of
acceleration if prohibited by law. If the Master Servicer determines not to
enforce a 'due-on-sale' clause, it will enter into an assumption and
modification agreement with the person to whom the property has been conveyed or
is proposed to be conveyed, pursuant to which that person becomes liable under
the Loan. Any fees collected by the Master Servicer in connection with the
execution of an assumption agreement may be retained by the Master Servicer or
the applicable Servicer as additional servicing compensation. See 'Servicing of
the Loans -- Collection and Other Servicing Procedures.'
ARMS
The maximum and minimum rates, maximum adjustments, Gross Margins, Payment
Caps and other features of the ARM programs of mortgage lenders during recent
years have significantly varied in response to market conditions like interest
rates, consumer demand and regulatory restrictions. The lack of uniformity of
the terms and provisions of ARM programs have made it impractical to compile
meaningful comparative data on
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prepayment rates of ARMs and accordingly, there can be no certainty as to the
rate of prepayments on ARMs in either stable or changing interest rate
environments. The ARMs comprising a Trust or underlying the Mortgage
Certificates comprising a Trust may experience a rate of principal prepayments
which is different from the principal prepayment rate for ARMs included in any
other Trust for other adjustable rate mortgages having different or similar
characteristics and for fixed-rate mortgages. In addition, we cannot assure you
that any Trust will conform to past prepayment experience or any published
prepayment forecast.
As described under 'The Trusts -- The Loans -- Payment Provisions of the
Loans' if interest rates rise without a simultaneous increase in the related
monthly payments, Deferred Interest and negative amortization may result in the
case of Negatively Amortizing ARMs. However, borrowers may pay amounts in
addition to their monthly payments in order to avoid negative amortization. In
the case of Negatively Amortizing ARMs, borrowers may pay amounts in addition to
their monthly payments in order to avoid negative amortization or they may incur
negative amortization. To the extent that any of the Loans or any Underlying
Loans negatively amortize, the amount of the negative amortization is added to
the outstanding principal balance and future interest accruals are computed on
the higher outstanding principal balance and a smaller portion of the monthly
payment is applied to principal than is necessary to repay the unpaid principal
over its remaining term. Accordingly, the weighted average life of these Loans
will be increased beyond that which would otherwise be the case. During a period
of declining interest rates, the portion of each monthly payment in excess of
scheduled interest and principal will be applied to reduce the outstanding
principal balance on the related Negatively Amortizing ARM, thereby resulting in
accelerated repayment of the Loan. This will shorten the weighted average life
of the Negatively Amortizing ARMs. The application of partial prepayments to
reduce the principal amount of a Negatively Amortizing ARM will tend to reduce
the weighted average life of the Loan and may adversely affect the yield to
(1) holders of certificates which purchased their certificates at a premium,
(2) holders of classes with lower proportionate shares of the principal amount
in the underlying Mortgage Assets, and (3) holders of Interest Only
certificates.
The pooling of Negatively Amortizing ARMs having monthly payment adjustment
dates in different months, together with different initial mortgage rates,
maximum rates, minimum rates and stated maturity dates, could result in some
Negatively Amortizing ARMs experiencing negative amortization while the
amortization of other Negatively Amortizing ARMs is accelerated. The weighted
average life of certificates of a series will reflect a composite of the
repayment and prepayment characteristics of the Mortgage Assets in the related
Trust.
FORECLOSURES
The number of foreclosures and the principal amount of the Loans and
Underlying Loans foreclosed in relation to Loans and Underlying Loans which are
repaid in accordance with their terms will affect the weighted average life of
the Mortgage Assets in
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the Trust and that of the related series of certificates. Servicing decisions
made regarding the Loans and Underlying Loan, may also have an impact upon the
payment behavior of particular Trusts. See 'Servicing of the Loans -- Collection
and Other Servicing Procedures' and 'Servicing of the Underlying Loans.' These
servicing decisions may include:
the use of payment plans prior to demand for acceleration,
the restructuring of Loans or Underlying Loans in bankruptcy proceedings,
the Master Servicer's servicing policy to generally not accept payment
from the mortgagor of less than the total scheduled monthly payment due on
a Loan.
Servicing policies and decisions that result in foreclosures may adversely
affect the return:
to holders of certificates which purchased their certificates at a
premium, if any,
the return on classes with lower proportionate shares of the principal
amount of the interest in the underlying Loans, if any, and
the return on Interest Only classes, if any.
PRE-FUNDING
As may be described in the prospectus supplement relating to any series, the
related Pooling and Servicing Agreement may provide for a pre-funding period.
During this period, all or a portion of the principal collected on the Mortgage
Assets may be applied by the Trustee to the acquisition of additional Mortgage
Assets during a specified period rather than used to fund payments of principal
to certificateholders during that period. This will result in the related
certificates possessing an interest-only period, also commonly referred to as a
revolving period, which will be followed by a repayment period. Any
interest-only or revolving period may, upon the occurrence of specified events
to be described in the related prospectus supplement, terminate prior to the end
of the specified period and result in the earlier than expected repayment of the
related certificates.
PREPAYMENT ASSUMPTIONS
The prospectus supplement for a series of Sequential Pay certificates may
contain a table setting forth percentages of the initial certificate balance of
each class expected to be outstanding after each of the dates shown in the
table. The table will be based upon a number of assumptions stated in the
prospectus supplement, including assumptions that prepayments on the Underlying
Loans or on the Loans are made at rates corresponding to various percentages of
the prepayment model specified in the prospectus supplement. It is unlikely,
however, that the prepayment of the Underlying Loans, or of the Loans underlying
any series will conform to any of the percentages of the prepayment model
described in the table.
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OPTIONAL TERMINATION
The Depositor, Master Servicer, or another third party may have the option
to repurchase the Mortgage Assets comprising part of a Trust when the aggregate
outstanding principal balance of the Mortgage Assets is less than a specified
percentage of the aggregate outstanding principal balance of the Mortgage Assets
as of the related Cut-off Date. See 'Description of the Certificates -- Optional
Termination of a Trust, -- Optional Termination of an Underlying Trust' in this
prospectus and 'Description of the Certificates -- Optional Termination' in the
prospectus supplement. The Depositor or a mortgage asset seller may also be
required to repurchase Mortgage Assets from any pool because of breaches in its
representations and warranties to the Trustee. Any repurchases will shorten the
weighted average lives of the certificates.
The prospectus supplement relating to a series of certificates will discuss
in greater detail the effect of the rate and timing of principal payments,
prepayments, delinquencies and losses on the yield, weighted average lives and
maturities of the certificates.
DISTRIBUTIONS ON THE CERTIFICATES
Unless otherwise specified in the prospectus supplement, on each applicable
Distribution Date the Trustee will distribute the Available Distribution Amount
from the Certificate Account to certificateholders, in most cases, through DTC
and its participants.
The 'AVAILABLE DISTRIBUTION AMOUNT' for any Distribution Date, as more fully
described in the Pooling and Servicing Agreement, will equal the sum of the
following amounts:
(1) the total amount of all cash received by or on behalf of the Master
Servicer for the Mortgage Assets by the Determination Date and not
previously distributed, including amounts received in connection with
the liquidation of defaulted Loans whether through trustee's sale,
foreclosure sale, proceeds of insurance policies, condemnation
proceeds or otherwise ('LIQUIDATION PROCEEDS') except:
all scheduled payments of principal and interest collected but due
on a date after the related Due Date;
all partial principal prepayments received after the previous
calendar month, together with any interest payment received with the
prepayments to the extent that it represents the payment of interest
accrued on the Loans for the period after the previous calendar
month;
all prepayments in full received after the applicable calendar month
immediately before the Determination Date, together with any
interest payment received with the prepayments in full to the extent
that it represents the payment of interest accrued on the Loans for
the period after the previous calendar month;
Liquidation Proceeds received on the Loans after the previous
calendar month;
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all amounts in the separate account established and maintained by
the Master Servicer for collection purposes (the 'CUSTODIAL ACCOUNT
FOR P&I') which are due and reimbursable to the Master Servicer
pursuant to the terms of the Pooling and Servicing Agreement;
the Administration Fee for each Loan; and
the excess, if any, of the total amount received in connection with
the liquidation of defaulted Loans received during the previous
calendar month over the amount that would have been received if
prepayments in full had been made on these Loans on the date that
the liquidation proceeds were received ('EXCESS LIQUIDATION
PROCEEDS');
(2) all advances made by the Master Servicer to the Trustee on that
Distribution Date;
(3) any amounts payable as compensating interest by the Master Servicer on
that Distribution Date; and
(4) the total amount of any cash received by the Trustee or the Master
Servicer in respect of the obligation of the Depositor or the seller
to repurchase any Mortgage Assets.
Unless otherwise provided in the applicable prospectus supplement, the term
'PREPAYMENT PERIOD' shall refer to the calendar month before the Distribution
Date.
Distributions on the certificates on each Distribution Date will generally
be allocated to each certificate entitled to receive a distribution on the basis
of the Percentage Interest of the Trust which each certificate represents or
their outstanding principal amounts or notional amounts.
However, a prospectus supplement may alter these general distribution
methods by providing for the subordination of the rights of any classes of
Subordinate certificates to receive current distributions. If the Mortgage
Assets for a series have adjustable or variable interest rates, then the
Remittance Rate of the Certificates for that series will also vary, due to
changes in those rates and due to prepayments of Loans and/or Underlying Loans
comprising the related Mortgage Assets. If the Mortgage Assets for a series have
fixed interest rates, then the Remittance Rate on Certificates of the related
series may be fixed, or may vary, to the extent prepayments cause changes in the
weighted average interest rate of the Mortgage Assets. If the Mortgage Assets
have lifetime or periodic adjustment caps on their respective interest rates,
then the Remittance Rate on the Certificates of the related series may also
reflect these caps.
Distributions of interest on certificates which receive interest will be
made periodically at the intervals and at the Remittance Rate specified or
determined in the manner described in the related prospectus supplement.
Interest on the certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months unless otherwise specified in the related
prospectus supplement.
Funds available in the Certificate Account together with any amounts
transferred from any Reserve Fund or applicable credit enhancement may not
always be sufficient to make
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the full distribution to certificateholders on any Distribution Date. In this
case, the Trustee will distribute available funds to the certificateholders of
each class in accordance with their respective interests. The subordinate
certificateholders, if any, will not, subject to the limitations described in
the related prospectus supplement, receive any amount of distributions until
senior certificateholders receive the amount of present distributions due them
and the amount of distributions owed them which were not timely distributed and
to which they are entitled. If specified in the related prospectus supplement,
the difference between the amount which certificateholders would have received
if there had been sufficient eligible funds available for distribution and the
amount actually distributed will be included in the calculation of the amount
which the certificateholders are entitled to receive on the next Distribution
Date.
SERVICING OF THE LOANS
One or more entities, which may include an affiliate of the Depositor, will
be named in the related prospectus supplement as the Master Servicer. The Master
Servicer will be responsible for the servicing and administration of the Loans
as described in the related prospectus supplement. Any Master Servicer or any
successor Master Servicer may contract with Master Servicers, who also may be
qualified lenders or mortgage asset sellers, to perform all or a portion of the
servicing functions on behalf of the Master Servicer.
COLLECTION AND OTHER SERVICING PROCEDURES
The Master Servicer will make reasonable efforts to collect all payments
called for under the Loans and any applicable credit enhancement. It will also
follow collection procedures that are consistent with the Pooling and Servicing
Agreement and as it follows on its own conventional one- to-four-unit
residential first Loans. Consistent with the above, the Master Servicer may, in
its discretion, (1) waive any assumption fee, late payment charge or other
charge in connection with a Loan; and (2) arrange a schedule, running for no
more than 180 days after the Due Date for payment of any installment on any
mortgage note, for the liquidation of delinquent items.
Some of the Loans may provide for payment by the mortgagor to the Master
Servicer of amounts to be used for payment of taxes, assessments, hazard
insurance premiums or comparable items for the account of the mortgagor. These
amounts, if any, will not become part of the Trust assets and certificateholders
will possess no interest in them. The Master Servicer may deal with these
amounts in accordance with its normal servicing procedures.
The Master Servicer will be responsible for servicing and administering the
Loans, but will be permitted to enter into a servicing agreement with a
qualified lender or another eligible institution to perform all or part of its
functions under its supervision that it would otherwise be required to perform.
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The Master Servicer or the servicer will diligently perform all services and
duties specified in the Pooling and Servicing Agreement, or servicing agreement,
in the same manner as prudent mortgage lending institutions would perform for
mortgages of the same type as the Loans in those jurisdictions where the related
mortgaged properties are located. The Master Servicer will monitor the
performance of the servicer and will have the right to remove any servicer at
any time if it considers removal to be in the best interest of the
certificateholders. The duties to be performed by the Master Servicer, directly
or through the servicer, will include collection and remittance of principal and
interest payments, collection of insurance claims and, if necessary,
foreclosure. If the Master Servicer terminates a servicing agreement, it shall
either perform the servicing function itself or transfer it to a substitute
servicer. The Master Servicer will be entitled to retain the portion of the
servicing fee paid to the servicer under a terminated servicing agreement if the
Master Servicer elects to perform the servicing functions itself.
The Master Servicer will be paid an Administration Fee for the performance
of its services and duties under the Pooling and Servicing Agreement as
specified in the related prospectus supplement. Additionally, the Master
Servicer or the servicer may be entitled to retain late charges, assumption fees
and similar charges to the extent collected from mortgagors.
In servicing ARMs, the Master Servicer will on occasion accommodate borrower
inquiries regarding the notice of interest rate adjustments by deferring the
effective date of the adjustment and requesting the borrower to agree to reduce
the notice period provided in the related mortgage note. The result of any
deferrals of the effective date of rate adjustments to Loans included in a
Trust, during periods of rising interest rates, may be to reduce the yield to
investors in certificates evidencing interests in that Trust.
The Master Servicer will be obligated to follow the practices and procedures
as it deems necessary or advisable and as are normal and usual in its general
mortgage servicing activities to realize upon defaulted Loans. However, in the
case of damage to a mortgaged property, the Master Servicer is not required to
expend its own funds in connection with foreclosure or to restore any damaged
property unless it reasonably determines (1) that foreclosure and/or restoration
will increase the liquidation proceeds to certificateholders after reimbursement
to the Master Servicer for its expenses and (2) that the expenses will be
recoverable to it through liquidation proceeds of the sale of the mortgaged
property. If the Master Servicer has expended its own funds to restore damaged
property, it will be entitled to charge the Certificate Account, out of the
related liquidation proceeds, an amount equal to expenses incurred by it.
In realizing upon a defaulted Loan, the Master Servicer may:
directly or through a local assignee, sell the property at a foreclosure
or trustee's sale;
negotiate with the mortgagor for a deed in lieu of foreclosure; or
if a deficiency judgment is available against the mortgagor or other
person, foreclose against the property and proceed for the deficiency
against the appropriate person.
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We anticipate that in most cases the Master Servicer will not seek deficiency
judgments against defaulting mortgagors. See 'Legal Aspects of the
Loans -- Anti-Deficiency Legislation and Other Limitations on Lenders' for a
description of the limited availability of deficiency judgments.
The Depositor and/or the Master Servicer will be entitled to elect to
purchase defaulted Loans or Loans as to which the related mortgagor has tendered
a deed in lieu of foreclosure from the Trust for a purchase price equal to the
principal balance plus accrued and unpaid interest on the loan. If the Master
Servicer purchases a Loan, any gain realized in a liquidation proceeding on the
Loan will not be paid to the Trust. If the Master Servicer does not purchase the
Loan, any gain realized in a liquidation proceeding on the Loan will be paid to
the Trust for distribution to the certificate holders, less reasonable
reimbursement to the Master Servicer for its expenses. If the Trust elects to be
treated as a REMIC, the gain would become an asset of the REMIC Residual Holders
to the extent the gain is not necessary to make payments due to the holders of
regular interests. Often, the holder of property acquired through foreclosure
maximizes recovery by providing financing to a new purchaser. The Trustee will
not be empowered to provide this financing and the Master Servicer may, but will
not be obligated to do so. This may result in a Trust experiencing greater
losses on defaulted Loans than might otherwise be the case.
For a series of certificates for which a REMIC election is made, if the
Trustee acquires ownership of any mortgaged property as a result of a default or
imminent default of any Loan secured by that mortgaged property, the Trustee
will be required to dispose of the property within two years after the date on
which it acquired ownership of the property.
The Master Servicer will not be obligated to foreclose on any mortgaged
property which it believes may be contaminated with or affected by hazardous or
toxic wastes, materials or substances. See 'Legal Aspects of the
Loans -- Environmental Legislation.' The Master Servicer will not be liable to
the certificateholders of a series if it fails to foreclose on a mortgaged
property securing a Loan in the related Trust which it believes may be
contaminated or affected, even if the mortgaged property is, in fact, not
contaminated or affected. If the Master Servicer does not foreclose on the
mortgaged property in this instance, the certificateholders of the related
series may experience a loss on the related Loan. In addition, the Master
Servicer will not be liable to the certificateholders if, based on its belief
that no contamination or effect exists, it forecloses on a mortgaged property
and takes title to the mortgaged property on behalf of the related Trustee, and
thereafter the mortgaged property is determined to be contaminated or affected.
Unless otherwise stated in the prospectus supplement relating to a series of
certificates, if the Master Servicer determines that all amounts which it
expects to recover from or on account of a Loan have been recovered, its
obligation, if any, to advance delinquent installments of principal, interest or
both on that Loan will cease. The principal balance of the Loan will then be
allocated in reduction of the principal balance of the certificates of the
related series in the manner in which losses are allocated as specified in the
prospectus supplement.
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For a series of certificates that includes subordination as a form of credit
enhancement, until the Subordinated Amount is reduced to zero, and provided any
special loss limitation has not been exceeded, Senior certificateholders will
not realize a loss on a defaulted Loan if Liquidation Proceeds are less than the
sum of the principal balance of the defaulted Loan and the Master Servicer's
expenses.
The Master Servicer will maintain with one or more depository institutions
one or more accounts into which it will deposit all payments of taxes, insurance
premiums, assessments or comparable items received for the account of the
mortgagors. The Master Servicer may withdraw amounts from these accounts only to
effect the following:
payment of taxes, insurance premiums, assessments or comparable items;
reimbursement to itself, or the applicable Master Servicer, out of related
collections for any cost incurred in paying taxes, insurance premiums and
assessments or comparable items;
refunds to mortgagors for any amounts determined to be overages;
payment of interest to mortgagors on balances in these accounts to the
extent required by law;
withdraw interest or other income which may lawfully be retained by the
Trust for deposit into the Certificate Account; and
clear and terminate the accounts at termination of the Trust.
PRIMARY MORTGAGE INSURANCE
The Loans in a Trust will not have loan-to-value ratios in excess of 100% of
the original value of the mortgaged property unless otherwise specified in the
prospectus supplement. Generally, Loans that the Depositor acquires do not have
loan-to-value ratios in excess of 95% of the original value of the mortgaged
property. The prospectus supplement for a series will describe the extent to
which a Trust includes Loans with loan-to-value ratios exceeding 95%. Unless
otherwise stated in the prospectus supplement, each Loan will have primary
mortgage insurance if the original principal amount of the loan exceeds 80% of
the original value of the mortgaged property. The mortgagor is generally
required to continue this coverage until the outstanding principal amount of the
loan equals or is less than 80% of the greater of the original value of the
mortgaged property and, if permitted under any pool insurance policy obtained
for a series, the then current value of the property as evidenced by an
appraisal. A primary mortgage insurance policy may provide that, as an
alternative to paying a claim thereunder, the mortgage insurer will have the
right to purchase the Loan following the receipt of a notice of default. The
mortgage insurer may have a purchase right after the borrower has failed to make
three scheduled monthly payments, or one payment if it is the first payment due
on the Loan, or after any foreclosure or other proceeding affecting the Loan or
the mortgaged property has been commenced. The proceeds of any purchase will be
distributed to certificateholders on the applicable Distribution Date. A
mortgage insurer may be more likely to exercise its purchase option when
prevailing interest rates are low relative to the interest rate borne by
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the defaulted Loan, in order to reduce the aggregate amount of accrued interest
that the insurer would be obligated to pay upon payment of a claim.
HAZARD INSURANCE
The Master Servicer will cause to be maintained for each Loan a hazard
insurance policy providing for no less than the coverage of the standard form of
fire insurance policy with extended coverage in the applicable state. The
coverage will be in an amount equal to the lesser of (1) the principal balance
of the Loan; and (2) the replacement cost of the improvements securing the Loan.
All amounts collected by the Master Servicer under any hazard policy will be
credited to the Custodial Account for P&I except for amounts to be applied to
the restoration or repair of the mortgaged property or released to the mortgagor
in accordance with the Master Servicer's normal servicing procedures. The Master
Servicer may satisfy its obligation relating to the maintenance of hazard
insurance by maintaining a blanket policy insuring against hazard losses on all
the Loans. The Master Servicer will pay the premium amount for any blanket
policy it maintains. The blanket policy may contain a deductible clause, in
which case the Master Servicer will be required to credit to the Custodial
Account for P&I the amounts which would have been payable by the insurer but for
the deductible clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by fire,
lightening, explosion, smoke, windstorm and hail, and riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Loans will be underwritten by
different insurers and therefore do not contain identical terms and conditions,
the basic terms are dictated by applicable law. Most policies typically do not
cover any physical damages resulting from the following: war, revolution,
governmental actions, flood and other water-related causes, earth movement,
including earthquakes, landslides and mud flows, nuclear reactions, hurricanes,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in some
cases, vandalism. The foregoing list is merely indicative of some kinds of
uninsured risks and is not intended to be all-inclusive. If any mortgaged
property was located in a federally designated special flood hazard area at the
time of origination, the Master Servicer will cause to be maintained a flood
insurance policy on the mortgaged property up to the maximum amount available or
to the full amount of the related Loan. The Depositor may also purchase special
hazard insurance against some or all of the uninsured risks described in this
paragraph. See 'Credit Enhancement -- Special Hazard Insurance.'
Most of the properties securing the Loans in a Trust will be covered by
homeowners' insurance policies, which, in addition to the standard form of fire
and extended coverage, provide coverage for other types of risks. These
homeowners' policies typically contain a coinsurance clause which in effect
requires the insured at all times to carry insurance of a specified percentage,
generally 80% to 90%, of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, then the insurer's
liability in
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the event of partial loss will not exceed the greater of (1) the actual cash
value (generally defined as replacement cost at the time and place of loss, less
physical depreciation) of the improvements damaged or destroyed, or (2) a
proportion of the loss as the amount of insurance carried bears to the specified
percentage of the full replacement cost of the improvements.
Since the amount of hazard insurance the Master Servicer is required to
cause to be maintained on the improvements securing the Loans declines as the
principal balances owing on the Loans decrease, if the residential properties
securing the Loans appreciate in value over time, the effect of coinsurance in
the event of partial loss may be that hazard insurance proceeds will be
insufficient to restore fully the damaged property. However, for a series of
certificates that includes subordination as a form of credit enhancement, Senior
certificates may not realize a loss resulting from uninsured hazard losses or
the application of coinsurance provisions. The Trustee will distribute the full
distribution amounts due on the Senior certificates until the Subordinated
Amount is reduced to zero, so long as the following conditions are met:
any applicable special loss limitation described in the related prospectus
supplement has not been exceeded, and
there are sufficient funds otherwise due on the Subordinate certificates
or held in the Reserve Fund, if any, to pay the distribution amount due to
the Senior certificates.
The Master Servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative apartment relating to any
Co-op Loan. Generally, the cooperative itself is responsible for maintenance of
hazard insurance for the property owned by the cooperative and the
tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a Co-op Loan do not maintain this insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative apartment or the
cooperative building could significantly reduce the value of the collateral
securing that Co-op Loan.
UNANTICIPATED RECOVERIES OF LOSSES ON THE LOANS
To the extent and in the manner specified in the prospectus supplement, the
principal balance of classes of certificates may be reduced by allocating losses
of principal to them that occur in connection with liquidation on the Loans in
the related Trust (a 'REALIZED LOSS'). Unless otherwise stated in the prospectus
supplement, holders of certificates that had previously been allocated a
Realized Loss may receive distributions if the Master Servicer subsequently
recovers an amount (an 'UNANTICIPATED RECOVERY') in respect of that Loan.
Unanticipated Recoveries may result from events like an unanticipated insurance
settlement, tax refund or mortgagor bankruptcy distribution. To the extent a
certificate has been transferred, the holder that receives an Unanticipated
Recovery may be different from the holder who was allocated a Realized Loss. The
Trustee will distribute to the holders of
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each outstanding class to which the Realized Loss had previously been allocated,
its share of the Unanticipated Recovery up to the amount of the loss previously
allocated to that class. The Trustee will make this distribution on the
Distribution Date in the calendar month following receipt of the Unanticipated
Recovery. Any distributions of Unanticipated Recoveries will not reduce the
principal balances of the class of certificates receiving the recoveries.
However, no certificateholder will be entitled to receive any share of an
Unanticipated Recovery following the Distribution Date on which the principal
balance of its certificate has been reduced to zero, including following the
termination of the Trust. See 'The Pooling and Servicing
Agreement -- Termination' in this prospectus.
ADVANCES
Unless otherwise stated in the prospectus supplement, if any borrower fails
to make any payment of principal or interest required under the terms of a Loan,
the Master Servicer will be obligated to advance the entire amount of that
payment net of the applicable Administration Fee. This obligation to advance
will be limited to amounts which the Master Servicer reasonably believes will be
recoverable by it out of liquidation proceeds or otherwise in respect of the
Loan. In addition, the Master Servicer may make advances from funds on deposit
in the Certificate Account.
The Master Servicer will make advances in order to maintain a regular flow
of scheduled interest and principal payments to holders of the relevant classes
of certificates. These advances do not represent an obligation of any Master
Servicer to guarantee or insure against losses.
The Master Servicer may recover advances without interest from amounts which
represent late recoveries of principal and/or interest on, or liquidation
proceeds or insurance proceeds from, the Loan as to which the advance was made.
If these amounts are insufficient to reimburse the Master Servicer, the amount
of the deficiency will be characterized as a non-recoverable advance. The Master
Servicer may reimburse itself for non-recoverable advances out of any funds in
the Custodial Account for P&I or the Certificate Account. If the Master Servicer
makes an advance on any Distribution Date, it will be included with the
distribution to the certificateholders on that Distribution Date. If the Trustee
purchases any foreclosed property and the property becomes part of the Trust,
the Master Servicer will continue to make advances on the property as if the
Loan were still outstanding in the manner described above. At the time the
Trustee sells the property, the Master Servicer may reimburse itself for these
advances in an amount not to exceed the sale price. Additionally, if specified
in the related prospectus supplement, the Trustee, on behalf of the Master
Servicer, may make advances.
Any obligation to make advances may be limited to amounts due holders of
Senior certificates of the related series or may be limited to specified periods
or otherwise as specified in the prospectus supplement.
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PAYMENTS ON MORTGAGE ASSETS
The Pooling and Servicing Agreement for each Trust will require that the
Master Servicer establish and maintain a Custodial Account for P&I. The Master
Servicer will credit to the Custodial Account for P&I on a daily basis the
collections received by it after the Cut-off Date, as well as scheduled payments
of principal and interest due after the Cut-off Date, but received before the
Cut-off Date. These amounts include:
all mortgagor payments on account of principal, including principal
prepayments by mortgagors, on the Loans and payments on account of
principal on the Mortgage Certificates;
all mortgagor payments on account of interest on the Loans and payments on
account of interest on the Mortgage Certificates, which may be net of
administration fees the Master Servicer is entitled to retain;
all liquidation proceeds net of unpaid administration fees;
all proceeds received by the Master Servicer under any title, hazard or
other insurance policy covering any Loan or the related mortgaged
property, other than proceeds to be applied to the restoration or repair
of the property subject to the related mortgage or released to the
mortgagor in accordance with the Master Servicer's normal servicing
procedures;
all repurchase proceeds of Loans;
Unanticipated Recoveries; and
all other amounts required to be deposited in the Custodial Account for
P&I pursuant to the Pooling and Servicing Agreement.
The Master Servicer is authorized to make withdrawals from the Custodial
Account for P&I for various purposes outlined in the Pooling and Servicing
Agreement. The Master Servicer may invest funds held in the Custodial Account
for P&I in Eligible Investments.
On the business day before each Distribution Date, the Master Servicer will
transfer amounts to be distributed to certificateholders from the Custodial
Account for P&I and any amounts required to be transferred from the Reserve Fund
to the Certificate Account.
ADMINISTRATION FEES, COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related prospectus supplement, the Master
Servicer is entitled to receive an Administration Fee for each Loan, which may
be variable, as described in the Pooling and Servicing Agreement. The Master
Servicer's aggregate Administration Fee for any month may be reduced to cover a
Prepayment Interest Shortfall. The Master Servicer may either retain the
Administration Fees to which it is entitled before making required deposits to
the Certificate Account or may withdraw them from the Certificate Account.
Since the Administration Fee is a percentage of the then outstanding
principal balance of each Loan each month, the Master Servicer's aggregate
compensation will decrease as the Loans are repaid. In addition to the
Administration Fees, the Master Servicer will
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retain all assumption fees, late payment charges and other charges, to the
extent collected from mortgagors.
The Master Servicer will pay some of the expenses incurred in connection
with its servicing of the Loans, including, without limitation, payment of the
fees and disbursements of the Trustee and independent accountants, and payment
of expenses incurred in connection with distributions and reports to
certificateholders.
The Master Servicer is entitled to reimbursement for some types of expenses
incurred by it in connection with the liquidation of defaulted Loans, including
under some circumstances reimbursement of expenditures incurred by it in
connection with the restoration of mortgaged properties. The Master Servicer's
right of reimbursement for these amounts is senior to the rights of
certificateholders to receive any related amounts resulting from the liquidation
of a defaulted loan. The Master Servicer is also entitled to reimbursement from
the Certificate Account for advances.
RESIGNATION OF THE MASTER SERVICER; SCOPE OF INDEMNITIES
Unless otherwise specified in the applicable prospectus supplement, a Master
Servicer may not resign from its duties unless performance of its duties is no
longer permissible under applicable law or is in material conflict by reason of
applicable law with any other activities of a type and nature presently carried
on by it. No resignation will become effective until the Trustee or a successor
Master Servicer has assumed the Master Servicer's duties under the Pooling and
Servicing Agreement. If a Master Servicer resigns for any of these reasons, it
is possible that the Trustee would be unable or unwilling to assume
responsibility for servicing the Loans under the Pooling and Servicing Agreement
and would seek to appoint another institution as servicer. The Master Servicer
may arrange for its duties under the Pooling and Servicing Agreement to be
performed by a sub-servicer, so long as the Master Servicer remains responsible
for the performance of its duties.
The Pooling and Servicing Agreement for each Trust will also provide that
neither the Master Servicer nor any director, officer, employee or agent of the
Master Servicer will be under any liability to the Trust or the
certificateholders for any action taken or for refraining from the taking of any
action in good faith and without gross negligence or willful misconduct or for
errors in judgment. The Pooling and Servicing Agreement will further provide
that the Master Servicer and any director, officer, employee or agent of any
Master Servicer is entitled to indemnification by the related Trust and will be
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Pooling and Servicing Agreement or the
certificates, except for any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or gross negligence of the Master Servicer in the
performance of its duties or by reason of reckless disregard of its duties. In
addition, the Pooling and Servicing Agreement provides that the Master Servicer
is not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the agreement
and which in
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its opinion may involve it in any expense or liability. Any Master Servicer may,
however, in its discretion, subject to the terms and conditions of the Pooling
and Servicing Agreement, undertake any action which it may deem necessary or
desirable in respect of the agreement and the rights and duties of the parties
thereto and the interests of the certificateholders thereunder. In this event,
the legal expenses and costs of this action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust and the Master
Servicer and the other Master Servicer, if any, will be entitled to be
reimbursed therefor and charge the Certificate Account for the reimbursement,
the right of reimbursement being prior to the rights of certificateholders to
receive any amounts in the Certificate Account.
If the Master Servicer reorganizes, including as a result of a merger,
consolidation or transfer of its assets, any person succeeding to the business
of the Master Servicer will be the Master Servicer's successor under the Pooling
and Servicing Agreement.
BACK-UP MASTER SERVICER
If so specified in the related prospectus supplement, pursuant to the
Pooling and Servicing Agreement relating to any series, the Trustee or another
successor Master Servicer appointed pursuant to the agreement will serve as
back-up Master Servicer (the 'BACK-UP MASTER SERVICER') and assume the duties of
the Master Servicer after a notice of termination of the Master Servicer or if
the Master Servicer fails to perform its duties. The back-up Master Servicer
shall have no liability for any act of the Master Servicer prior to its
assumption of duties.
SPECIAL SERVICING AGREEMENTS
The Pooling and Servicing Agreement may permit the Master Servicer to enter
into a special servicing agreement with an unaffiliated holder of subordinated
mortgage pass-through certificates. Pursuant to the agreement, the holder may
instruct the Master Servicer and if applicable, any sub-servicer, to commence or
delay foreclosure proceedings on delinquent Loans.
SERVICING OF THE UNDERLYING LOANS
The Mortgage Certificates will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement. Unless otherwise
specified in the related prospectus supplement, the seller/servicer of the
Underlying Loans will have entered into the agreement with a trustee and a
servicer. The servicer named in the agreement, along with any subservicers, as
applicable, will service the Underlying Loans in accordance with the terms of
the agreement.
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THE POOLING AND SERVICING AGREEMENT
The following, together with the description of the Pooling and Servicing
Agreement in the prospectus supplement, describes the material provisions of the
Pooling and Servicing Agreement relating to a series of certificates. The
summaries do not purport to be complete and are subject to, and qualified in
their entirety by reference to, the provisions of the Pooling and Servicing
Agreements. Where particular provisions or terms used in the Pooling and
Servicing Agreements are referred to, these provisions or terms are as specified
in the Pooling and Servicing Agreements.
ASSIGNMENT OF LOANS
At the time of issuance of each series of certificates, the Depositor will
cause the Loans, including loans underlying Mortgage Certificates, comprising
the Trust to be assigned to the Trustee for that series, together with all
principal and interest due on the Loans subsequent to the Cut-off Date. The
Trustee will, in exchange for the Trust and concurrently with the assignment,
execute and deliver the certificates to a certificate registrar appointed
pursuant to the Pooling and Servicing Agreement for authentication and delivery
to the Depositor or its designee. Each Loan will be identified in a schedule
appearing as an exhibit to the Pooling and Servicing Agreement. The schedule
will include information about each Loan including the following:
principal balance as of the Cut-off Date;
current mortgage interest rate and Pass-Through Rate;
current scheduled monthly payment of principal and interest;
stated maturity;
Administration Fee;
original Loan-to-Value Ratio; and
if the Loan is an ARM, its applicable Index, its Gross Margin, its
lifetime minimum rate (if any), its lifetime maximum rate, its periodic
maximum adjustment, the frequency of its interest rate adjustment and its
first monthly payment adjustment date.
The Trustee for a series of certificates will be authorized to appoint one
or more custodians, which may include affiliates of the Depositor or the Trustee
(together, the 'CUSTODIANS'), under a custodial agreement to maintain possession
of and review the documents for the Loans, as the agent of the Trustee. Any
custodial agreement will be on terms to which the Depositor, the Trustee and
each custodian shall agree.
In addition, the Depositor will deliver to the Trustee for each Loan the
following documents:
the mortgage note endorsed without recourse in blank or to the order of
the Trustee,
the original mortgage with evidence of recording,
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an Officer's certificate to the effect that a title insurance policy was
issued and remains in full force and effect or the original title
insurance policy or in the event the original title policy is not
available, any one of an original title binder, an original preliminary
title report or an original title commitment or a copy certified by the
title company with the original policy to follow within 180 days, and
an assignment of the mortgage in recordable form unless otherwise
described in the related prospectus supplement.
The Pooling and Servicing Agreement will generally require that the
assignment of each mortgage be properly recorded and delivered to the Trustee
within one year following the issuance of the certificates; provided that
assignments of mortgages need not be recorded in any state for which the
Depositor delivers to the Trustee an opinion of counsel to the effect that
recordation of the assignments is not necessary to secure or perfect the
interest in the mortgaged properties in the name of the Trustee.
Because assignments by the Depositor to the Trustee of the Loans secured by
mortgaged properties located in some states may not be recorded, it might be
possible for the Depositor to transfer the Loans to bona fide purchasers for
value without notice, notwithstanding the Trustee's rights. However, in most
instances the Depositor would not be able to deliver the original documents
evidencing the mortgage notes or the mortgages because under the terms of the
mortgage loan purchase agreement and any custodial agreement, these documents
are to be retained in the possession of the Trustee or the specified Custodian,
except when released to the Depositor in connection with its servicing
activities. Moreover, under the law of California and some other states, a
subsequent transferee who failed to obtain delivery of the original evidence of
indebtedness would not, in the absence of special facts, be able to defeat the
Trustee's interest in a Loan so long as evidence of indebtedness remained in the
possession of the Trustee.
Unless otherwise specified in the related prospectus supplement, the Trustee
or specified Custodian will review and hold the documents relating to the Loans
in Trust for the benefit of the certificateholders. If any document is found by
the Trustee or specified Custodian (within 45 days or within a longer specified
period for assignments that must be recorded) to be defective in any material
respect and the Depositor does not cure the defect within 90 days after notice
by the Trustee has been given to the Depositor within the relevant period, the
Depositor will either:
within the three month period commencing on the closing date of the sale
of the related series of certificates repurchase the related Loan at a
price, unless otherwise specified in the related prospectus supplement,
equal to the principal balance of the Loan, plus accrued interest on the
principal balance at the mortgage interest rate to the next scheduled Due
Date, or
within the three month period commencing on the closing date of the sale
of the related series of certificates (or within the two year period
commencing on the closing date if the related Loan is a 'defective
obligation' within the meaning of the Code) unless otherwise provided in
the related prospectus supplement,
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substitute a different Loan upon satisfaction of the conditions described
in the agreement.
Except as otherwise specified in the related prospectus supplement, this
repurchase or substitution obligation constitutes the sole remedy available to
the certificateholders or the Trustee for a material defect in a constituent
document. The related prospectus supplement will specify any restrictions for
repurchases, substitutions and any alternative arrangements.
REPRESENTATIONS AND WARRANTIES
Unless otherwise specified in the related prospectus supplement, the
Depositor will represent and warrant to the Trustee in the Pooling and Servicing
Agreement, or will assign the representations and warranties of the mortgage
asset seller related to the Loans comprising the Mortgage Assets in a Trust,
upon delivery of the Loans to the Trustee hereunder, among other things:
that the information described in the schedule of Loans appearing as an
exhibit to the Pooling and Servicing Agreement is correct in all material
respects at the date or dates respecting which the information is
furnished;
that as of the date of the transfer of the Loans to the Trustee, the
Depositor is the sole owner and holder of each Loan free and clear of all
liens, pledges, charges or security interests of any nature and has full
right and authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same;
that as of the date of initial issuance of the certificates, no payment of
principal of or interest on or in respect of any Loan is more than 89 days
past due;
that to the best of the Depositor's knowledge, as of the date of the
transfer of the Loans to the Trustee there is no valid offset, defense or
counterclaim to any mortgage note or mortgage;
that as of the date of the initial issuance of the certificates, there is
no proceeding pending, or to the best of the Depositor's knowledge, no
proceeding threatened for the total or partial condemnation of any of the
mortgaged property and the mortgaged property is free of material damage
and in good repair and neither the mortgaged property nor any improvement
located on or being part of the mortgaged property is in violation of any
applicable zoning law or regulation;
that each Loan complies in all material respects with applicable state or
federal laws, regulations and other requirements, pertaining to usury,
equal credit opportunity and disclosure laws and each Loan was not
usurious at the time of origination;
that to the best of the Depositor's knowledge, as of the date of the
initial issuance of the certificates, all insurance premiums previously
due and owing on the mortgaged properties have been paid and all taxes and
government assessments previously due and owing, and which may become a
lien against the mortgaged property have been paid;
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that each mortgage note and the related mortgage are genuine and each is a
legal, valid and binding obligation, enforceable in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general equity principles (regardless
of whether enforcement is considered in a proceeding in equity or at law);
all parties to the mortgage note and the mortgagor had legal capacity to
execute the mortgage note and the mortgage and each mortgage note and
mortgage have been duly and properly executed by the mortgagor;
that each mortgage is a valid and enforceable first lien on the property
securing the related mortgage note, which may arise thereunder and that
each Loan is covered by an ALTA mortgagee title insurance policy or other
form of policy or insurance generally acceptable to FNMA or FHLMC, issued
by, and is a valid and binding obligation of, a title insurer acceptable
to FNMA or FHLMC insuring the originator, its successors and assigns, as
to the lien of the mortgage in the original principal amount of the Loan
subject only to:
the lien of current real property taxes and assessments not yet due and
payable;
covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of the
mortgage acceptable to mortgage lending institutions in the area in
which the mortgaged property is located or specifically referred to in
the appraisal performed in connection with the origination of the
related Loan; and
other matters to which like properties are commonly subject which do
not individually, or in the aggregate, materially interfere with the
benefits of the security intended to be provided by the mortgage;
that as of the initial issuance of the certificates, neither the Depositor
nor any prior holder of any mortgage has, except as the mortgage file may
reflect, modified the mortgage in any material respect; satisfied,
canceled or subordinated the mortgage in whole or in part; released the
mortgaged property in whole or in part from the lien of the mortgage; or
executed any instrument of release, cancellation, modification or
satisfaction;
that each mortgaged property consists of a fee simple estate, a leasehold
estate, or condominium form of ownership in real property, or a share
interest in a cooperative corporation in the case of a Co-op Loan;
the condominium projects that include the condominiums that are the
subject of any Co-op Loan are generally acceptable to FNMA and FHLMC;
no foreclosure action is threatened or has been commenced (except for the
filing of any notice of default) on any Loan; and except for payment
delinquencies not in excess of 91 days, to the best of the Depositor's
knowledge, there is no default, breach, violation or event of acceleration
existing under any mortgage or the related mortgage note and no event
which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach,
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violation or event of acceleration; and the Depositor has not waived
any default, breach, violation or event of acceleration;
that each Loan was originated on FNMA or FHLMC uniform instruments for the
state in which the mortgaged property is located;
that based upon a representation by each mortgagor at the time of
origination or assumption of the applicable Loan, the percentage of the
Loans measured by principal balance secured by owner-occupied residences
and by non-owner-occupied residences do not exceed specified percentages;
that an appraisal of each mortgaged property was conducted at the time of
origination of the related Loan;
that no Loan had a loan-to-value ratio at origination in excess of 100%;
that the Loans were not selected in a manner to adversely affect the
interests of the certificateholders and the Depositor knows of no
conditions which reasonably would cause it to expect any Loan to become
delinquent or otherwise lose value;
each Loan was either (1) originated directly by or closed in the name of
either: (a) a savings and loan association, savings bank, commercial bank,
credit union, insurance company, or similar institution which is
supervised and examined by a federal or state authority or (b) a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to
Sections 203 and 211 of the National Housing Act or (2) originated or
underwritten by an entity employing underwriting standards consistent with
the underwriting standards of an institution as described in subclause
(1)(a) or (1)(b) above;
each Loan is a 'qualified mortgage' within the meaning of Section 860G of
the Code without regard to 'SS' 1.860G-2(f) of the REMIC Provisions or any
similar rule; and
each Loan that has a Loan-to-Value Ratio in excess of 80% is covered by a
primary mortgage insurance policy.
REPURCHASE OR SUBSTITUTION
Unless otherwise specified in the related prospectus statement, within 90
days of the discovery by the Depositor or the applicable mortgage asset seller
of a breach of any representation or warranty which materially and adversely
affects the interests of the certificateholders, or the Depositor's or the
mortgage asset seller's receipt of a notice from the Trustee or a Custodian, and
without regard to any limitation contained in the representation or warranty
concerning the knowledge of the Depositor as to facts stated in the
representation or warranty, the Depositor or the applicable mortgage asset
seller will cure the breach or either (1) repurchase the Loan at a price equal
to the principal balance of the Loan plus accrued interest on the principal
balance at the mortgage interest rate to the next scheduled Due Date of or
(2) within the three month period commencing on the closing date of the sale of
the related series of certificates (or within the two year period commencing on
the closing date if the related Loan is a 'defective obligation' within the
meaning of the Code) unless otherwise provided in the related prospectus
supplement, substitute a different Loan upon satisfaction of the conditions
described in the Pooling and
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Servicing Agreement. Except as otherwise specified in the related prospectus
supplement, this repurchase and substitution obligation constitutes the sole
remedy available to the certificateholders or the Trustee for this type of
breach. The related prospectus supplement will specify any restrictions for
repurchases, substitution and any alternative arrangements.
FORWARD COMMITMENTS: PRE-FUNDING ACCOUNT
If specified in the prospectus supplement relating to any series, the
Trustee or the Master Servicer may, on behalf of the related Trust, enter into
an agreement (each, a 'FORWARD PURCHASE AGREEMENT') with the Depositor whereby
the Depositor will agree to transfer additional Loans to the Trust following the
date on which the Trust is established and the related certificates are issued.
The Trust may enter into Forward Purchase Agreements to permit the acquisition
of additional Loans that could not be delivered by the Depositor or have not
formally completed the origination process, in each case prior to the date on
which the certificates are delivered to the certificateholders (the 'CLOSING
DATE'). Any Forward Purchase Agreement will require that any Loans transferred
to a Trust conform to the requirements specified in the Forward Purchase
Agreement. If a Forward Purchase Agreement is to be utilized, and unless
otherwise specified in the related prospectus supplement, the Trustee will be
required to deposit in the Pre-Funding Account all or a portion of the proceeds
received by the Trustee in connection with the sale of one or more classes of
certificates of the related series.
The additional Loans will be transferred to the related Trust in exchange
for money released to the Depositor from the related Pre-Funding Account. Each
Forward Purchase Agreement will set a specified period during which any
transfers must occur. The Forward Purchase Agreement or the related Pooling and
Servicing Agreement will require that, if all moneys originally deposited to the
Pre-Funding Account are not used by the end of the specified period, then any
remaining moneys will be applied as a mandatory prepayment of the related class
or classes of certificates as specified in the related prospectus supplement.
The reinvestment risk associated with this type of prepayment will be borne by
the holders of the certificates issued by the applicable Trust.
Unless otherwise specified in the related prospectus supplement, the
specified period for the acquisition by a Trust of additional Loans will not
exceed three months from the date the Trust is established. The amount that may
be initially deposited into a Pre-Funding Account may be up to 25% of the
principal amount of the certificates issued by the related Trust. The amounts on
deposit in any Pre-Funding Account may be invested only in investments deemed
acceptable by the rating agencies as consistent with the applicable ratings on
the certificates. The underwriting standards for additional Loans that will be
acquired with amounts from the Pre-Funding Account will be in accordance with
the standards set forth under 'The Trusts -- Loan Underwriting Policies.'
In addition, following the transfer of additional Loans to the applicable
Trust, the characteristics of the entire pool of Loans included in the Trust may
vary significantly from those of the initial Loans transferred to the Trust.
Accordingly, it is possible that the
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credit quality of the pool, as a whole, may differ due to the transfer of
additional Loans to the Trust. In no event will any Loans be transferred to the
Trust if the transfer would cause a downgrade of the ratings of the related
certificates. The transfer of additional Loans to the Trust may also result in
an accelerated rate of payment to the applicable certificateholders caused by an
increased level of defaults on the Loans. Certificateholders will bear all
reinvestment risk associated with a higher than expected rate of payment of the
certificates. In addition, if the certificates were purchased at a premium, a
higher than expected rate of payment would result in a reduction in the yield to
maturity of any class of certificates to which these payments are distributed.
ADJUSTMENT TO ADMINISTRATION FEES IN CONNECTION WITH PREPAYMENT INTEREST
SHORTFALL
Unless otherwise stated in the prospectus supplement, the Master Servicer
may forego all or a portion of its Administration Fee to minimize the adverse
effect of Prepayment Interest Shortfall to certificateholders. See 'Prepayment,
Yield and Maturity Considerations -- Yield -- Effective Pass-Through Rate.'
BOOK-ENTRY REGISTRATION
Certificate owners may hold their interests in the offered certificates
through DTC, in the United States, or Cedel Bank or the Euroclear System, in
Europe, if they are participants in those systems, or indirectly through
organizations that are participants in those systems. Cede & Co., as nominee for
DTC, will hold the offered certificates. Cedel and Euroclear will hold omnibus
positions on behalf of their respective participants, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries. The depositaries in turn will hold the positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC has advised us and the underwriters that it is:
a limited-purpose trust company organized under the New York
Banking Law;
a 'banking organization' within the meaning of the New York Banking
Law;
a member of the Federal Reserve System;
a 'clearing corporation' within the meaning of the New York Uniform
Commercial Code; and
a 'clearing agency' registered under the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC holds securities for its participants and facilitates the clearance and
settlement among its participants of securities transactions, including
transfers and pledges, in deposited securities through electronic book-entry
changes in its participants' accounts. This eliminates the need for physical
movement of securities certificates. DTC participants include securities brokers
and dealers, banks, trust companies, clearing corporations and
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other organizations. Indirect access to the DTC system is also available to
others including securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the SEC.
Transfers between participants on the DTC system will occur under DTC rules.
Transfers between participants on the Cedel system and participants on the
Euroclear system will occur under their rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
participants or Euroclear participants, on the other, will be effected by DTC
under DTC rules on behalf of the relevant European international clearing system
by that system's depositary. However, these cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in that system under its rules and procedures and
within its established deadlines, European time. The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment under normal procedures for same-day funds
settlement applicable to DTC. Cedel participants and Euroclear participants may
not deliver instructions directly to their system's depositary.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date. The credits for any transactions in these
securities settled during this processing will be reported to the relevant Cedel
participant or Euroclear participant on that business day. Cash received in
Cedel or Euroclear as a result of sales of securities by or through a Cedel
participant or a Euroclear participant to a DTC participant will be received and
available on the DTC settlement date. However, it will not be available in the
relevant Cedel or Euroclear cash account until the business day following
settlement in DTC.
Purchases of offered certificates under the DTC system must be made by or
through DTC participants, which will receive a credit for the offered
certificates on DTC's records. The ownership interest of each actual certificate
owner is in turn to be recorded on the DTC participants' and indirect
participants' records. certificate owners will not receive written confirmation
from DTC of their purchase. However, certificate owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC participant or indirect participant
through which the certificate owner entered into the transaction. Transfers of
ownership interests in the offered certificates are to be accomplished by
entries made on the books of DTC participants acting on behalf of certificate
owners. Certificate owners will not receive certificates representing their
ownership interest in offered certificates unless use of the book-entry system
for the offered certificates is discontinued.
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To facilitate subsequent transfers, all securities deposited by DTC
participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of securities with DTC and their registration in the name of Cede &
Co. does not change beneficial ownership. DTC has no knowledge of the actual
certificate owners of the offered certificates. DTC's records reflect only the
identity of the DTC participants to whose accounts the offered certificates are
credited, which may or may not be the actual beneficial owners of the
certificates. The DTC participants will remain responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to DTC participants,
by DTC participants to indirect participants, and by DTC participants and
indirect participants to certificate owners will be governed by arrangements
among them and by any statutory or regulatory requirements in effect from time
to time.
Neither DTC nor Cede & Co. will consent or vote on behalf of the offered
certificates. Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date, which assigns Cede & Co.'s
consenting or voting rights to those DTC participants to whose accounts the
offered certificates are credited on the record date, identified in a listing
attached to the proxy.
Principal and interest payments on the offered certificates will be made to
DTC. DTC's practice is to credit its participants' accounts on the applicable
Distribution Date according to their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on that
Distribution Date. Payments by DTC participants to certificate owners will be
governed by standing instructions, customary practices, and any statutory or
regulatory requirements as may be in effect from time to time. These payments
will be the responsibility of the DTC participant and not of DTC, the Trustee or
the Depositor. Payment of principal and interest to DTC is the responsibility of
the Trustee. DTC is responsible for disbursing payments made to it to DTC
participants. Disbursement of these payments to certificate owners is the
responsibility of DTC participants and indirect participants.
DTC may discontinue providing its services as securities Depository for the
offered certificates at any time by giving reasonable notice to the Depositor or
the Trustee. Under these circumstances, if a successor securities Depository is
not obtained, definitive certificates are required to be printed and delivered.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including dates
before, on, and after January 1, 2000, may encounter Year 2000 problems. DTC has
informed its participants and other members of the financial community that it
has developed and is implementing a program so that its systems relating to the
timely payment of distributions to securityholders, book-entry deliveries, and
settlement of trades within DTC will continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's program includes a testing phase, which it expects
to complete within appropriate time frames.
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DTC's ability to perform properly its services is also dependent upon other
parties. Third parties include issuers and their agents, DTC's direct and
indirect participants, vendors from whom DTC licenses software and hardware, and
vendors on whom DTC relies for information or services, including
telecommunication and electrical utility service providers. DTC has informed us
that it is contacting, and will continue to contact, third party vendors from
whom DTC acquires services to: (1) impress upon them the importance of these
services being Year 2000 compliant; and (2) determine the extent of their
efforts for Year 2000 remediation and testing of their services. Additionally,
DTC is in the process of developing contingency plans as it deems appropriate.
According to DTC, the foregoing information about DTC has been provided to
us for informational purposes only and is not a representation, warranty, or
contract modification of any kind.
Cedel is incorporated under the laws of Luxembourg as a professional
Depository. Cedel holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
Cedel participants through electronic book-entry changes in accounts of Cedel
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 32 currencies,
including United States dollars.
Cedel participants are financial institutions around the world, including
underwriters, securities brokers and dealers, banks, trust companies, and
clearing corporations. Indirect access to Cedel is also available to others,
including banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Cedel participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for its
participants and to clear and settle transactions between Euroclear participants
through simultaneous electronic book-entry delivery against payment. This
eliminates the need for physical movement of certificates. Transactions may be
settled in any of 32 currencies, including United States dollars.
The Euroclear System is operated by Morgan Guaranty Trust Company of New
York, Brussels, Belgium office, the Euroclear operator, under contract with
Euroclear Clearance System, Societe Cooperative, a Belgium cooperative
corporation, the Euroclear cooperative. All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
Euroclear cooperative. The board of the Euroclear cooperative establishes policy
for the Euroclear System.
Euroclear participants include banks -- including central
banks -- securities brokers and dealers and other professional financial
intermediaries. Indirect access to the Euroclear System is also available to
other firms that maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
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Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System. These terms and conditions
govern transfers of securities and cash within the Euroclear System, withdrawal
of securities and cash from the Euroclear System, and receipts of payments for
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear operator acts under these
terms and conditions only on behalf of Euroclear participants and has no record
of or relationship with persons holding through Euroclear participants.
Distributions on the offered certificates held through Cedel or Euroclear
will be credited to the cash accounts of Cedel participants or Euroclear
participants according to the relevant system's rules and procedures, to the
extent received by its depositary. These distributions must be reported for tax
purposes under United States tax laws and regulations. Cedel or the Euroclear
operator, as the case may be, will take any other action permitted to be taken
by a certificateholder on behalf of its participants only as permitted by its
rules and procedures, and only if its depositary is able to take these actions
on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to these procedures to
facilitate transfers of offered certificates among participants of DTC, Cedel
and Euroclear, they are not obligated to perform these procedures. Additionally,
these procedures may be discontinued at any time.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
In most circumstances, the certificates offered by this prospectus will be
issued only as global certificates which are registered and held by a
depository. Certificate owners of the global certificates may hold their global
certificates through any of DTC, Cedel or Euroclear. The global certificates
will be tradeable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding global certificates
through Cedel and Euroclear will be conducted in the ordinary way under their
normal rules and operating procedures and under conventional eurobond practice,
which is seven calendar day settlement.
Secondary market trading between investors holding global certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
participants holding global certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Cedel and
Euroclear and the DTC participants.
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Non-U.S. holders of global certificates may have to pay U.S. withholding
taxes unless the holders meet the requirements for exemption from the tax and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All global certificates will be held in book-entry form by DTC in the name
of Cede & Co., as nominee of DTC. Certificate owners' interests in the global
certificates will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Cedel and
Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold their positions in accounts as
DTC participants.
Certificate owners electing to hold their global certificates through DTC
will follow the settlement practices applicable to U.S. corporate debt
obligations. Certificate owner securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Certificate owners electing to hold their global certificates through Cedel
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no 'lock-up' or restricted period. Global certificates will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When global
certificates are to be transferred from the account of a DTC participant to the
account of a Cedel participant or a Euroclear participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day before settlement. Cedel or Euroclear will
instruct the respective Depositary, as the case may be, to receive the global
certificates against payment. Payment will include interest accrued on the
global certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to
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the DTC participant's account against delivery of the global certificates. After
settlement has been completed, the global certificates will be credited to the
respective clearing system and by the clearing system, under its usual
procedures, to the Cedel participant's or Euroclear participant's account. The
global certificates credit will appear the next day accounting to European time,
and the cash debit will be back-valued to, and interest on the global
certificates will accrue from, the value date. The value date would be the day
before the day that settlement occurred in New York. If the trade fails and
settlement is not completed on the intended value date, the Cedel or Euroclear
cash debit will be valued instead on the actual settlement date.
Cedel participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the global
certificates are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel participants or Euroclear participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel participants or Euroclear participants purchasing global
certificates wold incur overdraft charges for one day, assuming they cleared the
overdraft when the global certificates were credited to their accounts. However,
interest on the global certificates would accrue from the value date. Therefore,
in many cases the investment income on the global certificates earned during
that one-day period may substantially reduce or offset the amount of the
overdraft charges, although this result will depend on each Cedel participant's
or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global certificates
to the respective Depositary for the benefit of Cedel participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel participants and Euroclear participants
may employ their customary procedures for transactions in which global
certificates are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC participant. The seller will send
instructions to Cedel or Euroclear through a Cedel participant or Euroclear
participant at least one business day before settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds to the DTC participant's account against payment. Payment will include
interest accrued on the global certificates from and including the last coupon
payment date to and excluding the settlement date. The payment will then be
reflected in the account of the Cedel participant or Euroclear participant the
following day, and receipt of the cash proceeds in the Cedel
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participant's or Euroclear participant's account would be back-valued to the
value date. The value date would be the day before the day that settlement
occurred in New York. Should the Cedel participant or Euroclear participant have
a line of credit with its respective clearing system and elect to be in debit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft charges incurred over that one-day period. If the
trade fails and settlement is not completed on the intended value date, receipt
of the cash proceeds in the Cedel participant's or Euroclear participant's
account would instead be valued on the actual settlement date. Finally, day
traders that use Cedel or Euroclear and that purchase global certificates from
DTC participants for delivery to Cedel participants or Euroclear participants
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day, until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts, under
the clearing system's customary procedures;
(b) borrowing the global certificates in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the global
certificates sufficient time to be reflected in their Cedel or Euroclear account
in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at least one
day before the value date for the sale to the Cedel participant or Euroclear
participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global certificates holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.) will
be required to pay the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between that beneficial owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) that beneficial owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8 or new Form W-8BEN). Beneficial
owners of global certificates that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status) or new Form W-8BEN (Certificate of Foreign Status of Beneficial
Owner for United States Tax Withholding). If the information shown on Form W-8
changes (or new Form W-8BEN), a new Form W-8 (or new Form W-8BEN) must be filed
within 30 days of that change.
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Exemption for non-U.S. Persons with effectively connected income (Form 4224
or new Form W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of Tax
on Income Effectively Connected with the Conduct of a Trade or Business in the
United States) or New Form W-8ECI (Certificate of Foreign Persons Claim for
Exemption from Withholding on Income Effectively Connected with the Conduct or
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001 or new Form W-8BEN). Non-U.S. Persons that are beneficial owners of
global certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate) or
new Form W-8BEN. If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8 or
new Form W-8BEN. Form 1001 may be filed by the certificate owner or his agent
whereas new Form W-8BEN must be filed by the beneficial owner.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Certificate or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year, but Forms W-8, 1001 and
4224 will not be effective after December 31, 2000.
A new Form W-8BEN, if furnished with a taxpayer identification number,
('TIN'), will remain in effect until the status of the beneficial owner changes,
or a change in circumstances makes any information on the form incorrect. A new
Form W-8BEN, if furnished without a TIN, and a new Form W-8ECI will remain in
effect for a period starting on the date the form is signed and ending on the
last day of the third succeeding calendar year, unless a change in circumstances
makes any information on the form incorrect.
The term 'U.S. Person' means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision of the United States, (iii) an estate, the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a U.S. court is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust.
This summary does not deal with all aspects of U.S. Federal income tax
withholding
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that may be relevant to foreign holders of the global certificates. Certificate
owners are advised to consult their own tax advisers for specific tax advice
concerning their holding and disposing of the global certificates.
In 1997, final Treasury regulations were issued that modify the filing
requirements with which non-U.S. persons must comply in order to be entitled to
an exemption from U.S. withholding tax or a reduction to the applicable U.S.
withholding tax rate. Those persons currently required to file Form W-8 or
Form 1001 will be required to file new Form W-8BEN, while those persons
currently required to file Form 4224 will be required to file new Form W-8ECI.
These new withholding regulations generally are effective for payments of
interest due after December 31, 2000, but Forms W-8, 1001 and 4224 filed before
that date will continue to be effective until the earlier of December 31, 2000
or the current expiration date of those forms. Prospective investors are urged
to consult their tax advisors about the effect of these new withholding
regulations.
DEFINITIVE CERTIFICATES
We refer to certificates issued in fully registered, certificated form as
'DEFINITIVE CERTIFICATES.' The certificates for any series will be issued as
Definitive Certificates, rather than in book entry form to DTC or its nominees,
only under the circumstances described in the related prospectus supplement.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that a firm of independent
public accountants will furnish a statement to the Trustee on or before
April 30 of each year, beginning with April 30 in the year which begins not less
than six months after the date of the initial issue of certificates. The
statement will state that the firm has examined specific documents and records
relating to the servicing of the Loans of each series and that, either:
on the basis of its examination conducted substantially in compliance with
the audit program for mortgages serviced for FHLMC, the firm is of the
opinion that servicing has been conducted in compliance with the manner of
servicing described in the Pooling and Servicing Agreement except for
exceptions as the firm believes to be immaterial and other exceptions as
are described in the statement; or
that their examination conducted substantially in compliance with the
uniform single audit program for mortgage bankers disclosed no exceptions
or errors in the records relating to Loans serviced for others that in
their opinion are material and that the program requires them to report.
The Pooling and Servicing Agreement will also require each Master Servicer to
provide the Trustee with an annual statement signed by an officer to the effect
that the Master
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Servicer has fulfilled its obligations under the Pooling and Servicing Agreement
throughout the preceding calendar year.
REPORTS TO CERTIFICATEHOLDERS
Unless otherwise specified in the related prospectus supplement, the Master
Servicer will cause the Trustee to forward with each distribution to each
certificateholder of record a statement setting forth the following information
as to each class of certificates to the extent applicable:
1. the amount, if any, of the distribution allocable to principal on the
Loans and Mortgage Certificates, separately identifying the aggregate
amount of any Principal Prepayments included in the distribution;
2. the amount of the distribution allocable to interest on the Loans and
Mortgage Certificates;
3. the amount of Deferred Interest, if any, added to the aggregate
principal balance of the Loans and Mortgage Certificates during that
month;
4. the aggregate amount, by class, of any advances included in the
amounts actually distributed;
5. the aggregate principal balance of the Loans as of the close of
business on the last day of the Prepayment Period prior to the
immediately preceding Due Date, after giving effect to payments
allocated to principal reported under clause (1) above and to amounts
of Deferred Interest, if any, added to principal under clause (3)
above;
6. the related amount of Administration Fees, as adjusted, pursuant to
the Pooling and Servicing Agreement, retained or withdrawn from the
Certificate Account by the Master Servicer and the amount of
additional servicing compensation received by the Master Servicer
attributable to penalties, fees, Excess Liquidation Proceeds and other
items;
7. the number and aggregate principal balances of Loans delinquent for
(a) one monthly payment, and (b) two monthly payments or (c) three or
more monthly payments, as of the close of business on the day prior to
the immediately preceding Due Date;
8. the book value of any real estate acquired through foreclosure or
grant of a deed in lieu of foreclosure in respect of any Loan as of
the close of business on the day prior to the immediately preceding
Due Date;
9. the amount remaining in the Reserve Fund, if any, on the Distribution
Date after any withdrawal reported under clause (6) above;
10. the weighted average Pass-Through Rate as of the first day of the
month immediately preceding the month of the Distribution Date; and
11. all advances recovered during the related Prepayment Period.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer will cause the Trustee to furnish customary
information as the Master Servicer deems necessary or desirable for
certificateholders to prepare their tax returns.
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Information in the monthly and annual reports provided to the certificateholders
will not have been examined and reported upon by an independent public
accountant. However, the Master Servicer will provide to the Trustee annually a
report by independent public accountants regarding the Master Servicer's
servicing of the Loans. See ' -- Evidence as to Compliance.'
So long as the certificates remain outstanding in book-entry form issued to
DTC, the Trustee will provide to DTC, its nominee and its participants, periodic
and annual reports regarding any Trust. DTC, its nominee and its participants,
may provide these reports to the beneficial owners of the certificates. The
reports will be prepared in accordance with generally accepted accounting
principles, but will not be examined and reported on by an independent public
accountant.
REPORTS TO THE TRUSTEE
No later than 25 days after each Distribution Date, the Master Servicer will
provide the Trustee with a report, certified by a officer of the Master
Servicer. The report will set forth the status of the Certificate Account as of
the close of business on that Distribution Date, and should state that all
distributions required to be made by the Master Servicer under the Pooling and
Servicing Agreement have been made. If any required distribution has not been
made, the Master Servicer will specify in the report the nature and status of
the distribution and showing, for the period covered by the statement, the
aggregate of deposits into and withdrawals from the Certificate Account for each
category of deposits and withdrawals specified in the Pooling and Servicing
Agreement. The report will include information as to the aggregate unpaid
principal balances of all the Loans and Mortgage Certificates as of the day
prior to the immediately preceding applicable Due Date. Copies of the reports
may be obtained by certificateholders upon request in writing from the Trustee
or from the Master Servicer that is identified in the related prospectus
supplement.
EVENTS OF DEFAULT
Events of default under the Pooling and Servicing Agreement will consist of:
any failure by the Master Servicer to distribute or cause to be
distributed to certificateholders any required payment which continues
unremedied for five days after the giving of written notice of the failure
to the Master Servicer by the Trustee, or to the Master Servicer and the
Trustee by certificateholders holding certificates evidencing Fractional
Undivided Interests aggregating not less than 25% of the Trust or 51% of
the Percentage Interest of any class of certificates;
any failure by the Master Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Pooling
and Servicing Agreement which continues unremedied for 60 days after the
giving of written notice of the failure to the Master Servicer by the
Trustee, or to the Master Servicer and the Trustee by certificateholders
holding certificates evidencing
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Fractional Undivided Interests aggregating not less than 25% of the
Trust or 51% of the Percentage Interest of any class of certificates;
and
decrees or orders in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings and actions by the Master
Servicer indicating its insolvency, reorganization or inability to pay its
obligations.
RIGHTS UPON EVENT OF DEFAULT
So long as an event of default under the Pooling and Servicing Agreement
remains unremedied, the Trustee or certificateholders holding certificates
evidencing Fractional Undivided Interests aggregating not less than 25% of the
Trust or 51% of the Percentage Interest of any class of certificates may
terminate all of the rights and obligations of the Master Servicer under the
Pooling and Servicing Agreement. In this case, the Trustee will succeed to all
of the Master Servicer's responsibilities, duties and liabilities under the
Pooling and Servicing Agreement and will be entitled to monthly servicing
compensation not to exceed the Administration Fees. If the Trustee is unwilling
or unable to so act, it may select, pursuant to the public bid or another
procedure described in the Pooling and Servicing Agreement, or petition a court
of competent jurisdiction to appoint, a housing and home finance institution,
bank or mortgage servicing institution with a net worth of at least $15,000,000
to act as successor to the Master Servicer under the Pooling and Servicing
Agreement. If the public bid procedure is used, the successor Master Servicer
would be entitled to servicing compensation in amounts, up to the servicing
compensation provided in the Pooling and Servicing Agreement, as may be agreed
by the Trustee, and the Depositor, or if the Trust elects REMIC status, the
Residual certificateholder. The Trust would be entitled to receive the net
profits, if any, realized from the sale of the servicing rights and obligations
under the Pooling and Servicing Agreement.
During the continuance of any event of default under the Pooling and
Servicing Agreement, the Trustee will have the right to take action to enforce
its rights and remedies and to protect and enforce the rights and remedies of
the certificateholders. Certificateholders holding certificates evidencing
Fractional Undivided Interests, aggregating not less than 25% of the Trust or
51% of the Percentage Interest of each class of certificates, may direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred upon the Trustee.
However, the Trustee will not be under any obligation to pursue any remedy or to
exercise any of the trusts or powers unless the certificateholders have offered
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee. Also, the Trustee may decline
to follow any direction if the Trustee determines that the action or proceeding
so directed may not lawfully be taken or would involve it in personal liability
or be unjustly prejudicial to the non-assenting certificateholders.
No certificateholder, solely by virtue of its status as a certificateholder,
will have any right under the Pooling and Servicing Agreement to institute any
proceeding related to the Pooling and Servicing Agreement, unless the
certificateholder previously has given to the
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Trustee written notice of default and unless certificateholders holding
certificates evidencing Percentage Interests aggregating not less than 25% of
each class of certificates have made written request upon the Trustee to
institute the proceeding in its own name as Trustee thereunder and have offered
to the Trustee reasonable indemnity, and the Trustee for 60 days thereafter has
neglected or refused to institute any proceeding.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of any of the
certificateholders:
to cure any ambiguity;
to correct or supplement any provision in the Pooling and Servicing
Agreement which may be inconsistent with any other provision of the
agreement;
to permit the Trust to be subject to the REMIC Provisions under the Code;
and
to conform the terms of the Pooling and Servicing Agreement to the terms
described in the prospectus and the related prospectus supplement.
The Pooling and Servicing Agreement may also be amended by the Depositor, the
Master Servicer and the Trustee with the consent of certificateholders holding
certificates evidencing Percentage Interests aggregating not less than 50% of
the Trust for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Pooling and Servicing Agreement or
of modifying in any manner the rights of certificateholders; but no amendment
may:
reduce in any manner the amount of, or delay the timing of, payments
received on Loans which are required to be distributed on any certificate
without the consent of these certificateholders;
adversely affect in any material respect the interest of
certificateholders holding Senior certificates in a manner other than as
described in clause (1) above without the consent of certificateholders
holding Senior certificates aggregating not less than 66 2/3% of the
aggregate Percentage Interest evidenced by all Senior certificates;
adversely affect in any material respect the interest of
certificateholders holding Subordinate certificates in a manner other than
as described in clause (1) above without the consent of certificateholders
holding Subordinate certificates aggregating not less than 66 2/3% of the
aggregate Percentage Interest evidenced by all Subordinate certificates;
adversely affect in any material respect the interest of
certificateholders holding Residual Certificates without the consent of
all holders of Residual Certificates; or
reduce the percentages of certificates the certificateholders of which are
required to consent to this amendment without the consent of all the
certificateholders of the class or classes affected then outstanding.
For purposes of giving any consent (other than a consent to an action which
would adversely affect in any material respect the interests of the subordinate
certificateholders
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while the Depositor or the Master Servicer or any affiliate is a subordinate
certificateholder holding certificates aggregating not less than 66 2/3% of the
Fractional Undivided Interests evidenced by all of the subordinate
certificateholders), any certificates registered in the name of the Master
Servicer or any of its affiliates shall be deemed not to be outstanding.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate upon the payment to certificateholders of all amounts held by the
Master Servicer and required to be paid to them pursuant to the Pooling and
Servicing Agreement after the earlier of:
1. the final payment or other liquidation (or any advance made with
respect thereto) of the last mortgage asset subject thereto and the
disposition of all property acquired upon foreclosure or deed in lieu
of foreclosure of any mortgage asset; or
2. any optional termination of a trust as described in 'Description of the
Certificates -- Optional Termination of a Trust or Underlying Trust.'
In no event, however, will the Trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 60 years from the date of execution
and delivery of the Pooling and Servicing Agreement. The Master Servicer will
give written notice of termination of the Pooling and Servicing Agreement to
each certificateholder, and the final distribution will be made only upon
surrender and cancellation of non book-entry certificates at an office or agency
of the Master Servicer specified in the notice of termination.
GOVERNING LAW
The Pooling and Servicing Agreement provides that it shall be construed in
accordance with the laws of the State of New York, and the obligations, rights
and remedies of the parties to the Pooling and Servicing Agreement will be
determined in accordance with these laws.
LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries of some of the legal aspects of
Loans which are general in nature. Because the legal aspects are governed
primarily by applicable state law, which may differ substantially from state to
state, the summaries do not purport to reflect the laws of any particular state,
nor to encompass the laws of all states in which the security for the Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Loans.
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GENERAL
The Loans and the Loans underlying the Mortgage Certificates (other than
Co-op Loans) will be secured by either deeds of trust or mortgages, depending
upon the prevailing practice in the state in which the underlying property is
located. A mortgage creates a lien upon the real property described in the
mortgage. Under a deed of trust, the borrower grants the property, irrevocably
until the debt is paid, in trust, generally with a power of sale, to the Trustee
to secure payment of the loan. The trustee's authority under a deed of trust and
the mortgagee's authority under a mortgage are governed by the express
provisions of the deed of trust or mortgage, applicable law, and, in some cases,
for the deed of trust, the directions of the beneficiary. There are two parties
to a mortgage: the mortgagor, who is the borrower and homeowner; and the
mortgagee, who is the lender. In a mortgage state instrument, the mortgagor
delivers to the mortgagee a note or bond evidencing the loan and the mortgage.
Although a deed of trust is similar to a mortgage, a deed of trust has three
parties; the borrower-homeowner called the trustor (similar to a mortgagor), a
lender called the beneficiary (similar to a mortgagee), and a third-party
grantee called the trustee. The lien created by the mortgage or deed of trust is
not prior to the lien for real estate taxes and assessments and other charges
imposed under governmental police powers. Priority between mortgages or deeds of
trust depends on their terms or the terms of separate subordination or
inter-creditor agreements, the knowledge of the parties in some cases and
generally on the order of recordation of the mortgage in the appropriate
recording office.
FORECLOSURE
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the Trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. State laws control the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender.
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Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be time-
consuming. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a receiver or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
In case of foreclosure under either a deed of trust or a mortgage, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee or
receiver for an amount equal to the unpaid principal amount of the note, accrued
and unpaid interest and the expenses of foreclosure. Thereafter, subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
maintaining hazard insurance and making necessary repairs at its own expense to
render the property suitable for sale. The lender commonly will obtain the
services of a real estate broker and pay the broker a commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property. Any loss may be reduced by the receipt of mortgage insurance
proceeds. Courts have applied equitable principles to a lender's utilization of
the foreclosure process in order to avert a mortgagor's loss of his residence
for technical or trivial defaults. Some courts have been faced with the issue of
whether the particular foreclosure statutes in their states meet federal or
state constitutional requirements for fair and adequate notice. In most
instances, these courts have upheld theses notice provisions as being reasonable
or as not involving sufficient state action to invoke constitutional provisions.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and some foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale pursuant to a non-judicial power of sale. In most
states where the right of redemption is available, statutory redemption may
occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The
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exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to judicial
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to maintain the property and pay the
expenses of ownership until the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In other states, the lender has the option of bringing a personal action against
the borrower on the debt without first exhausting the underlying security;
however, in some of these states, the lender, following judgment on the personal
action, may be deemed to have elected a remedy and may be precluded from
exercising remedies for the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of the sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided in
specific instances where the value of the lender's security has been impaired by
acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 case under the federal Bankruptcy Code, if a court determines that the value
of a debtor's principal residence is less than the principal balance of the
loan, the court may, as part of the rehabilitation plan, unless the home is the
sole collateral for the mortgage loan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the case,
leaving the lender as a general unsecured creditor for the difference between
the amount of outstanding indebtedness and the adjusted value of the home. A
bankruptcy court may grant the debtor a reasonable
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time to cure a payment default, and in the case of a mortgage loan not secured
by the debtor's principal residence, also may reduce the monthly payments due
under the mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Regardless of whether a mortgage loan is secured by the
debtor's principal residence, the rehabilitation plan may provide for the
reinstatement of any payment defaults over a period of up to 5 years. In
addition, the federal Soldiers' and Sailors' Civil Relief Act of 1940 may reduce
the rate of interest payable on any mortgage loan as to which the mortgagor is a
military reservist called to active duty, and may interfere with the lender's
right to foreclose upon the related mortgage or deed of trust. In a Chapter 7,
Chapter 11 or Chapter 13 case under the federal Bankruptcy Code, the lender is
precluded from foreclosing without authorization from the bankruptcy court. If
the debtor's principal residence is not the only security for the mortgage loan,
the lender's lien may be transferred to other collateral and/or be limited in
amount to the value of the lender's interest in the collateral as of the date of
the bankruptcy. The loan term may be extended, the interest rate may be adjusted
to market rates in confirmed Chapter 11 and Chapter 13 plans and the priority of
the loan may be subordinated to bankruptcy court-approved financing. The
bankruptcy court can, in effect, invalidate due-on-sale clauses through
confirmed Chapter 11 and Chapter 13 plans of reorganization. The laws of some
states provide priority to some types of tax liens over the lien of the mortgage
or deed of trust.
Numerous federal and some state consumer protection laws and environmental
laws impose substantive requirements upon mortgage lenders in connection with
the origination, servicing and the enforcement of Loans. The consumer protection
laws include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, and related statutes and regulations. These federal laws and
state laws impose specified statutory liability upon lenders who originate or
service Loans and who fail to comply with the provisions of the law. In some
cases, this liability may affect assignees of the Loans.
JUNIOR LIENS; RIGHTS OF SENIOR LIENHOLDERS
The rights of the Trust (and therefore the certificateholders) as
beneficiary under a junior deed of trust or as mortgagee under a junior mortgage
are subordinate to those of the mortgagee or beneficiary under the senior
mortgage or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the junior mortgage loan to be sold upon default of the
mortgagor or trustor, thereby extinguishing the junior mortgagee's or junior
beneficiary's lien unless the lien holders assert their subordinate interest in
a property in foreclosure litigation or satisfy the defaulted senior loan. As
discussed more fully below, in many states a junior mortgagee or beneficiary may
satisfy a defaulted senior loan in full, or may cure the default and bring the
senior loan current, in either event adding the amounts expended to the balance
due on the junior loan.
The standard form of the mortgage or deed of trust used by most
institutional lenders confers on the mortgagee or beneficiary the right both to
receive all proceeds collected
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under any hazard insurance policy and all awards made in connection with any
condemnation proceedings, and to apply the proceeds and awards to any
indebtedness secured by the mortgage or deed of trust, in the order as the
mortgagee or beneficiary may determine. Thus, if improvements on the property
are damaged or destroyed by fire or other casualty, or if the property is taken
by condemnation, the mortgagee or beneficiary under the underlying first
mortgage or deed of trust will have the prior right to collect any insurance
proceeds payable under a hazard insurance policy and any award of damages in
connection with the condemnation and to apply the same to the indebtedness
secured by the first mortgage or deed of trust. Proceeds in excess of the amount
of first mortgage indebtedness will, in most cases, be applied to the
indebtedness of a junior mortgage or trust deed.
The form of mortgage or deed of trust used by most institutional lenders
typically contains a 'future advance' clause, which provides, in essence, that
additional amounts advanced to or on behalf of the mortgagor or trustor by the
mortgagee or beneficiary are to be secured by the mortgage or deed of trust.
While this type of clause is valid under the laws of most states, the priority
of any advance made under the clause depends, in some states, on whether the
advance was an 'obligatory' or 'optional' advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially made under the
mortgage or deed of trust, notwithstanding that there may be intervening junior
mortgages or deeds of trust and other liens between the date of recording of the
mortgage or deed of trust and the date of the future advance, and
notwithstanding that the mortgagee or beneficiary had actual knowledge of these
intervening junior mortgages or deeds of trust and other liens at the time of
the advance. Where the mortgagee or beneficiary is not obligated to advance the
additional amounts and has actual knowledge of the intervening junior mortgages
or deeds of trust and other liens, the advance will be subordinate to any
intervening junior mortgages or deeds of trust and other liens. Priority of
advances under the clause rests, in many other states, on state statutes giving
priority to all advances made under the loan agreement to a 'credit limit'
amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay when due all taxes and assessments on the property and all encumbrances,
charges and liens on the property which appear prior to the mortgage or deed of
trust, to provide and maintain fire insurance on the property, to maintain and
repair the property and not to commit or permit any waste of the property, and
to appear in and defend any action or proceeding purporting to affect the
property or the rights of the mortgagee or beneficiary under the mortgage or
deed of trust. Upon a failure of the mortgagor or trustor to perform any of
these obligations, the mortgagee or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the trustor.
All sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage or deed of trust.
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'DUE-ON-SALE' CLAUSES
The Pooling and Servicing Agreement will provide that, when any mortgaged
property underlying a mortgage loan is about to be conveyed by the mortgagor,
the Master Servicer will, to the extent it has knowledge of a prospective
conveyance, exercise its rights to accelerate the maturity of the mortgage loan
under the 'due-on-sale' clause applicable thereto, if any, unless it is not
exercisable under applicable law or if its exercise would result in loss of
insurance coverage on the mortgage loan or would, in the Master Servicer's
judgment, be reasonably likely to result in litigation by the mortgagor. In
either case, the Master Servicer is authorized to take or enter into an
assumption and modification agreement from or with the person to whom the
mortgaged property has been or is about to be conveyed, pursuant to which that
person becomes liable under the mortgage note and, unless prohibited by
applicable state law, the mortgagor remains liable thereon, provided that the
mortgage loan will continue to be covered by any related primary mortgage
insurance policy and the mortgage interest rate and the payment terms shall
remain unchanged. The Master Servicer will also be authorized, with the prior
approval of any primary mortgage insurer (unless approval is precluded by the
terms of the mortgage loan) to enter into, on behalf of the Trustee, a
substitution of liability agreement with that person, pursuant to which the
original mortgagor is released from liability and that person is substituted as
mortgagor and becomes liable under the mortgage note.
By virtue of the Garn-St Germain Depository Institutions Act of 1982 (the
'ACT'), a Servicer or the Master Servicer may generally be permitted to
accelerate any mortgage loan which contains a 'due-on-sale' clause upon transfer
of an interest in the property subject to the deed of trust or mortgage. For any
mortgage loan secured by a residence occupied or to be occupied by the borrower,
this ability to accelerate will not apply to some types of transfers, including:
the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase,
a transfer to a relative resulting from the death of a borrower, or a
transfer where the spouse or child(ren) becomes an owner of the property
in each case where the transferee(s) will occupy the property,
a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement agreement
by which the spouse becomes an owner of the property,
the creation of a lien or other encumbrance subordinate to the lender's
security instrument which does not relate to a transfer of rights of
occupancy in the property (provided that the lien or encumbrance is not
created pursuant to a contract for deed),
a transfer by devise, descent or operation of law on the death of a joint
tenant or tenant by the entirety, and
other transfers as described in the Act and the regulations thereunder.
As a result, a lesser number of Loans which contain 'due-on-sale' clauses
may extend to full maturity than recent experience on single-family loans would
indicate. The
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extent of the effect of the Act on the average lives and delinquency rates of
the Loans, however, cannot be predicted. See 'Prepayment, Yield and Maturity
Considerations -- Prepayment Considerations.'
ENVIRONMENTAL LEGISLATION
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ('CERCLA') and under state law in some states, a secured
party which takes a deed in lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale or operates a mortgaged property may become liable in some
circumstances for the cleanup costs of remedial action if hazardous wastes or
hazardous substances have been released or disposed of on the property. Cleanup
costs may be substantial. For any particular series of certificates, it is
possible that cleanup costs could become a liability of the related Trust and
reduce the amounts otherwise distributable to the related certificateholders if
cleanup costs are incurred in connection with a mortgaged property held by that
Trust. Moreover, some states by statute impose a lien for any cleanup costs
incurred by the state on the property that is the subject of cleanup costs (a
'SUPERLIEN'). All subsequent liens on that property are subordinated to the
Superlien and, in some states, even prior recorded liens are subordinated to
Superliens. In the latter states, the security interest of the Trustee in a
property that is subject to this type of a Superlien could be adversely
affected.
Traditionally, residential mortgage lenders have not taken steps to evaluate
whether hazardous wastes or hazardous substances are present on any mortgaged
property prior to the origination of the mortgage loan or prior to foreclosure
or accepting a deed-in-lieu of foreclosure. Accordingly, unless otherwise
specified in the prospectus supplement, the qualified lenders will not have made
this type of evaluation prior to the origination of the Loans nor will the
mortgage asset seller or the Depositor have required that this type of
evaluation be made by the originators who have sold the Loans to them. Neither
the applicable Servicer nor the Master Servicer will be required to undertake
any evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure.
Neither the Depositor, the Trustee nor the Master Servicer makes any
representations or warranties or assumes any liability with respect to the
absence or effect of hazardous wastes or hazardous substances on any mortgaged
property or any casualty resulting from the presence or effect of hazardous
wastes or hazardous substances. See 'Servicing of the Loans -- Collection and
Other Servicing Procedures.'
SUBORDINATE FINANCING
Some of the Loans may not restrict the ability of the borrower to use the
mortgaged property as security for one or more additional loans. Where a
borrower encumbers a mortgage property with one or more junior liens, the senior
lender is subjected to additional risk. First, the borrower may have difficulty
servicing and repaying multiple loans. Moreover, if the subordinate financing
permits recourse to the borrower (as is frequently the case) and the senior loan
does not, a borrower may have more incentive to
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repay sums due on the subordinate loan. Second, acts of the senior lender that
prejudice the junior lender or impair the junior lender's security may create a
superior equity in favor of the junior lender. For example, if the borrower and
the senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the borrower is
additionally burdened. Third, if the borrower defaults on the senior loan and/or
any junior loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover, the
bankruptcy of a junior lender may stay foreclosure or similar proceedings by the
senior lender.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980 ('TITLE V'), provides that state usury limitations shall not apply to
some types of residential first loans originated by specific lenders after March
31, 1980. The Office of Thrift Supervision is authorized to issue rules and
regulations and to publish interpretations governing implementation of Title V.
The statute authorized any state to reimpose interest rate limits by adopting
before April 1, 1983, a law or constitutional provision which expressly rejects
application of the federal law. Fifteen states have adopted laws reimposing or
reserving the right to reimpose interest rate limits. In addition, even where
Title V is not so rejected, any state is authorized to adopt a provision
limiting other types of loan charges.
The Depositor will represent and warrant for the benefit of
certificateholders that the Loans were originated in full compliance with
applicable state laws, including usury laws.
ENFORCEABILITY OF SOME PROVISIONS
Standard forms of note, deed of trust and mortgage generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In some states, there are
or may be specific limitations upon late charges which a lender may collect from
a borrower for delinquent payments. Some states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under the Pooling and Servicing Agreement, late charges and prepayment
fees (to the extent permitted by law and not waived by the Master Servicer or
the Servicers) will be retained by the Master Servicer or the Servicers as
additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower's
default and the likelihood that the borrower will
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be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's judgment and have required lenders to reinstate loans
or recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In some cases, courts have limited the right of
lenders to foreclose if the default under the mortgage instrument is not
monetary, like the borrower failing to adequately maintain the property or the
borrower executing a second mortgage or deed of trust affecting the property. In
other cases, some courts have been faced with the issue of whether federal or
state constitutional provisions reflecting due process concerns for adequate
notice require that borrowers under the deeds of trust receive notices in
addition to the statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protections to the borrower.
LEGAL ASPECTS OF THE LOANS UNDER CALIFORNIA LAW
Mortgage loans in California are generally secured by deeds of trust.
Provided the deed of trust contains a private power of sale, a lender may
foreclose either non-judicially or judicially. Most lenders choose non-judicial
foreclosure because the process typically may be completed within a much shorter
time frame; however, a lender is barred from obtaining a deficiency judgment
after a non-judicial foreclosure. If the lender opts for judicial foreclosure,
an application for a deficiency judgment must be filed with the court within
three months of the foreclosure sale. A deficiency judgment may not exceed the
difference between the indebtedness and the fair value of the property, as
determined by the court. Unless the lender waives the right to a deficiency
judgment, the borrower has a right to redeem the property following a judicial
foreclosure sale for a period of three months from the date of sale if the
proceeds from the sale were sufficient to satisfy the debt, or for a period of
one year if the proceeds were insufficient to satisfy the debt. Junior
lienholders do not have a right to redeem the property following a judicial
foreclosure sale unless the junior lien was created before July 1, 1983.
California's form of the 'one action rule' requires the lender to look first to
the property for satisfaction of the debt if the lender wants to pursue a
deficiency judgment. In general, a lender who takes any action to enforce the
debt other than judicial or non-judicial foreclosure violates the one-action
rule and may be deemed to have waived its security for the indebtedness and, in
some cases, may be prevented from collecting the indebtedness altogether. The
prospectus supplement for each series will specify the percentage of Loans by
initial principal balance that are secured by liens on mortgaged properties
located in California.
CO-OP LOANS
To the extent described in the prospectus supplement, some of the Loans may
have been made in connection with a purchase or refinance of cooperative
apartments. These Co-op Loans are not secured by liens on real estate. The
'owner' of a cooperative apartment does not own the real estate constituting the
apartment but owns shares of stock
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in a corporation which holds title to the building in which the apartment is
located, and by virtue of owning the stock is entitled to a proprietary lease to
occupy the specific apartment (the 'LEASE'). Thus, a Co-op Loan is a personal
loan secured by a lien on the shares and an assignment of the Lease. If the
borrower defaults on a Co-op Loan, the lender's remedies are similar to the
remedies which apply to a foreclosure of a mortgage or deed of trust, in that
the lender can foreclose the loan and assume 'ownership' of the apartment.
There are some risks which arise as a result of the cooperative form of
ownership which differentiate Co-op Loans from other types of Loans. For
example, the power of the board of directors of most cooperative corporations to
reject a proposed purchaser of a unit owner's shares (and prevent the sale of an
apartment) for any reason (other than reasons based upon unlawful
discrimination) or for no reason, significantly reduces the universe of
potential purchasers in the event of a foreclosure. Moreover, cooperative
apartment owners run a special risk in buildings where the 'sponsor' (i.e., the
owner of the unsold shares in the corporation) holds a significant number of
unsold apartments if the sponsor were to go into default on a loan which is
secured by a mortgage on the building. In this event the unit owners would be
forced by special assessment to make the payments on the delinquent loan or risk
losing their apartments in a foreclosure proceeding brought by the holder of the
mortgage on the building. Not only would the value attributable to the right to
occupy a particular apartment be adversely affected by the special assessment,
but the foreclosure of a mortgage on the building in which the apartment is
located could result in a total loss of the shareholder's equity in the building
(and a corresponding loss of the lender's security for its Co-op Loan).
LEGAL INVESTMENT MATTERS
Unless otherwise specified in the prospectus supplement for a series, the
certificates rated in one of the two highest rating categories by one or more
rating agencies will constitute 'mortgage-related securities' for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ('SMMEA'). As a result,
they will be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including Depository
institutions, life insurance companies and pension funds) created pursuant to or
existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent as, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or any
other state entities. Under SMMEA, if a state enacted legislation prior to
October 4, 1991 specifically limiting the legal investment authority of any of
these types of entities to invest in 'mortgage-related securities' the
certificates will constitute legal investments for entities subject to the
legislation only to the extent provided therein. SMMEA provides, however, that
in no event will the enactment of this type of legislation affect the validity
of any contractual commitment to purchase, hold or invest in certificates, or
require the sale or other disposition of certificates, so long as the
contractual commitment was made or the
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certificates were acquired prior to the enactment of the legislation. Pursuant
to SMMEA, a number of states enacted legislation, on or before the October 3,
1991 cut-off for the enactments, limiting to varying extents the ability of some
entities to invest in 'mortgage-related securities,' in most cases by requiring
the affected investors to rely solely upon existing state law, and not SMMEA.
Accordingly, the investors affected by this legislation will be authorized to
invest in the Securities only to the extent provided in this legislation.
SMMEA also amended the legal investment authority of federally-chartered
Depository institutions as follows:
federal savings and loan associations and federal savings banks may invest
in, sell or otherwise deal in certificates without limitation as to the
percentage of their assets represented thereby;
federal credit unions may invest in the certificates; and
national banks may purchase certificates for their own account without
regard to the limitations generally applicable to investment securities
described in 12 U.S.C. 'SS' 24 (Seventh), subject in each case to those
regulations as the applicable federal authority may prescribe.
On April 23, 1998, the Federal Financial Institutions Examination Counsel
issued a revised supervisory policy statement (the '1998 POLICY STATEMENT')
applicable to all Depository institutions, setting forth guidelines for
investments in 'high-risk mortgage securities.' The 1998 Policy Statement has
been adopted by the Federal Reserve Board, the Office of the Comptroller of the
Currency, the FDIC, the National Credit Union Administration (the 'NCUA') and
the Office of Thrift Supervision (the 'OTS') with an effective date of May 26,
1998. The 1998 Policy Statement rescinds a 1992 policy statement that had
required, prior to purchase, a Depository institution to determine whether a
mortgage derivative product that it is considering acquiring is high-risk, and,
if so, that the proposed acquisition would reduce the institution's overall
interest rate risk. The 1998 Policy Statement eliminates former constraints on
investing in some types of 'high-risk' mortgage derivative products and
substitutes broader guidelines for evaluating and monitoring investment risk.
On January 1, 1999, OTS Thrift Bulletin 13a, entitled 'Management of
Interest Rate Risk, Investment Securities, and Derivatives Activities'
('TB 13A'), which is applicable to thrift institutions regulated by the OTS
became effective. One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (i) conduct a
pre-purchase portfolio sensitivity analysis for any 'significant transaction'
involving securities or financial derivatives, and (ii) conduct a pre-purchase
price sensitivity analysis of any 'complex security' or financial derivative.
For the purposes of TB 13a, a 'complex security' includes among other things any
collateralized mortgage obligation or real estate mortgage investment conduit
security, other than any 'plain vanilla' mortgage pass-through security (that
is, securities that are part of a single class of securities in the related pool
that are non-callable and do not have any special features). Accordingly, all
classes of the offered certificates would likely be viewed as 'complex
securities'. The OTS recommends that while a thrift institution should conduct
its own in-house pre-acquisition
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analysis, it may rely on an analysis conducted by an independent third-party so
long as management understands the analysis and its key assumptions. Further, TB
13a recommends that the use of 'complex securities with high price sensitivity'
be limited to transactions and strategies that lower a thrift institution's
portfolio interest rate risk. TB 13a warns that investment in complex securities
by thrift institutions that do not have adequate risk measurement, monitoring
and control systems may by viewed by OTS examiners as an unsafe and unsound
practice.
In addition, the NCUA has issued regulations governing federal credit union
investments which prohibit investment in specified types of securities, which
may include some classes of certificates.
In addition, several states have adopted or are considering regulations that
would prohibit regulated institutions subject to their jurisdiction from holding
mortgage-backed securities like the offered certificates, including securities
previously purchased. You should consult your own legal advisors in determining
whether and to what extent the offered certificates constitute legal investments
for you.
There may be other restrictions on the ability of some investors, including
Depository institutions, either to purchase certificates or to purchase
certificates representing more than a specified percentage of the investor's
assets. Investors should review any applicable or proposed rules, regulations
and guidelines and consult their own legal advisors in determining whether and
to what extent the certificates constitute legal investments for these
investors.
Securities that do not constitute 'mortgage-related securities' under SMMEA
will require registration, qualification or an exemption under applicable state
securities laws to meet requirements for legal investments.
You should consult your own legal advisors in determining whether and to
what extent the certificates constitute legal investments for you.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA')
imposes requirements on employee benefit plans (and on some other retirement
plans and arrangements, including individual retirement accounts and annuities,
Keogh plans and collective investment funds and separate accounts in which
plans, accounts or arrangements are invested) (collectively 'PLANS') subject to
ERISA and on persons who are fiduciaries for these Plans. Generally, ERISA
applies to investments made by Plans. Among other things, ERISA requires that
the assets of Plans be held in trust and that the trustee, or other duly
authorized fiduciary, have exclusive authority and discretion to manage and
control the assets of these Plans. ERISA also imposes specific duties on persons
who are fiduciaries of Plans. Under ERISA, any person who exercises any
authority or control respecting the management or disposition of the assets of a
Plan is considered to be a fiduciary of the Plan (subject to specific exceptions
not relevant here). Some employee
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benefit plans, like governmental plans (as defined in ERISA Section 3(32)) and,
if no election has been made under Section 410(d) of the Code, church plans (as
defined in ERISA Section 3(33)), are not subject to ERISA requirements.
Accordingly, assets of these plans may be invested in certificates without
regard to the ERISA considerations described in this prospectus, subject to the
provisions of applicable state law. Any plan which is qualified and exempt from
taxation under Code Sections 401(a) and 501(a), however, is subject to the
prohibited transaction rules contained in Code Section 503.
On November 13, 1986, the United States Department of Labor (the 'DOL')
issued a final regulation concerning the definition of what constitutes the
assets of a Plan. (29 C.F.R. 'SS' 2510.3- 101.) Under this regulation, the
underlying assets and properties of corporations, partnerships and other
entities in which a Plan makes an 'equity' investment could be deemed for
purposes of ERISA to be assets of the investing Plan in some circumstances.
However, the regulation provides that, generally, the assets of an entity in
which a Plan invests will not be deemed for purposes of ERISA to be assets of
the Plan if the equity interest acquired by the investing Plan is a
publicly-offered security. A publicly-offered security, as defined in the
regulation, is a security that is widely held, freely transferable and
registered under the Securities Exchange Act of 1934. The related prospectus
supplement will indicate whether the certificates constitute publicly-offered
securities for the purpose of this exception.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA prohibits a broad range of transactions
involving Plan assets and persons ('PARTIES IN INTEREST') having specified
relationships to a Plan and imposes additional prohibitions where Parties in
Interest are fiduciaries of the Plan. For example, an investment in the
certificates by a Plan to which the Depositor, the Master Servicer or Trustee is
a Party in Interest would constitute a prohibited transaction unless an
exemption is available. In addition, because the Loans may be deemed Plan assets
of each Plan that purchases certificates, an investment in the certificates by a
Plan might be a prohibited transaction if any of the mortgagors is a Party in
Interest to the Plan unless an exemption applies.
In Prohibited Transaction Exemption 83-1 ('PTE 83-1'), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules specific transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of 'mortgage
pool pass-through certificates' (as defined below) in the initial issuance of
these certificates. PTE 83-1 permits, subject to specific conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest under those Plans related to the origination, maintenance and
termination of mortgage pools consisting of loans secured by first or second
mortgages or deeds of trust on 'single-family residential property' (as defined
below), and the acquisition and holding of mortgage pool pass-through
certificates representing an interest in mortgage pools by Plans. If the general
conditions (discussed below) of PTE 83-1 are satisfied, investments by a Plan in
certificates will be exempt from the prohibitions of ERISA Sections 406(a) and
407 (relating generally to transactions with Parties in Interest who are not
fiduciaries) if
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the Plan purchases the certificates at no more than fair market value, and will
be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2) (relating
generally to transactions with fiduciaries) if, in addition, the purchase is
approved by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25% of all certificates, and at
least 50% of the certificates are purchased by persons independent of the pool
sponsor or pool trustee.
A 'mortgage pool pass-through certificate' for the purpose of PTE 83-1 is
defined as a certificate representing a beneficial undivided fractional interest
in a mortgage pool and entitling the holder of the certificate to pass-through
payments of principal and interest from the pooled loans, less any fees retained
by the pool sponsor. Some classes of certificates may, if specified in the
related prospectus supplement, not qualify as mortgage pool pass-through
certificates as so defined, and therefore PTE 83-1 may not be applicable to
these classes of certificates, including:
classes of certificates entitled to receive payments of interest and
principal on the loans only after payments to other classes or after the
occurrence of specified events;
classes of certificates that evidence the beneficial ownership in a Trust
divided into mortgage loan groups;
classes of certificates that evidence beneficial ownership of a specified
percentage of interest payments only or principal payments only, or a
notional amount of either principal or interest payments; and
classes of certificates that evidence an interest in a pool organized as a
REMIC.
In addition, PTE 83-1 applies only where the mortgage pool is limited to
single-family residential property. PTE 83-1 defines 'single-family residential
property' as non-farm property comprising one to four dwelling units, and
condominiums. Therefore, PTE 83-1 may not be available for classes of
certificates representing a beneficial interest in a mortgage pool which
includes: (1) multifamily Loans; or (2) loans secured by shares issued by a
cooperative housing association.
PTE 83-1 sets forth three general conditions which must be satisfied for any
transaction to be eligible for exemption: (1) the maintenance of a system of
insurance or other protection for the pooled Loans and property securing the
loans, and for indemnifying certificateholders against reductions in
pass-through payments due to property damage or defaults in loan payments in an
amount not less than the greater of one percent of the aggregate principal
balance of all covered pooled Loans or the principal balance of the largest
covered pooled mortgage loan; (2) the existence of a pool trustee who is not an
affiliate of the pool sponsor; and (3) a limitation on the amount of the payment
retained by the pool sponsor, together with other funds inuring to its benefit,
to not more than adequate consideration for selling the Loans plus reasonable
compensation for services provided by the pool sponsor to the pool. Some series
or classes of certificates may be protected though a subordination of other
classes of certificates, a subordination by shifting of interests, a Reserve
Fund or other form of credit enhancement described in the related prospectus
supplement. In the absence of a ruling that the system of insurance or other
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protection for a series or class of certificates satisfies the first general
condition referred to above, there can be no assurance that these features will
be so viewed by the DOL. In addition, subordination or another form of credit
enhancement maintained for a series or class of certificates will not satisfy
the first general condition referred to above unless it is maintained in an
amount not less than the greater of one percent of the aggregate principal
balance of the Loans or the principal balance of the largest mortgage loan. For
the second general condition referred to above, the trustee will not be
affiliated with the Depositor. There can be no assurance that the third general
condition will be satisfied for the certificates.
One or more exemptions may be available, however, for transactions to which
PTE 83-1 is not applicable, depending in part upon the type of Plan fiduciary
making the decision to acquire a certificate and the circumstances under which
the decision is made, including but not limited to:
Prohibited Transaction Exemption 90-1, regarding investments by insurance
company pooled separate accounts;
Prohibited Transaction Exemption 91-38, regarding investments by bank
collective investment funds;
Prohibited Transaction Exemption 84-14, regarding transactions effected by
a 'qualified professional asset manager,' or
Prohibited Transaction Exemption 95-60, regarding investments by insurance
company general account.
However, even if the conditions specified in one or more of these exemptions are
met, the scope of the relief provided by these exemptions might not cover all of
the transactions involved.
The DOL has issued individual exemptions to a number of firms that may serve
as underwriter for a particular series of certificates (collectively referred to
as the 'UNDERWRITER EXEMPTION') which apply to some sales and servicing of
'certificates' that are obligations of a 'trust' with respect to which the firm
is the placement agent or underwriter, manager or co-manager of an underwriting
syndicate. The Underwriter Exemption provides relief which is generally similar
to that provided by PTE 83-1, but is broader in several respects. The related
prospectus supplement will indicate whether the particular underwriter has been
granted an Underwriter Exemption.
The Underwriter Exemption contains several requirements, some which differ
from those in PTE 83-1. The Underwriter Exemption contains an expanded
definition of 'certificate' which includes an interest which entitles the holder
to pass-through payments of principal, interest and/or other payments and a
certificate denominated as debt that represents an interest in a REMIC. The
Underwriter Exemption contains an expanded definition of 'trust', which may
include obligations secured by shares issued by a cooperative housing
association and loans secured by multi-family residential and commercial real
property, as well as loans secured by single-family residential real property.
In addition, the Underwriter Exemption does not require the loans, the property
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securing the loans or the certificateholders to be covered by a system of
insurance. The definition of 'trust,' however, does not include any investment
pool unless, inter alia, (1) the investment pool consists only of assets of the
type which have been included in other investment pools, (2) certificates
evidencing interests in other investment pools that have been purchased by
investors other than Plans for at least one year prior to the Plan's acquisition
of certificates pursuant to the Underwriter Exemption, and (3) certificates in
other investment pools that have been rated in one of the three highest generic
rating categories of the four credit rating agencies noted below. The general
conditions applicable to the Underwriter Exemption include:
the acquisition of the certificates by a Plan must be on terms (including
the price for the certificates) that are at least as favorable to the Plan
as they would be in an arm's length transaction with an unrelated party;
the rights and interests evidenced by the certificates must not be
'subordinated' to the rights and interests evidenced by other certificates
of the same trust;
certificates acquired by a Plan must have received a rating at the time of
their acquisition that it is in one of the three highest generic rating
categories of Standard & Poor's, a division of the McGraw-Hill Companies,
Inc., Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, Inc.;
the pool trustee must not be an affiliate of the pool sponsor, nor an
affiliate of the underwriter, the pool servicer, any obligor on the Loans
included in the trust constituting more than five percent of the aggregate
unpaid principal balance of the assets in the trust, or any affiliate of
any of these entities; and
any Plan investing in the certificates must be an 'accredited investor' as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act.
It is not clear whether the exemptions referenced above apply to participant
directed plans as described in Section 404(c) of ERISA or plans that are subject
to Section 4975 of the Code but that are not subject to Title I of ERISA, like
some Keogh plans and individual retirement accounts.
Any Plan fiduciary which proposes to cause a Plan to purchase certificates
should consult with its counsel concerning the impact of ERISA and the Code, the
applicability of an exemption, and the potential consequences in the specific
circumstances, prior to making an investment. Moreover, each Plan fiduciary
should determine whether under the general fiduciary standards of investment
procedure and diversification an investment in the certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
Any Plan proposing to invest in certificates should consult with its counsel
to confirm that the investment will not result in a prohibited transaction and
will satisfy the other requirements of ERISA and the Code.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The Federal income tax consequences of an investment in a certificate of a
series or a class of a series will vary depending on the characteristics of the
certificate. The following is a general discussion of the anticipated material
Federal income tax consequences of the purchase, ownership and disposition of
the certificates offered under this prospectus. The discussion is based upon the
Code, its legislative history, existing and proposed regulations thereunder,
including regulations promulgated under the real estate mortgage investment
conduit ('REMIC') and original issue discount, called 'OID' provisions of the
Code, called the 'REMIC REGULATIONS' and the 'OID REGULATIONS,' published
rulings and court decisions, all as in effect and existing on the date of this
prospectus and all of which are subject to change at any time, possibly on a
retroactive basis, and to differing interpretations. The OID Regulations do not
provide guidance on the computation of the accrual of OID under section
1272(a)(6) of the Code for regular interests in a REMIC.
The following discussion applies only to those persons who are the original
holders of the certificates and who hold certificates as capital assets, and
does not address the tax consequences to taxpayers who are subject to special
rules or aspects of Federal income taxation that may be relevant to a
prospective investor based upon the investor's particular tax situation. For
example, the discussion would not apply to:
banks,
insurance companies,
tax-exempt organizations,
electing large partnerships,
dealers in securities or currencies,
mutual funds,
REITs,
RICs,
S corporations,
estates and trusts,
investors that hold the certificates as part of a hedge, straddle,
integrated or conversion transaction, or
holders whose 'functional currency' is not the United States dollar.
This discussion generally does not address the state, local or foreign tax
consequences of the purchase, ownership and disposition of the certificates.
Investors should consult their tax advisors in determining the Federal, state,
local, foreign or other tax consequences to them of the purchase, ownership and
disposition of the certificates offered hereunder. The following discussion
addresses securities of two general types: (1) certificates representing
interests in a trust, or a portion of a trust, which the Master Servicer will
covenant to elect to have treated as a REMIC under Code Sections 860A through
860G and (2) certificates representing interests in a trust for which an
election to be treated as a REMIC will not be made. The prospectus supplement
for each series of certificates will indicate
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whether a REMIC election will be made for the related trust and, if the election
is made for the trust, will designate the related series of certificates as
either 'regular interests' or 'residual interests' in the REMIC. For purposes of
this tax discussion, references to a 'certificateholder' are references to the
beneficial owner of a certificate.
REMIC
CLASSIFICATION OF REMICS
An election to be treated as a REMIC for federal income tax purposes may be
made for a Trust relating to a series of certificates. An election will
generally be made if the related Trust would not qualify as a grantor Trust
under subpart E, Part I of Subchapter J of the Code. Upon issuance of each
series of certificates for which an election to be treated as a REMIC is made,
Mayer, Brown & Platt, counsel to the Depositor, is of the opinion that, assuming
(1) ongoing compliance with all provisions of the Pooling and Servicing
Agreement which include requirements, among other things, that a REMIC election
be made timely in the required form, the representations described in the
Pooling and Servicing Agreement be true, and there be continued compliance with
the applicable provisions of the Code, as it may be amended from time to time,
and the applicable Treasury Regulations issued under the Code, and (2) the
accuracy of information contained in other related documents, the Trust issuing
a series of certificates, under current Federal income tax law, will qualify as
a REMIC (and will not be treated as an association or publicly traded
partnership taxable as a corporation) for Federal income tax purposes, and the
certificates offered thereby will be considered to be 'regular interests'
('REGULAR CERTIFICATES') or 'residual interests' ('RESIDUAL CERTIFICATES') in a
REMIC. This opinion will be filed prior to issuance of a series of certificates
as an exhibit to a post-effective amendment or in a Current Report on Form 8-K.
QUALIFICATION AS A REMIC
In order for the Trust to qualify as a REMIC, there must be ongoing
compliance on the part of the Trust with requirements contained in the Code.
First, the Trust must fulfill an asset test, which requires that no more than a
de minimis amount of the assets of the Trust, as of the close of the third
calendar month beginning after the date of issuance of the certificates, called
the 'STARTUP DAY,' and at all times thereafter, may consist of assets other than
'qualified mortgages' and 'permitted investments.' The REMIC Regulations provide
a 'safe harbor' pursuant to which the de minimis requirement is met at any time
when the aggregate adjusted basis of the nonqualified assets is less than 1% of
the aggregate adjusted basis of all the Trust's assets. An entity that fails to
meet the safe harbor may nevertheless demonstrate that it holds no more than a
de minimis amount of nonqualified assets.
A qualified mortgage is any obligation, including any participation or
certificate of beneficial ownership in a qualified mortgage, that is principally
secured by an interest in real property and, generally, that is (1) transferred
to the Trust on the Startup Day, (2)
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purchased by the Trust within a three-month period thereafter pursuant to a
fixed price contract in effect on the Startup Day or (3) received by the REMIC
within the three-month period in replacement of an obligation transferred to the
REMIC on the Startup Day. Qualified mortgages also include a regular interest in
another REMIC if the interest is transferred to the Trust on the start-up day in
exchange for regular or residual interests in the Trust. An obligation is
'principally secured by an interest in real property' if (1) the fair market
value of the real property security is at least 80% of the principal amount of
the related Loan either at origination or as of the Startup Day (an original
loan-to-value ratio of not more than 125% of the real property security) or (2)
substantially all the proceeds of the Loan were used to acquire, improve or
protect an interest in real property that, at the origination date, was the only
security for the Loan. In rendering its opinion on the classification of the
Trust as a REMIC, Mayer, Brown & Platt will rely on the representations in the
Pooling and Servicing Agreement and other documents regarding qualification of
the Loans as 'qualified mortgages.'
Permitted investments include cash flow investments, qualified reserve
assets and foreclosure property. A cash flow investment is generally an
investment of amounts received on qualified mortgages for a temporary period,
not exceeding thirteen months, which investment must earn a return in the nature
of interest. A qualified reserve asset is any intangible property held for
investment that is part of any reserve reasonably required to be maintained to
provide for payments of expenses or to provide security for payments due on
regular or residual interests that otherwise may be delayed or defaulted upon
because of default (including delinquencies) on the qualified mortgages or lower
than expected reinvestment returns. Foreclosure property is real property
acquired in connection with the default or imminent default of a qualified
mortgage and generally held for not more than two years, plus extensions
permitted by the Code.
In addition to the requirements discussed above, the various interests in
the Trust also must meet other requirements. A REMIC meets the interests test if
all of the interests in the REMIC are either regular interests or residual
interests, and there is one, and only one, class of residual interests, and all
distributions on the residual interests are made pro rata. A regular interest is
an interest in a REMIC that is issued on the Startup Day with fixed terms, is
designated as a regular interest, unconditionally entitles the holder to receive
a specified principal amount, or other similar amount, and provides that
interest payments, or other similar amounts, if any, at or before maturity
either are payable based on a fixed rate or a qualified variable rate, or
consist of a specified, nonvarying portion of the interest payments on qualified
mortgages. The REMIC Regulations provide that an interest in a REMIC may be
treated as a regular interest even if payments on the interest are subordinated
to payments on other interests in the REMIC, and are dependent on the absence of
defaults or delinquencies on qualified mortgages or permitted investments, lower
than reasonably expected returns on permitted investments, or expenses incurred
by the REMIC. A residual interest is an interest in a REMIC other than a regular
interest that is issued on the Startup Day and that is designated as a residual
interest. The Trust must also adopt reasonable arrangements designed to ensure
that 'disqualified organizations' do
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not hold residual interests and that tax information is furnished if this
restriction is violated.
The following discussion assumes that all requirements for REMIC
qualification will be satisfied by the Trust while there are any Regular
Certificates outstanding. If a Trust for which a REMIC election is made fails to
comply with one or more of the ongoing requirements of the Code for REMIC status
during any taxable year, the Code provides that the Trust will not be treated as
a REMIC for that year and thereafter. In that event, the Trust may be taxable as
a separate corporation, and the related certificates would not be accorded the
status or given the tax treatment described below. The Code provides that if (1)
an entity ceases to be a REMIC, (2) the Secretary of the Treasury determines
that the cessation was inadvertent, (3) no later than a reasonable time after
the discovery of the event resulting in the cessation, steps are taken so that
the entity is once more a REMIC, and (4) the entity, and each person holding an
interest in the entity at any time during a period specified, agrees to make
those adjustments as may be required by the Secretary of the Treasury for that
period, then, notwithstanding a terminating event, the entity will be treated as
continuing to be a REMIC or the cessation will be disregarded, whichever the
Secretary of the Treasury determines to be appropriate. While the Code
authorizes the Treasury Department to issue Treasury Regulations providing
relief in the event of an inadvertent termination of the status as a REMIC, no
Treasury Regulations of this type have been issued. Any relief, moreover, may be
accompanied by sanctions, like the imposition of a corporate tax on all or a
portion of the REMIC's income for the period in which the requirements for REMIC
status are not satisfied.
CHARACTERIZATION OF INVESTMENTS IN CERTIFICATES
In general, (1) subject to the satisfaction of either the applicable holding
period or the bona fide business purpose requirement of Code Section
593(d)(1)(D), certificates owned by a 'domestic building and loan association,'
a 'mutual savings bank,' or 'any cooperative bank without capital stock
organized and operated for mutual purposes and without profit' within the
meaning of Code Section 593(a) will be treated as 'qualifying real property
loans' within the meaning of Code Section 593(d), in the same proportion that
the assets of the pool underlying the certificates, called the 'ASSETS' would be
so treated; (2) certificates held by a domestic building and loan association
will, under Code Section 7701(a)(19)(C)(xi), count toward satisfying the 60%
asset test applicable to those institutions under Code Section 7701(a)(19)(C) in
the same proportion that the Assets would be treated as falling within one of
the classes enumerated in Code Section 7701(a)(19)(C)(i)-(x), including without
limitation 'loans secured by an interest in real property' within the meaning of
Code Section 7701(a)(19)(C)(v); and (3) certificates held by a real estate
investment trust will constitute 'real estate assets' within the meaning of Code
Section 856(c)(5)(B), and interest on the REMIC certificates will be considered
'interest on obligations secured by mortgages on real property or on interests
in real property' within the meaning of Code Section 856(c)(3)(B) in the same
proportion that the Assets would be so treated. Moreover, if 95% or more of the
Assets qualify for any of the
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foregoing treatments at all times during the calendar year, the certificates
will qualify for the corresponding status in their entirety for that calendar
year. Certificates held by some financial institutions will constitute an
'evidence of indebtedness' within the meaning of Code Section 582(c)(1).
Certificateholders should be aware that (1) certificates held by a real
estate investment trust will not constitute 'government securities' within the
meaning of Code Section 856(c)(5)(A) and (2) certificates held by a regulated
investment company will not constitute 'government securities' within the
meaning of Code Section 851(b)(4)(A)(i).
TAXATION OF OWNERS OF REGULAR CERTIFICATES
For Federal income tax purposes, a Regular Certificate will be treated as a
debt instrument issued by the REMIC and not as an ownership interest in the
REMIC or the assets of the REMIC. The amounts includible in the income of a
holder of a Regular certificate (a 'REGULAR CERTIFICATEHOLDER') will be
determined under the accrual method.
Original Issue Discount. The Regular Certificates may be issued with OID
within the meaning of Code Section 1273(a). Holders of any class of Regular
Certificates issued with OID will be required to include the OID in gross income
for Federal income tax purposes as it is deemed to accrue, in advance of the
receipt of the cash attributable to that income.
Rules governing OID are set forth generally in Code Sections 1272, 1273 and
1275, and the OID Regulations. Code Section 1272(a)(6) provides special OID
rules that apply to regular interests in a REMIC, like Regular Certificates.
However, as discussed above, no Treasury Regulations have as yet been proposed
or adopted regarding the computation of the accrual of OID under Code Section
1272(a)(6). Further, the application of the OID Regulations to the Regular
Certificates remains unclear in other respects because the OID Regulations
either do not address, or are subject to varying interpretations with regard to,
several relevant issues.
Under the Code, the total amount of OID on a Regular Certificate is the
excess of the 'stated redemption price at maturity' of the Regular Certificate
over its 'issue price.' Except as discussed in the following paragraph, in
general, the issue price of a Regular Certificate offered hereunder will be
determined by the first price at which a substantial amount of the certificates
is sold for money, other than to bond houses or brokers. The stated redemption
price at maturity of a Regular Certificate will be the sum of all payments to be
made on the Regular Certificate other than 'qualified stated interest payments.'
Qualified stated interest is stated interest that is unconditionally payable at
least annually at a single fixed rate that appropriately takes into account the
length of the interval between payments. Qualified stated interest also includes
stated interest on 'variable rate debt instruments' if the interest is
unconditionally payable at least annually. The requirements for qualification of
a debt instrument bearing a rate of interest other than a fixed rate as a
'variable rate debt instrument' and for qualification of stated interest on a
variable rate debt instrument as 'qualified stated interest' are complex, and no
assurance can be given that all stated interest on Regular Certificates will
constitute qualified stated
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interest. For a general discussion of the treatment of variable rate interest,
see 'Investment in Certificates Not Representing Interests in a
REMIC -- Taxation of Owners of P&I Certificates -- Variable Rate Certificates,'
below. Generally, the stated redemption price at maturity of a Regular
Certificate will be its initial certificate balance. Under the OID Regulations,
if any portion of the initial purchase price of a Regular Certificate is
allocable to interest that has accrued prior to the issue date of the Regular
Certificates, and if the pre-issuance accrued interest will be paid on the first
payment date within one year of the issue date, the issue price of the Regular
Certificate may be computed by subtracting from the issue price, as otherwise
determined, any pre-issuance accrued interest. If the issue price is so
computed, the actual payment of any pre-issuance accrued interest will be
treated as a return of the excluded pre-issuance accrued interest, rather than
as an amount payable on the debt instrument.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
OID on a Regular Certificate will be considered to be zero, and all stated
interest will be treated as qualified stated interest includible under the
accrual method of accounting, if the OID is less than 0.25% of the stated
redemption price at maturity of the Regular Certificates multiplied by the
weighted average life of the Regular Certificates. However, under the OID
Regulations, the holder of a Regular Certificate that has de minimis OID would
be required to include any de minimis OID in income as principal payments are
made in proportion to the ratio that each principal payment bears to the stated
principal amount of the Regular Certificates. For this purpose, the weighted
average life of the Regular Certificates is computed as the sum of the amounts
determined by multiplying (1) the number of complete years (rounding down for
partial years) until each payment included in the stated redemption price at
maturity is expected to be made by (2) a fraction, the numerator of which is the
amount of the payment and the denominator of which is the total amount of
payments included in the stated redemption price at maturity of the Regular
Certificates. The Internal Revenue Service may take the position that this rule
should be applied taking into account the Prepayment Assumption (described
below) and the effect of any anticipated investment income.
For purposes of computing the accrual of OID on the Regular Certificates
issued by a REMIC, Code Section 1272(a)(6) requires that a reasonable assumed
prepayment rate, called the 'PREPAYMENT ASSUMPTION', be used for Loans held by a
REMIC, and that adjustments be made in the amount and rate of accrual of the
discount to reflect differences between the actual prepayment rate and the
Prepayment Assumption. Code Section 1272(a)(6) provides that the Prepayment
Assumption is to be determined in the manner prescribed in Treasury Regulations.
As noted above, those Treasury Regulations have not been issued. The Conference
Committee Report discussing Code Section 1272(a)(6), called the 'COMMITTEE
REPORT,' indicates that the Treasury Regulations will provide that the
Prepayment Assumption used in determining the amount and rate of accrual of
discount on a Regular Certificate must be the same as that used in pricing the
initial offering of the Regular Certificates. The Prepayment Assumption used by
the Master Servicer in reporting OID for each series will be consistent with
this standard and will be disclosed in the related prospectus supplement.
However, neither the Master Servicer nor
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the Trustee will make any representation that the Loans will in fact prepay at a
rate conforming to the Prepayment Assumption or at any other rate. Each investor
must make its own decision as to the appropriate Prepayment Assumption to be
used in deciding whether or not to purchase any of the Regular Certificates.
OID is accrued by a Regular Certificateholder by including in its gross
income the sum of the 'daily portions' of OID, if any, on its Regular
Certificate for each day during its taxable year on which it held the Regular
Certificates. In general, in the case of an original holder of a Regular
Certificate, the daily portions of OID will be determined based on the excess,
if any, of (1) the sum of (A) the present value, as of the end of the accrual
period, of all of the distributions remaining to be made on the Regular
Certificate in future periods and (B) the distributions made on the Regular
Certificate during the accrual period of amounts included in the stated
redemption price at maturity, over (2) the adjusted issue price of the Regular
Certificate at the beginning of the accrual period. The excess will then be
allocated ratably to each day during the period to determine the daily portion
of OID for that day. Although the OID Regulations allow certificateholders to
use interest accrual periods of any length as long as each Distribution Date
falls on either the first day or final day of an accrual period, a Trust for
which a REMIC election is made will report original issue discount to
certificateholders based on the assumption that each accrual period ends on a
date that corresponds to a Distribution Date and begins on the first day
following the immediately preceding accrual period, or in the case of the first
period, begins on the Closing Date. The present value of the remaining
distributions will be calculated (1) assuming that distributions on the Regular
Certificate will be received in future periods based on the Loans being prepaid
at a rate equal to the Prepayment Assumption, (2) using a discount rate equal to
the original yield to maturity of the Regular Certificate and (3) taking into
account events, including actual prepayments, that have occurred before the
close of the accrual period. The original yield to maturity of the Regular
Certificate will be calculated based on its issue price and the assumption that
distributions on the Regular Certificate will be made in all periods as if the
Loans prepaid at a rate equal to the Prepayment Assumption. The adjusted issue
price of a Regular Certificate at the beginning of any accrual period will equal
the issue price of the certificate, increased by the aggregate amount of the
daily portions on the Regular Certificate that accrued in prior accrual periods,
and reduced by the amount of any distributions made on the Regular Certificate
in prior accrual periods of amounts included in the stated redemption price at
maturity.
A subsequent purchaser of a Regular Certificate that purchases the Regular
Certificate at a cost less than its remaining stated redemption price at
maturity will also be required to include in gross income the daily portions of
any OID on the Regular Certificate. However, if the cost of the Regular
Certificate to the subsequent purchaser is in excess of its 'adjusted issue
price,' each daily portion will be reduced in proportion to the ratio the excess
bears to the aggregate OID remaining to be accrued on the Regular Certificate.
The adjusted issue price of a Regular Certificate on any given day equals the
issue price, increased by the amount of OID previously includible in the gross
income of any holder,
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and decreased by the amount of any payment previously made other than a payment
of qualified stated interest.
VARIABLE RATE CERTIFICATES. A Regular Certificate may provide for payments
of interest based on a variable interest rate formula, and may provide for
minimum or maximum rates or other adjustments. For a general discussion of the
treatment of variable rate interest, see 'Investment in Certificates Not
Representing Interests in a REMIC -- Taxation of Owners of P&I
Certificates -- Variable Rate Certificates.'
MARKET DISCOUNT. A certificateholder that purchases a Regular Certificate at
a market discount, that is, at a purchase price less than its remaining stated
principal amount, or in the case of a Regular Certificate issued with OID, less
than its 'revised issued price,' which generally has the same meaning as
'adjusted issue price,' as defined above, will recognize market discount income
upon receipt of each principal distribution. See 'Investment in Certificates Not
Representing Interests in a REMIC -- Taxation of Owners of P&I
Certificates -- If Stripped Bond Rules Do Not Apply' and ' -- Premium and Market
Discount' below, for a general discussion of market discount. Treasury
regulations implementing the market discount rules have not yet been issued.
Investors should consult their own tax advisors regarding the application of the
market discount rules and the advisability of making any of the elections
provided by the Code relating to the timing of recognition of market discount.
The market discount rules will not be applicable to a Regular Certificate so
long as it is held by its initial purchaser.
PREMIUM. A Regular Certificateholder that purchased its Regular Certificate
at a premium may elect under Code Section 171 to amortize that premium under a
constant yield method over the life of the certificate as an offset to interest
income, rather than as a separate deduction item. It is not clear whether the
Prepayment Assumption would be taken into account in determining the life of the
Regular Certificate for this purpose. However, the Committee Report states that
the same rules that apply to accrual of market discount, which rules will
require use of a Prepayment Assumption in accruing market discount on Regular
Certificates without regard to whether those certificates have original issue
discount, will also apply in amortizing bond premium under Code Section 171. If
made, the election will apply to all debt instruments having amortizable bond
premium that the holder owns or subsequently acquires. See 'Constant Yield
Election' below regarding an alternative manner in which the Code Section 171
election may be deemed to be made.
CONSTANT YIELD ELECTION
The OID Regulations permit certificateholders to elect to include all
interest that accrues on a debt instrument by using a constant yield method. For
this purpose, 'interest' includes stated interest, acquisition discount, OID, de
minimis OID, market discount, de minimis market discount, and unstated interest,
as adjusted by any amortizable bond premium or acquisition premium. This
election would, in some cases, simplify the calculation of interest income for
certificateholders to whom it is available. However, if the
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holder makes the election for a debt instrument with amortizable bond premium or
market discount, the holder is deemed to have made elections to amortize bond
premium or to report market discount income currently as it accrues under the
constant yield method, respectively, for all debt instruments acquired by the
holder in the same taxable year or thereafter. The election is irrevocable
except with approval of the Internal Revenue Service. Investors should consult
their own tax advisors regarding the advisability of making this election.
EFFECTS OF DEFAULTS AND DELINQUENCIES
Some series of certificates may contain one or more classes of Subordinate
certificates, and if there are defaults or delinquencies on the Loans, amounts
that would otherwise be distributed on the Subordinate certificates may instead
be distributed on the Senior certificates. Holders of Subordinate certificates
nevertheless will be required to report income on these certificates under an
accrual method without giving effect to delays and reductions in distributions
on the Subordinate certificates attributable to defaults and delinquencies on
the Loans, except to the extent that it can be established that those amounts
are uncollectible. As a result, the amount of income reported by a holder of a
Subordinate certificate in any period could significantly exceed the amount of
cash distributed to the holder in that period. The holder will eventually be
allowed a loss, or will be allowed to report a lesser amount of income, to the
extent that the aggregate amount of distributions on the Subordinate certificate
is reduced as a result of defaults and delinquencies on the Loans. However, the
timing and character of losses or reductions in income are uncertain, and,
accordingly, holders of Subordinate certificates should consult their own tax
advisors on this point.
TAXATION OF OWNERS OF RESIDUAL CERTIFICATES
DAILY PORTIONS. A Residual Certificateholder generally will be required to
report its daily portion of the taxable income or, subject to the limitation
described in ' -- Basis Rules and Distributions' below, the net loss of the
REMIC for each day during a calendar quarter that the Residual Certificateholder
owned the Residual Certificate. For this purpose, the daily portion will be
determined by allocating to each day in the calendar quarter its ratable portion
of the taxable income or net loss of the REMIC for that quarter and then by
allocating the amount so allocated among the Residual Certificateholders in
accordance with their percentage of ownership interests on that day. Any amount
included in the gross income of or allowed as a loss to any Residual
Certificateholder by virtue of the rules described in this paragraph will be
treated as ordinary income or loss. Each Residual Certificateholder should be
aware that taxable income on its Residual Certificate may exceed cash
distributions attributable to that income in any taxable year.
TAXABLE INCOME OF THE REMIC. The taxable income of the REMIC will reflect a
netting of (1) the income from the Loans and other assets of the REMIC and (2)
the deductions allowed to the REMIC for interest, including OID, on the Regular
Certificates,
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and any other class of certificates constituting 'regular interests' in the
REMIC not offered by this prospectus, and, except as described below, for
servicing, administrative and other expenses. The limitation on miscellaneous
itemized deductions imposed on individuals by Code Section 67 will not be
applied at the pool level to these expenses. See ' -- Pass-Through of
Miscellaneous Itemized Deductions' below.
As a general rule, the taxable income of the REMIC will be determined in the
same manner as if the REMIC were an individual using the accrual method of
accounting, with some modifications. The first modification is that a deduction
will be allowed for accruals of interest, including original issue discount, on
the 'regular interests' in the REMIC. If a Regular Certificate is issued at a
price in excess of its aggregate principal amount, the net amount of interest
deductions that are allowed the REMIC in each taxable year for the Regular
Certificate will be reduced by an amount equal to the portion of the excess that
is considered to be amortized or prepaid in that year. Although the matter is
not entirely certain, it is likely that any excess would be amortized under a
constant yield method in a manner analogous to the method for accruing OID
described under 'Taxation of Owners of Regular Certificates -- Original Issue
Discount' above.
The second modification relates to the accrual of income on a Loan deemed to
have been acquired with market discount or premium. Any market discount will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to that income, under a method similar to the method
described above for accruing OID on the Regular Certificates. If the REMIC
elects under Code Section 171 to amortize any premium on the Loans, the premium
may be amortized under a constant yield method. See ' -- Taxation of Owners of
Regular Certificates -- Market Discount' and ' -- Premium' above.
The third modification is that no item of income, gain, loss or deduction
allocable to a prohibited transaction (see ' -- Prohibited Transactions and
other REMIC -- Level Taxes,' below) will be taken into account.
The fourth modification is that the REMIC generally may not deduct any item
that would be disallowed in calculating the taxable income of a partnership by
virtue of Code Section 703(a)(2).
The fifth modification is that the amount of the net income from
'foreclosure property', if any, must be reduced by the amount of tax imposed
under Code Section 860G(c) on 'foreclosure property.'
The REMIC will have an initial aggregate basis in its assets equal to the
aggregate issue price of the 'regular interests' and 'residual interests' in the
REMIC. The aggregate basis will be allocated among the individual Loans and
other assets of the REMIC in proportion to their respective fair market values.
Accordingly, the Master Servicer will be required to estimate the fair market
value of these interests in order to determine the basis of the REMIC in the
Loans and other property held by the REMIC. Generally for any certificate
offered by this prospectus, its fair market value will be its issue price as
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determined in the manner described above under 'Taxation of Owners of Regular
Certificates -- Original Issue Discount.'
BASIS RULES AND DISTRIBUTIONS. Any distribution by a REMIC to a Residual
Certificate holder will not be included in the gross income of the Residual
Certificateholder to the extent it does not exceed the adjusted basis of the
Residual Certificateholder's interest in a Residual Certificate. The
distribution will reduce the adjusted basis of the interest, but not below zero.
To the extent a distribution exceeds the adjusted basis of the Residual
Certificate, it will be treated as gain from the sale of the Residual
Certificate. See ' -- Sales of Certificates,' below. The adjusted basis of a
Residual Certificate is equal to the amount paid for that Residual Certificate,
increased by amounts included in the income of the Residual Certificateholder
(see ' -- Taxation of Owners of Residual Certificates -- Daily Portions,' above)
and decreased by distributions and by net losses taken into account for the
interest.
A Residual Certificateholder is not allowed to take into account any net
loss for any calendar quarter to the extent the net loss exceeds the Residual
Certificateholder's adjusted basis in its Residual Certificate as of the close
of the calendar quarter, determined without regard to any net loss. Any loss
allowed will reduce the adjusted basis of the interest, but not below zero. Any
loss disallowed because of this limitation may be carried forward indefinitely
to future calendar quarters and, subject to the same limitation, may be used
only to offset income from the Residual Certificate. The effect of these basis
and distribution rules is that a Residual Certificateholder may not amortize its
basis in a Residual Certificate, but may only recover its basis through
distributions, and through the deduction of any net losses of the REMIC or upon
the sale of its Residual Certificate. See ' -- Sales of Certificates' below.
EXCESS INCLUSIONS. Any 'excess inclusion' for a Residual Certificate is
subject to special tax rules. For a Residual Certificateholder, the excess
inclusion for any calendar quarter is defined as the excess, if any, of the
daily portions of taxable income over the sum of the 'daily accruals' for each
day during the quarter that the Residual Certificate was held by the Residual
Certificateholder. The daily accruals are determined by allocating to each day
during a calendar quarter its ratable portion of the product of the 'adjusted
issue price' of the Residual Certificate at the beginning of the calendar
quarter and 120 percent of the long-term 'applicable Federal rate,' generally,
an average of current yields on Treasury securities of comparable maturity, in
effect at the time of issuance of the Residual Certificate. For this purpose,
the adjusted issue price of a Residual Certificate offered by this prospectus,
if any, as of the beginning of any calendar quarter is the issue price of the
Residual Certificate (see ' -- Taxable Income of the REMIC' above) increased by
the amount of daily portions of income for all prior quarters and decreased, but
not below zero, by any distributions made on the Residual Certificate and any
net losses taken into account on the Residual Certificates before the beginning
of that quarter.
As an exception to the general rules described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a Residual Certificate as an excess inclusion if the
aggregate Residual Certificates in the
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REMIC did not have 'significant value.' The REMIC Regulations do not provide for
this type of an exception.
For Residual Certificateholders, other than thrift institutions described in
Code Section 593, an excess inclusion cannot be offset by losses from other
sources. For Residual Certificateholders that are subject to tax on unrelated
business taxable income, as defined in Code Section 511, an excess inclusion is
treated as unrelated business taxable income. For Residual Certificateholders
that are nonresident alien individuals or foreign corporations generally subject
to United States 30% withholding tax, an excess inclusion will be subject to
this tax and no tax treaty rate reduction or exemption may be claimed for this
tax. See ' -- Foreign Investors' below.
If a thrift institution described in Code Section 593 holds a Residual
Certificate that has 'significant value,' the thrift institution may offset its
losses against its excess inclusion income. In general, a Residual Certificate
has significant value if (1) the aggregate of the issue prices of the Residual
Certificates in the REMIC is at least equal to 2 percent of the aggregate of the
issue prices of all Regular Certificates and Residual Certificates in the REMIC,
and (2) the anticipated weighted average life of the Residual Certificates is at
least 20 percent of the anticipated weighted average life of the REMIC. However,
a net operating loss of any other member of an affiliated group of which the
thrift institution is a member may not be used to offset an excess inclusion
attributable to the thrift institution. In addition, a thrift institution may
not offset its losses against an excess inclusion attributable to a Residual
Certificate held by any other member of an affiliated group of which the thrift
institution is a member.
In the case of any Residual Certificate held by a real estate investment
trust, the aggregate excess inclusions for the Residual Certificate, reduced,
but not below zero, by the real estate investment trust's taxable income, within
the meaning of Code Section 857(b)(2), excluding any net capital gain, will be
allocated among the shareholders of the trust in proportion to the dividends
received by those shareholders from the trust, and any amount so allocated will
be treated as an excess inclusion for the Residual Certificate as if held
directly by those shareholders.
PASS-THROUGH OF MISCELLANEOUS ITEMIZED DEDUCTIONS
Under temporary Treasury regulations, if the REMIC is considered to be a
'single-class REMIC,' a portion of the REMIC's servicing, administrative and
other non-interest expenses will be allocated as a separate item to those
Regular Certificateholders that are 'pass-through interest holders.' Generally,
a single class REMIC is defined as (1) a REMIC that is substantially similar to
an investment trust under Treasury regulations but for its qualification as a
REMIC, or (2) a REMIC that is substantially similar to an investment trust but
is structured with the principal purpose of avoiding this allocation requirement
imposed by the temporary regulations. A pass-through interest holder would be
required to add its allocable share, if any, of the expenses to its gross income
and to treat the same amount as an item of investment expense. An individual
generally would be
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allowed a deduction for the expenses only as a miscellaneous itemized deduction
subject to the limitations under Code Section 67, which allows these deductions
only to the extent that in the aggregate the expenses exceed two percent of the
holder's adjusted gross income. In addition, Code Section 68 provides that the
amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount (the 'APPLICABLE AMOUNT') will
be reduced by the lesser of (1) 3% of the excess of the individual's adjusted
gross income over the Applicable Amount or (2) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income recognized by Regular Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial. The
REMIC is required to report to each pass-through interest holder and to the IRS
each holder's allocable share, if any, of the REMIC's non-interest expenses. The
term 'pass-through interest holder' generally refers to individuals, entities
taxed as individuals and other pass-through entities including regulated
investment companies, but does not include real estate investment trusts.
Certificateholders that are 'pass-through interest holders' should consult their
own tax advisors about the impact of these rules on an investment in the Regular
Certificates.
In addition, in a REMIC that is not considered to be a 'single-class REMIC'
as well as a REMIC that is considered to be a 'single-class REMIC,' all or a
portion of the REMIC's servicing, administrative and other non-interest expenses
will be allocated as a separate item to Residual Certificateholders that are
'pass-through interest holders.' This type of holder would be required to add
its allocable share, if any, of the expenses to its gross income and to treat
the same amount as an item of investment expense and an individual Residual
Certificateholder would be subject to the same limitations and adjustments as
described above for Regular Certificateholders.
SALES OF CERTIFICATES
If a certificate is sold, the selling certificateholder will recognize gain
or loss equal to the difference between the amount realized on the sale and its
adjusted basis in the certificate. The adjusted basis of a Regular Certificate
generally will equal the cost of the Regular Certificate to the
certificateholder, increased by income reported by the certificateholder on the
Regular Certificate and reduced, but not below zero, by distributions on the
Regular Certificate received by the certificateholder and by any amortized
premium. The adjusted basis of a Residual Certificate will be determined as
described under 'Taxation of Owners of Residual Certificates -- Basis Rules and
Distributions,' above. Except as provided in the following two paragraphs, any
gain or loss will be capital gain or loss, provided the certificate is held as a
capital asset (generally, property held for investment) within the meaning of
Code Section 1221. The Federal income tax rates applicable to capital gains for
taxpayers other than individuals, estates, and trusts are currently the same as
those applicable to ordinary income. However, the maximum ordinary income tax
rate for individuals, estates, and trusts is generally 39.6%, whereas the
maximum long-term capital gains rate for these taxpayers is 20% for capital
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assets held for more than 12 months. Capital losses generally may be used by a
corporate taxpayer only to offset capital gains, and by an individual taxpayer
only to the extent of capital gains plus $3,000 of other income.
Gain from the sale of a Regular Certificate that might otherwise be capital
gain will be treated as ordinary income to the extent the gain does not exceed
the excess, if any, of (1) the amount that would have been includible in the
seller's income on the Regular Certificate assuming that income had accrued
thereon at a rate equal to 110% of the applicable Federal rate determined as of
the date of purchase of the Regular Certificate, over (2) the amount of ordinary
income actually includible in the seller's income prior to the sale.
Certificates will be 'evidences of indebtedness' within the meaning of
Section 582(c)(1) of the Code, so that gain or loss recognized from the sale of
a certificate by a bank or thrift institution to which this section applies will
be ordinary income or loss.
Except as provided in Treasury regulations, if the seller of a Residual
Certificate reacquires a Residual Certificate, any other residual interest in a
REMIC or any similar interest in a 'taxable mortgage pool', as defined in Code
Section 7701(i), during the period beginning six months before, and ending six
months after, the date of the sale, the sale will be subject to the 'wash sale'
rules of Code Section 1091. In that event, any loss realized by the Residual
Certificateholder on the sale will not be deductible, but instead will be added
to the Residual Certificateholder's adjusted basis in the newly-acquired asset.
PROHIBITED TRANSACTIONS AND OTHER REMIC-LEVEL TAXES
A REMIC is subject to a tax at a rate equal to 100 percent of the net income
derived from 'prohibited transactions.' In general, a prohibited transaction
means (1) the disposition of a Loan other than pursuant to specified exceptions,
(2) the receipt of investment income from a source other than a Loan or other
permitted investments, (3) the receipt of compensation for services, or (4) gain
from the disposition of an asset purchased with the payments on the Loans for
temporary investment pending distribution on the certificates. It is not
anticipated that a Trust that makes an election to be taxed as a REMIC will
engage in any prohibited transactions. In addition, under the Code, a REMIC
generally will be taxed at a 100% rate on any contribution made to the REMIC
after the Start-Up Date unless the contribution is a cash contribution that (1)
takes place within the three-month period beginning on the closing date, (2) is
made to facilitate a clean-up call or a qualified liquidation, (3) is a payment
in the nature of a guarantee, or (4) constitutes a contribution by the holder of
the Residual Certificates in the REMIC to a qualified reserve fund. The
structure and operation of a Trust that makes an election to be taxed as a REMIC
will be designed to avoid the imposition of the 100% tax on contributions.
To the extent that a REMIC derives specific types of income from foreclosure
property (generally, income relating to dealer activities of the REMIC), it will
be taxed on that income at the highest corporate income tax rate. It is not
anticipated that a Trust that makes an election to be taxed as a REMIC will
receive significant amounts of this income.
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TAX ON TRANSFERS OF RESIDUAL CERTIFICATES TO CERTAIN ORGANIZATIONS
If a Residual Certificate is transferred to a 'disqualified organization',
as defined below, a tax would be imposed in an amount, determined under the
REMIC Regulations, generally equal to the product of (1) the present value of
the total anticipated excess inclusions for the Residual Certificate for periods
after the transfer, determined by discounting the anticipated excess inclusions
from the end of each remaining calendar quarter in which those excess inclusions
are expected to accrue at the applicable Federal rate based on the date on which
the transfer occurs to the date the disqualified organization acquires the
residual interest, and (2) the highest marginal federal income tax rate
applicable to corporations. This tax would generally be imposed on the
transferor of the Residual Certificate, except that where the transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on the agent. However, a transferor of a Residual Certificate would in
no event be liable for the tax on a transfer if the transferee furnished to the
transferor an affidavit stating the transferee's social security number and that
the transferee is not a disqualified organization, and as of the time of the
transfer, the transferor does not have actual knowledge that the affidavit is
false. An entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that residual interests in the entity are not
held by disqualified organizations and that information needed for the
application of the tax described in this prospectus will be made available.
Restrictions on the transfer of the Residual Certificate and other provisions
that are intended to meet these requirements are contained in the Pooling and
Servicing Agreement. Certificateholders should consult their advisors regarding
the potential impact on them of these restrictions.
For these purposes, a 'disqualified organization' means (1) the United
States, any State or political subdivision of the United States, any foreign
government, any international organization, or any agency or instrumentality of
the foregoing, but would not include instrumentalities described in Code Section
168(h)(2)(D), (2) any organization, other than a cooperative described in Code
Section 521, which is exempt from tax unless the organization is subject to the
tax imposed by Code Section 511 or (3) any organization described in Code
Section 1381(a)(2)(C).
In addition, if a 'pass-through entity', as defined below, includes in
income excess inclusions on a Residual Certificate, and a disqualified
organization is the record holder of an interest in a pass-through entity, then
a tax will be imposed on the pass-through entity equal to the product of (1) the
amount of excess inclusions on the Residual Certificate that are allocable to
the interest in the pass-through entity held by the disqualified organization
and (2) the highest marginal federal income tax rate imposed on corporations. A
pass-through entity will not be subject to this tax for any period, however, if
the record holder of the interest furnishes to the pass-through entity an
affidavit that the record holder is not a disqualified organization and, during
that period, the pass-through entity does not have actual knowledge that the
affidavit is false. For these purposes, a 'pass-through entity' means any
regulated investment company, real estate investment trust, trust, partnership
or other entities described in Code Section 860E(e)(6).
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DISREGARD OF SOME TYPES OF TRANSFERS
The REMIC Regulations provide that the transfer of a 'non-economic residual
interest' to a United States Person will be disregarded for tax purposes if a
significant purpose of the transfer was to impede the assessment or collection
of tax. A Residual Certificate will constitute a noneconomic residual interest
unless, at the time the interest is transferred, (1) the present value of the
expected future distributions on the Residual Certificate equals or exceeds the
product of the present value of the anticipated excess inclusion income and the
highest corporate tax rate for the year in which the transfer occurs, and (2)
the transferor reasonably expects that the transferee will receive distributions
from the REMIC in amounts sufficient to satisfy the taxes on excess inclusion
income as they accrue. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer, either
knew or should have known that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. A transferor is
presumed not to have knowledge if (1) the transferor conducted, at the time of
the transfer, a reasonable investigation of the financial condition of the
transferee and, as a result of the investigation, the transferor found that the
transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to pay
its debts as they come due in the future; and (2) the transferee represents to
the transferor that it understands that, as the holder of the noneconomic
residual interest, the transferee may incur tax liabilities in excess of any
cash flows generated by the interest and that the transferee intends to pay
taxes associated with holding the residual interest as they become due.
A transfer of a Residual Certificate to a foreign person will be disregarded
if the Residual Certificate has tax avoidance potential. A Residual Certificate
will have tax avoidance potential unless, at the time of the transfer, the
transferor reasonably expects that, for each excess inclusion, the REMIC will
distribute to the transferee Residual Certificateholder an amount that will
equal at least 30 percent of the excess inclusion at or after the time at which
the excess inclusion accrues and not later than the close of the calendar year
following the calendar year of accrual. Under the REMIC Regulations a safe
harbor is provided under which a transferor is treated as having a reasonable
expectation if the 30 percent test would be satisfied were the mortgages held by
a REMIC to prepay at each rate within a range of rates from 50 percent to 200
percent of the rate assumed under Code Section 1272(a)(6) on the qualified
mortgages, or the rate that would have been assumed had the mortgages been
issued with OID. If a transfer of a residual interest is disregarded, the
transferor would be liable for any Federal income tax imposed upon taxable
income that otherwise would be derived by the transferee from the REMIC.
TERMINATION
A REMIC will terminate shortly following receipt by the REMIC of the final
payment on the Loans or upon a sale of the REMIC's assets following the adoption
by the REMIC of a plan of complete liquidation. The last distribution on a
Regular Certificate will be treated as a payment in retirement of a debt
instrument. In the case of a Residual
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Certificate, if the last distribution on that certificate is less than the
Residual Certificateholder's adjusted basis in the Residual Certificate, the
Residual Certificateholder should be allowed a loss equal to the amount of the
difference.
REPORTING AND OTHER ADMINISTRATIVE MATTERS
Solely for purposes of the administrative provisions of the Code, the REMIC
will be treated as a partnership and Residual Certificateholders will be treated
as partners. Unless otherwise stated in the related prospectus supplement, the
Residual Certificateholders holding the greatest percentage interst in the
Residual Certificates will file REMIC federal income tax returns on behalf of
the related REMIC, and will be designated as and will act as the 'tax matters
person' on the REMIC.
As the tax matters person, the Master Servicer will, subject to specific
notice requirements and various restrictions and limitations, generally have the
authority to act on behalf of the REMIC and the Residual Certificateholders in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC, as well as the REMIC's classification.
Residual Certificateholders will generally be required to report the REMIC items
consistent with their treatment on the REMIC's tax return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
tax matters person, and the Internal Revenue Service concerning any REMIC item.
Any person that holds a Residual Certificate as a nominee for another person may
be required to furnish the REMIC, in a manner to be provided in Treasury
Regulations, with the name and address of that person and other information.
Reporting of interest income, including any OID, on Regular Certificates is
required annually, and may be required more frequently under Treasury
Regulations. This requirement extends to some types of holders of Regular
Certificates who are generally exempt from information reporting on debt
instruments. The REMIC also must comply with rules requiring a Regular
Certificate issued with OID to disclose on its face the amount of OID and the
issue date and requiring this information to be reported to the Internal Revenue
Service.
Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the OID rules is uncertain. Additional guidance is
required from the Internal Revenue Service or other legal authority before it is
possible to determine definitely the proper methods for accruing income on the
certificates. In the absence of additional guidance from the Internal Revenue
Service or other legal authority, the Master Servicer intends to compute and
report accrued income on the certificates for tax purposes in a manner that it
believes to be consistent with the principles of the Code and the OID
Regulations described above. Because of the uncertainties discussed above, there
can be no assurance that the method adopted by the Master Servicer for reporting
to holders of certificates will coincide with that ultimately adopted in final
Treasury Regulations. Accordingly, holders of certificates
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should consult their tax advisors regarding the method for reporting the amounts
received or accrued on the certificates. As long as the only 'certificateholder'
of record is CEDE & Co., as nominee for DTC, certificateholders and the IRS will
receive tax and other information from DTC Participants and indirect
participants of DTC rather than from the Master Servicer. (The Master Servicer,
however, will respond to requests for necessary information to enable DTC
Participants, indirect participants and other persons to complete their
reports.)
The Regular Certificate information reports will include a statement of the
adjusted issue price of the Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information necessary to compute
the accrual of any market discount that may arise upon secondary trading of
Regular Certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
certificateholder's purchase price which the REMIC may not have, it appears that
only information pertaining to the appropriate proportionate method of accruing
market discount should be required to be reported.
BACKUP WITHHOLDING
Payments of interest and principal, as well as payments of proceeds from the
sale of certificates, may be subject to 'backup withholding' under Code Section
3406 at a rate of 31% if recipients of these payments fail to furnish to the
payor necessary information, including their taxpayer identification numbers, or
otherwise fail to establish an exemption from backup withholding. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against the recipient's Federal income tax. Furthermore, penalties may be
imposed by the Internal Revenue Service on a recipient of payments that is
required to supply information to the payor but that does not do so in the
proper manner.
FOREIGN INVESTORS
A Regular Certificateholder that is not a 'United States Person', as defined
below, and is not subject to Federal income tax as a result of any direct or
indirect connection to the United States in addition to its ownership of a
Regular Certificate may be eligible for an exception to United States Federal
income or withholding tax on a distribution on a Regular Certificate, provided
that the certificateholder complies to the extent necessary with identification
requirements, including delivery of a statement, signed by the certificateholder
under penalties of perjury, certifying that the certificateholder is not a
United States Person and providing the name and address of the
certificateholder, and provided that the certificateholder is not a '10 percent
shareholder' within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation described in Code Section 881(c)(3)(C). The application of
these requirements in the REMIC context is not entirely clear, and foreign
investors seeking to qualify for this exemption should consult their own tax
advisors. While the matter is not free from doubt, the foregoing tax exemption
may not
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apply to a Regular Certificate held by a Residual Certificateholder, or by a
certificateholder that owns directly or indirectly a 10% or greater interest in,
or is a 'controlled foreign corporation' as defined under the Code related to, a
Residual Certificateholder. If the certificateholder does not qualify for
exemption, distributions of interest, including distributions of accrued OID, to
the certificateholder may be subject to a tax rate of 30%, subject to reduction
under any applicable tax treaty. For these purposes, 'UNITED STATES PERSON'
means a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision of the United States, or an estate or trust whose
income is subject to United States Federal income taxation regardless of its
source.
Unless otherwise stated in the related prospectus supplement, Residual
Certificateholders that are not United States Persons should assume that
distributions of income on their Residual Certificates will be subject to a 30%
withholding tax, or a lesser rate as may be provided under any applicable tax
treaty. In the case of any income on a Residual Certificate that is an excess
inclusion, however, the rate of withholding will not be subject to reduction
under any applicable tax treaties. (See ' -- Taxation of Owners of Residual
Certificates -- Excess Inclusions' above.)
PURCHASE OF BOTH REGULAR AND RESIDUAL CERTIFICATES
Any certificateholder holding a 'regular interest' in the REMIC and persons
related to these certificateholders should not acquire any interest identified
as a 'residual interest' in the REMIC and any certificateholders holding a
'residual interest' in the REMIC and persons related to these certificateholders
should not acquire any interest identified as a 'regular interest' in the REMIC,
without consulting their tax advisors as to any possible adverse tax
consequences.
TRUSTS WITH NEGATIVELY AMORTIZING ARMS
In the event that a Trust contains Negatively Amortizing ARMs, the
discussion of the federal income tax implications of the Negatively Amortizing
ARMs to a holder of an interest in the Trust, including the treatment of
Deferred Interest, will be contained in the related prospectus supplement.
INVESTMENT IN CERTIFICATES NOT REPRESENTING INTERESTS IN A REMIC
CLASSIFICATION OF TRUST AND CHARACTERIZATION OF INVESTMENT IN CERTIFICATES
For purposes of the following discussion, certificates of a series
evidencing undivided ownership interests in a notional amount of principal of
each Loan in a related Trust together with interest thereon are referred to as
'P&I CERTIFICATES.' Certificates of a series evidencing an undivided ownership
interest in a portion of the interest payable on a Notional Amount of the Loans
in the related Trust are referred to as 'IO CERTIFICATES.'
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Upon issuance of each series of certificates, unless a REMIC election is
made for that series, Mayer, Brown & Platt, counsel to the Depositor, is of the
opinion that the related Trust will be treated as a grantor trust under subpart
E, Part I of Subchapter J of the Code and not as an association taxable as a
corporation. The opinion will be filed prior to issuance of any series of
certificates to which a REMIC election is not made, as an exhibit to a
post-effective amendment or in a Current Report on Form 8-K. Moreover, each
certificateholder of a series will be treated as the owner of the undivided
interest specified in its certificate in each of the Loans in the related Trust
for each series. Accordingly, in the case of P&I Certificates, counsel to the
Depositor will deliver its opinion that, to the extent that the Trust holds
assets described in the Code sections set forth below, (1) subject to the
satisfaction of either the applicable holding period or the bona fide business
requirement of Code Section 593(d)(1)(D), P&I Certificates owned by a 'domestic
building and loan association,' a 'mutual savings bank,' or 'any cooperative
bank without capital stock organized and operated for mutual purposes and
without profit' within the meaning of Code Section 593(a) will represent an
interest in 'qualifying real property loans' within the meaning of Code Section
593(d); (2) P&I Certificates owned by a 'domestic building and loan association'
will represent 'loans . . . secured by an interest in real property' within the
meaning of Code Section 7701(a)(19)(C)(v); (3) P&I Certificates owned by a real
estate investment trust will represent 'real estate assets' within the meaning
of Code Sections 856(c)(5)(A) and 856(c)(6)(B) and interest in respect of P&I
Certificates will represent 'interest on obligations secured by mortgages on
real property or on interests in real property' within the meaning of Code
Section 856(c)(3)(B); and (4) P&I Certificates owned by a REMIC will represent
an interest in 'obligation[s] (including any participation or certificate of
beneficial ownership therein) which [are] principally secured by an interest in
real property' within the meaning of Code Section 860G(a)(3). It is unclear,
however, to what extent, if any, an IO Certificate will be considered to
represent these interests. Prospective purchasers should consult their tax
advisors regarding whether an IO Certificate will be characterized as
representing these assets and whether the income from the IO Certificate will be
characterized as derived from these assets.
TAXATION OF OWNERS OF P&I CERTIFICATES
TREATMENT AS STRIPPED BONDS. The rate at which a certificateholder will be
required to recognize income on its certificate may be affected by a separation
of the right to receive a portion of the interest on each Loan in the Trust from
the right to receive a portion of the principal. This type of separation will
occur on each Loan having a Trust issuing IO Certificates. It also will occur if
the amount of the Administration Fee exceeds reasonable compensation so that the
Master Servicer is treated as the owner of a portion of the interest payments on
the Loans. There are no authoritative guidelines for Federal income tax purposes
regarding the maximum amount of servicing compensation that may be considered
reasonable in the context of this or similar transactions. However, the Service
has issued guidance establishing an elective 'safe harbor' for determining the
extent to which amounts that a taxpayer is entitled to receive under mortgage
servicing contracts represent reasonable compensation. If the safe harbor is
potentially applicable in
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a particular situation, the mortgage servicer will disclose in the prospectus
supplement relating to each series of certificates whether it will elect to
limit its compensation to an amount that will qualify as reasonable compensation
under the safe harbor. A separation also may occur upon the issuance of a
certificate that represents an interest in principal payments to be made on
Loans together with interest payable on the certificate at a rate in excess of
the rate at which interest is payable on the Loans. These certificateholders may
be treated as having purchased two separate instruments: first, a P&I
Certificate representing their undivided interests in payments of principal on
the Loans together with interest payments at a rate at or below the rate at
which interest is payable on the Loans; and, second, an IO Certificate
representing their undivided interests in the remainder of the payments of
interest to be made on the Loans to which their certificate entitles them.
Each certificateholder will be subject to the 'stripped debt' rules of Code
Section 1286. As a result, the market discount rules generally would not be
applicable to the initial certificateholders. However, the Service has recently
provided guidance under which some Loans that are stripped bonds may be treated
as market discount bonds governed by Code Section 1278. This treatment is
available only if the amount of the OID on the stripped bond is determined to be
de minimis (see ' -- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount') or the annual stated rate of interest
payable on the stripped bond is no more than 100 basis points lower than the
annual stated rate of interest payable on the original bond from which it, and
any other stripped bonds or coupons, were stripped. If these requirements are
met, and if the stripped bond has market discount (see ' -- Qualification as a
REMIC -- Taxation of Owners of Regular Certificates -- Market Discount'), the
certificateholder may include the market discount as principal is repaid or upon
disposition of the certificate at a gain or may elect to include this income
currently on the basis of either ratable accrual or a constant instant rate
method. If the market discount rules do not apply, each certificateholder in
this type of Trust, whether a cash or accrual method taxpayer, will be required
to report the income, including interest that is added to principal as Deferred
Interest resulting from negative amortization, that is deemed to accrue for each
day on the certificate under a constant yield to maturity method, in accordance
with the OID rules of the Code.
In general, the amount of this income that accrues for each day would equal
the product of the certificateholder's adjusted issue price of the P&I
Certificate at the beginning of an accrual period and the yield of the P&I
Certificate to that holder allocated ratably to each day in the accrual period.
See ' -- Qualification as a REMIC -- Taxation of Owners of Regular
Certificates -- Original Issue Discount' above. The yield would be computed as
the rate, assuming monthly compounding, that, if used to discount the
certificateholder's share of future payments on the Loans, would cause the
present value of those future payments to equal the price at which the
certificateholder purchased that certificate. In computing accrued income under
the stripped debt rules, a certificateholder's share of future payments on the
Loans will not include any payments made on any ownership interest in the Loans
retained by the Depositor or its affiliates, but will include the
certificateholder's share of any reasonable servicing fees and other expenses.
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There is considerable uncertainty, however, concerning the application of
Code Section 1272(a)(6) and the OID Regulations to instruments like the P&I
Certificates. Among other things, it is unclear whether provisions of the Tax
Reform Act of 1986 (the '1986 ACT') requiring use of a prepayment assumption in
accruing OID would be applicable to the P&I Certificates in the absence of
Treasury Regulations or whether use of a prepayment assumption may be permitted
without reliance on these rules. It also is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments. Certificateholders are
advised to consult their tax advisors concerning whether a prepayment assumption
should be used in reporting OID on P&I Certificates.
In the case of a P&I Certificate acquired at a price approximately equal to
the principal amount of the Loans allocable to the certificate, the use or
non-use of a reasonable prepayment assumption would not cause the income
required to be reported under the stripped debt rules to differ materially from
the income the certificateholder would be required to report under an accrual
method of accounting if the stripped debt rules did not apply. In the case,
however, of a P&I Certificate acquired at a discount from, or premium over, the
principal amount, the use of a reasonable prepayment assumption would increase
or decrease the yield used in calculating accruals of income, and thus
accelerate or decelerate, respectively, the reporting of income.
If no prepayment assumption is used, then when a Loan prepays in full, the
holder of a P&I Certificate acquired at a discount generally will recognize
ordinary income equal to the difference between the portion of the prepaid
principal amount of the Loan that is allocable to that certificate and the
portion of the adjusted basis of that certificate that is allocable to the
certificateholder's interests in the Loan. If a prepayment assumption is used,
it appears that no income or loss should be recognized upon a prepayment unless
prepayments have occurred at a rate different than the assumed prepayment rate.
VARIABLE RATE CERTIFICATES. Although the OID Regulations are subject to a
different interpretation, in the absence of substantial legal authority to the
contrary the Master Servicer intends to treat Loans subject to the stripped debt
rules and bearing a variable rate of interest as subject to the provisions of
the OID Regulations governing variable rate debt instruments. In computing the
accrual or OID, the Master Servicer may be required to use the methods described
in Code Section 1272(a)(6). For the application of Code Section 1272(a)(6) to
the accrual of OID, see generally ' -- Qualification as a REMIC -- Taxation of
Owners of Regular Certificates -- Original Issue Discount' above. Under the OID
Regulations, interest payments on a variable rate debt instrument may be
characterized as qualified stated interest includible in income when accrued,
OID includible in income when accrued under the OID rules, or contingent
interest payments generally includible in income in the taxable year in which
the payments become fixed. Although the OID Regulations generally permit a
variety of interest rate adjustment mechanisms to produce 'qualified stated
interest' (e.g., one or more 'qualified floating rates,' 'qualified inverse
floating rates,' or 'objective rates') where each qualified floating rate or
objective rate in effect during an accrual period is set at a current value of
that rate, the use of these
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formulas may in some cases produce accelerated or deferred interest which must
be accrued under a constant yield method, which could require accrual in advance
of the receipt of a corresponding payment of cash. Moreover, prospective
purchasers of P&I Certificates bearing a variable rate of interest should be
aware that the provisions in the OID Regulations applicable to variable rate
instruments may not apply to the particular rate adjustment mechanisms for the
Loans or Mortgage Certificates. If variable rate P&I Certificates are not
governed by the provisions applicable to variable rate debt instruments, the OID
Regulations provide that the certificates would be subject to the provisions
applicable to instruments having contingent payments. See ' -- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules' below. The application of those provisions to instruments like the P&I
Certificates is subject to differing interpretations. Prospective purchasers of
variable rate P&I Certificates are advised to consult their tax advisors
concerning the tax treatment of these certificates.
IF STRIPPED BOND RULES DO NOT APPLY. If the stripped bond rules do not apply
to a P&I Certificate, the certificateholder will be required to report its pro
rata share of the interest income on the Loans in accordance with the
certificateholder's normal method of accounting. However, if the rules relating
to market discount, OID, or premium are applicable, the amount includible in
income on account of a P&I Certificate may differ significantly from the amount
payable thereon from payments of interest on the Loans.
The OID rules will apply to a P&I Certificate to the extent it evidences an
interest in Loans or Mortgage Certificates issued with OID. Under the OID
Regulations a Loan would have OID if the points charged at origination, or other
loan discount, exceeded a specified de minimis amount, generally, the greater of
one-sixth of one percent times the number of full years to final maturity or
one-fourth of one percent times the weighted average maturity. The OID
Regulations also treat some types of variable rate Loans as having OID if the
loans have an initial rate of interest that differs from that determined by the
formula for setting the interest rate during the remainder of the loans or if
the loans use an index that does not vary in a manner approved in the OID
Regulations. For a general discussion of the treatment of variable rate
interest, see ' -- Taxation of Owners of P&I Certificates -- Variable Rate
Certificates' above. Generally, OID would be accrued on the basis of a constant
yield to maturity. However, the application of the original issue discount rules
to the Loans is unclear in all cases. See ' -- Treatment as Stripped Bonds,'
above.
PREMIUM AND MARKET DISCOUNT. Determination of adjustments to a
certificateholder's income based on premium or market discount on a certificate
requires that the purchase price of the certificate be allocated among the Loans
constituting the Trust. Generally, this allocation will provide a tax basis for
the certificateholder's undivided interest in each Loan and will be made on the
basis of the relative fair market values of the certificateholder's undivided
interest in the Loans.
A certificateholder that acquires an interest in a Loan at a premium may
elect under Code Section 171 to amortize the premium under a constant yield to
maturity method over the life of the Loan. Certificateholders should consult
their tax advisors concerning whether
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a prepayment assumption should be used in calculating yield and concerning
possible alternative methods for amortizing premium.
An investor also should be aware that the Internal Revenue Service may take
the position that the method described below for accruing income under the
current proposed Treasury Regulations applicable to debt instruments providing
for contingent payments applies to a P&I Certificate purchased at a premium
because all or a portion of its issue price, called the 'CONTINGENT PRINCIPAL',
may not be recovered if the related Loans were prepaid. See ' -- Taxation of
Owners of IO Certificates -- Possible Application of Proposed Contingent Payment
Rules' below. The method of accruing income under the contingent payment rules
may be more likely to be applied if the difference between the issue price of
the certificate and the amount of Contingent Principal is substantial.
If the portion of a P&I Certificate's purchase price allocable to a Loan in
the Trust is less than the certificateholder's undivided interest in the Loan's
'revised issue price' (the sum of the issue price and the previously accrued OID
reduced by the sum of all prior payments of the stated redemption price at
maturity), the excess is 'market discount.' A certificateholder that acquires an
interest in a Loan with market discount generally will be required under Code
Section 1276 to include accrued and previously unrecognized market discount in
income as ordinary income to the extent of payments of the stated redemption
price at maturity received on the Loan at the time that each payment is
received. In addition, on a sale or other disposition of the P&I Certificate, a
certificateholder will be required to include as ordinary income any gain to the
extent of accrued and previously unrecognized market discount. Pending the
issuance of Treasury Regulations, market discount may be treated as accruing
either (1) under a constant yield to maturity method, (2) in proportion to the
OID accruing on a Loan, or (3) in proportion to the stated interest in the
absence of OID. Alternatively, a certificateholder may elect to include accrued
market discount in income currently on all market discount obligations acquired
by the certificateholder during the taxable year in which an election is made
and thereafter. A certificateholder should be aware that Code Section 1277 may
limit the deductibility of interest paid or accrued to purchase or carry a Loan
that is acquired at a market discount unless the election is made to include
accrued market discount in income currently. Certificateholders should consult
their tax advisors as to the application of this rule and the advisability of
making any elections under the market discount rules in their particular
circumstances.
TAXATION OF OWNERS OF IO CERTIFICATES
Because the 'stripped debt' rules of Code Section 1286 will apply to the IO
Certificates, income on the IO Certificates must be accrued under the OID
provisions of the Code. The regulations that have been issued to date under Code
Section 1286 do not address the treatment of stripped coupons, and it is
uncertain how the section will be applied to securities like the IO
Certificates. The OID Regulations do not include rules relating specifically to
'stripped coupons,' although they provide guidance as to how the OID sections of
the Code will generally be applied. The discussion below assumes that a
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holder of an IO Certificate will not own any P&I Certificates. Holders of IO
Certificates should consult their tax advisors concerning the method to be used
in reporting income or loss on the IO Certificates.
Under the stripped coupon rules, it appears that OID will be required to be
accrued for each day on the IO Certificates based on a constant yield to
maturity method. See ' -- Taxation of Owners of P&I Certificates -- Treatment as
Stripped Bonds,' above. It is unclear in the absence of Treasury Regulations
whether a reasonable prepayment assumption is required or permitted to be
applied to calculate the yield to maturity under a provision of the 1986 Act.
The accrual of income on the IO Certificates will be significantly slower if a
reasonable prepayment assumption is permitted to be made than if yield is
computed assuming no prepayments.
POSSIBLE APPLICATION OF PROPOSED CONTINGENT PAYMENT RULES. Under the OID
Regulations, debt instruments providing for contingent payments are subject to
different rules than debt instruments providing for non-contingent payments. To
the extent that all or a portion of the issue price, or the Contingent
Principal, of the IO Certificates would not be recovered if the related Loans
were prepaid, the IO Certificates could be considered to be debt instruments
providing for contingent payments within the meaning of the current Treasury
Regulations dealing with debt instruments that provide for contingent payments.
Treasury Regulations concerning the treatment of debt instruments providing
for one or more contingent payments became effective on June 14, 1996, called
the 'CONTINGENT PAYMENT REGULATIONS', for debt instruments issued on or after
August 13, 1996. Although the assets may include debt instruments issued before
August 13, 1996, and thus not technically subject to the Contingent Payment
Regulations, the issuer expects to treat any contingent payments on both sets of
instruments in accordance with the Contingent Payment Regulations.
The Contingent Payment Regulations establish a 'noncontingent bond method'
for the treatment of debt instruments providing for contingent payments that are
issued for money or other publicly traded property. Under this method, the
holder of a contingent payment debt instrument will generally be required to
accrue interest on the debt instrument on the basis of a projected schedule of
the contingent and noncontingent payments to be made on the debt instrument
prepared by the issuer. These interest accruals will be required to be
calculated on an economic accrual basis applying rules similar to those
applicable to noncontingent debt instruments issued with OID treating none of
the payments on the debt instrument as 'qualified stated interest.' In
formulating the projected payment schedule, the issuer will be required to take
into account the noncontingent payments provided by the debt instrument, any
readily available forward price quotes for property rights that are
substantially similar to the right to any contingent payments on the debt
instrument and any readily available spot price quotes for an option or
combination of options that are substantially similar to the right to any
contingent payments on the debt instrument. If the debt instrument contains
contingent payments for which forward or spot quotes are not readily available,
the payment schedule will be required to result in a reasonable yield for
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the debt instrument that reflects any quotable contingent payments and the
relative expected values of any nonquotable contingent payments.
If the amount of a contingent payment varies from its projected amount, the
holder will generally be required to include the variance as a positive or
negative adjustment to income in the year in which the payment is made. Positive
adjustments will be treated as ordinary interest income while negative
adjustments will result in ordinary loss. The amount of the ordinary loss
allowable for the year will be limited to the excess of the total interest
accrued to date on the debt instrument over the total amount of any negative
adjustments included as ordinary loss in previous years.
The Contingent Payment Regulations generally treat any gain on sale of a
contingent payment debt instrument as ordinary interest income. Loss realized on
sale of a contingent payment debt instrument is treated as ordinary loss to the
extent of the excess of the total interest accrued on the debt instrument to the
date of sale over the total amount of any negative adjustments previously
included in income. Any remaining loss is treated as capital loss.
Under these provisions, each holder of an IO Certificate which has
Contingent Principal will generally be required to accrue interest under the
'noncontingent bond method.' Although the issuer intends to provide to holders a
projected schedule under the 'noncontingent bond method,' holders should consult
their own tax advisors regarding the application of the Contingent Payment
Regulations.
ADMINISTRATION FEE, VOLUNTARY ADVANCES AND SUBORDINATED AMOUNT
The income received on a certificate generally includes amounts not paid to
the certificateholder because they are used to pay the Administration Fee.
Subject to limitations on the deductibility by individual certificateholders of
some categories of expenses under Code Section 67 and the reduction of some
deductible expenses for individual certificateholders under Code Section 68 (see
' -- Qualification as a REMIC -- Pass-Through of Miscellaneous Itemized
Deductions' above), each certificateholder may deduct its allocable share of the
Administration Fee paid to or retained by the Master Servicer, to the extent the
fee constitutes reasonable compensation for the services rendered by the Master
Servicer, at the times and in the manner as it would have been deducted under
the certificateholder's tax accounting method had it actually received those
amounts and paid them to the Master Servicer. Payments of voluntary servicing
advances and payments in respect of the Subordinated Amount, if any, to
certificateholders should be treated as having the same character as the
payments they replace.
SALES OF CERTIFICATES
Except as provided above for accrued market discount under ' -- Taxation of
Owners of P&I Certificates -- If Stripped Bond Rules Do Not Apply,' and, in the
case of banks and other financial institutions, except as provided under Code
Section 582(c), any gain or
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loss, equal to the difference between the amount realized on the sale and the
adjusted basis of the certificate, recognized on the sale or exchange of a
certificate by an investor who holds the certificate as a capital asset, will be
capital gain or loss. The Federal income tax rates applicable to capital gains
for taxpayers other than individuals, estates, and trusts are currently the same
as those applicable to ordinary income. However, the maximum ordinary income tax
rate for individuals, estates, and trusts is generally 39.6%, whereas the
maximum long-term capital gains rate for these taxpayers is 20% for capital
assets held for more than 12 months. Capital losses generally may be used by a
corporate taxpayer only to offset capital gains, and by an individual taxpayer
only to the extent of capital gains plus $3,000 of other income.
The adjusted basis of a certificate will generally equal its cost, increased
by any income reported by the seller and reduced, but not below zero, by any
previously reported losses and by any distributions on the certificate.
Purchasers of certificates should be aware that, if income must be accrued
on a certificate as if it were a separate instrument, it may not be possible to
determine whether the adjusted tax basis of the certificate will be recovered in
full until all of the Loans in the related Trust have been paid or otherwise
discharged. Conversely, if income must be accrued on each certificateholder's
undivided interest in each Loan in the related Trust, it is likely that a
portion of each certificateholder's adjusted tax basis will have to be allocated
to each undivided interest. It then should be possible to determine whether the
adjusted tax basis allocable to an undivided interest in a Loan in the related
Trust has been recovered at the time the Loan is paid or discharged. This
approach may result in the earlier recognition of any losses attributable to a
certificateholder's unrecovered adjusted tax basis than if the certificate were
treated as a separate instrument. However, because of the uncertainties involved
and in the absence of substantial legal authority to the contrary, the Master
Servicer does not intend to allocate the adjusted tax basis of a
certificateholder in its certificate to the undivided interest in each Loan
represented by the certificate nor to determine and report whether any allocable
adjusted tax basis has been recovered at the time a Loan in the related Trust is
paid or discharged. Due to the existence of the Subordinated Amount, the effect
of this treatment by the Master Servicer is not expected to be significant on a
P&I certificateholder.
REPORTING
On each Distribution Date, the Master Servicer will cause the Trustee to
furnish to each certificateholder a statement setting forth the amount of the
distribution allocable to principal on the Loans and to interest on the Loans at
the related Pass-Through Rate. In addition, the Master Servicer will furnish,
within a reasonable time after the end of each calendar year, to each holder of
a certificate who was a holder at any time during that year, information
regarding the amount of servicing compensation received by the Master Servicer
and sub-servicers, if any, and other customary factual information as the Master
Servicer deems necessary or is required by law to enable holders of certificates
to prepare their tax returns. However, as long as the only 'certificateholder'
of record is CEDE &
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Co., as nominee for DTC, certificateholders and the IRS will receive tax and
other information from DTC Participants and indirect participants rather than
the Master Servicer. (The Master Servicer, however, will respond to requests for
necessary information to enable DTC Participants, indirect participants and
other persons to complete their reports.)
Because the particular applications of the general method for computing
accrued income are varied and complex and involve factual as well as legal
uncertainties, the extent to which income will be recognized in advance of the
receipt of cash under the OID rules is uncertain. Additional guidance is
required from the Internal Revenue Service or other legal authority before it is
possible to determine definitely the proper methods for accruing income on the
certificates. In the absence of additional guidance from the Internal Revenue
Service or other legal authority, the Master Servicer intends to compute and
report accrued income on the certificates for tax purposes in a manner that it
believes to be consistent with the principles of the Code and the OID
Regulations described above. Because of the uncertainties discussed above, there
can be no assurance that the method adopted by the Master Servicer for reporting
to holders of certificates will coincide with that ultimately adopted in final
Treasury Regulations. Accordingly, holders of certificates should consult their
tax advisors regarding the method for reporting the amounts received or accrued
on the certificates. The Trustee intends in reporting information relating to
OID to certificateholders of record, which, in the case of certificates
registered to CEDE & Co., as nominee of DTC, shall be distributed to certificate
owners by DTC Participants and indirect participants of DTC, to provide this
information on an aggregate pool-wide basis. Although there are provisions in
the OID Regulations that suggest that the computation of OID on this basis is
either appropriate or required, it is possible that investors may be required to
compute OID on a Loan by Loan basis taking account of an allocation of their
basis in the certificates among the interests in the various Loans represented
by the certificates according to their respective fair market values. Investors
should be aware that it may not be possible to reconstruct after the fact
sufficient Loan by Loan information should the Internal Revenue Service require
computation on that basis. See ' -- Sales of Certificates' above.
BACKUP WITHHOLDING
In general, the rules described in ' -- Qualification as a REMIC -- Backup
Withholding' above, will also apply to certificates.
FOREIGN INVESTORS
In general, the discussion on Regular Certificates in ' -- Qualification as
a REMIC -- Foreign Investors' above, applies to certificates.
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STATE TAX CONSIDERATIONS
In addition to the Federal income tax consequences described in 'Federal
Income Tax Consequences' above, potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not describe any aspect of
the income tax laws of any state. Therefore, potential investors should consult
their own tax advisors about the various tax consequences of investments in the
certificates.
PLAN OF DISTRIBUTION
The Depositor may sell the certificates in any of three ways:
through underwriters or dealers;
directly to a limited number of purchasers or to a single purchaser; or
through agents.
The prospectus supplement will set forth the terms of the offering of each
series of certificates including:
the name or names of any underwriters, dealers or agents;
the purchase price of the certificates and the proceeds to the Depositor
from the sale;
any underwriting discounts and other items constituting underwriters'
compensation; and
any discounts and commissions allowed or paid to dealers.
Any initial public offering prices and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
If so specified in the prospectus supplement, the Depositor or any of its
affiliates may purchase or retain some or all of one or more classes of
certificates of the series. The purchaser may thereafter from time to time offer
and sell, pursuant to this prospectus, some or all of the certificates so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the certificates or through broker-dealers acting as
agent and/or principal. The offering may be restricted in the manner specified
in the related prospectus supplement. The transactions may be effected at market
prices prevailing at the time of sale, at negotiated prices or at fixed prices.
In addition, the Depositor or an affiliate of the Depositor may pledge
certificates retained or purchased by the Depositor in connection with
borrowings or use them in repurchase transactions.
If any certificates of any series are sold through underwriters, the related
prospectus supplement will describe the nature of the obligation of the
underwriters to purchase the certificates. The certificates may be offered to
the public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more underwriting firms acting
alone. The underwriter or underwriters for a particular
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underwritten offering of certificates will be named in the prospectus supplement
relating to that offering, and, if an underwriting syndicate is used, the
managing underwriter or underwriters will be set forth on the cover of the
related prospectus supplement. Unless otherwise described in a prospectus
supplement, the obligation of the underwriters to purchase any certificates of
the related series will be subject to various conditions precedent, and the
underwriters will be obligated to purchase all of the certificates if any are
purchased.
Underwriters and agents who participate in the distribution of a series of
certificates may be entitled under agreements which may be entered into by the
Depositor to indemnification by the Depositor against specific liabilities,
including liabilities under the Securities Act, as amended, or to contribution
for payments which the underwriters or agents may be required to make under the
terms of the agreements.
The prospectus supplement for any series of certificates offered other than
through underwriters will contain information regarding the nature of the
offering and any agreements to be entered into between the Depositor and dealers
for the certificates of that series.
Affiliates of the Depositor, including ABN AMRO Incorporated ('AAI'), may
act as agents or underwriters in connection with the sale of a series of
certificates. AAI is a separately incorporated, wholly-owned indirect non-bank
subsidiary of ABN AMRO Bank N.V. AAI is not a bank. Securities sold, offered or
recommended by AAI are not deposits, are not insured by the Federal Deposit
Insurance Corporation, are not guaranteed by, and are not otherwise obligations
of, any bank or thrift affiliate of AAI and involve investment risks, including
the possible loss of principal.
Any affiliate of the Depositor acting as agent or underwriter in connection
with the sale of a series of certificates will be named, and its affiliation
with the Depositor described, in the related prospectus supplement. For
underwritten offerings, any of these affiliates not named in the prospectus
supplement will not be parties to the related underwriting agreement, will not
be purchasing the related certificates from the Depositor and will have no
direct or indirect participation in the underwriting of the certificates,
although the affiliates may participate in the distribution of the certificates
under circumstances entitling it to a dealer's commission. An affiliate of the
Depositor may act as a placement agent for certificates not offered through
underwriters. If an affiliate does act as placement agent on behalf of the
Depositor in the sale of certificates, it will receive a selling commission
which will be disclosed in the related prospectus supplement. To the extent
permitted by law, affiliates of the Depositor, including AAI, may purchase
certificates acting as principal.
The Depositor anticipates that the certificates will be sold to
institutional and retail investors. Purchasers of certificates, including
dealers, may, depending on the facts and circumstances of the purchases, be
deemed to be 'underwriters' within the meaning of the Securities Act in
connection with re-offers and sales by them of certificates.
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Certificateholders should consult with their legal advisors in this regard prior
to any re-offer or sale.
There is currently no secondary market for the certificates. The Depositor
does not intend to make a secondary market for the certificates. There can be no
assurance that a secondary market for the certificates will develop or, if it
does develop, that it will continue. Unless otherwise stated in the prospectus
supplement, the certificates will not be listed on any securities exchange.
LEGAL MATTERS
The legality of the certificates of each series and the federal income tax
consequences will be passed upon for the Depositor by Mayer, Brown & Platt,
Chicago, Illinois. Matters relating to corporate law will be passed upon for the
Depositor by Kirk P. Flores, Esq., in-house counsel to the Depositor.
RATING
Any class of certificates of a series offered by this prospectus and the
related prospectus supplement will be:
rated by at least one nationally recognized statistical rating agency or
organization that initially rates the series at the request of the
depositor and
is identified in the related prospectus supplement in one of the rating
agency's four highest rating categories which are referred to as
investment grade.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions of payments required pursuant
to the Pooling and Servicing Agreement pursuant to which the certificates are
issued on the Underlying Loans. These ratings address the structural, legal and
issuer tax-related aspects associated with the certificates, the nature of the
Underlying Loans and the credit quality of the guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which
prepayments might differ from those originally anticipated. As a result,
certificateholders might suffer a lower than anticipated yield, and, in
addition, holders of stripped pass-through certificates in extreme cases might
fail to recoup their underlying investments.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
Each rating should be evaluated independently of similar ratings on different
securities.
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WHERE YOU CAN FIND MORE INFORMATION
ABN AMRO MORTGAGE CORPORATION
We will file reports and other information with the SEC about the Trust
issuing your certificates. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on their public reference rooms.
The SEC allows us to incorporate by reference the information we file with
them about the Trust issuing your certificates. This means that we can disclose
important information to you by referring you to these documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the SEC about the Trust issuing your
certificates will automatically update and supersede this information. You may
request a copy of our filings at no cost by writing or telephoning at the
following address:
ABN AMRO Mortgage Corporation
181 West Madison Street, Suite 3250
Chicago, Illinois 60602-4510
Attention: Maria Fregosi -- Director -- ABN AMRO Mortgage
Operations
Telephone: 312-904-8507
In addition, we will provide you with reports annually and monthly on each
Distribution Date containing information about the Trust and your certificates.
ADDITIONAL INFORMATION RELATING TO THE MORTGAGE CERTIFICATES
Copies of the most recent prospectus for certificates issued by FNMA and
FNMA's annual report and other quarterly financial statements as well as other
financial information may be obtained from FNMA by writing or calling its MBS
Helpline at 3900 Wisconsin Avenue, N.W., Area 2H-3S, Washington, D.C. 20016,
telephone 1-800-BEST-MBS or 202-752-6547. Neither the Depositor nor any of the
underwriters which might be designated to offer the certificates participated in
the preparation of any of these documents, and has not conducted any independent
inquiry to verify the accuracy or completeness of the information described in
FNMA's prospectus, annual report or other reports or statements.
Copies of the most recent Offering Circular for certificates issued by FHLMC
as well as FHLMC's most recent Information Statement and Information Statement
Supplement can be obtained by writing or calling the Investor Inquiry Department
of FHLMC at 8200 Jones Branch Drive, McLean, Virginia 22102 (telephone
1-800-336-FMPC). Neither the Depositor nor any of the underwriters which might
be designated to offer the certificates participated in the preparation of any
of these documents and has not conducted any independent inquiry to verify the
accuracy or completeness of the information contained in FHLMC's Offering
Circular, Information Statement or Information Statement Supplement.
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Index to Prospectus Definitions
<TABLE>
<S> <C>
1986 Act...................... 113
1998 Policy Statement......... 86
AAI........................... 121
AANA.......................... 26
Accretion Directed............ 5
Accrual....................... 4
Accrual Period................ 8
Act........................... 81
Administration Fee............ 34
Applicable Amount............. 104
ARMs.......................... 15
Assets........................ 95
Available Distribution
Amount...................... 43
Back-Up Master Servicer....... 54
Balloon Loan.................. 14
BIF........................... 12
Buydown Loan.................. 15
CERCLA........................ 82
Certificate Account........... 7
Closing Date.................. 60
Co-op Loans................... 14
Code.......................... 2
Committee Report.............. 97
Contingent Payment
Regulations................. 116
Contingent Principal.......... 115
Custodial Account for P&I..... 44
Custodians.................... 55
Cut-off Date.................. 3
Deferred Interest............. 16
Definitive Certificates....... 70
Depositor..................... 1
Determination Date............ 9
Distribution Date............. 4
DOL........................... 88
Due Date...................... 9
Eligible Investments.......... 7
ERISA......................... 87
Excess Liquidation Proceeds... 44
FDIC.......................... 12
FHA........................... 20
FHA Loans..................... 20
FHLMC......................... 12
FHLMC Act..................... 22
Fixed-Rate Loans.............. 15
FNMA.......................... 12
Forward Purchase Agreement.... 60
Fractional Undivided
Interest.................... 2
GNMA.......................... 20
Gross Margin.................. 15
Guide......................... 17
Housing Act................... 20
HUD........................... 12
Index......................... 15
Interest Only................. 5
Interest Remittance Amount.... 37
IO Certificates............... 110
Lease......................... 85
Liquidation Proceeds.......... 43
Loans......................... 1
Master Servicer............... 1
Mortgage Assets............... 1
Mortgage Certificates......... 1
NCUA.......................... 86
Negatively Amortizing ARMs.... 16
Net Margin.................... 34
Non-Accelerated............... 6
OID........................... 92
OID Regulations............... 92
OTS........................... 86
P&I Certificates.............. 110
Parties in Interest........... 88
Pass-Through Rate............. 34
Payment Caps.................. 16
Percentage Interest........... 2
Plans......................... 87
Pooling and Servicing
Agreement................... 1
Pre-Funding Account........... 12
Prepayment.................... 5
Prepayment Assumption......... 97
</TABLE>
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<TABLE>
<S> <C>
Prepayment Interest
Shortfall................... 36
Prepayment Period............. 44
Principal Only................ 5
Principal Prepayments......... 9
Private....................... 24
PTE 83-1...................... 88
PUDs.......................... 14
Realized Loss................. 50
Record Date................... 6
Regular Certificateholder..... 96
Regular Certificates.......... 93
REMIC......................... 92
REMIC Regulations............. 92
Remittance Rate............... 4, 34
Reserve Fund.................. 32
Residual...................... 5
Residual Certificates......... 93
Residual Holder............... 2
SAIF.......................... 12
Senior........................ 4
Sequential Pay................ 5
Shifting Interest Credit
Enhancement ................ 29
SMMEA......................... 85
Specified Reserve Fund
Balance..................... 32
Startup Day................... 93
Stripped...................... 5
Subordinate................... 4
Subordinated Amount........... 4
Superlien..................... 82
Surplus....................... 5
TB 13a........................ 86
Title V....................... 83
Trust......................... 1
Trustee....................... 1
Unanticipated Recovery........ 50
Underlying Loans.............. 1
Underwriter Exemption......... 90
United States person.......... 110
VA............................ 20
</TABLE>
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<PAGE>
ABN AMRO MORTGAGE CORPORATION
$267,613,760
MULTI-CLASS MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 2000-4
[LOGO]
------------------------
PROSPECTUS SUPPLEMENT
------------------------
UNDERWRITERS
LEHMAN BROTHERS INC.
ABN AMRO INCORPORATED
December 20, 2000
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the offered certificates in any state where the offer is not
permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the offered certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the offered
certificates will deliver a prospectus supplement and prospectus until March 21,
2001.
STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as................................. 'SS'
