AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 2, 1997
REGISTRATION NO. 333-22283 & 333-22283-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE CIT GROUP SECURITIZATION CORPORATION III
THE CIT GROUP HOLDINGS, INC.
(Exact name of each registrant specified in its charter)
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DELAWARE 51-0374926
DELAWARE 6146 13-2994534
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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THE CIT GROUP SECURITIZATION CORPORATION III THE CIT GROUP HOLDINGS, INC.
650 CIT DRIVE 1211 AVENUE OF THE AMERICAS
LIVINGSTON, NEW JERSEY 07039 NEW YORK, NEW YORK 10036
(201) 535-3512 (212) 536-1950
(Address of principal executive offices) (Address of principal executive offices)
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ERNEST D. STEIN, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL & SECRETARY
THE CIT GROUP HOLDINGS, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 536-1950
(Name and address of agent for service)
Copies to:
PAUL N. WATTERSON, ESQ.
SCHULTE ROTH & ZABEL LLP
900 THIRD AVENUE
NEW YORK, NEW YORK 10022
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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==================================================================================================
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF REGISTERED OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED PER UNIT OFFERING PRICE(1) FEE(2)
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Asset-Backed Certificates.......... $1,000,000,000 100% $1,000,000,000 $302,680.30
- -------------------------------------
Limited Guarantees of The CIT Group
Holdings, Inc.(3).....
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum aggregate offering price, pursuant to Rule
457(c).
(2) Pursuant to Rule 457(b), the required fee paid herewith has been reduced by
$350.00, which is the amount equal to the fee preiously paid with respect
to this registration statement pursuant to Rule 457.
(3) May be issued in connection with issuance of the Certificates by trusts
formed by The CIT Group Securitization Corporation III. No additional
consideration will be paid for the Limited Guarantees; accordingly, no
separate filing fee is being paid herewith, pursuant to Rule 457(n).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED _______ __, 199_
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _________, 199_)
CIT HOME EQUITY LOAN TRUST 199_-_
HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199__-__
$____________ CLASS A __% CERTIFICATES
[$_____________CLASS S NOTIONAL AMOUNT VARIABLE PASS-THROUGH RATE CERTIFICATES]
[$______________ CLASS B __% CERTIFICATES]
THE CIT GROUP SECURITIZATION CORPORATION III
DEPOSITOR
THE CIT GROUP/CONSUMER FINANCE, INC.
SELLER AND MASTER SERVICER
The Home Equity Loan Asset Backed Certificates, Series 199_-__ will consist
of the Class A [and Class S Certificates] (the "Class A Certificates" and the
"Class S Certificates," respectively, and collectively, the "Senior
Certificates"), [the Class B Certificates (the "Subordinated Certificates"),]
and the Class R Certificates (the "Residual Certificates"). The Senior
Certificates[, the Subordinated Certificates] and the Residual Certificates are
collectively referred to herein as the "Certificates," and the Senior
Certificates [and the Subordinated Certificates] are referred to herein as the
"Offered Certificates." [Only the Senior Certificates are offered hereby.]
The Certificates will represent the entire beneficial ownership interest in
a trust fund (the "Trust Fund" or "Trust"), designated as the CIT Home Equity
Loan Trust 199_ - ___, to be created pursuant to a Pooling and Servicing
Agreement, dated as of ______________ __, 19__, among The CIT Group
Securitization Corporation III (the "Depositor"), The CIT/Group Consumer
Finance, Inc., as master servicer (referred to herein as "CIT Consumer Finance",
or the "Master Servicer," as applicable), The CIT Group/Consumer Finance, Inc.
(the "Seller") and [ ], as trustee (the "Trustee"). The Trust Fund will consist
primarily of a pool of one-to four-family residential first or subordinate
mortgage loans (the "Mortgage Loans"), substantially all of which will have
original terms to maturity of not more than ___ months [and have fixed rates].
[The Mortgage Loans will be subject to [semi-annual] [annual] mortgage rate
adjustments based upon the [weekly average yield on United States Treasury
securities adjusted to a constant maturity of one year] [weekly average of
secondary market interest rates on six-month negotiable certificates of deposit]
[the London interbank offered rate ("LIBOR") for [six month] United States
dollar deposits (the "Index"), as described herein under "The Mortgage Pool."]
[Monies will be on deposit in a separate trust account (the "Pre-Funding
Account") to be maintained with the Trustee, which will be used to purchase
additional Mortgage Loans [Assets (as defined herein)]from time to time during
the Funding Period (as defined herein) in the manner described herein.]
[A Certificate Guaranty Insurance Policy (as defined herein) with respect
to the Class ___ Certificates, will be issued by:
-------------------------]
[Full and complete payment to ____________, as Trustee for the holders of
the Class ___ Certificates, of Insured Payments (as defined herein), consisting
primarily of interest due to such holders in respect of the Class __
Certificates on each Distribution Date (as defined herein) and principal at the
times described herein, is unconditionally and irrevocably guaranteed pursuant
to the terms of the Certificate Guaranty Insurance Policy. See the Certificate
Guaranty Insurance Policy annexed hereto as Exhibit __ and "Credit Enhancement"
herein for a more complete description of the Certificate Guaranty Insurance
Policy.]
PROSPECTIVE INVESTORS SHOULD REVIEW THE
INFORMATION SET FORTH
UNDER "RISK FACTORS" ON PAGE S-__ HEREIN AND ON PAGE __ IN THE
ACCOMPANYING PROSPECTUS.
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR,
THE SELLER, THE MASTER SERVICER, THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE UNITED STATES GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) DISCOUNT DEPOSITOR (1)(2)
Per Certificate............... ______% _____% ______%
Total......................... $ $ $
====== ===== =======
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(1) Plus accrued interest at the Pass-Through Rate from [date].
(2) Before deduction of expenses payable by the Depositor estimated at $______.
The Offered Certificates will be purchased by ___________ (the
"Underwriter") from the Depositor and will be offered by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Offered Certificates are expected to be approximately __% of the aggregate
principal balance of such Certificates plus accrued interest, before deducting
issuance expenses payable by the Depositor, estimated to be $_______.
The Offered Certificates are offered by the Underwriter, subject to prior
sale, when, as and if delivered to and accepted by the Underwriter and subject
to its right to reject orders in whole or in part. It is expected that delivery
of the Offered Certificates will be made in book-entry form only through the
facilities of The Depository Trust Company in the United States or through Cedel
Bank and the Euroclear System in Europe on or about ______ __, 19__.
______ __, 19__ [NAME OF UNDERWRITER]
<PAGE>
The Class A Certificates will have an initial aggregate principal balance
of approximately $_________ and will evidence in the aggregate an initial
beneficial ownership interest of approximately ___% in the Trust Fund. [The
Subordinated Certificates will have an initial aggregate principal balance of
approximately $_________ and will evidence in the aggregate an initial
beneficial ownership interest of approximately ___% in the Trust Fund.] [The
Class S Certificates will have no principal balance but will be entitled to
distributions of interest as described herein.] The remaining beneficial
ownership interest in the Trust Fund will be evidenced by the Residual
Certificates. [The rights of the holders of the Subordinated Certificates (the
"Subordinated Certificateholders") to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of the holders of the Senior
Certificates (the "Senior Certificateholders") to the extent described herein.]
Distributions to Certificateholders will be made on the __th day of each
month or, if such __th day is not a Business Day (as defined herein), on the
first Business Day thereafter (each, a "Distribution Date"), commencing in
__________ 19__ from and to the extent of Available Funds (as defined herein).
The Trust Fund is subject to optional termination under the limited
circumstances described herein. Any such optional termination may result in an
early retirement of the Certificates offered hereby.
All of the Mortgage Loans were originated or purchased by the CIT
Group/Consumer Finance, Inc. or its affiliates.
The yield to investors on each class of Certificates will be sensitive in
varying degrees to, among other things, the rate and timing of principal
payments (including prepayments) of the Mortgage Loans and the timing of receipt
of such payments [and to the level of the Index]. The yield to maturity of a
class of Certificates may vary from the anticipated yield to the extent such
class is purchased at a discount or premium and to the extent the rate and
timing of payments thereon is sensitive to prepayments. Holders of the
Certificates should consider, in the case of any such Certificates purchased at
a discount, the risk that a lower than anticipated rate of principal payments
could result in an actual yield that is lower than the anticipated yield and, in
the case of any Certificates purchased at a premium [and the Class S
Certificates,] the risk that a faster than anticipated rate of principal
payments could result in an actual yield that is lower than the anticipated
yield. [Holders of the Class S Certificates should carefully consider the risk
that a rapid rate of principal payments on the Mortgage Loans could result in
the failure of such holders to recover their initial investment.]
[An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") for federal income tax purposes. As
described more fully herein and in the Prospectus, the Senior Certificates and
the Subordinated Certificates will constitute "regular interests" in the REMIC.
See "Certain Federal Income Tax Consequences" herein and in the Prospectus.]
The Underwriter intends to make a secondary market in the Offered
Certificates but has no obligation to do so. There is currently no secondary
market for the Offered Certificates and there can be no assurance that such a
market will develop or, if it does develop, that it will continue.
------------------------
This Prospectus Supplement does not contain complete information about the
offering of the Certificates. Additional information is contained in the
Prospectus of the Depositor dated ____________, 19__ (the "Prospectus") and
purchasers are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus. To
the extent, if any, that any statement in the final Prospectus Supplement is
inconsistent with statements contained in this Prospectus Supplement, the
statements in the final Prospectus Supplement shall control. Terms used and not
otherwise defined herein shall have the respective meanings ascribed to such
terms in the Prospectus.
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates, whether or not participating
in this distribution, may be required to deliver a Prospectus Supplement and the
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
S-2
<PAGE>
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary of
Terms are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Reference is made to the Index to Defined Terms for the location herein of the
definitions of certain capitalized terms used herein.
Issuer..................... CIT Home Equity Loan Trust 199_ - _____ (the
"Issuer").
Title of Certificates...... Home Equity Loan Asset Backed Certificates,
Series 199__-__ (the "Certificates"),
consisting of the Class A [and Class S
Certificates] (the "Class A Certificates" and
the "Class S Certificates," respectively, and,
collectively, the "Senior Certificates"), [one
or more classes of subordinated certificates
(the "Subordinated Certificates")] and the
Class R Certificates (the "Residual
Certificates"). The Senior Certificates [and
the Subordinated Certificates] are referred to
herein as the "Offered Certificates". [Only the
Senior Certificates are offered hereby.]
The Certificates will be issued pursuant to a
Pooling and Servicing Agreement dated as of
______ __, 199_ (the "Agreement"), among the
Depositor, the Seller, the Master Servicer and
the Trustee (each, as defined herein).
Denominations.............. The Offered Certificates will be issued in
minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof except
that one Certificate in each class may be
issued in a different denomination. Each
Offered Certificate will represent a percentage
interest (a "Percentage Interest") in the
respective class determined by dividing the
original dollar amount represented by such
Certificate by the original Certificate Balance
(as defined herein) of such class.
The Depositor.............. The CIT Group Securitization Corporation III
(the "Depositor"), a Delaware corporation and a
limited purpose finance subsidiary of The CIT
Group Holdings, Inc., a Delaware corporation
("CIT"). See "The Depositor" in the Prospectus.
None of the Depositor, [CIT,] CIT Consumer
Finance (as defined herein) or any of their
respective affiliates [or any other person or
entity] will insure or guarantee or otherwise
be obligated with respect to the Certificates.
S-3
<PAGE>
Seller..................... The CIT Group/Consumer Finance, Inc. ("CIT
Consumer Finance" or "Seller", as applicable).
The Mortgage Loans (as defined herein) were
originated or purchased by the Seller or its
affiliates and were acquired by the Depositor
from the Seller in a privately negotiated
transaction.
Master Servicer............ CIT Consumer Finance (in its capacity as master
servicer of the Mortgage Loans, the "Master
Servicer"). The Master Servicer will be
responsible for the servicing of the Mortgage
Loans. See "Servicing of Mortgage Loans"
herein.
Cut-off Date............... _________ __, 19__ (the "Cut-off Date").
References herein to the Cut-off Date shall
mean the date of origination in the case of
Mortgage Loans originated after ________ __,
199_.
Closing Date............... On or about _______________ __, 19__ (the
"Closing Date").
Trustee.................... [ ], a [ ], not in its individual capacity but
solely as trustee on behalf of the holders of
the Certificates (the "Trustee").
The Trust Property......... The Certificates will represent the entire
beneficial ownership interest in a trust fund
(the "Trust" or the "Trust Fund"), which will
consist primarily of (i) a pool (the "Mortgage
Pool" or "Pool") of certain mortgage related
assets (the "Mortgage Assets") consisting of
fixed [and adjustable] rate mortgage loans (or
participation or other beneficial interests
therein) (each, a "Mortgage Loan") evidenced by
loan agreements, promissory notes or other
evidence of indebtedness (each, a "Mortgage
Note") secured by mortgages, deeds of trust or
similar security instruments (each, a
"Mortgage") creating first or subordinate liens
on one- to four-family residential properties,
[and condominium units in condominium
buildings] (each, a "Mortgaged Property"), with
an aggregate principal balance of
$_____________ as of the Cut-off Date (the
"Original Pool Principal Balance"), [and
mortgage pass-through certificates or
participation certificates evidencing an
undivided interest in a pool of mortgage loans
or collateralized mortgage obligations secured
by mortgage loans (the "Private Mortgage-Backed
Securities")] (ii) all monies received with
respect
S-4
<PAGE>
to the Mortgage Loans on and after the Cut-off
Date (other than principal and interest due
before the Cut-off Date and certain amounts
retained by the Master Servicer), [(iii) an
irrevocable securities guaranty surety bond
(the "Certificate Guaranty Insurance Policy")
to be issued on or before the Closing Date by
_____________ (the "Certificate Guaranty
Insurer") in favor of the Trustee for the
benefit of the holders of the Class A
Certificates,] [the Limited Guarantee] (iv)
certain rights of the Depositor under the
Purchase Agreement (as defined herein) and (v)
[amounts on deposit in the Spread Account or
the Reserve Fund (each, as defined herein) and]
certain other property. [The Mortgage Pool will
be divided into two groups of Mortgage Loans
(each, a "Mortgage Loan Group"). Certificates
bearing interest at a fixed rate will represent
an undivided ownership interest in a group (the
"Fixed Rate Group") of Fixed-Rate Mortgage
Loans (as defined herein), and distributions on
such Certificates will be based on amounts
available for distribution in respect of
Mortgage Loans in the Fixed Rate Group.
Certificates bearing interest at an adjustable
rate will represent an undivided ownership
interest in a group (the "Adjustable Rate
Group") of Adjustable Rate Mortgage Loans and
distributions on such Certificates will be
based on amounts available for distribution in
respect of Mortgage Loans in the Adjustable
Rate Group. As of the Cut-off Date, the
aggregate principal balance of the Mortgage
Loans in the Fixed Rate Group is ________ and
the aggregate principal balance of the Mortgage
Loans in the Adjustable Rate Group is
______________.]
Mortgage Loans............. The Mortgage Pool
will consist of conventional [adjustable rate]
[fixed rate] mortgage loans secured by first
and second [third and fourth] liens on the
Mortgaged Property. As of the Cut-off Date, __%
of the Mortgage Pool (based on the Original
Pool Principal Balance) consists of Mortgage
Loans secured by first liens on the Mortgaged
Property, and __% of the Mortgage Pool consists
of Mortgage Loans secured by second liens on
the Mortgaged Property. Distributions of
principal and interest on the Certificates will
be based solely on payments received on the
Mortgage Loans, together with payments received
with respect to the credit enhancement, as
described herein. [Additional Mortgage Loans
(the "Subsequent Mortgage
S-5
<PAGE>
Loans") may be purchased by the Trust, from
time to time, during the Funding Period (as
defined herein), from monies on deposit in the
Pre-Funding Account (as defined herein) as
described in "The Mortgage Pool" herein.]
The interest rate on each Mortgage Loan (the
"Mortgage Rate") is [fixed] (a "Fixed Rate" and
a Mortgage Loan subject thereto is a "Fixed
Rate Mortgage Loan")[adjustable] (an
"Adjustable Rate" Adjustable Rate and a
Mortgage Loan subject thereto is an "Adjustable
Rate Mortgage Loan") [semi-annually]
[annually]. [Other than during the first [six]
[twelve] months following origination, during
which time each such Adjustable Rate Mortgage
Loan will bear interest at a Mortgage Rate
fixed at origination, each Adjustable Rate
Mortgage Loan will bear interest at a Mortgage
Rate equal to the sum of the Index plus a fixed
percentage (the "Gross Margin") set forth in
the related Mortgage Note, rounded to the
nearest [one-eighth of one percent], subject to
the limitation that the Mortgage Rate will not
increase or decrease by more than ___% on any
Adjustment Date (as defined herein) (the
"Periodic Rate Cap"). In addition, adjustments
to the Mortgage Rate for each Mortgage Loan are
subject to a lifetime maximum interest rate
equal to the initial Mortgage Rate plus a fixed
percentage (the "Maximum Rate") [and a minimum
rate equal to the initial Mortgage Rate (the
"Minimum Rate")]].
[Payment of all or a substantial portion of the
principal of certain Mortgage Loans ("Balloon
Loans") will be due on maturity ("Balloon
Payments"). Certain of the Mortgage Loans
permit the mortgagee to require the Mortgagor
to pay the full principal balance of the loan
on a specified date (the "Call Date") prior to
the maturity of the loan ("Call Loans").
Certain of the Mortgage Loans provide for
monthly payments of principal and interest
which increase over a specified period of time
(a "Graduated Payment Loan").]
[Index..................... [As of any Adjustment Date, the index (the
"Index") applicable to the determination of the
Mortgage Rate on each Mortgage Loan will be the
average weekly quoted yield on U.S. Treasury
securities adjusted to a constant maturity of
one year as published by the Federal Reserve
Board in Statistical Release H.15(519) and most
recently available as of 45 days prior to such
Adjustment Date.]
S-6
<PAGE>
[As of any Adjustment Date, the index (the
"Index") applicable to the determination of the
Mortgage Rate on each Mortgage Loan will be the
weekly average of secondary market interest
rates on six-month negotiable certificates of
deposit as published by the Federal Reserve
Board in Statistical Release H.15(519) and most
recently available as of 45 days prior to such
Adjustment Date.] [As of any Adjustment Date,
the index (the "Index") applicable to the
determination of the Mortgage Rate on each
Mortgage Loan will be the London interbank
offered rate ("LIBOR") for [six-month] United
States dollar deposits which appears on the
Reuters Screen LIBOR Page as of ________,
London time, on the first Business Day (as
defined herein) of the month prior to such
Adjustment Date.] The Index published on
___________ __, 199_ was ______%. See "The
Mortgage Pool -- General" and "--The Index"
herein.]
[Pre-Funding
Account.................... On the Closing Date, an aggregate cash amount (
the "Pre-Funded Amount") will be deposited into
a separate trust account maintained with the
Trustee (the "Pre-Funding Account") in an
amount not to exceed approximately
$___________. During the period (the "Funding
Period") from the Closing Date until the
earliest of (i) the date on which the amount on
deposit in the Pre-Funding Account is less than
$100,000, (ii) the date on which a Termination
Event (as defined herein) occurs under the
Agreement or (iii) the close of business on
______ ___, 199__ [not more than three months
after the Closing Date], amounts will, from
time to time, be withdrawn from the Pre-Funding
Account to purchase Subsequent Mortgage Loans
in accordance with the Agreement. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be distributed as a
principal prepayment on the next Distribution
Date (as defined herein) to the [Class A]
Certificates.
Amounts on deposit in the Pre-Funding Account
will be invested solely in the short-term
investments described herein and in the
Agreement that mature not later than one
Business Day prior to the next succeeding
Distribution Date, until they are either
applied by the Trustee during the Funding
Period to pay the Depositor the purchase price
for the Subsequent Mortgage Loans or
S-7
<PAGE>
distributed to the [Class A Certificates] as a
principal prepayment.
Class A Certificate
Balance.................... The initial Class A Certificate Balance will be
$__________ (approximate, subject to a
permitted variance of up to plus or minus __%)
and, thereafter, the Class A Certificate
Balance will be such original principal amount
reduced by all amounts of principal previously
distributed to the Class A Certificateholders
(the "Class A Certificate Balance").
[Class S Notional Amount... The initial Class S Notional Amount will be
equal to the aggregate principal balance of the
Mortgage Loans, which was, as of the Cut-off
Date, $_______. On any Distribution Date
thereafter, the Class S Notional Amount will be
equal to the Pool Principal Balance (as defined
herein) in the month preceding the month of
such Distribution Date (the "Class S Notional
Amount"). The Class S Certificates have no
principal balance, are entitled only to
distributions of a portion of the interest on
the Mortgage Loans based on their notional
amounts and are not entitled to distributions
of principal.]
[Subordinated Class
Certificate Balance........ The initial Subordinated Class Certificate
Balance will be $__________ (approximate,
subject to a permitted variance of up to plus
or minus __%) and, thereafter, the Subordinated
Class Certificate Balance will be such original
principal amount reduced by (i) all amounts of
principal previously distributed to the holders
of the Subordinated Certificates (the
"Subordinated Certificateholders") and (ii) any
Realized Losses (the "Subordinated Class
Certificate Balance"). In general, a "Realized
Loss" means, with respect to a Liquidated
Mortgage (as defined herein), the amount by
which the remaining unpaid principal balance of
the related Mortgage Loan exceeds the amount of
Liquidation Proceeds (as defined herein)
applied to the principal balance of such
Mortgage Loan, but only to the extent that such
difference is not included in (i) the amount of
the principal distribution made on the
Certificates on the immediately succeeding
Distribution Date, or (ii) the amount of a
payment made from applicable credit enhancement
on such Distribution Date.
S-8
<PAGE>
A "Liquidated Mortgage" is a Mortgage Loan as
to which the Master Servicer has determined
that all recoverable Liquidation Proceeds and
Insurance Proceeds (as defined herein) have
been received.
Distribution Date.......... The __th day of each month or, if such day is
not a Business Day, on the first Business Day
thereafter, commencing on _________, __ 19__
(each, a "Distribution Date"). [The initial
Distribution Date with respect to the
Certificates is expected to be ________ __,
1996 and the final scheduled Distribution Date
for each of the Certificates is expected to be
---------.]
Determination Date......... The [third] Business Day prior to each
Distribution Date (each, a "Determination
Date").
Record Date................ The calendar day preceding each Distribution
Date or, if Definitive Certificates (as defined
herein) are issued, the last Business Day of
the month preceding the month of such
Distribution Date (each, a "Record Date").
Business Day............... Any day other than a Saturday, Sunday or any
day on which banking institutions or trust
companies in the states of New York or Oklahoma
are authorized by law, regulation or executive
order to be closed ("Business Day").
Due Period................. With respect to any Distribution Date, the "Due
Period" is the period during which principal,
interest and other amounts will be collected on
the Mortgage loans for application towards the
payment of principal and interest to the
Certificateholders and the payment of fees on
such Distribution Date. [The "Due Period" will
be the calendar month immediately preceding the
Distribution Date.] The first Due Period will
commence on and include ______ and will end in
and include ____________.
Registration of the Offered The Offered Certificates will initially be
issued in book-entry form. Persons acquiring
beneficial ownership interests in the Offered
Certificates may elect to hold their
Certificate interests through The Depository
Trust Company ("DTC") in the United States, or
through Cedel Bank ("CEDEL") or the Euroclear
System ("Euroclear")
S-9
<PAGE>
in Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and operating
procedures of the relevant system. So long as
the Offered Certificates are Book-Entry
Certificates (as defined herein), such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede &
Co. ("Cede"), as the nominee of DTC or one of
the relevant depositories (collectively, the
"European Depositories"). Crossmarket transfers
between persons holding directly or indirectly
through DTC, on the one hand, and
counterparties holding directly or indirectly
through CEDEL or Euroclear, on the other, will
be effected in DTC through Citibank N.A.
("Citibank") or Morgan Guaranty Trust Company
of New York ("Morgan"), the relevant
depositories of CEDEL and Euroclear,
respectively, and each a participating member
of DTC. The Offered Certificates will initially
be registered in the name of Cede. The
interests of the holders of the Offered
Certificates will be represented by book
entries on the records of DTC and participating
members thereof. No Certificate Owner will be
entitled to receive a Definitive Certificate
representing such person's interest, except in
the event that Definitive Certificates are
issued under the limited circumstances
described herein.
See "Risk Factors -- Book-Entry Registration",
"Description of the Certificates -- Book-Entry
Certificates" and "ANNEX I" hereto.
Distributions.............. Distributions of interest and principal to the
holders of the Senior Certificates (the "Senior
Certificateholders") [and the Subordinated
Certificateholders] will be made in an
aggregate amount equal to the Senior
Distribution Amount [or the Subordinated
Distribution Amount, respectively] (as defined
herein), on each Distribution Date.
Distributions on each Distribution Date will be
made to holders of Certificates
("Certificateholders") of record as of the
applicable Record Date, except that the final
distribution on the Certificates will be made
only upon presentment and surrender of the
Certificates at the corporate trust office of
the Trustee.
S-10
<PAGE>
Distributions will be made on the Certificates
on each Distribution Date from Available Funds
(as defined herein) in the following order of
priority: (i) to interest on each class of the
Senior Certificates up to the maximum amount of
interest to be distributed on such Certificates
on such Distribution Date; (ii) to principal on
each class of Senior Certificates up to the
maximum amount of principal to be distributed
on each such class on such Distribution Date;
(iii) [to interest and principal on each Class
of the Subordinated Certificates;] and [(iv)]
to the Residual Certificates.
The "Senior Distribution Amount" for any
Distribution Date will equal the sum of (i) the
amount of interest calculated as described
under "A. Interest on Senior Certificates"
below, and (ii) the amount of principal
calculated as described under "B. Principal on
Senior Certificates" below; except that if the
Senior Distribution Amount exceeds the
Available Funds, then the Senior Distribution
Amount will instead be equal to the Available
Funds. [Following the Cross-over Date, no
further distributions will be made to the
Senior Certificateholders. The "Cross-over
Date" is the Distribution Date on which the
Certificate Balance of the Senior Certificates
is reduced to zero.]
[Distributions of principal and interest to
holders of Subordinated Certificates will be
made on each Distribution Date up to an amount
equal to Available Funds for such Distribution
Date reduced by the Senior Distribution Amount
for such Distribution Date (the "Remaining
Available Funds"). The "Subordinated
Distribution Amount" for any Distribution Date
will equal the sum of (i) the amount of
interest calculated as described under "C.
Interest on Subordinated Certificates" below
and (ii) the amount of principal calculated as
described under "D. Principal on Subordinated
Certificates" below; except that if the
Subordinated Distribution Amount exceeds the
Remaining Available Funds on such Distribution
Date, then the Subordinated Distribution Amount
will equal the sum of the Remaining Available
Funds, if any, and the amount to be paid
pursuant to the credit enhancement applicable
to the Subordinated Certificates, if any].
S-11
<PAGE>
The Available Funds will be determined as set
forth in "Description of the Certificates --
Priority of Distributions Among Certificates."
A. Interest on Senior
Certificates.......... On each Distribution Date, each class of Senior
Certificates, to the extent of Available Funds
on such Distribution Date, generally will be
entitled to receive an amount allocable to
interest (the "Senior Interest Distribution
Amount") equal to the sum of (i) one month's
interest at the applicable Pass-Through Rate
(as defined herein) on the Class A Certificate
Balance [or the Class S Notional Amount, as the
case may be,] and (ii) the sum of the amounts,
if any, by which the amount described in clause
(i) above on each prior Distribution Date
exceeded the amount actually distributed as
interest on such prior Distribution Date and
not subsequently distributed ("Unpaid Senior
Interest Amounts") [plus interest at the
applicable Pass-Through Rate from such prior
Distribution Date]. See "Description of the
Certificates--Senior Interest" herein.
B. Principal on Senior Certificates..........
On each Distribution Date, an amount received
on the Mortgage Loan during the related Due
Period and allocable to principal will be
distributed on the Class A Certificates
generally equal to the lesser of (x) Available
Funds reduced by the amount of interest
distributed on the Senior Certificates on such
Distribution Date and (y) the sum of (i) [the
Class A Percentage (as defined herein) of] (a)
the principal component of the scheduled
payment received on each Mortgage Loan during
the related Due Period, (b) the Principal
Balance of each Mortgage Loan that became a
Liquidated Mortgage during the related Due
Period, (c) the Principal Balance of each
Mortgage Loan that was repurchased by the
Seller or another person as of such
Distribution Date pursuant to the Agreement,
(d) the Substitution Adjustment (as defined
herein) in connection with any substitution of
Mortgage Loans paid as of such Distribution
Date pursuant to the Agreement and (e) any
Insurance Proceeds, Liquidation Proceeds or
Released Mortgage Property Proceeds (each, as
defined herein or in the Prospectus) received
during the related Due Period and allocable to
recoveries of principal of Mortgage Loans that
S-12
<PAGE>
are not yet Liquidated Mortgages, (ii) [the
Class A [Prepayment] Percentage (as defined
herein) of] all principal prepayments in full
("Principal Prepayments") and all partial
principal prepayments that are not Principal
Prepayments [and which exceed the scheduled
payments by a specified multiple but which was
not intended to satisfy a Mortgage Loan in full
or to cure a delinquency ("Curtailments")]
received during the related Due Period, and
(iii) the sum of (I) the amount, if any, by
which (A) the amount required to be distributed
to Class A Certificateholders in respect of
principal as of the preceding Distribution Date
exceeded (B) the amount of the actual
distribution to such Class A Certificateholders
in respect of principal on such preceding
Distribution Date (exclusive of any portion of
any Insured Payment (as defined herein) made to
such Certificateholders), and (II) if any
portion of the amount in the preceding clause
(I) represents Insured Payments made by the
Certificate Guaranty Insurer, interest on such
portion at the applicable Pass-Through Rate
from such immediately preceding Distribution
Date (the "Carry-Forward Amount")
(collectively, with respect to all of the Class
A Certificates, the "Class A Principal
Distribution Amount"). See "Description of the
Certificates--Distributions" herein.
[In addition, any amounts on deposit in the
Pre-Funding Account at the end of the Funding
Period will be distributed on the first
Distribution Date following the end of the
Funding Period to holders of the Class A
Certificates as a principal prepayment.]
[The "Class A Percentage" for any Distribution
Date is [the percentage equivalent of a
fraction the numerator of which is the Class A
Certificate Balance as of such date and the
denominator of which is the Pool Principal
Balance] [100% until the Cross-Over Date and 0%
thereafter] [_______________].
The "Pool Principal Balance" with respect to
any Distribution Date equals the aggregate of
the Principal Balances of the Mortgage Loans
(other than Liquidated Mortgages) outstanding
on the Determination Date in the month
preceding the month of such Distribution Date
[plus the funds on deposit in the Pre Funding
Account on the
S-13
<PAGE>
Determination Date.]
[No principal distributions will be made on the
Class S Certificates.]
[C. Interest on Subordinated
Certificates.............. Following the payment to the Senior
Certificateholders of the Senior Distribution
Amount, interest will be paid to the
Subordinated Certificateholders on each
Distribution Date, to the extent of the
Remaining Available Funds, if any, [and the
amount payable pursuant to the credit
enhancement, if any, applicable to the
Subordinated Certificates] and in an amount
equal to the [sum of (i)] one month's interest
at the Subordinated Pass-Through Rate (as
defined herein) on the Subordinated Class
Certificate Balance [and (ii) the sum of the
amounts, if any, by which the amount described
in clause (i) above on each prior Distribution
Date exceeded the amount actually distributed
as interest on such prior Distribution Date and
not subsequently distributed ("Unpaid
Subordinated Interest Amounts").] See
"Description of the Certificates--Subordinated
Interest" herein.]
[D. Principal on Subordinated
Certificates.............. After the amounts distributed in respect of
interest and principal to the Senior
Certificateholders and interest to the
Subordinated Certificateholders, an amount (up
to the Remaining Available Funds less interest
paid in respect of the Subordinated
Certificates on such Distribution Date [plus
any amounts in respect of applicable credit
enhancement]) allocable to principal will be
distributed [pro-rata] [as described herein
under "Description of Certificates --
Subordinated Principal"] to each class of
Subordinated Certificateholders equal to the
sum of (i) [the Subordinated Percentage (as
defined herein) of] (a) the principal component
of the scheduled payment received on each
Mortgage Loan during the related Due Period,
(b) the Principal Balance of each Mortgage Loan
that became a Liquidated Mortgage during the
related Due Period, (c) the Principal Balance
of each Mortgage Loan that was repurchased by
the Seller or another person as of such
Distribution Date pursuant to the Agreement,
(d) the Substitution Adjustment in connection
with any
S-14
<PAGE>
substitution of Mortgage Loans on such
Distribution Date pursuant to the Agreement and
(e) any Insurance Proceeds, Liquidation
Proceeds or Released Mortgage Property Proceeds
received during the related Due Period and
allocable to recoveries of principal of
Mortgage Loans that are not yet Liquidated
Mortgages and (ii) [the Subordinated
[Prepayment] Percentage (as defined herein) of]
all Principal Prepayments [and all
Curtailments] received during the related Due
Period. See "Description of the
Certificates--Distributions" herein.]
[The "Subordinated Percentage" for any
Distribution Date will be calculated as the
difference between 100% and the Class A
Percentage.]
Pass-Through Rate;
Strip Rate.................... [The pass-through rate for the Class A
Certificates for a particular Distribution Date
(the "Class A Pass-Through Rate") will be equal
to ___% per annum [but in no event to exceed
the weighted average of the Class A Remittance
Rates (as defined herein) of the Mortgage
Loans]. [The pass-through rate for the
Subordinated Certificates for a particular
Distribution Date (the "Subordinated
Pass-Through Rate") will be equal to ___% per
annum [but in no event to exceed the weighted
average of the Subordinated Remittance Rates
(as defined herein) of the Mortgage Loans.]
[The pass-through rate for the Class S
Certificates for a particular Distribution Date
(the "Class S Pass-Through Rate") will be equal
to the weighted average of the Strip Rates (as
defined herein).]
The "Class A Remittance Rate" for any Mortgage
Loan will equal the Mortgage Rate on the first
day of the month preceding the month of such
Distribution Date, less the sum of (i) ___%
[and (ii) the excess of the Gross Margin over
___% (such excess, if any, the "Strip Rate").]
[The "Subordinated Remittance Rate" for any
Mortgage Loan will equal the Mortgage Rate on
the first day of the month preceding the month
of such Distribution Date, less the sum of (i)
___% [and (ii) the excess of the Gross Margin
over ___%.]]
Each Pass-Through Rate will be computed on the
basis of a 360-day year of twelve 30-day
months.
S-15
<PAGE>
Credit Enhancement - General.. Credit enhancement for the Senior Certificates
will be provided by [the Certificate Guaranty
Insurance Policy] [the Spread Account] [the
Subordinated Certificates] [the Reserve Fund]
[CIT Limited Guarantee (as defined herein)]
[and certain forms of insurance coverage] as
described below:
[A. The Certificate Guaranty -
Insurance Policy........... On or before the Closing Date, the Master
Servicer will obtain the Certificate Guaranty
Insurance Policy, which is noncancelable, in
favor of the Trustee on behalf of the [Class A]
Certificateholders. The Certificate Guaranty
Insurance Policy will provide for coverage of
the distribution due on the [Class A]
Certificates on each Distribution Date. On each
Distribution Date, the Certificate Guaranty
Insurer will make available to the Trustee the
amount of any insufficiency in the amount
available as of such Distribution Date which is
necessary to distribute to the [Class A]
Certificateholders the ______________ on such
Distribution Date (each, an "Insured Payment").
The Certificate Guaranty Insurance Policy does
not guarantee to the [Class A]
Certificateholders any specified rate of
prepayments. See "Credit Enhancement--
Certificate Guaranty Insurance Policy" and "The
Certificate Guaranty Insurance Policy and The
Certificate Guaranty Insurer" herein.]
[B. Subordination............ The rights of the Subordinated
Certificateholders to receive distributions
with respect to the Mortgage Loans in the Trust
Fund will be subordinated to such rights of the
Senior Certificateholders only to the extent
described below. See "Description of the
Certificates--Priority of Distributions Among
Certificates," "Description of the
Certificates--Allocation of Losses" and "Credit
Enhancement -- Subordination of Subordinated
Certificates" herein. The subordination of the
Subordinated Certificates and the Residual
Certificates is intended to increase the
likelihood of receipt by Senior
Certificateholders of the maximum amount to
which they are entitled on any Distribution
Date and[, following the date on which the
amount on deposit in the Reserve Fund has been
reduced to zero,] to provide such holders
protection against losses resulting from
Liquidated Mortgages to the extent described
herein . See "Credit
S-16
<PAGE>
Enhancement -- Subordination of Subordinated
Certificates" and "Description of the
Certificates--Allocation of Losses" herein.
The protection afforded to the Senior
Certificateholders from the subordination
feature described above will be effected by the
preferential right of the Senior
Certificateholders to receive current
distributions from the Mortgage Pool.
The subordination feature described above is
intended to enhance the likelihood of timely
payment of principal and interest and to
protect holders of Senior Certificates against
losses; however, in certain circumstances the
amount of subordination may be exhausted and
shortfalls could result. If on any Distribution
Date the aggregate amount of payments received
from Mortgagors, [Advances from the Master
Servicer], funds otherwise payable to holders
of the Subordinated Certificates [and monies in
the Reserve Fund] do not provide sufficient
funds to make full distributions to holders of
the Senior Certificates, holders of the Senior
Certificates may incur a loss. [In the event
the Reserve Fund is depleted before the
available subordination amount is reduced to
zero, holders of the Senior Certificates will
nevertheless have a preferential right to
receive current distributions from the Mortgage
Loans to the extent of such available
subordination amount.] Holders of the Senior
Certificates will bear [their proportionate
share of] any losses realized on the Mortgage
Loans in excess of the available subordination
amount. See "Description of the Certificates --
Priority of Distribution among Certificates"
herein.]
[C. Reserve Fund.............
Pursuant to the Agreement, there shall be
established with the Trustee, a separate trust
account (the "Reserve Fund"), for the benefit
of the holders of the Certificates. On the
Closing Date, $_______ will be deposited into
the Reserve Fund. Subsequent to the Closing
Date, the Depositor, CITSF and CIT Consumer
Finance will have no obligation to replenish
the Reserve Fund. See "Description of the
Certificates - Credit Enhancement - Reserve
Fund" in the Prospectus and "Credit Enhancement
- The Reserve Fund" herein. The Reserve Fund
will be available to pay [prior to any draw
under the Certificate Guaranty Insurance
Policy] the ______ to the [Class A]
Certificateholders to the extent
S-17
<PAGE>
that the Available Funds are insufficient
therefor. [The Reserve Fund will also be
available to cover up to a specified amount of
losses arising from certain hazards, Liquidated
Mortgages and Mortgagor bankruptcies.]
[D. Spread Account............ Pursuant to the Agreement, there shall be
established with the Trustee a separate trust
account (the "Spread Account"), for the benefit
of the holders of the Certificates, into which
the Trustee will deposit upon receipt from the
Master Servicer on each Distribution Date,
[prior to making any payments to the
Certificateholders], the excess, if any, of the
aggregate interest [accrued] [received] during
the related Due Period on all of the Mortgage
Notes at their respective Mortgage Rates
[(including the portion of any advance
allocable thereto)] over the sum of (i) the
Senior Interest Distribution Amount for the
[Class A] Certificates, [(ii) the Monthly
Premium (as defined herein) due to the
Certificate Guaranty Insurer, (iii) any fees
due to the issuers of any Letters of Credit (as
defined herein)] and (iv) the Master Servicing
Fee (as defined herein) (such excess with
respect to each Distribution Date, the "Excess
Spread"). [Unless otherwise specified by the
Certificate Guaranty Insurer,] the Trustee is
required to retain 100% of the Excess Spread
(the "Periodic Excess Spread Amount") in the
Spread Account until the amount on deposit
therein is equal to an amount specified in the
Agreement (the "Base Spread Account
Requirement"). After the amount on deposit in
the Spread Account is equal to the Base Spread
Account Requirement, the amount required to be
on deposit in the Spread Account at any time
(the "Specified Spread Account Requirement")
may be reduced over time as specified in the
Agreement. [The percentage used in determining
the Periodic Excess Spread Amount may be
reduced at the sole discretion of the
Certificate Guaranty Insurer [with the consent
of each person obligated to reimburse issuers
of any Letters of Credit on deposit in the
Spread Account for outstanding drawings
thereunder (each such person, an "Account
Party"),] and the Base Spread Account
Requirement may be reduced at the sole
discretion of the Certificate Guaranty Insurer,
in each case without the consent of any
Certificateholder.]
The Agreement permits the Spread Account to be
funded in part by one or more letters of credit
(each, a "Letter of Credit") issued by banks,
trust companies or other
S-18
<PAGE>
institutions having on the date of delivery of
such Letter of Credit debt ratings acceptable
to Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Group ("S&P"),
and having certain other qualifications set
forth in the Agreement. Amounts available to be
drawn under any Letter of Credit will be deemed
to be on deposit in the Spread Account.
On each Distribution Date amounts, if any, on
deposit in the Spread Account will be available
to fund any shortfall between the Available
Funds for payments to [Class A]
Certificateholders and the Senior Distribution
Amount; provided that, on and after the date
(the "Spread Account Cross-Over Date") on which
the aggregate withdrawals from the Spread
Account to cover shortfalls in amounts payable
on the [Class A] Certificates attributable to
liquidation losses on Liquidated Mortgages
(such withdrawals, "Cumulative Spread Account
Account Receipts") equal an amount specified in
the Agreement (the "Subordinated Amount"), no
further withdrawals with respect to shortfalls
in the amounts required to be paid to the
[Class A] Certificateholders may be made from
the Spread Account, and the Specified Spread
Account Requirement will thereafter be zero. In
addition, the Agreement provides that the
Specified Spread Account Requirement for any
date shall in no event be greater than the
Subordinated Amount as of such date.
On each Distribution Date, any amounts
constituting (i) Excess Spread in excess of the
Periodic Excess Spread Amount (the "Remainder
Excess Spread Amount"), (ii) amounts in the
Spread Account in excess of the Specified
Spread Account Requirement as of such
Distribution Date (any such amount, a "Spread
Account Excess") and (iii) after the Cross-Over
Date, the entire Excess Spread, will be
distributed to the Class R Certificateholders
after repayment of [outstanding draws under any
Letters of Credit and of] unreimbursed Advances
to the Master Servicer.
Neither the Class R Certificateholders nor the
Master Servicer will be required to refund any
amounts properly distributed to them,
regardless of whether there are sufficient
funds on a subsequent Distribution Date to make
a full payment to [Class A] Certificateholders
of the
S-19
<PAGE>
amount required to be paid to such
Certificateholders.
The funding and maintenance of the Spread
Account is intended to enhance the likelihood
of timely payment to [Class A]
Certificateholders of the Senior Distribution
Amount; however, in certain circumstances, the
Spread Account could be depleted [or reduced by
the Certificate Guaranty Insurer] and
shortfalls could result. The Spread Account
will be funded with Excess Spread from all
Mortgage Loans, [without regard to Mortgage
Loan Group] and will be available for
distributions to all of the [Class A]
Certificates.
Notwithstanding the depletion or reduction of
the Spread Account, the Certificate Guaranty
Insurer will be obligated to make Insured
Payments on each Distribution Date to fund the
full amount of the Senior Distribution Amount
on such Distribution Date.]
[E. Insurance................ All of the Mortgage Loans, will be covered by
standard hazard insurance policies ("Standard
Hazard Insurance Policies"). To the extent set
forth herein, the special hazard insurance
policy (the "Special Hazard Insurance Policy")
will be issued by the special hazard insurer
(the "Special Hazard Insurer") [and the primary
mortgage insurance policy (the "Primary
Mortgage Insurance Policy") will be issued by
the primary mortgage insurer] (the "Primary
Mortgage Insurer") to provide limited
protection against certain losses arising from
special hazards [and bankruptcy proceedings
with respect to Mortgagors, respectively]. See
"Credit Enhancement--Insurance--Special Hazard
Insurance Policy" herein.]
[F. Limited Guarantee.......... On or before the Closing Date, the Master
Servicer will obtain a limited guarantee (the
"Limited Guarantee") issued by The CIT Group
Holdings, Inc. ("CIT"), in favor of the Trustee
on behalf of the [Class _] Certificateholders.
The Limited Guarantee will provide for coverage
of the distribution due on the [Class _]
Certificates on each Distribution Date. On each
Distribution Date, CIT will make available to
the Trustee the amount of any insufficiency in
the amount available as of such Distribution
Date which is necessary to distribute to the
[Class _] Certificateholders the ______________
on such Distribution Date (each, a "Guarantee
Payment"). Any
S-20
<PAGE>
such Limited Guarantee will be limited to
payments of principal on the Class __
Certificates aggregating not more than $_____,
and a portion of the coverage of any such
Limited Guarantee will be separately allocated
to ____________.]
[Advances...................... The Master Servicer is obligated to make cash
advances (any such advance, an "Advance") with
respect to delinquent payments of [principal of
and] interest on any Mortgage Loan to the
extent described herein. See "Servicing of
Mortgage Loans--Advances" herein.]
Compensating Interest......... Not later than the close of business on each
Determination Date, with respect to each
Mortgage Loan as to which the Master Servicer
received during the related Due Period a
Principal Prepayment, the Master Servicer is
required to remit to the Trustee, but only to
the extent of the Master Servicing Fee for such
Due Period, an amount ("Compensating Interest")
equal to any excess of (a) 30 days' interest on
the principal balance of each such Mortgage
Loan as of the beginning of the related Due
Period, at the applicable [Mortgage Rate]
[Adjusted Mortgage Loan Remittance Rate (as
defined herein)] over (b) the amount of
interest actually received on the related
Mortgage Loan during such Due Period.
Servicing..................... The Master Servicer is entitled to a servicing
fee of _____ per annum of the principal balance
of each Mortgage Loan (the "Master Servicing
Fee") and payable monthly from the interest
portion of scheduled monthly payments,
Liquidation Proceeds, Insurance Proceeds and
certain other proceeds collected on the
Mortgage Loans. The Master Servicing Fee will
be paid on each Distribution Date [prior to
payment of the Senior Interest Distribution
Amount and will reduce the Available Funds
available to pay interest on the Certificates]
[only from the Available Funds remaining after
all payments due on the Certificates on such
Distribution Date have been made].
Payment of Certain
Expenses...................... [In order to provide for the payment of the
fees of the Certificate Guaranty Insurer, the
Trustee is required to establish and maintain
one or more trust accounts (the "Insurance
Account") into which the Trustee is required to
deposit on each Distribution Date, from amounts
on
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<PAGE>
deposit in the Certificate Account (as defined
herein) and before making any required deposits
into the Spread Account and, except under
certain limited circumstances as provided in
the Agreement, before making any required
distributions to the Certificateholders, an
amount that is sufficient to pay the monthly
fee of the Certificate Guaranty Insurer (the
"Monthly Premium").] The Master Servicer is
required to pay to the Trustee from time to
time the fees of the Trustee and the reasonable
expenses, disbursements and advances incurred
or made by the Trustee in accordance with the
Agreement.
Prepayment Considerations
and Risks; Reinvestment
Risk......................... The rate of principal payments on the Offered
Certificates, the aggregate amount of
distributions on the Offered Certificates and
the yield to maturity of the Offered
Certificates will be related to the rate and
timing of payments of principal on the Mortgage
Loans.
Since the rate of payment of principal on the
Mortgage Loans will depend on future events and
a variety of factors, no assurance can be given
as to such rate or the rate of principal
prepayments. The extent to which the yield to
maturity of a Certificate may vary from the
anticipated yield will depend upon the degree
to which it is purchased at a discount or
premium, and the degree to which the timing of
payments thereon is sensitive to prepayment,
liquidations and purchases of the Mortgage
Loans. Further, in the case of any Certificate
purchased at a discount, an investor should
consider the risk that a slower than
anticipated rate of principal payments on the
Mortgage Loans could result in an actual yield
to such investor that is lower than the
anticipated yield and, in the case of any
Certificate purchased at a premium [and any
Class S Certificate,] the risk that a faster
than anticipated rate of principal payments,
liquidations and purchases could result in an
actual yield to such investor that is lower
than the anticipated yield. [An investor in a
Class S Certificate should carefully consider
the risk that a rapid rate of principal
payments on the Mortgage Loans could result in
the failure of such investor to recover its
initial investment.]
Because the Mortgage Loans may be prepaid at
any time,
S-22
<PAGE>
it is not possible to predict the rate at which
distributions of principal of the Certificates
will be received. Accordingly, since prevailing
interest rates are subject to fluctuation,
there can be no assurance that investors in the
Certificates will be able to reinvest the
distributions thereon at yields equaling or
exceeding the yields on the Certificates. It is
possible that yields on any such reinvestments
will be lower, and may be significantly lower,
than the yields on the Certificates. See
"Yield, Prepayment and Maturity Considerations"
herein.
Optional Termination........... On any Distribution Date on which the Pool
Principal Balance is less than __% of [the sum
of] the Original Pool Principal Balance [and
the original Pre-Funded Amount], the Master
Servicer will have the option to purchase, in
whole, the Mortgage Loans and the REO Property
(as defined in the Prospectus), if any,]
remaining in the Trust Fund. See "Description
of the Certificates--Optional Termination" and
"Description of Certificates--Advances" herein.
Federal Income Tax
Considerations............... [An election will be made to treat the Trust
Fund as a "real estate mortgage investment
conduit" ("REMIC") for federal income tax
purposes. The Class A, Class S and Subordinated
Certificates will constitute "regular
interests" in the REMIC and the Residual
Certificates will constitute the sole class of
"residual interests" in the REMIC.] [The Class
S Certificates will be issued with original
issue discount for federal income tax
purposes.] [The Class A Certificates may be
issued at a premium.]
[For federal income tax purposes the Trust will
be classified as a grantor trust and not as an
association taxable as a corporation or a
taxable mortgage pool. Accordingly, each holder
of a Certificate will be treated for federal
income tax purposes as the owner of an
individual interest in the Mortgage Assets
included in the Trust.]
See "Certain Federal Income Tax Consequences"
herein and in the Prospectus.
ERISA Considerations.......... [The acquisition of a Senior Certificate by a
pension or other employee benefit plan (a
"Plan") subject to the Employee Retirement
Income Security Act of 1974, as
S-23
<PAGE>
amended ("ERISA"), could, in some instances,
result in a prohibited transaction or other
violation of the fiduciary responsibility
provisions of ERISA and Section 4975 of the
Internal Revenue Code of 1986, as amended (the
"Code"). Certain exemptions from the prohibited
transaction rules granted under Prohibited
Transaction Class Exemption 83-1 and under
Prohibited Transaction Exemption 90-59 could be
applicable to the acquisition of Class A or
Class S Certificates. The U.S. Department of
Labor has issued individual prohibited
transaction exemptions to the Underwriters (the
"Underwriters' PTEs"). Generally, the
Underwriters' PTEs provide exemptive relief
from the application of certain of the
prohibited transaction provisions of ERISA and
section 4975 of the Code relating to the
purchase, sale and holding of pass-through
certificates such as the Class A Certificates
and the servicing and operation of asset pools
such as the Mortgage Pool, provided that
certain conditions are satisfied. See "ERISA
Considerations" herein and in the Prospectus.]
[Employee benefit plans subject to ERISA will
not be eligible to purchase the Certificates]
Any Plan fiduciary considering whether to
purchase any Certificates on behalf of a Plan
should consult with its counsel regarding the
applicability of the provisions of ERISA and
the Code.
Legal Investment.............. [Although upon their initial issuance the Class
____ Certificates will be rated "___" by
Moody's and "___" by S&P,] the Class A
Certificates (other than the Class __
Certificates) will [not] constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") [so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization and, as such, are legal
investments for certain entities to the extent
provided for in SMMEA]. Institutions whose
investment activities are subject to review by
federal or state regulatory authorities should
consult with their counsel or the applicable
authorities to determine whether an investment
in the Senior Certificates complies with
applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the
Prospectus.
S-24
<PAGE>
Ratings....................... It is a condition of the issuance of the Class
A Certificates [the Subordinated Certificates]
and the Class S Certificates that they be rated
[ ] by [ ] ("[ ]") and [ ] by [ ] ("[ ]" and,
together with [ ], the "Rating Agencies"). The
ratings of the Certificates should be evaluated
independently from similar ratings on other
types of securities. 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 Rating Agencies. See "Ratings"
herein.
Use of Proceeds.............. Substantially all of the net proceeds to be
received from the sale of the Certificates will
be received by the Depositor, which will apply
such proceeds to pay to CIT Consumer Finance
the purchase price for the Mortgage Loans and
to pay certain expenses of the offering.
S-25
<PAGE>
RISK FACTORS
Prospective Certificateholders (as defined herein) should consider, among
other things, the following risk factors in connection with the purchase of the
Certificates (as defined herein):
1. Limited Obligations. The Certificates will not represent an interest in
or obligation of The CIT Group Securitization Corporation III (the "Depositor"),
The CIT Group/Sales Financing, Inc. ("CITSF"), The CIT Group/Consumer Finance,
Inc. ("CIT Consumer Finance"), [The CIT Group Holdings, Inc. ("CIT")] or any of
their respective affiliates. The Certificates will not be insured or guaranteed
by any government agency or instrumentality, nor by the Depositor, CITSF, CIT
Consumer Finance, CIT [(other than to the extent provided in the Limited
Guarantee)] or any of their respective affiliates.
2. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates or, if it does develop, that it will provide
the holders of the Certificates with liquidity of investment or that it will
remain for the term of such Certificates. Although the Certificateholders will
receive monthly statements containing certain statistical information with
respect to the Mortgage Pool, the Depositor publishes no information relating to
the Certificates or any Mortgage Pool. The limited availability of any such
published information may influence the liquidity of the Certificates.
3. Subordination. The subordination of the Subordinated Certificates (as
defined herein) is intended to enhance the likelihood of timely payment of
principal and interest to the Senior Certificateholders (as defined herein).
However, in certain circumstances the amount of available subordination,
[including the Reserve Fund (as defined herein)] may be exhausted, and
shortfalls in distributions on the Certificates could result. Senior
Certificateholders will bear their proportionate share of any losses realized on
the Mortgage Loans in excess of the available subordination amount.
4. Geographic Concentration of Mortgaged Properties. [As of the Cut-off
Date (as defined herein), approximately _____% (by Original Pool Principal
Balance) of the Mortgaged Properties are located in the State of
_______________. An overall decline in the ____________ residential real estate
market could adversely affect the values of the Mortgaged Properties securing
such Mortgage Loans such that the Principal Balances of the related Mortgage
Loans could equal or exceed the value of such Mortgaged Properties. As the
residential real estate market is influenced by many factors, including the
general condition of the economy and interest rates, no assurances may be given
that the ________ residential real estate market will not weaken. If the
___________ residential real estate market should experience an overall decline
in property values after the dates of origination of the Mortgage Loans, the
rates of losses on the Mortgage Loans would be expected to increase, and could
increase substantially.]
5. Yield and Prepayment Considerations. The yield to maturity of the
Certificates will depend on the rate of payment of principal (including
prepayments, liquidations due to defaults, and repurchases due to conversion of
Adjustable Rate Mortgage Loans to Fixed Rate Mortgage Loans (each, as defined
herein) or breaches of representations and warranties) on the Mortgage Loans and
the price paid by Certificateholders. Such yield may be adversely affected by a
higher or lower than anticipated rate of prepayments on the related Mortgage
Loans. The yield to maturity on Certificates purchased at premiums or discounts
to par will be extremely sensitive to the rate of prepayments on the related
Mortgage Loans. In addition, the yield to maturity on the [Class __]
Certificates may be relatively more sensitive to the rate of the prepayment on
the related Mortgage Loans than other classes of Certificates.
S-26
<PAGE>
6. Book-Entry Registration. Issuance of the Certificates in book-entry form
may reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates for which they cannot
obtain definitive physical securities representing such Certificateholders'
interests, except in certain circumstances described herein.
Since transactions in Certificates will, in most cases, be able to be
effected only through The Depository Trust Company ("DTC"), direct or indirect
participants in DTC's book-entry system ("Direct Participants" or "Indirect
Participants" and each, a "Participant") and certain banks, the ability of a
Certificateholder to pledge a Certificate to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Certificates, may be limited due to lack of a physical security.
Certificateholders may experience delay in their receipt of distributions
of interest on and principal of the Certificates since distributions will be
forwarded by the Trustee to DTC and, in such a case, DTC will be required to
credit such distributions to the accounts of its Direct Participants which
thereafter will be required to credit them to the accounts of the applicable
class of Certificateholders either directly or indirectly through Indirect
Participants.
Unless and until Definitive Certificates (as defined herein) are issued, it
is anticipated that the only "Certificateholder" of the Book-Entry Certificates
(as defined herein) will be the Depository (as defined herein) or its nominee.
Beneficial owners of the Book-Entry Certificates will not be Certificateholders,
as that term will be used in the Agreement relating to such Series of
Certificates. Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries (as defined in
the Prospectus) and the Depository. Monthly and annual reports on the related
Trust provided to the Depository or its nominee, as the case may be, as holder
of record of the Book-Entry Certificates, may be made available to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose Depository accounts the Book-Entry Certificates of such beneficial owners
are credited. See "Description of the Certificates -- Book-Entry Certificates."
7. ERISA Considerations. An investment in the Certificates by Plans (as
defined herein) may give rise to a prohibited transaction under ERISA (as
defined herein) Section 406 and be subject to tax under Code (as defined herein)
Section 4975 unless a statutory or administrative exemption is available.
Accordingly, fiduciaries of any employee benefit plan or other retirement
arrangement should consult their counsel before purchasing any class of
Certificates. [The Class __] Certificates will not be eligible for purchase by
Plans.] See "ERISA Considerations" herein and in the Prospectus.
8. Certificate Rating. It will be a condition to the issuance of the
Certificates that the [Senior Certificates] be rated [__] and the [Subordinated
Certificates] be rated [__] by each Rating Agency (as defined herein). Such
rating is based on, among other things, the adequacy of the value of the
Mortgage Loans [and the credit enhancement]. Such rating should not be deemed a
recommendation to purchase, hold or sell Certificates, inasmuch as it does not
address market price or suitability for a particular investor. There is also no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. [In addition to being lowered
or withdrawn due to any erosion in the adequacy of the value of the Mortgage
Loans, such rating might also be lowered or withdrawn, among other reasons,
because of an adverse change in the financial or other condition of the [Credit
Enhancer] or a change in the rating of such [Credit Enhancer's] long term debt.]
S-27
<PAGE>
THE MORTGAGE POOL
General
The Certificates will represent the entire beneficial ownership interest in
a trust fund (the "Trust Fund" or the "Trust"). The assets of the Trust Fund
will consist primarily of a pool (the "Mortgage Pool" or "Pool") of certain
mortgage related assets (the "Mortgage Assets") consisting of fixed [and
adjustable] rate mortgage loans (or participation or other beneficial interests
therein) (each, a "Mortgage Loan") evidenced by loan agreements, promissory
notes or other evidence of indebtedness (each, a "Mortgage Note") secured by
mortgages, deeds of trust or similar security instruments (each, a "Mortgage")
creating first or subordinate liens on one- to four-family residential
properties, [and condominium units in condominium buildings] (each, a "Mortgaged
Property").
Certain information with respect to the Mortgage Loans included in the
Mortgage Pool is set forth below. Unless otherwise noted, the statistical
information presented herein concerning the Mortgage Pool is based on such pool
as of _______1, 199___ or , in the case of Mortgage Loans originated after
_________ 1, 199___, the date of origination (the "Cut-off Date"). A detailed
description of such Mortgage Loans on a Current Report on Form 8-K (the
"Detailed Description") will be available to purchasers of the Certificates at
or before, and will be filed with the Securities and Exchange Commission within
fifteen days after, the initial delivery of the Offered Certificates (as defined
herein). The Detailed Description will specify the aggregate principal balances
of the Mortgage Loans included in the Mortgage Pool as of the Cut-off Date (the
"Original Pool Principal Balance") and will also include the following
information regarding such Mortgage Loans: years of origination of such Mortgage
Loans, the purposes of such Mortgage Loans, the original principal balances of
such Mortgage Loans, the outstanding principal balances of such Mortgage Loans
as of the Cut-off Date, the average outstanding principal balance of such
Mortgage Loans, the Mortgage interest rates (the "Mortgage Rate") borne by such
Mortgage Loans (including the range and weighted average thereof), the original
Combined Loan-to-Value Ratios (as defined herein) of such Mortgage Loans, the
original term to maturity of such Mortgage Loans, the weighted average term to
maturity of such Mortgage Loans as of the Cut-off Date, the remaining months to
stated maturity of such Mortgage Loans, the types of properties securing such
Mortgage Loans, the priority of the lien (first, second, third or fourth) of the
Mortgage securing such Mortgage Loan, and the geographical distribution of such
Mortgage Loans by State. Prior to the Closing Date, Mortgage Loans may be
removed from the Mortgage Pool and other Mortgage Loans may be substituted
therefor. The Depositor believes that the information set forth herein with
respect to the Mortgage Pool as presently constituted is representative of the
characteristics of the Mortgage Pool as it will be constituted at _________,
199_ (the "Closing Date"), although the range of the Mortgage Rates and the
maturities and certain other characteristics of the Mortgage Loans in the
Mortgage Pool may vary.
The Depositor will purchase the Mortgage Loans from the Seller pursuant to
the Purchase Agreement, dated as of ___________ __, 199_ between the Seller and
the Depositor (the "Purchase Agreement"), and will cause the Mortgage Loans to
be assigned to the Trustee (as defined herein), for the benefit of
Certificateholders, pursuant to the Agreement (as defined herein).
S-28
<PAGE>
Under the Purchase Agreement and the Agreement, the Seller will make
certain representations, warranties and covenants relating to, among other
things, the due execution and enforceability of the Purchase Agreement and the
Agreement and certain characteristics of the Mortgage Loans and, subject to the
limitations described below under "--Assignment of the Mortgage Loans," will be
obligated to repurchase or substitute a conforming mortgage loan for any
Mortgage Loan as to which there exists deficient documentation or an uncured
material breach of any such representation, warranty or covenant. The Seller
will represent and warrant to the Depositor in the Purchase Agreement that the
Mortgage Loans were selected from among the outstanding [fixed rate] [adjustable
rate] one- to four-family mortgage loans in the Seller's portfolio at the
Closing Date as to which the representations and warranties set forth in the
Agreement can be made and that such selection was not made in a manner that
would adversely affect the interests of the Certificateholders. See "Home Equity
Lending Program -- Representations by Sellers; Repurchases" in the Prospectus.
Under the Agreement, all of the Seller's representations, warranties and
covenants (including the Seller's repurchase obligation) will be made for the
benefit of holders of the Certificates (the "Certificateholders"). The Depositor
will make no representations or warranties with respect to the Mortgage Loans
and will have no obligation to repurchase Mortgage Loans with deficient
documentation or which are otherwise defective. CIT Consumer Finance, in its
capacity as Seller of the Mortgage Loans to the Depositor, is selling such
Mortgage Loans without recourse and, accordingly, will have no obligations with
respect to the Certificates other than pursuant to such representations,
warranties, covenants and repurchase obligations. The obligations of CIT
Consumer Finance, as Master Servicer under the Agreement, with respect to the
Certificates are limited to the Master Servicer's contractual servicing
obligations under the Agreement.
The Mortgage Pool will consist of Mortgage Loans with an Original Pool
Principal Balance expected to be approximately $__________. The Mortgage Loans
provide for the amortization of the amount financed over a series of [monthly]
payments. The Mortgage Loans provide for payments due [as of various days during
each month]. The Mortgage Loans to be included in the Mortgage Pool were
originated or acquired by the Seller [or its affiliates] substantially in
accordance with the underwriting criteria specified herein and in the
Prospectus. At origination, substantially all of the Mortgage Loans had a stated
maturity of not more than __ months. [Scheduled monthly payments made by the
Mortgagors on the Mortgage Loans ("Scheduled Payments") either earlier or later
than the scheduled due dates thereof will not affect the amortization schedule
or the relative application of such payments to principal and interest.] [The
Mortgagors may prepay any Mortgage Loan at any time without penalty.]
[The aggregate amount of the initial Certificate Balance [and the initial
Class S Notional Amount] exceeds the Original Pool Principal Balance by
$_________. Funds in the amount of such excess [plus certain additional amounts
in respect of interest] (the "Pre-Funded Amount") have been deposited into a
separate trust account maintained by the Trustee (the "Pre-Funding Account").
Additional Mortgage Loans may be purchased by or on behalf of the Trust, from
time to time, during the period beginning on _________ __, 199_ and ending on
________ __, 199_ (the "Funding Period") from monies on deposit in the
Pre-Funding Account ("Subsequent Mortgage Loans"). Such Subsequent Mortgage
Loans will be purchased by or on behalf of the Trust pursuant to a contract in
which the [formula to determine the] price, the characteristics of the
S-29
<PAGE>
Mortgage Loans to be purchased and the delivery dates of such Mortgage Loans are
identified. The Pre-Funding Account may be invested in certain short-term
permitted investments, which shall consist of [(i) obligations of the United
States or any agency thereof, backed by the full faith and credit of the United
States; (ii) general obligations of or obligations guaranteed by any State, and
certificates of deposit, demand or time deposits, federal funds or banker's
acceptances issued by any depository institution or trust company incorporated
under the laws of the United States or of any state and subject to supervision
and examination by federal or state banking authorities; in each case rated in
the highest rating of each Rating Agency for such obligations, or such lower
rating as will not result in the qualification, downgrading or withdrawal of the
rating then assigned to either the Notes or the Certificates by such Rating
Agency; (iii) demand or time deposits or certificates of deposit issued by any
bank, trust company, savings bank or other savings institution, which deposits
are fully insured by the FDIC; and (iv) A-1/P-1 commercial paper, including
commercial paper issued by CIT or one of its affiliates]. Such investments shall
not mature later than one Business Day (as defined herein) prior to the next
succeeding Distribution Date (as defined herein) until they are either applied
by the Trustee during the Funding Period to pay the Depositor the purchase price
for Subsequent Mortgage Loans or distributed to the [Class A] Certificates as a
principal prepayment. The conditions precedent which must be complied with prior
to the transfer of Mortgage Loans purchased from funds on deposit in the
Pre-Funding Account are as follows: [ ]. Any amounts on deposit in the
Pre-Funding Account at the end of the Funding Period will be distributed on the
first Distribution Date following the end of the Funding Period to holders of
the [Class A] Certificates as a principal prepayment. Monies on deposit in the
Pre-Funding Account will not be available to cover losses on or in respect of
the Mortgage Loans.]
[All] [_____%] (by Original Pool Principal Balance) of the Mortgage Loans
bear interest at a Fixed Rate.
[All] [___%] (by Original Pool Principal Balance) of the Mortgage Loans
bear interest at an Adjustable Rate.
The interest rate on each Mortgage Loan (the "Mortgage Rate") is [fixed] (a
"Fixed Rate" and a Mortgage Loan subject thereto is a "Fixed Rate Mortgage
Loan")[adjustable] (an "Adjustable Rate" and a Mortgage Loan subject thereto is
an "Adjustable Rate Mortgage Loan") [semi-annually] [annually].
[The Mortgage Pool will be divided into two groups of Mortgage Loans (each,
a "Mortgage Loan Group"). Certificates bearing interest at a fixed rate will
represent an undivided ownership interest in a group of Fixed Rate Mortgage
Loans (the "Fixed Rate Group"), and distributions on such Certificates will be
based on amounts available for distribution in respect of Mortgage Loans in the
Fixed Rate Group. Certificates bearing interest at an adjustable rate will
represent an undivided ownership interest in a group of Adjustable Rate Mortgage
Loans (the "Adjustable Rate Group"), and distributions on such Certificates will
be based on amounts available for distribution in respect of Mortgage Loans in
the Adjustable Rate Group. As of the Cut-off Date, the aggregate principal
balance of the Mortgage Loans in the Fixed Rate Group is ________ and the
aggregate principal balance of the Mortgage Loans in the Adjustable Rate Group
is ____________.]
S-30
<PAGE>
[Other than during the first [six] [twelve] months following origination,
during which time each Mortgage Loan will bear interest at a Mortgage Rate fixed
at origination, each Mortgage Loan has a Mortgage Rate subject to [semi-annual]
[annual] adjustment on the first day of the month specified in the related
Mortgage Note (each such date, an "Adjustment Date") to equal the sum, rounded
to the nearest __%, of (i) [the weekly quoted average yield on United States
Treasury securities adjusted to a constant maturity of one year] [the weekly
average of secondary market interest rates on six-month negotiable certificates
of deposit] [the London interbank offered rate ("LIBOR") for [six-month] United
States dollar deposits] [other indices] (the "Index")[, as published by the
Federal Reserve Board in Statistical Release H.15(519) and most recently
available as of 45 days prior to the Adjustment Date] [which appears on the
Reuters Screen LIBOR Page as of _______, London time, on the first Business Day
of the month prior to the Adjustment Date] and (ii) a fixed percentage amount
specified in the related Mortgage Note (the "Gross Margin"); provided, however,
that the Mortgage Rate will not increase or decrease by more than % on any
Adjustment Date (the "Periodic Rate Cap") on any Adjustment Date. All the
Mortgage Loans provide that over the life of the Mortgage Loan the Mortgage Rate
will in no event be more than the initial Mortgage Rate plus a fixed percentage
(such rate, the "Maximum Rate"). [In addition, each Mortgage Loan provides that
in no event will the Mortgage Rate be less than the initial Mortgage Rate (such
rate, the "Minimum Rate").] Effective with the first payment due on a Mortgage
Loan after each related Adjustment Date, the monthly payment will be adjusted to
an amount which will fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term. [Approximately __% of the Mortgage Loans
were originated with a Mortgage Rate less than the sum of the then-applicable
Index and Gross Margin, rounded as described herein.] If the Index ceases to be
published or is otherwise unavailable, the Master Servicer will select an
alternative index for mortgage loans on single-family residential properties,
based upon comparable information, over which it has no control and which is
readily verifiable by mortgagors.]
[Payment of all or a substantial portion of the principal of certain
Mortgage Loans ("Balloon Loans") will be due on maturity ("Balloon Payments").
Certain of the Mortgage Loans permit the mortgagee to require the Mortgagor to
pay the full principal balance of the loan on a specified date (the "Call Date")
prior to the maturity of the loan ("Call Loans"). __% (by Original Pool
Principal Balance) of the Mortgage Loans provide for monthly payments of
principal and interest which increase over a specified period of time (a
"Graduated Payment Loan").]
Each Mortgage Loan was originated on or after __________ __, 199_, [and
each Adjustable Rate Mortgage Loan has an initial Adjustment Date on or before
__________ __, 199_].
The latest date on which any Mortgage Loan matures is __________ __, ____.
The earliest stated maturity date of any Mortgage Loan is __________ __, ____.
[The latest Call Date on any Call Loan is _____. The earliest Call Date on any
Call Loan is ________.
[As of the Cut-off Date, no Mortgage Loan was delinquent more than 59
days.]
[None] of the Mortgage Loans will be subject to any buydown agreement.
S-31
<PAGE>
____% of the Mortgage Loans (by principal balance as of the Cut-off Date)
were secured by Mortgages which are not subject to a senior lien mortgage, and
____% of the Mortgage Loans were "second mortgages" subject to a senior lien
mortgage.
No Mortgage Loan will have a Combined Loan-to-Value Ratio as of the Cut-off
Date of more than ___%. The weighted average of the Combined Loan-to-Value
Ratios as of the Cut-off Date of the Mortgage Loans was approximately __%. [Each
Mortgage Loan with a Combined Loan-to-Value Ratio as of the Cut-off Date of
greater than __% will be covered by a primary mortgage guaranty insurance policy
issued by a mortgage insurance company approved by the Federal National Mortgage
Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"),
which policy will provide coverage in an amount equal to the excess of the
original principal balance of the related Mortgage Loan plus accrued interest
thereon and related foreclosure expenses in excess of ___% of the value of the
related Mortgaged Property. No such primary mortgage insurance policy will be
required with respect to any such Mortgage Loan after the date on which the
related Combined Loan-to-Value Ratio is less than __%.]
The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time is
the ratio, expressed as a percentage, determined by dividing (x) the sum of the
original principal balance of the Mortgage Loan plus the then-current principal
balance of any loan or loans secured by a senior lien on the Mortgaged Property,
by (y) the value of the related Mortgaged Property, based upon the appraisal or
other valuation made at the time of origination of the Mortgage Loan.
The Combined Loan-to-Value Ratio of a Mortgage Loan is calculated, in part,
based on the appraised value of the related Mortgaged Property determined in an
appraisal or other valuation obtained by the originator at origination of such
Mortgage Loan. No assurance can be given that values of the Mortgaged Properties
have remained or will remain at their levels on the dates of origination of the
related Mortgage Loans. If the residential real estate market should experience
an overall decline in property values such that the outstanding principal
balances of the Mortgage Loans (and any additional financing by other lenders on
the Mortgaged Properties) in the Mortgage Pool become equal to or greater than
the value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now experienced by CIT
Consumer Finance or those now generally experienced in the mortgage lending
industry. In addition, adverse economic conditions and other factors (which may
or may not affect real property values) may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage Loans
and, accordingly, the actual rates of delinquencies, foreclosures and losses
with respect to any Mortgage Pool. [To the extent that such losses are not
covered by the subordination feature described herein or [the credit
enhancement], such losses will be borne, at least in part, by the holders of the
[Subordinated] Certificates.
[None] [___%] of the Mortgage Loans is insured by any primary mortgage
guaranty insurance policy.]
[None] [___%] of the Mortgage Loan provide for deferred interest or
negative amortization.
S-32
<PAGE>
Approximately ___% and ___% of the Mortgage Loans (by principal balance as
of the Cut-off Date) will be secured by Mortgaged Properties located in
[______________] and [ ], respectively. Except as indicated in the preceding
sentence, no more than approximately __% of the Mortgage Loans (by principal
balance as of the Cut-off Date) will be secured by Mortgaged Properties located
in any one state. No more than approximately __% of the Mortgage Loans (by
principal balance as of the Cut-off Date) will be secured by Mortgaged
Properties located in any one postal zip code area.
The following information sets forth in tabular format certain information,
as of the Cut-off Date, as to the Mortgage Loans. Percentages (approximate) are
stated by principal balance as of the Cut-off Date. [The information set forth
below does not take into account any Subsequent Mortgage Loans. The composition
of the Mortgage Loans in the Mortgage Pool will change to the extent Subsequent
Mortgage Loans are purchased from funds on deposit in the Pre-Funding Account.]
S-33
<PAGE>
Mortgage Pool Statistics
Mortgage Pool
-------------
Number of Mortgage Loans .............................
Original Pool Principal Balance ...................... $
[Rate/Payment Adjustment Frequency:] .............
[6 months] ................................... %
[12 months] .................................. %
[24 months] .................................. %
[36 months] .................................. %
[60 months] .................................. %
[Call Loans] ..................................... %
[Balloon Loans] .................................. %
Mortgage Loan Principal Balance: ....................
Ranges ........................................ $ to $
Average ....................................... $
Mortgage Loans with Prepayment Penalties:
Number of Mortgage Loans.......................
Original Pool Principal Balance................ $
Original Term to Stated Maturity:
Ranges ........................................ to months
Weighted Average .............................. months
Remaining Months to Stated Maturity:
Ranges ........................................ to months
Weighted Average .............................. months
Mortgage Rate:
Ranges ........................................ % to %
Weighted Average .............................. %
Gross Margin:
Ranges ........................................ % to %
Weighted Average .............................. %
Weighted Average Months to next Rate Not more than
Adjustment Date ............................... months
Periodic Cap Rate:
Ranges ........................................
Weighted Average ..............................
Strip Rate:
Ranges ........................................ % to %
Weighted Average .............................. %
Maximum Rate:
Ranges ........................................ % to %
Weighted Average .............................. %
Minimum Rate:
Ranges ........................................ % to %
Weighted Average .............................. %
Primary Residences .................................. At least %
S-34
<PAGE>
Investment Properties ................................ No more than %
Second Homes ......................................... No more than %
Single-family Detached Residences .................... At least %
Condominiums ......................................... No more than %
Two- to Four-Family Residences ....................... No more than %
Purchase Money Mortgage Loans ........................ At least %
Refinancing Mortgage Loans ........................... No more than %
Home Improvement Mortgage Loans ...................... %
Mortgage Loans secured by:
First Priority Liens .......................... %
Second Priority Liens ......................... %
Third Priority Liens .......................... %
Fourth Priority Liens ......................... %
Weighted Average Original Combined LTVs .............. Approximately %
Limited Documentation ................................ No more than %
S-35
<PAGE>
Geographical Distribution of Mortgaged Properties
<TABLE>
<CAPTION>
% of Mortgage
% of Mortgage Pool By
Number of Pool by Number Aggregate Principal Principal Balance
Mortgage Loans of Mortgage Loans Balance Outstanding Outstanding
State As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ----- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
% $ %
-------------- ---------- ------------- ---------
Total................ 100.00% $ 100.00%
============== ========== ============= =========
</TABLE>
S-36
<PAGE>
Year Of Origination Of Mortgage Loans
<TABLE>
<CAPTION>
% of Mortgage % of Mortgage Pool
Number of Pool by Number Aggregate Principal By Principal
Mortgage Loans Of Mortgage Loans Balance Outstanding Balance Outstanding
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- ------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
1988................ $ %
1989................
1990................
1991................
1992................
1993................
1994................
1995................
1996................
------------ ------------ -------
Total.......... $ 100.00%
============ ============ =======
</TABLE>
Distribution of Remaining Mortgage Loan Amounts
<TABLE>
<CAPTION>
Remaining % of Mortgage % Of Mortgage Pool
Mortgage Loan Number of Pool by Number Aggregate Principal By Principal
Amount (In Mortgage Loans Of Mortgage Loans Balance Outstanding Balance Outstanding
Dollars)(1) As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
---------------- ------------------ -------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Less than $5,000............. $ %
$5,000 to $9,999.99..........
$10,000-$19,999.99...........
$20,000-$29,999.99...........
$30,000-$39,999.99...........
$40,000-$49,999.99...........
$50,000-$59,999.99...........
$60,000-$69,999.99...........
$70,000-$79,999.99...........
$80,000 and over............. _ -
----------- ------------ -------
Total................. $ 100.00%
=========== ============ =======
</TABLE>
- ------------
(1) The largest remaining Mortgage Loan amount is $__________, which represents
__% of the Original Pool Principal Balance. The smallest remaining Mortgage
Loan amount is $________, which represents ___% of the Original Pool
Principal Balance.
S-37
<PAGE>
Distribution of Original Combined Loan-to-value Ratios
<TABLE>
<CAPTION>
% of Mortgage % of Mortgage Pool
Number of Pool By Number Aggregate Principal By Principal
Combined Loan-to Mortgage Loans of Mortgage Loans Balance Outstanding Balance Outstanding
Value Ratio(1) As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
-------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C>
Less than 61% ................. $ %
61-65% ........................
66-70% ........................
71-75% ........................
76-80% ........................
81-85% ........................
86-90% ........................
Over 90% ......................
------------ ------------ -------
Total................. $ 100.00%
============ ============ =======
</TABLE>
- ------------
(1) [Rounded to the nearest 1%. The term "Combine Loan-to-Value Ratio" as used
in this table is defined above and in the Prospectus. The loan-to-value
ratios on the Mortgage Loans may be subject to a variance of up to 5% from
the tabular presentation. Such variances were caused by information input
by CIT Consumer Finance's personnel in regional offices with respect to the
Mortgage Loans, the costs of which were estimated at the time the loan
applications were approved.]
Mortgage Rates
<TABLE>
<CAPTION>
% of Mortgage % of Mortgage Pool
Number of Pool by Number Aggregate Principal By Principal
Range of Mortgage Loans Mortgage Loans of Mortgage Loans Balance Outstanding Balance Outstanding
By Mortgage Rates As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
----------------- ------------------ ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
7.01% - 8.00% ...............
8.01% - 9.00% ...............
9.01% - 10.00% .............. $ %
10.01% - 11.00% ...............
11.01% - 12.00% ...............
12.01% - 13.00% ...............
13.01% - 14.00% ...............
14.01% - 15.00% ...............
15.01% - 16.00% ...............
16.01% - 16.50% ...............
Over 16.50% ...................
------------ -------------- -------
Total.................. $ 100.00%
============ ============== =======
</TABLE>
Remaining Months to Maturity
<TABLE>
<CAPTION>
% of Mortgage % of Mortgage Pool
Number of Pool by Number Aggregate Principal By Principal
Months Remaining Mortgage Loans of Mortgage Loans Balance Outstanding Balance Outstanding
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
-------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C>
Less than 31 .................. $ %
31-60 .........................
61-90 .........................
91-120 ........................
121-150 .......................
151-180 .......................
181-210 .......................
211-240 .......................
241-300 .......................
301-360 .......................
--------------- --------------- -------
Total.................. $ 100.00%
=============== =============== =======
</TABLE>
S-38
<PAGE>
[The Index
The Index is the figure derived from the average weekly quoted yield on U.S.
Treasury securities adjusted to a constant maturity of one year as published in
the Federal Reserve Board in Statistical Release H.15(519) and most recently
available as of 45 days prior to such Adjustment Date. Yields on treasury
securities are estimated from the U.S. Treasury's daily yield curve. This curve,
which relates the yield on a security to its time to maturity, is based on the
closing market bid yields on actively-traded treasury securities in the
over-the-counter market. These market yields are calculated from composites of
quotations reported by five leading U.S. Treasury securities dealers to the
Federal Reserve Bank of New York. The constant yield values are read from the
yield curve at fixed maturities. This method permits estimation of the yield for
a one year maturity, for example, even if no outstanding security has exactly
one year remaining to maturity.]
[As of any Adjustment Date, the Index is the figure derived from the weekly
average of secondary market interest rates on six-month negotiable certificates
of deposit as published in the Federal Reserve Statistical Release H.15(519) and
most recently available as of 45 days prior to such Adjustment Date.]
[As of any Adjustment Date, the Index shall equal the arithmetic mean (rounded
upwards, if necessary, to the nearest [one-sixteenth] of one percent of LIBOR
for [six-month] United States dollar deposits which appears on the Reuters
Screen LIBOR Page as of ___________, London time, on the first Business Day of
the month prior to any Adjustment Date for a Mortgage Loan.]
Listed below are monthly historical values of the Index beginning with January
1992. The values listed below do not purport to be a prediction of the
performance of the Index in the future.
Year(1)
-------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Month
- -----
January..........
February.........
March............
April............
May..............
June.............
July.............
August...........
September........
October..........
November.........
December.........
- ----------
(1) Monthly figures are averages of daily rates.
In the event that the Index becomes unavailable or otherwise unpublished,
the Master Servicer will select a comparable alternative index over which it has
no direct control and which is readily verifiable by the Mortgagors.]
S-39
<PAGE>
Assignment Of The Mortgage Loans
Pursuant to the Agreement, the Depositor on the Closing Date will sell,
transfer, assign, set over and otherwise convey without recourse to the Trustee
in trust for the benefit of the Certificateholders all right, title and interest
of the Depositor in and to each Mortgage Loan and all right, title and interest
in and to all other assets included in the Trust Fund, including all principal
and interest received by the Master Servicer on or with respect to the Mortgage
Loans on and after the Cut-off Date (to the extent not applied in computing the
Original Pool Principal Balance), exclusive of principal and interest due prior
to the Cut-off Date [and any funds or instruments on deposit in the Pre-Funding
Account].
[In connection with such transfer and assignment, the Seller and the
Depositor will deliver or cause to be delivered to the Trustee, or [CIT Consumer
Finance as] the custodian for the Trustee, among other things, the original
Mortgage Note (and any modification or amendment thereto) [endorsed without
recourse to the order of the Trustee (or its nominee)], the original Mortgage
with evidence of recording indicated thereon (except for any Mortgage which has
been lost or which was not returned from the public recording office, a copy of
which (together with a certificate that the original of such Mortgage was
delivered to such recording office) shall be delivered initially and the
original of which will be delivered to the Trustee as soon as the same is
available to the Depositor), [an assignment in recordable form] of the Mortgage
and, if applicable, any riders or modifications to such Mortgage Note and
Mortgage, any title insurance policies with respect to the Mortgages and any
assumption or modification agreement (collectively, the "Mortgage Documents").]
[Assignments of the Mortgage Loans will be delivered to the Trustee (or the
custodian) to be recorded in the appropriate public office for real property
records, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interests in
the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the Seller.] Subsequent to the
issuance of the Certificates, the Seller will be required [in the circumstances
specified in the related Agreement] to deliver to the Trustee (or the applicable
custodian) assignments of the related Mortgages to be recorded (at the expense
of the Seller) within ___ days after issuance of the Certificates, in which
event, the Agreement will require any such Seller to repurchase from the Trustee
any Mortgage Loan the related Mortgage of which is not recorded within such
time, at the Purchase Price with respect to repurchases by reason of defective
documentation. The enforcement of the repurchase obligation would constitute the
sole remedy available to the Certificateholders and the Trustee for failure of a
Mortgage to be recorded.
The Trustee will review each Mortgage Document within [180] days of the
Closing Date (or promptly after the Trustee's receipt of any document permitted
to be delivered after the Closing Date) and if any such document is found to be
missing or defective in a material respect is not properly executed, is
unrelated to the Mortgage Loans of the Trust or does not conform in a material
respect to the description thereof provided by or on behalf of CIT Consumer
Finance, the Trustee will notify the Master Servicer and the Depositor, and the
Master Services will notify the related Seller. If the Seller does not cure such
defect within 90 days after notice thereof from the Trustee, the Seller will be
obligated to repurchase the related Mortgage Loan from the Trust Fund at the
Purchase Price. Rather than repurchase the Mortgage Loan as provided above, the
Seller may
S-40
<PAGE>
remove such Mortgage Loan (a "Deleted Mortgage Loan") from the Trust Fund and
substitute in its place another Mortgage Loan of like kind (a "Qualified
Substitute Mortgage Loan"); however, [such substitution is permitted only within
two years of the Closing Date, and] may not be made unless an opinion of counsel
is provided to the effect that such substitution would not disqualify the Trust
Fund as a REMIC or result in a "prohibited transaction" tax as defined in
Section 860F of the Code. Any Qualified Substitute Mortgage Loan generally will,
on the date of substitution, among other characteristics set forth in the
Agreement, (i) have a Principal Balance not in excess of the Principal Balance
of the Deleted Mortgage Loan (the amount of any shortfall to be deposited by the
Seller in the Certificate Account (as defined herein) not later than the third
Business Day prior to the related Distribution Date (the "Determination Date")
and held for distribution to the Certificateholders on the related Distribution
Date (a "Substitution Adjustment")), [(ii) have a Maximum Rate not less than
(and not more than two percentage points greater than) the Maximum Rate of the
Deleted Mortgage Loan, and have a Minimum Rate not lower than (and not more than
one percentage point higher than) the Minimum Rate of the Deleted Mortgage Loan,
(iii) have the same Index and Periodic Rate Cap as the Deleted Mortgage Loan and
a Gross Margin not less than that of the Deleted Mortgage Loan and, if Mortgage
Loans equal to __% or more of the Cut-off Date Principal Balance have become
Deleted Mortgage Loans, not more than two percentage points more than that of
the Deleted Mortgage Loan, (iv) have a Mortgage Rate not lower than, and not
more than __% per annum higher than, that of the Deleted Mortgage Loan,] (v)
have a Combined Loan-to-Value Ratio not higher than that of the Deleted Mortgage
Loan; (vi) have a remaining term to maturity not greater than (and not more than
one year less than) that of the Deleted Mortgage Loan, (vii) be of the same or
better credit risk category under the Seller's underwriting guidelines; [(viii)
have the same Strip Rate as the Deleted Mortgage Loan,] and (ix) comply with all
of the representations and warranties set forth in the related Agreement as of
the date of substitution. This cure, repurchase or substitution obligation
constitutes the sole remedy available to Certificateholders or the Trustee for
omission of, or a material defect in, a Mortgage Loan document.
[Underwriting Standards
The underwriting policies that were employed by CIT Consumer Finance during
the period when the Mortgage Loans were originated were, except as noted herein
and in the Prospectus, substantially similar to those which CIT Consumer Finance
currently employs. See "The Home Equity Lending Program--Underwriting Standards"
in the Prospectus.]
SERVICING OF MORTGAGE LOANS
General
CIT Consumer Finance, as the Master Servicer, will service the Mortgage
Loans in accordance with the terms set forth in the Agreement. The Master
Servicer may perform any of its obligations under the Agreement through one or
more sub-servicers. The Master Servicer has appointed CITSF to act as
Sub-Servicer for [all] of the Mortgage Loans. Notwithstanding any such
subservicing arrangement, the Master Servicer will remain liable for its
servicing duties and obligations under the Agreement as if the Master Servicer
alone were servicing the Mortgage Loan.
S-41
<PAGE>
See "The CIT Group/Sales Financing, Inc., Master Servicer" and "The Home Equity
Lending Program--Servicing and Collections" in the Prospectus.
As of _________ __, 199_, CITSF serviced or subserviced for itself and
others approximately _____ residential first and second mortgages, representing
an outstanding balance of approximately $__________ billion. CIT Consumer
Finance currently does not service mortgages, on behalf of other owners, that it
neither purchased nor originated.
Foreclosure and Delinquency Experience
Until 199__, CITSF serviced all of the mortgage loans owned by CIT Consumer
Finance and since that date CITSF has subserviced all of those mortgage loans,
See "The CIT Group/Sales Financing, Inc., Master Servicer" in the Prospectus.
Historically, a variety of factors have limited CITSF's loss and delinquency
experience on its portfolio of serviced mortgage loans. There can be no
assurance that factors beyond CITSF's control, such as national or local
economic conditions or downturns in the real estate markets, will not result in
increased rates of delinquencies and foreclosure losses in the future. Since
CITSF commenced servicing a material amount of mortgages in 199__, data on its
foreclosure and delinquency experience is available only for __ full years, and
may not be indicative of its future foreclosure and delinquency experience.
The following table summarizes the foreclosure and delinquency experience,
respectively, on the dates indicated on conventional trust deed or mortgage
loans secured by first priority liens on the mortgaged property and serviced by
CITSF. No assurances can be given that the foreclosure and delinquency
experience presented in the table below will be indicative of such experience on
the Mortgage Loans:
<TABLE>
<CAPTION>
At 30, At December 31, At December 31, At December 31,
1997 1996 1995 1994
---- ---- ---- ----
(Dollar amounts in thousands)
<S> <C>
Principal Balances (end of period)...... $ $ $ $
Total Number of Loans...................
Total Number of Foreclosures............
Percent Foreclosed by Number of Loans... % % % %
Period of Delinquency...................
30-59 days:.............................
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
60-89 days:
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
90 days or more:
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
In Foreclosure
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent by Number of Loans.......... % % % %
Total Delinquent and in Foreclosure
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent by Number of Loans.......... % % % %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
S-42
<PAGE>
The following table summarizes the foreclosure and delinquency experience,
respectively, on the dates indicated on conventional mortgage loans secured by
second priority liens on the mortgaged property and serviced by CITSF. No
assurances can be given that the foreclosure and delinquency experience
presented in the table below will be indicative of such experience on the
Mortgage Loans:
<TABLE>
<CAPTION>
At 30, At December 31, At December 31, At December 31,
1997 1996 1995 1994
---- ---- ---- ----
(Dollar amounts in thousands)
<S> <C>
Principal Balances (end of period)...... $ $ $ $
Total Number of Loans...................
Total Number of Foreclosures............
Percent Foreclosed by Number of Loans... % % % %
Period of Delinquency...................
30-59 days:.............................
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
60-89 days:
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
90 days or more:
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent Delinquent by Number of Loans % % % %
In Foreclosure
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent by Number of Loans.......... % % % %
Total Delinquent and in Foreclosure
Principal Balance................... $ $ $ $
Number of Loans.....................
Percent by Number of Loans.......... % % % %
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Servicing Compensation and Payment of Expenses
The servicing fees [and certain credit enhancement fees] for each Mortgage
Loan (the "Expense Fees") are payable out of the interest payments on such
Mortgage Loan. [Because the Expense Fees are payable before any distributions
are made on the Certificates on a Distribution Date, the Expense Fees will
reduce the Available Funds to make distributions of principal and interest on
the Certificates.] The Expense Fees in respect of each Mortgage Loan will be at
least ____% per annum and not more than ____% per annum of the Principal Balance
of such Mortgage Loan. The Expense Fees consist of (a) servicing compensation
payable to the Master Servicer in respect of its master servicing activities
(the "Master Servicing Fee"), [(b) certain credit enhancement fees] and [(c)
fees paid to the Trustee.] The Master Servicing Fee will be ____% per annum of
the principal balance of each Mortgage Loan. The Master Servicer is obligated to
pay certain ongoing expenses associated with the Trust Fund and incurred by the
Master Servicer in connection with its responsibilities under the Agreement and
such amounts will be paid by the Master Servicer out of the Master Servicing
Fee. The Master Servicer is also entitled to receive [all late payment fees,
prepayment fees, assumption fees and other similar charges and] all investment
S-43
<PAGE>
income earned on amounts on deposit in the Certificate Account and Distribution
Account (as defined herein).
Compensating Interest
When a Mortgage Loan is prepaid between monthly payment dates ("Due
Dates"), the Mortgagor is required to pay interest on the amount prepaid to the
date of prepayment and not thereafter. Prepayments received during a calendar
month will be distributed to Certificateholders on the Distribution Date in the
month following the month of receipt. Pursuant to the Agreement, the Master
Servicer will pay to the Trust, [but only to the extent of the Master Servicing
Fee for such month], with respect to each Mortgage Loan as to which the Master
Servicer received during the related Due Period a Principal Prepayment an amount
("Compensating Interest") equal to the excess of (i) 30 days' interest on the
principal balance of each such Mortgage Loan as of the beginning of the related
Due Period at the [Mortgage Rate] [Adjusted Mortgage Loan Remittance Rate] over,
(ii) the amount of interest actually received on the related Mortgage Loan
during such Due Period. [Any shortfalls in interest as a result of prepayments
which cause the Compensating Interest to exceed the amount of the Master
Servicing Fee for the month will reduce the amount of interest available to be
distributed to Certificateholders from what would have been the case in the
absence of such prepayments.] [The "Due Period," with respect to each
Distribution Date, will be the calendar month immediately preceding the month in
which such Distribution Date occurs.]
Advances
Subject to the following limitations, the Master Servicer will be required
to make an advance of its own funds no later than the day prior to the
Distribution Date and in no event earlier than the seventh Business Day of such
month, the amount, if any, by which 30 days' interest [at the Mortgage Rate] [at
the Adjusted Mortgage Loan Remittance Rate] on the then outstanding principal
balance of a Mortgage Loan exceeds the amount received by the Master Servicer in
respect of interest on the Mortgage Loan as of the related Record Date (any such
advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest [and
principal] payments on the Certificates rather than to guarantee or insure
against losses. The Master Servicer is obligated to make Advances with respect
to delinquent payments of [principal of or] interest on each Mortgage Loan to
the extent that such Advances are, in its judgment, reasonably recoverable from
future payments and collections or insurance payments or proceeds of liquidation
of the related Mortgage Loan. If the Master Servicer determines on any
Determination Date to make an Advance, such Advance will be included with the
distribution to Certificateholders on the related Distribution Date.
S-44
<PAGE>
DESCRIPTION OF THE CERTIFICATES
General
The Senior Certificates offered hereby will be issued pursuant to a Pooling
and Servicing Agreement, dated as of _______ __, 199_ (the "Agreement"), among
the Depositor, the Seller, the Master Servicer and the Trustee. Set forth below
are summaries of the specific terms and provisions pursuant to which the Senior
Certificates will be issued. The following summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreement. When particular provisions or terms used in
the Agreement are referred to, the actual provisions (including definitions of
terms) are incorporated by reference.
The Home Equity Loan Asset-Backed Certificates, Series 199_-_____ (the
"Certificates") will consist of the Class A Certificates [and the Class S
Certificates] (the "Class A Certificates" and the "Class S Certificates",
respectively, and collectively, the "Senior Certificates"), [the Class B
Certificates (collectively, the "Subordinated Certificates")], and the Class R
Certificates (the "Residual Certificates"). The Senior Certificates [and the
Subordinated Certificates] may be referred to herein as the "Offered
Certificates." [Only the Senior Certificates are offered hereby.]
The Class A Certificates will evidence in the aggregate an initial
beneficial ownership interest of approximately ___% in the Trust Fund. [The
Subordinated Certificates will evidence in the aggregate an initial beneficial
ownership interest of approximately ___% in the Trust Fund.] The remaining
beneficial ownership interest in the Trust Fund will be evidenced by the
Residual Certificates. The rights of holders [of the Subordinated Certificates
(the "Subordinated Certificateholders") and] of the Residual Certificates (the
"Residual Certificateholders") to receive distributions with respect to the
Mortgage Loans will be subordinated to the rights of holders of the Senior
Certificates (the "Senior Certificateholders") to the extent described herein.
The Class A Certificates will be issuable in book-entry form only. So long
as the Class A Certificates are Book-Entry Certificates, such Certificates will
be evidenced by one or more certificates registered in the name of Cede & Co.
("Cede") in an aggregate amount equal to the initial Class A Certificate
Balance. Interests in the Class A Certificates issued in the name of Cede may be
purchased by investors in minimum denominations of $1,000 and integral multiples
of $1,000 in excess thereof. A single Class A Certificate may be issued in an
amount different than described above. [The Class S Certificates will be issued
in fully registered form in minimum denominations of 10% Percentage Interest and
multiples of 10% Percentage Interest in excess thereof, based on the percentage
interest (the "Percentage Interest") represented by each such Certificate in the
total distributions allocated to such class of Certificates.]
S-45
<PAGE>
Book-entry Certificates
The [Class A] Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). The Book-Entry Certificates will be issued in one or more
certificates which equal the initial [Class A] Certificate Balance and which
will be held by a nominee of The Depository Trust Company (together with any
successor depository selected by the Depositor, the "Depository"). Beneficial
interests in the Book-Entry Certificates will be held indirectly by investors
through the book-entry facilities of the Depository, as described herein.
Investors may hold such beneficial interests in the Book-Entry Certificates in
minimum denominations representing an original principal amount (the
"Certificate Balance") of $1,000 and integral multiples of $1,000 in excess
thereof. The Depositor has been informed by the Depository that its nominee will
be Cede. Accordingly, Cede is expected to be the holder of record of the
Book-Entry Certificate(s). Except as described in the Prospectus under
"Description of the Certificates -Book-Entry Certificates", no person acquiring
a Book-Entry Certificate (each, a "beneficial owner") will be entitled to
receive a physical certificate representing such Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, it is
anticipated that the only "Certificateholder" of the Book-Entry Certificates
will be Cede, as nominee of the Depository. Beneficial owners of the Book-Entry
Certificates will not be Certificateholders, as that term is used in the
Agreement. Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries (as defined in
the Prospectus) and the Depository. Monthly and annual reports on the Trust Fund
provided by the Master Servicer to Cede, as nominee of the Depository, may be
made available to beneficial owners upon request, in accordance with the rules,
regulations and procedures creating and affecting the Depository, and to the
Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates of such beneficial owners are credited.
For a description of the procedures applicable to the Book-Entry
Certificates, see "Description of the Certificates-Book-Entry Certificates" in
the Prospectus.
Payments on Mortgage Loans; Accounts
On or prior to the Closing Date, the Master Servicer will establish an
account (the "Certificate Account") with _______, which shall be maintained [as
a separate trust account] by the Master Servicer in trust for the benefit of the
Certificateholders, except as otherwise provided under "The Pooling and
Servicing Agreement -- Payments on Mortgage Assets; Deposits to the Certificate
Account" in the Prospectus. Funds credited to the Certificate Account may be
invested for the benefit and at the risk of the Master Servicer in Permitted
Investments (as defined in the Agreement) that are scheduled to mature on or
prior to the Business Day preceding the next Distribution Date. On or prior to
the Business Day immediately preceding each Distribution Date, the Master
Servicer shall withdraw from the Certificate Account the amount of Available
Funds and shall deposit such Available Funds in an account established and
maintained with the Trustee on behalf of the Certificateholders (the
"Distribution Account").
Distributions
Distributions on the Certificates will be made by the Trustee on the __th
day of each month, or if such day is not a Business Day, on the first Business
Day thereafter, commencing on
S-46
<PAGE>
______ __, 199_ (each, a "Distribution Date"), to the persons in whose names
such Certificates are registered at the close of business on the last Business
Day of the month preceding the month of such Distribution Date (the "Record
Date"). "Business Day" means any day other than a Saturday, Sunday or any day on
which banking institutions or trust companies in the states of New York or
Oklahoma are authorized by law, regulation or executive order to be closed.
Distributions on each Distribution Date will be made by check mailed to the
address of the person entitled thereto as it appears on the applicable
certificate register or, in the case of a Certificateholder who holds
Certificates with an aggregate initial Certificate Balance of $_______ or more
[(or in the case of the Class S Certificates, if such Certificateholder holds
Class S Certificates evidencing Percentage Interests aggregating __% or more)]
and who has so notified the Trustee in writing in accordance with the Agreement,
by wire transfer in immediately available funds to the account of such
Certificateholder at a bank or other depository institution having appropriate
wire transfer facilities; provided, however, that the final distribution in
retirement of the Certificates will be made only upon presentment and surrender
of such Certificates at the corporate trust office of the Trustee.
Priority of Distributions Among Certificates
As more fully described herein, distributions will be made on the
Certificates on each Distribution Date from Available Funds in the following
order of priority: (i) to interest on each class of Senior Certificates up to
the maximum amount of interest to be distributed on such Certificates on such
Distribution Date, (ii) to principal on each class of Senior Certificates (as
applicable) up to the maximum amount of principal to be distributed on each such
class of the Senior Certificates on such Distribution Date, (iii) [to interest
on the Subordinated Certificates, (iv) to principal on the Subordinated
Certificates] and (v) to the Residual Certificates.
Distributions of principal and interest to holders of the Senior
Certificates will be made on each Distribution Date in an amount equal to the
Senior Distribution Amount. The "Senior Distribution Amount" for any
Distribution Date will be equal to the sum of (i) the amount of interest payable
on the Senior Certificates, calculated as set forth under "-Senior Interest"
below and (ii) the amount allocated to principal calculated as set forth under
"-Senior Principal" below except that, if the Senior Distribution Amount exceeds
the amount of Available Funds on such Distribution Date, then the Senior
Distribution Amount shall instead equal the amount of such Available Funds.
[Following the Cross-over Date, no further distributions will be made to the
Senior Certificateholders. The "Cross-over Date" is the Distribution Date on
which the Certificate Balance on the Senior Certificates is reduced to zero.]
[Distributions of principal and interest to holders of Subordinated
Certificates will be made on each Distribution Date up to an amount equal to
Available Funds for such Distribution Date reduced by the Senior Distribution
Amount for such Distribution Date (the "Remaining Available Funds"). The
"Subordinated Distribution Amount" for any Distribution Date will equal the sum
of (i) the amount of interest calculated as set forth under "-Subordinated
Interest" below and (ii) the amount of principal calculated as set forth under
"-Subordinated Principal" below; except that if the Subordinated Distribution
Amount exceeds the Remaining Available Funds on
S-47
<PAGE>
such Distribution Date, then the Subordinated Distribution Amount will equal the
sum of the Remaining Available Funds, if any, and the amount to be paid pursuant
to the credit enhancement applicable to the Subordinated Certificates, if any].
"Available Funds" with respect to any Distribution Date will be equal to
the aggregate amount of funds available in the Distribution Account on such
Distribution Date for distribution on the Certificates. Available Funds for any
Distribution Date will equal the sum of the following (without duplication) (i)
all scheduled installments of interest [(net of the related Expense Fees)] and
principal received during the related Due Period together with any Advances in
respect thereof; (ii) all proceeds of the Standard Hazard Insurance Policies
[Special Hazard Insurance Policy] [Bankruptcy Bond] and any Primary Mortgage
Insurance Policy, to the extent such proceeds are not applied to the restoration
of the related Mortgaged Property or released to the Master Servicer in
accordance with the Master Servicer's normal servicing procedures (collectively,
"Insurance Proceeds"), and all other cash amounts (net of unreimbursed expenses
incurred in connection with a liquidation or foreclosure and unreimbursed
Advances, if any) received and retained in connection with the liquidation of
defaulted Mortgage Loans, by foreclosure or otherwise ("Liquidation Proceeds")
received during the month preceding such Distribution Date; (iii) all partial or
full prepayments received during the related Due Period; (iv)[all amounts
withdrawn from the Reserve Fund and deposited to the Distribution Account since
the preceding Distribution Date]; and (v) amounts received during the month
preceding such Distribution Date as the Substitution Adjustment or Purchase
Price in respect of a Mortgage Loan that was repurchased by the Seller or the
Master Servicer, respectively, provided, however, that such amounts shall be
reduced by amounts in reimbursement for Advances previously made and other
amounts as to which the Master Servicer is entitled to be reimbursed from the
Certificate Account pursuant to the Agreement.
The initial Class A Certificate Balance will be $_____________
(approximate, subject to a permitted variance of up to plus or minus __%) and,
thereafter the Class A Certificate Balance is the initial Class A Certificate
Balance reduced by all amounts previously distributed to holders of the Class A
Certificates as payments of principal (the "Class A Certificate Balance").
[The Class S Certificates have an initial notional amount of approximately
$_______ (the "Class S Notional Amount").] [The Class S Certificates will have
no principal balance, are entitled only to a portion of the interest on the
Mortgage Loans and are not entitled to any distributions of principal.]
[The initial Subordinated Class Certificate Balance will be $__________
(approximate, subject to a permitted variance of up to plus or minus __%) and,
thereafter, the Subordinated Class Certificate Balance will be such original
principal amount reduced by (i) all amounts of principal previously distributed
to the Subordinated Certificateholders and (ii) any Realized Losses (as defined
herein) allocated to such Class (the "Subordinated Class Certificate Balance".]
The "Class A Percentage" for any Distribution Date is [the percentage
equivalent of a fraction the numerator of which is the Class A Certificate
Balance as of such date and the
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denominator of which is the Pool Principal Balance] [100% until the Cross-over
Date and 0% thereafter] [_______________]. The "Pool Principal Balance" with
respect to any Distribution Date equals the aggregate of the Principal Balances
of the Mortgage Loans (other than Liquidated Mortgages) outstanding on the
Determination Date in the month preceding the month of such Distribution Date
[plus funds on deposit in the Pre-Funding Account on the Determination Date].
[The "Subordinated Percentage" for any Distribution Date will be calculated
as the difference between 100% and the Class A Percentage.]
The Pass-Through Rate for the Class A Certificates for a particular
Distribution Date (the "Class A Pass-Through Rate") will be equal to ___ % per
annum [but in no event to exceed the weighted average of the Class A Remittance
Rates (as defined herein) of the Mortgage Loans]. [The pass-through rate for the
Subordinated Certificates for a particular Distribution Date (the "Subordinated
Pass-Through Rate") will be equal to __% per annum but in no event to exceed the
weighted average of the Subordinated Remittance Rates (as defined herein) of the
Mortgage Loans]. [The pass-through rate for the Class S Certificates for a
particular Distribution Date (the "Class S Pass-Through Rate") will be equal to
the weighted average of the Strip Rates (as defined herein).]
[The "Class A Remittance Rate" for any Mortgage Loan will equal the
Mortgage Rate on the first day of the month preceding the month of such
Distribution Date, less the sum of (i) ___% and (ii) the excess of the Gross
Margin over ___% (such excess, if any, the "Strip Rate"). The "Subordinated
Remittance Rate" for any Mortgage Loan will equal the Mortgage Rate on the first
day of the month preceding the month of such Distribution Date, less the sum of
(i) ___% and (ii) the excess of the Gross Margin over ___%.]
Each Pass-Through Rate will be computed on the basis of a 360-day year of
twelve 30-day months.
[The interest entitlement described above for each class of Certificates
will be reduced by such class' allocable share of "Net Interest Shortfall,"
which is equal to (i) the amount of interest any class of Certificateholders
would otherwise have been entitled to receive with respect to any Mortgage Loan
that was the subject of a Relief Act Reduction and (ii) such class' pro rata
share of Net Prepayment Interest Shortfalls. A "Relief Act Reduction" is a
reduction in the amount of monthly interest payment on a Mortgage Loan pursuant
to the Soldiers' and Sailors' Civil Relief Act of 1940. See "Certain Legal
Aspects of Mortgage Loans--Soldiers' and Sailors' Civil Relief Act" in the
Prospectus. A "Net Prepayment Interest Shortfall" is the amount by which the
aggregate of Prepayment Interest Shortfalls during the calendar month
immediately preceding the month in which the related Due Date occurs exceeds the
aggregate amount of the Master Servicing Fee for such period. A "Prepayment
Interest Shortfall" is the amount by which interest at the Mortgage Rate
received in connection with a prepayment of principal on a Mortgage Loan is less
than one month's interest at the Mortgage Rate on the Principal Balance of the
related Mortgage Loan. Each class' pro rata share of such Net Prepayment
Interest Shortfalls will be based on the amount of interest such class otherwise
would have been entitled to receive.]
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Senior Interest
On each Distribution Date, each class of Senior Certificates, to the extent
of Available Funds on such Distribution Date, generally will be entitled to
receive an amount allocable to interest (the "Senior Interest Distribution
Amount") equal to the sum of (i) one month's interest at the applicable
Pass-Through Rate on the Class A Certificate Balance [or Class S Notional
Amount, as the case may be,] and (ii) the sum of the amounts, if any, by which
the amount described in clause (i) above on each prior Distribution Date
exceeded the amount actually distributed as interest on such prior Distribution
Dates and not subsequently distributed ("Unpaid Senior Interest Amounts") [plus
interest at the applicable Pass-Through Rate from such prior Distribution Date].
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of Class A Certificates, on the basis of the Class A
Certificate Balance immediately prior to such Distribution Date and in the case
of the Class S Certificates, on the basis of the Class S Notional Amount
immediately prior to such Distribution Date.
Interest will be calculated and payable on the basis of a 360-day year
divided into twelve 30-day months. The yield on any class of Senior Certificates
will be less than the yield that would otherwise be produced by the applicable
Pass-Through Rate and the applicable purchase price because distributions of
interest in respect of any month will be made on the __th day of the immediately
succeeding month. See "Yield, Prepayment and Maturity Considerations" herein.
In the event that, on a particular Distribution Date, Available Funds in
the Certificate Account are not sufficient to make a full distribution of
interest to the Senior Certificateholders, interest will be distributed pro rata
on each class of Senior Certificates based on the amount of interest each such
class of Certificates would otherwise have been entitled to receive in the
absence of such shortfall. The shortfall will be carried forward and added to
the amount holders of each such class of Certificates will be entitled to
receive on the next Distribution Date. Such a shortfall could occur, for
example, if losses realized on the Mortgage Loans were exceptionally high or
were concentrated in a particular month. Any such amount so carried forward will
not bear interest.
Senior Principal
On each Distribution Date, an amount received on the Mortgage Loans during
the related Due Period and allocable to principal will be distributed on the
Class A Certificates which amount shall be equal to the lesser of (1) Available
Funds reduced by the amount of interest distributed on the Senior Certificates
on such Distribution Date and (2) the sum of (i) [the Class A Percentage of] (a)
the principal components of scheduled payments received on each Mortgage Loan
during the related Due Period, (b) the Principal Balance on each Mortgage Loan
that became a Liquidated Mortgage during the related Due Period, (c) the
Purchase Price of each Mortgage Loan that was repurchased by the Seller or
another person pursuant to the Agreement, (d) the Substitution Adjustment in
connection with any Deleted Mortgage Loan and (e) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Mortgage Loans that
are not yet Liquidated Mortgages, (ii) [the Class A [Prepayment] Percentage of]
all partial principal
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prepayments that are not Principal Prepayments [and which exceed the scheduled
payments by a specified multiple], but which was not intended to satisfy a
Mortgage Loan in full or cure a delinquency] ("Curtailments") and of all
principal prepayments in full received during the related Due Period and (iii)
the sum of (I) the amount, if any, by which (A) the amount required to be
distributed to Class A Certificateholders in respect of principal, as of the
preceding Distribution Date exceeded (B) the amount of the actual distribution
to such Class A Certificateholders in respect of principal, on such preceding
Distribution Date, exclusive of any portion of any Insured Payment made to such
Certificateholders, and (II) if any portion of the amount in the preceding
clause (I) represents Insured Payments made by the Insurer, interest on such
portion at the applicable Pass-Through Rate from such immediately preceding
Distribution Date (the "Carry-Forward Amount") (collectively, with respect to
all of the Class A Certificates, the "Class A Principal Distribution Amount").
See "--Allocation of Losses" below.
[Subordinated Interest
Following the payment to the Senior Certificateholders of the Senior
Distribution Amount, interest will be paid to the Subordinated
Certificateholders on each Distribution Date, to the extent of the Remaining
Available Funds, if any, [and the amount payable pursuant to the credit
enhancement, if any] and in an amount equal to [the sum of (i)] one month's
interest at the Subordinated Pass-Through Rate on the Subordinated Class
Certificate Balance [and (ii) the sum of the amounts, if any, by which the
amount described in clause (i) above on each prior Distribution Date exceeded
the amount actually distributed as interest on such prior Distribution Date and
not subsequently distributed ("Unpaid Subordinated Interest Amounts").]
Accrued interest to be distributed on any Distribution Date will be
calculated, in the case of a class of Subordinated Certificates, on the basis of
such class's Certificate Balance immediately prior to such Distribution Date.
Interest will be calculated and payable on the basis of a 360-day year
divided into twelve 30-day months. The yield on any class of Subordinated
Certificates will be less than the yield that would otherwise be produced by the
applicable Subordinated Pass-Through Rate and the applicable purchase price
because distributions of interest in respect of any month will be made on the
__th day of the immediately succeeding month. See "Yield, Prepayment and
Maturity Considerations" herein.
In the event that, on a particular Distribution Date, the Remaining
Available Funds in the Certificate Account are not sufficient to make a full
distribution of interest to the Subordinated Certificateholders, interest will
be distributed [pro rata on each class of Subordinated Certificates based on the
amount of interest each such class of Certificates would otherwise have been
entitled to receive in the absence of such shortfall] [based upon ________].
[The shortfall will be carried forward and added to the amount holders of each
such class of Certificates will be entitled to receive on the next Distribution
Date.] Such a shortfall could occur, for example, if losses realized on the
Mortgage Loans were exceptionally high or were concentrated in a particular
month. Any such amount so carried forward will not bear interest.]
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[Subordinated Principal
After the amounts distributed in respect of interest and principal to the
Senior Certificateholders and interest to the Subordinated Certificateholders,
an amount (up to the Remaining Available Funds less interest paid in respect of
Subordinated Certificates on such Distribution Date [plus any amounts in respect
of credit enhancement]) allocable to principal will be distributed [pro-rata]
[based upon ___________] to each class of Subordinated Certificateholders equal
to the sum of (i) [the Subordinated Percentage of] (a) the principal component
of the scheduled payments received on each Mortgage Loan during the related Due
Period, (b) the Principal Balance of each Mortgage Loan that became a Liquidated
Mortgage during the related Due Period, (c) the Principal Balance of each
Mortgage Loan that was repurchased by the Seller or another person pursuant to
the Agreement, (d) the Substitution Adjustment in connection with any
substitution of Mortgage Loans, on such Distribution Date pursuant to the
Agreement and (e) any Insurance Proceeds, Liquidation Proceeds or Released
Mortgage Property Proceeds (as defined in the Prospectus) received during the
related Due Period and allocable to recoveries of principal of Mortgage Loans
that are not yet Liquidated Mortgages and (ii) the Subordinated [Prepayment]
Percentage of all Principal Prepayments [and all Curtailments] received during
the related Due Period. See "-Allocation of Losses" below.]
[Allocation of Losses]
Realized Losses on Mortgage Loans will be allocated first to the
Subordinated Certificates until the outstanding principal balances thereof are
reduced to zero, and thereafter to the Class A Certificates. Any allocation of a
Realized Loss to a Certificate will be made by reducing the Certificate Balance
thereof immediately following the related Distribution Date.
In general, a "Realized Loss" means, with respect to a Liquidated Mortgage,
the amount by which the remaining unpaid principal balance of such Mortgage
exceeds the amount of Liquidation Proceeds applied to the principal balance of
such Liquidated Mortgage, but only to the extent that such difference is not
included in (i) the amount of the principal distribution made on the
Certificates on the immediately succeeding Distribution Date, or (ii) the amount
of a payment made from applicable credit enhancement on such Distribution Date.
A "Liquidated Mortgage" is a defaulted Mortgage Loan as to which the Master
Servicer has determined that all recoverable Liquidation Proceeds and Insurance
Proceeds have been received.
[The Class A Prepayment Percentage for any Distribution Date occurring
during the _____ years beginning on the first Distribution Date will, except as
provided below, equal 100%. Thereafter, the Class A Prepayment Percentage will
be subject to gradual reduction as described in the following paragraph. This
disproportionate allocation of certain unscheduled payments in respect of
principal will have the effect of accelerating the amortization of the Class A
Certificates while, in the absence of Realized Losses, increasing the interest
in the Pool Principal Balance evidenced by the Subordinated Certificates.
Increasing the respective interest of the Subordinated Certificates relative to
that of the Class A Certificates is intended to preserve the availability of the
subordination provided by the Subordinated Certificates.]
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[The "Class A Prepayment Percentage" for any Distribution Date occurring on
or after the _____ anniversary of the first Distribution Date will be as
follows: for any Distribution Date subsequent to _______ to and including the
Distribution Date in _______, the Class A Percentage for such Distribution Date
plus __% of the Subordinated Percentage for such Distribution Date; for any
Distribution Date subsequent to _______ to and including the Distribution Date
in _______, the Class A Percentage for such Distribution Date plus __% of the
Subordinated Percentage for such Distribution Date; for any Distribution Date
subsequent to _______ to and including the Distribution Date in _______, the
Class A Percentage for such Distribution Date plus __% of the Subordinated
Percentage for such Distribution Date; for any Distribution Date subsequent to
_______ to and including the Distribution Date in _______, the Class A
Percentage for such Distribution Date plus __% of the Subordinated Percentage
for such Distribution Date; and for any Distribution Date thereafter, the Class
A Percentage for such Distribution Date (unless on any of the foregoing
Distribution Dates the Class A Percentage exceeds the initial Class A
Percentage, in which case the Class A Prepayment Percentage for such
Distribution Date will once again equal 100%). Notwithstanding the foregoing, no
reduction to the Class A Prepayment Percentage will occur if (i) as of the first
Distribution Date as to which any such reduction applies, more than an average
of ___% of the dollar amount of all monthly payments on the Mortgage Loans due
in each of the preceding twelve months were delinquent ___ days or more
(including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans
with respect to which the related Mortgaged Property has been acquired by the
Trust) or (ii) cumulative Realized Losses with respect to the Mortgage Loans
exceed (a) with respect to the Distribution Date in ______, ___% of the
principal balance of the Subordinated Certificates as the Cut-off Date (the
"Original Subordinated Principal Balance"), (b) with respect to the Distribution
Date in ______, ___% of the Original Subordinated Principal Balance, (c) with
respect to the Distribution Date in _______, ___% of the Original Subordinated
Principal Balance, (d) with respect to the Distribution Date in _______, ___% of
the Original Subordinated Principal Balance. If on any Distribution Date the
allocation to the Class A Certificates of full and partial principal prepayments
and other amounts in the percentage required above would reduce the outstanding
Class A Certificate Balance below zero, the Class A Prepayment Percentage for
such Distribution Date will be limited to the percentage necessary to reduce the
Class A Principal Balance to zero.]
[The "Subordinated Prepayment Percentage" for any Distribution Date will be
calculated as the difference between 100% and the Class A Prepayment Percentage
for such date.]
Reports to Certificateholders
On each Distribution Date, the Trustee will forward to each
Certificateholder a statement generally setting forth:
(i) the amount of the related distribution to holders of such class of
Certificates allocable to principal, separately identifying the aggregate
amount of any Principal Prepayments included therein, any principal amounts
not paid when due (the "Unpaid Principal Shortfall") included in such
distribution and any remaining Unpaid Principal Shortfall after giving
effect to such distributions;
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(ii) the amount of such distribution to holders of such class of
Certificates allocable to interest, any Unpaid Senior Interest Amounts or
Unpaid Subordinated Interest Amounts included in such distribution and any
remaining Unpaid Senior Interest Amounts or Unpaid Subordinated Interest
Amounts after giving effect to such distribution;
(iii) if the distribution to the holders of such class of Certificates
is less than the full amount that would be distributable to such holders if
there were sufficient funds available therefor, the amount of the shortfall
and the allocation thereof as between principal and interest;
(iv) the Certificate Balance of each class of Certificates after
giving effect to the distribution of principal on such Distribution Date;
(v) the Pool Principal Balance for the following Distribution Date;
(vi) the Class A Percentage and the Subordinated Percentage for the
following Distribution Date;
(vii) the related amount of the Master Servicing Fees paid to or
retained by the Master Servicer;
(viii) the Pass-Through Rate for such class of Certificates with
respect to the current Due Period;
(ix) the amount of Advances included in the distribution on such
Distribution Date and the aggregate amount of Advances outstanding as of
the close of business on such Distribution Date;
(x) the number and aggregate principal balances of Mortgage Loans (A)
delinquent (exclusive of Mortgage Loans in foreclosure) (1) 30 to 59 days,
(2) 60 to 89 days, (3) 90 or more days and (B) in foreclosure as of the
close of business on the last day of the calendar month preceding such
Distribution Date;
[(xi) with respect to any Mortgage Loan that became an REO Property
during the preceding calendar month, the loan number and Principal Balance
of such Mortgage Loan as of the close of business on the Determination Date
preceding such Distribution Date and the date of acquisition thereof;]
[(xii) the total number and principal balance of any REO Properties as
of the close of business on the Determination Date preceding such
Distribution Date;]
[(xiii) the Class A Prepayment Percentage and the Subordinated
Prepayment Percentage for the following Distribution Date;]
(xiv) the aggregate amount of Realized Losses incurred during the
preceding calendar month;
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(xv) the amount remaining in the Reserve Fund at the close of business
on such Distribution Date; and
(xvi) [indicate the remaining amount of coverage for special hazard
losses, bankruptcy losses and other particular types of losses provided by
third-party enhancers or otherwise.]
(xvii) [during the Funding Period, the amount remaining in the
Pre-Funding Account at the close of business on such Distribution Date.]
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to the Certificateholder of
record during the previous calendar year a statement containing information
necessary to enable Certificateholders to prepare their tax returns. Such
statements will not have been examined and reported upon by an independent
public accountant. The Certificateholders will also be notified if any material
change is to be made in the procedures or forms for the reports to
Certificateholders.
Optional Termination
The Master Servicer will have the right to repurchase all remaining
Mortgage Loans and REO Properties in the Mortgage Pool and thereby effect early
retirement of the Certificates, on any Distribution Date on which the Pool
Principal Balance of such Mortgage Loans is less than or equal to 10% of the
Original Pool Principal Balance [(and the original Pre-Funded Amount)]. In the
event the Master Servicer exercises such option, the purchase price distributed
with respect to each Certificate will be 100% of its then outstanding principal
balance and (a) in the case of a Class A Certificate, one month's interest
thereon at the Class A Pass-Through Rate plus any unpaid accrued interest and
(b) in the case of a Class S Certificate, one month's interest on the Class S
Notional Amount at the Class S Pass-Through Rate plus any unpaid accrued
interest.
[Mandatory Termination]
[If not previously terminated in accordance with the terms of the
Agreement, the Trustee or the Master Servicer will sell the assets remaining in
the Trust Fund on the ___________ Distribution Date and the Trust Fund will
terminate.]
Termination Events
"Termination Events" will consist of: (i) any failure by the Master
Servicer to deposit in the Certificate Account the required amounts or remit to
the Trustee any payment (other than an Advance required to be made under the
terms of the Agreement) which continues unremedied for five Business Days after
the giving of written notice of such failure to the Master Servicer by the
Trustee or the Depositor or to the Master Servicer and the Trustee by holders of
Certificates (or, in the case of Book-Entry Certificates, the beneficial
interests therein) of any class evidencing not less than 51% of the aggregate
Percentage Interests constituting such class [or by the Certificate Guaranty
Insurer]; (ii) any failure by the Master Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Agreement,
which continues
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unremedied for 30 days after the giving of written notice of such failure to the
Master Servicer by the Trustee or the Depositor or to the Master Servicer and
the Trustee by holders of Certificates (or, in the case of Book-Entry
Certificates, the beneficial interests therein) of any class evidencing not less
than 51% of the aggregate Percentage Interests constituting such class [or by
the Certificate Guaranty Insurer]; (iii) insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings, and certain
actions by or on behalf of the Master Servicer indicating its insolvency or
inability to pay its obligations; or (iv) any failure of the Master Servicer to
make any Advance to the extent such failure materially or adversely affects the
interests of the Certificate Guaranty Insurer, or the Certificateholders which
continues unremedied for a period of five Business Days after the date on which
notice of such failure, requiring the same to be remedied, shall have been given
to the Master Servicer by the Trustee [or by the Certificate Guaranty Insurer].
Rights Upon Termination Event
So long as a Termination Event remains unremedied, the Depositor or the
Trustee may, and upon the receipt of instructions from the holders of
Certificates (or, in the case of Book-Entry Certificates, the beneficial
interests therein) of any class evidencing not less than 51% of the aggregate
Percentage Interests constituting such class [or the Certificate Guaranty
Insurer], the Depositor or Trustee shall terminate all of the rights and
obligations of the Master Servicer under the Agreement and in and to the
Mortgage Loans, whereupon the Trustee will succeed to all of the
responsibilities, duties, and liabilities of the Master Servicer under the
Agreement, including the obligation to make Advances. Notwithstanding the
foregoing, in the event of a Termination Event arising from the Master
Servicer's failure to make an Advance as described in clause (iv) in the
preceding paragraph, the Trustee shall terminate all of the rights and
obligations of the Master Servicer under the Agreement (other than the right to
receive reimbursement for Advances and Servicing Advances theretofor made) and
in and to the Mortgage Loans as described in the preceding sentence.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under the Agreement to institute any
proceeding with respect thereto, unless such holder previously has given to the
Trustee written notice of a Termination Event and unless the holders of
Certificates of any class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class have made written request to the
Trustee to institute such proceeding in its own name as Trustee thereunder and
have offered to the Trustee reasonable indemnity, and the Trustee for ___ days
has neglected or refused to institute any such proceeding.
The Trustee
[ ] will be the trustee under the Agreement (the "Trustee"). The Depositor
and [ ] may maintain other banking relationships in the ordinary course of
business with the Trustee. Senior Certificates may be surrendered to the
corporate trust office of the Trustee located at
[____________________________________ _____], Attention: __________________ or
at such other addresses as the Trustee may designate from time to time.
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YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Delay in Distributions; Index Lag
The effective yield to the holders of the Senior Certificates will be lower
than the yield otherwise produced by the applicable rate at which interest is
passed through to such holders and the purchase price of such Certificates
because monthly distributions will not be payable to such holders until the
___th day (or, if such day is not a Business Day, the following Business Day) of
the month following the month in which interest accrues on the Mortgage Loans
(without any additional distribution of interest or earnings thereon in respect
of such delay). [In addition, the Mortgage Rate applicable for any will be the
most recent Index announced 45 days prior to each Adjustment Date. See "The
Mortgage Pool" herein.]
Prepayment Considerations and Risks
The rate of principal payments on the Senior Certificates, the aggregate
amount of distributions on the Senior Certificates and the yield to maturity of
the Senior Certificates will be related to the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the Mortgage
Loans will in turn be affected by the amortization schedules of the Mortgage
Loans [(which will change periodically to accommodate adjustments to the
Mortgage Rates)] and by the rate of Principal Prepayments (including for this
purpose prepayments resulting from refinancing, liquidations of the Mortgage
Loans due to defaults, casualties, condemnations and repurchases by the Seller
or Master Servicer). [The Mortgage Loans may be prepaid by the Mortgagors at any
time without a prepayment penalty (see "The Mortgage Pool" herein).] [As
described under "Description of the Certificates" herein, all Principal
Prepayments, until the Distribution Date occurring in [ ], will be distributed
to the Class A Certificates.] [Increases in the required monthly payments on
Mortgage Loans with an Adjustable Rate in excess of those assumed in
underwriting such Mortgage Loans may result in a default rate higher than that
which may have been experienced had such Adjustable Rate Mortgage Loans borne
Fixed Rates.] [The Mortgage Loans are subject to the "due-on-sale" provisions
included therein.] Prepayments, liquidations and purchases of the Mortgage Loans
(including any optional purchase by the Master Servicer of a defaulted Mortgage
Loan) will result in distributions to Class A Certificateholders of principal
amounts which would otherwise be distributed over the remaining terms of the
Mortgage Loans. Since the rate of payment of principal on the Mortgage Loans
will depend on future events and a variety of factors, no assurance can be given
as to such rate or the rate of Principal Prepayments. The extent to which the
yield to maturity of a Class A Certificate may vary from the anticipated yield
will depend upon the degree to which it is purchased at a discount or premium,
and the degree to which the timing of payments thereon is sensitive to
prepayments, liquidations and purchases of the Mortgage Loans. Further, in the
case of any Class A Certificate purchased at a discount, an investor should
consider the risk that a slower than anticipated rate of principal payments on
the Mortgage Loans could result in an actual yield to such investor that is
lower than the anticipated yield and, in the case of any Class A Certificate
purchased at a premium and any Class S Certificate, the risk that a faster than
anticipated rate of principal payments, liquidations and purchases could result
in an actual yield to such investor that is lower than the anticipated yield. An
investor in a Class S Certificate should carefully consider the risk that a
rapid rate of principal
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payments on the Mortgage Loans could result in the failure of such investor to
recover its initial investment.
[To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the purchase of Subsequent Mortgage Loans by or on behalf
of the Trust by the end of the Funding Period, the holders of the Class A
Certificates will receive a prepayment of principal in an amount equal to the
funds remaining in the Pre-Funding Account at such time, which prepayment will
be made on the first Distribution Date following the end of the Funding Period.
It is anticipated that the principal amount of Subsequent Mortgage Loans
purchased by or on behalf of the Trust will not be exactly equal to the amount
on deposit in the Pre-Funding Account and that therefore there will be at least
a nominal amount of principal prepaid to the holders of the Class A
Certificates.]
[The Class A Pass-Through Rate for each Distribution Date will not exceed
the weighted average of the Mortgage Rates on the Mortgage Loans for the
preceding calendar month.] Disproportionate principal payments (whether
resulting from full or partial prepayments) on Mortgage Loans having Mortgage
Rates higher or lower than the then current Class A Pass-Through Rate will also
affect the yield on the Class A Certificates. The yield to maturity of the Class
A Certificates will be lower than what would otherwise be produced if
disproportionate principal payments (including Principal Prepayments) are made
on Mortgage Loans having Mortgage Rates that exceed the weighted average
Mortgage Rate. Similarly, the yield to maturity of the Class S Certificates will
be lower than what would otherwise be produced if disproportionate principal
payments (including Principal Prepayments) are made on Mortgage Loans having
Strip Rates [(or Gross Margins)] that exceed the weighted average Strip Rate
[(or weighted average Gross Margin)].
[___% of the Mortgage Loans are Adjustable Rate Mortgage Loans. The rate of
principal prepayments with respect to Adjustable Rate Mortgage Loans has
fluctuated in recent years. As is the case with conventional Fixed Rate Mortgage
Loans, Adjustable Rate Mortgage Loans may be subject to a greater rate of
principal prepayments in a declining interest rate environment. For example, if
prevailing interest rates were to fall significantly, Adjustable Rate Mortgage
Loans could be subject to higher prepayment rates than if prevailing interest
rates were to remain constant because the availability of Fixed Rate Mortgage
Loans at competitive interest rates may encourage mortgagors to refinance their
Adjustable Rate Mortgage Loans to "lock in" lower Fixed Rates.] Conversely, if
prevailing interest rates were to rise significantly, the rate of prepayments on
Adjustable Rate Mortgage Loans would generally be expected to decrease, and the
rate of defaults might increase if Mortgagors were unable to meet the resulting
increases in debt service payments. The rate of payments (including prepayments)
on pools of mortgage loans is also influenced by a variety of economic,
geographic, social and other factors, including changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged
properties and servicing decisions. No assurances can be given as to the rate of
prepayment on the Mortgage Loans in stable or changing interest rate
environments.
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal
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payments is consistent with an investor's expectations. In general, the earlier
a prepayment of principal on the Mortgage Loans, the greater the effect on an
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the Senior
Certificates may not be offset by a subsequent like decrease (or increase in the
rate of principal payments).
[Limitation on Adjustments
Although each of the Adjustable Rate Mortgage Loans bears interest at an
Adjustable Rate, the [semi-annual] [annual] adjustments of the Mortgage Rate for
any Mortgage Loan will not exceed the Periodic Rate Cap and the Mortgage Rate
will in no event exceed the Maximum Rate for such Mortgage Loan, regardless of
the level of interest rates generally or the rate otherwise produced by the
Index and the Gross Margin. [In addition, such adjustments will be subject to
rounding to the nearest one-eighth of 1%.]]
Sensitivity of The Class S Certificates
The yield to maturity of the Class S Certificates will be highly sensitive
to the prepayment, repurchase and default experience of the Mortgage Loans
included in the Trust Fund. Investors should consider carefully the associated
risks, including the risk that a rapid rate of Principal Prepayments or
repurchases of Mortgage Loans could result in the failure of investors in the
Class S Certificates to recover their initial investment.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Constant Prepayment Rate Model or "CPR", assumes that Principal Prepayments will
be made at a constant rate per annum. CPR further assumes that all of the
Mortgage Loans have the same principal balance and amortize at the same rate and
that each such Mortgage Loan in each month of its life will either be paid as
scheduled or be prepaid in full. CPR 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 mortgage loans,
including the Mortgage Loans included in the Trust Fund.
The second following table (the "Yield Table") demonstrates the sensitivity
of the pre-tax yield on the Class S Certificates to various rates of prepayment
by projecting the aggregate payments of interest on the Class S Certificates and
the corresponding pre-tax yields on a corporate bond equivalent basis, assuming
distributions on the Mortgage Loans are made as set forth in the Agreement. The
following chart sets forth certain assumptions used in calculating distributions
on the Mortgage Loans for the Yield Table.
ASSUMED MORTGAGE LOAN CHARACTERISTICS
Scheduled Principal Balance as of the Cut-off Date....... $
Mortgage Rate............................................ %
Strip Rate............................................... %
Remaining Term to Stated Maturity........................ months
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It has also been assumed that: (i) the Mortgage Loans prepay at the
specified percentages of CPR, (ii) no defaults or delinquencies on the Mortgage
Loans are experienced, (iii) the Seller is not required to repurchase or
substitute any or all of the Mortgage Loans pursuant to the Agreement and the
Master Servicer does not exercise its option to repurchase any or all of the
Mortgage Loans pursuant to the Agreement, (iv) scheduled payments for all
Mortgage Loans are received on the first day of each month (commencing ________
__, 199_) and are computed prior to giving effect to prepayments received in the
prior month, (v) all Mortgage Loans will prepay at the same rate and all such
payments will be treated as prepayments in full of individual Mortgage Loans,
with no shortfalls in collection of interest, (vi) such prepayments will be
received on the last day of each month commencing in ________ 199_ and (vii) the
Class S Certificates will be purchased on the Closing Date at a price equal to
$___________ (which includes accrued interest).
PRE-TAX YIELD ON THE CLASS S CERTIFICATES
<TABLE>
<CAPTION>
Percentages of CPR
- ---------------------------------------------------------------------------------------------------------------
3% 5% 10% 15% 17% 18% 20% 25% 30% 35%
-- -- --- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
% % % % % % % % % %
</TABLE>
The pre-tax yields set forth in the Yield Table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class S Certificates, would cause the
discounted present value of such assumed stream of cash flows to the Closing
Date to equal $____________, and converting such monthly rates to corporate bond
equivalent rates. Such calculation does not take into account the interest rates
at which funds received by Certificateholders as distributions on the Class S
Certificates may be reinvested and consequently does not purport to reflect the
return on any investment in the Class S Certificates when such reinvestment
rates are considered.
It is highly unlikely that the Mortgage Loans will prepay at the same rate
until maturity or that all of the Mortgage Loans will prepay at the same rate or
time or that prepayments will be spread evenly among Mortgage Loans with
differing [Gross Margins and] Strip Rates. As a result of these factors, the
pre-tax yields on the Class S Certificates are likely to differ from those shown
in the Yield Table, even if all of the Mortgage Loans prepay at the indicated
percentages of CPR. No representation is made as to the actual rate of principal
payments on the Mortgage Loans (or the Mortgage Rates thereon) for any period or
over the life of the Class S Certificates or as to the yield on the Class S
Certificates. Investors must make their own decisions as to the appropriate
prepayment assumptions to be used in deciding whether to purchase the Class S
Certificates.
CREDIT ENHANCEMENT
Subordination of Subordinated Certificates
The rights of the Subordinated Certificateholders to receive distributions
with respect to the Mortgage Loans will be subordinated to such rights of the
Senior Certificateholders only to the extent described herein [describe
subordination]. The subordination of the Subordinated Certificates and the
Residual Certificates is intended to increase the likelihood of receipt by the
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Senior Certificateholders of the maximum amount to which they are entitled on
any Distribution Date and [following the date on which the amount on deposit in
the Reserve Fund has been reduced to zero] to provide such holders protection
against losses resulting from Liquidated Mortgages to the extent described
herein].
The protection afforded to the Senior Certificateholders from the
subordination feature described above will be effected by the preferential right
of the Senior Certificateholders to receive current distributions from the
Mortgage Pool.
The subordination feature described above is intended to enhance the
likelihood of timely payment of principal and interest and to protect holders of
Senior Certificates against losses; however, in certain circumstances the amount
of subordination may be exhausted and shortfalls could result. If on any
Distribution Date the aggregate amount of payments received from Mortgagors,
[Advances from the Master Servicer], funds otherwise payable to holders of the
Subordinated Certificates [and monies in the Reserve Fund] do not provide
sufficient funds to make full distributions to holders of the Senior
Certificates, holders of the Senior Certificates may incur a loss. [In the event
the Reserve Fund is depleted before the available subordination amount is
reduced to zero, holders of the Senior Certificates will nevertheless have a
preferential right to receive current distributions from the Mortgage Loans to
the extent of such available subordination amount.] Holders of the Senior
Certificates will bear [their proportionate share of] any losses realized on the
Mortgage Loans in excess of the available subordination amount. See "Description
of the Certificates -- Priority of Distribution among Certificates" herein.]
[The Reserve Fund]
[The protection afforded to Senior Certificateholders from the
subordination feature described above will be effected both by the preferential
right of Senior Certificateholders to receive current distributions from the
Mortgage Pool and by the establishment of the reserve fund (the "Reserve
Fund").]
[The Reserve Fund will be established with a financial institution
acceptable to the Rating Agencies to cover a specified amount of certain losses
arising from Liquidated Mortgages, special hazards, and Mortgagor bankruptcy, as
set forth in the Agreement and as further described below. The initial amount of
the Reserve Fund is expected to be approximately $_________, which is equal to
the sum of (i) [ ], with respect to special hazard losses, (ii) $___ with
respect to liquidation losses on the Mortgage Loans and (iii) $_________, with
respect to bankruptcy losses, or such other amounts as are acceptable to the
Rating Agencies in each case. The initial coverage amount of the Reserve Fund is
based on the Mortgage Loans expected to be included in the Mortgage Pool on the
Closing Date, and is subject to change based on changes in the Mortgage Pool
prior to that date. See "The Mortgage Pool" herein.
Special Hazard Coverage
Special hazard coverage under the Reserve Fund will initially equal
approximately $________. On each anniversary of the Cut-off Date, special hazard
coverage will be reduced to an amount equal to the amount determined in
accordance with the Agreement. However, if special
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hazard coverage as of such anniversary date has been reduced to an amount less
than such amount by reason of payment of special hazard losses, neither the
Depositor nor the Master Servicer will be obligated to increase the amount of
special hazard coverage on such anniversary of the Cut-off Date.
Bankruptcy Coverage
A portion of the principal balance of a Mortgage Loan may become unsecured
pursuant to a ruling under the federal Bankruptcy Code, resulting in a shortfall
in payment of principal and interest resulting from the recasting of any
originally scheduled monthly principal and interest payment pursuant to a ruling
under the Bankruptcy Code. Bankruptcy coverage under the Reserve Fund will be
established in the amount of $________, and will be reduced thereafter as
permitted under the Agreement.
Additional Information
The amount of coverage of the Reserve Fund may be canceled or reduced from
time to time for each of the risks covered, provided that the then current
ratings of the Certificates assigned by the Rating Agencies are not adversely
affected thereby. In addition, a letter of credit or other collateral may be
substituted for the Reserve Fund to the extent acceptable to the Rating
Agencies.
The Master Servicer will be required to instruct the Trustee from time to
time to make withdrawals from the Reserve Fund for the benefit of the
Certificateholders.
The coverage amount for each type of coverage under the Reserve Fund will
be reduced over the life of the Certificates by the aggregate amount of any
withdrawals from the Reserve Fund with respect to special hazard losses,
liquidation losses or bankruptcy losses, respectively. The amount for each type
of coverage may otherwise be reduced to the extent acceptable to the Rating
Agencies. If the aggregate amount of withdrawals from the Reserve Fund with
respect to a given category of loss reaches the maximum coverage amount for such
category, any further losses will be borne by the Certificateholders.]
[Special Hazard Insurance Policy]
Subject to the limitations described below, the Special Hazard Insurance
Policy covers (i) loss by reason of damage to Mortgaged Properties caused by
certain hazards (including earthquakes and, to a limited extent, mud flows and
floods) not insured against under the standard form of hazard insurance policy
for the respective states in which the Mortgaged Properties are located or under
a flood insurance policy if the Mortgaged Property is located in a federally
designated flood area and (ii) loss for partial damage caused by reason of the
application of the coinsurance clause contained in hazard insurance policies.
See "Credit Enhancement--Special Hazard Insurance Policies" in the Prospectus
for a description of the hazard insurance and flood insurance coverages required
to be maintained for Mortgage Loans. Claims under the Special Hazard Insurance
Policy are limited initially to __% of the Pool Principal Balance or [____ the
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Principal Balance of the Mortgage Loan with the highest outstanding principal
balance at the Cut-off Date, whichever is greater.
The special hazard insurance policy (the "Special Hazard Insurance Policy")
will be issued by _________, a __________ corporation (the "Special Hazard
Insurer"). At _________, ____, the Special Hazard Insurer had total assets of
approximately $____ million and total policy holders' surplus of $____ million.
The claim-paying ability of the Special Hazard Insurer is presently rated ______
by _____________.]
[Spread Account]
Pursuant to the Agreement, there shall be established with the Trustee a
separate trust account (the "Spread Account"), for the benefit of the holders of
the Certificates, into which the Trustee will deposit upon receipt from the
Master Servicer on each Distribution Date, [prior to making any payments to the
Certificateholders], the excess, if any, of the aggregate interest [accrued]
[received] during the related Due Period on all of the Mortgage Notes at their
respective Mortgage Rates [(including the portion of any advance allocable
thereto)] over the sum of (i) the Senior Interest Distribution Amount for the
[Class A] Certificates, (ii) the Monthly Premium due to the Certificate Guaranty
Insurer, (iii) any fees due to the issuers of any Letters of Credit (as defined
herein) and (iv) the Master Servicing Fee (such excess with respect to each
Distribution Date, the "Excess Spread"). [Unless otherwise specified by the
Certificate Guaranty Insurer,] the Trustee is required to retain 100% of the
Excess Spread (the "Periodic Excess Spread Amount") in the Spread Account until
the amount on deposit therein is equal to an amount specified in the Agreement
(the "Base Spread Account Requirement"). After the amount on deposit in the
Spread Account is equal to the Base Spread Account Requirement, the amount
required to be on deposit in the Spread Account at any time (the "Specified
Spread Account Requirement") may be reduced over time as specified in the
Agreement. The percentage used in determining the Periodic Excess Spread Amount
may be reduced at the sole discretion of the Certificate Guaranty Insurer [with
the consent of each person obligated to reimburse issuers of any Letters of
Credit on deposit in the Spread Account for outstanding drawings thereunder
(each such person, an "Account Party"),] and the Base Spread Account Requirement
may be reduced at the sole discretion of the Certificate Guaranty Insurer, in
each case without the consent of any Certificateholder.
The Agreement permits the Spread Account to be funded in part by one or
more letters of credit (each, a "Letter of Credit") issued by banks, trust
companies or other institutions having on the date of delivery of such Letter of
Credit debt ratings acceptable to Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Group ("S&P"), and having certain other
qualifications set forth in the Agreement. Amounts available to be drawn under
any Letter of Credit will be deemed to be on deposit in the Spread Account.
On each Distribution Date amounts, if any, on deposit in the Spread Account
will be available to fund any shortfall between the Available Funds for payments
to [Class A] Certificateholders and the Senior Distribution Amount; provided
that, on and after the date (the "Spread Account Cross-Over Date") on which the
aggregate withdrawals from the Spread Account to cover shortfalls in amounts
payable on the [Class A] Certificates attributable to liquidation losses
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on Liquidated Mortgages (such withdrawals, "Cumulative Spread Account Receipts")
equal an amount specified in the Agreement (the "Subordinated Amount"), no
further withdrawals with respect to shortfalls in the amounts required to be
paid to the [Class A] Certificateholders may be made from the Spread Account,
and the Specified Spread Account Requirement will thereafter be zero. In
addition, the Agreement provides that the Specified Spread Account Requirement
for any date shall in no event be greater than the Subordinated Amount as of
such date.
On each Distribution Date, any amounts constituting (i) Excess Spread in
excess of the Periodic Excess Spread Amount (the "Remainder Excess Spread
Amount"), (ii) amounts in the Spread Account in excess of the Specified Spread
Account Requirement as of such Distribution Date (any such amount, a "Spread
Account Excess") and (iii) after the Cross-Over Date, the entire Excess Spread,
will be distributed to the Class R Certificateholders after repayment of
[outstanding draws under any Letters of Credit and of] unreimbursed Advances to
the Master Servicer.
Neither the Class R Certificateholders nor the Master Servicer will be
required to refund any amounts properly distributed to them, regardless of
whether there are sufficient funds on a subsequent Distribution Date to make a
full payment to Class A Certificateholders of the amount required to be paid to
such Certificateholders.
The funding and maintenance of the Spread Account is intended to enhance
the likelihood of timely payment to [Class A] Certificateholders of the Senior
Distribution Amount; however, in certain circumstances, the Spread Account could
be depleted or reduced by the Certificate Guaranty Insurer and shortfalls could
result. The Spread Account will be funded with Excess Spread from all Mortgage
Loans, [without regard to Mortgage Loan Group] and will be available for
distributions to all of the [Class A] Certificates.
Notwithstanding the depletion or reduction of the Spread Account, the
Certificate Guaranty Insurer will be obligated to make Insured Payments on each
Distribution Date to fund the full amount of the Senior Distribution Amount on
such Distribution Date.]
Limited Guarantee
On or before the Closing Date, the Master Servicer will obtain a limited
guarantee (the "Limited Guarantee") issued by CIT, in favor of the Trustee on
behalf of the [Class __] Certificateholders. The Limited Guarantee will provide
for coverage of the distribution due on the [Class _] Certificates on each
Distribution Date. On each Distribution Date, CIT will make available to the
Trustee the amount of any insufficiency in the amount available as of such
Distribution Date which is necessary to distribute to the [Class _]
Certificateholders the ______________ on such Distribution Date (each, a
"Guarantee Payment"). Any such Limited Guarantee will be limited to payments of
principal on the Class __ Certificates aggregating not more than $_____, and a
portion of the coverage of any such Limited Guarantee will be separately
allocated to ____________.
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[THE CERTIFICATE GUARANTY INSURANCE POLICY AND
THE CERTIFICATE GUARANTY INSURER]
The following information has been furnished by the Certificate Guaranty
Insurer for use herein. Reference is made to Exhibit A for specimens of the
Certificate Guaranty Insurer's Certificate Guaranty Insurance Policy for the
[Class _] Certificates.
On or before the Closing Date, the Servicer will obtain the certificate
guaranty insurance policy (the "Certificate Guaranty Insurance Policy") from
__________ (the "Certificate Guaranty Insurer"), in favor of the Trustee on
behalf of the [Class _] Certificateholders. The Certificate Guaranty Insurance
Policy unconditionally and irrevocably guarantees to any Owner (as described
below) that an amount equal to each full and complete Insurance Payment will be
received by the Trustee, on behalf of the Owners, for distribution by the
Trustee to each Owner of each Owner's proportionate share of the Insured
Payment. The Certificate Guaranty Insurer's obligations under the Certificate
Guaranty Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Trustee, whether or not such funds are properly applied by the
Trustee. Insured Payments shall be made only at the time set forth in the
Certificate Guaranty Insurance Policy and no accelerated Insured Payments shall
be made regardless of any acceleration of the [Class _] Certificates, unless
such acceleration is at the sole option of the Certificate Guaranty Insurer. See
"The Agreement--Termination; Purchase of Mortgage Loans" in the Prospectus.
Notwithstanding the foregoing paragraph, the Certificate Guaranty Insurance
Policy does not cover shortfalls, if any, attributable to the liability of the
Trust or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability). Further, the Certificate Guaranty
Insurance Policy does not guaranty payment of __________.
The Certificate Guaranty Insurer will pay any Insured Payment that is a
Preference Amount (as described below) on the Business Day (as defined in the
Agreement) following receipt on a Business Day by the Fiscal Agent (as defined
below) of (i) a certified copy of such order, (ii) an opinion of counsel
satisfactory to the Certificate Guaranty Insurer that such order is final and
not subject to appeal, (iii) an assignment in such form as is reasonably
required by the Certificate Guaranty Insurer, irrevocably assigning to the
Certificate Guaranty Insurer all rights and claims of the Owner relating to or
arising under the applicable [Class _] Certificates against the debtor which
made such preference payment or otherwise with respect to such preference
payment and (iv) appropriate instruments to effect the appointment of the
Certificate Guaranty Insurer as agent for such Owner in any legal proceeding
related to such preference payment, such instruments being in a form
satisfactory to the Certificate Guaranty Insurer, provided that if such
documents are received after 12:00 noon New York City time on such Business Day,
they will be deemed to be received on the following Business Day. Such payments
shall be disbursed to the receiver or trustee in bankruptcy named in the final
order of the court exercising jurisdiction on behalf of the Owner and not to any
Owner directly unless such Owner has returned principal or interest paid on the
applicable [Class _] Certificate to such receiver or trustee in bankruptcy, in
which case such payment shall be disbursed to such Owner.
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The Certificate Guaranty Insurer will pay nay other amount payable under
the Certificate Guaranty Insurance Policy no later than 12:00 noon New York City
time on the later of the Distribution Date on which the related amount is due or
the Business Day following receipt in New York, New York on a Business Day by
_______, as Agent for the Certificate Guaranty Insurer or any successor fiscal
agent appointed by the Certificate Guaranty Insurer (the "Fiscal Agent") of a
Notice (as described below); provided that if such Notice is received after
12:00 noon New York City time on such Business Day, it will be deemed to be
received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claims under the Certificate Guaranty Insurance Policy, such Notice
shall be deemed not to have been received by the Fiscal Agent for purposes of
this paragraph, and the Certificate Guaranty Insurer or the Fiscal Agent, as the
case may be, shall promptly so advise the Trustee and the Trustee may submit an
amended Notice.
Insured Payments due under the Certificate Guaranty Insurance Policy,
unless otherwise stated in the Certificate Guaranty Insurance Policy, will be
disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Certificate Guaranty Insurer only and
the Fiscal Agent shall in no event be liable to Owners for any acts of the
Fiscal Agent or any failure of the Certificate Guaranty Insurer to deposit, or
cause to be deposited, sufficient funds to make payments due under the
Certificate Guaranty Insurance Policy.
As used in the Certificate Guaranty Insurance Policy, the following terms
shall have the following meanings:
"Deficiency Amount" means with respect to any Distribution Date, ________.
"Insured Payment" means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
related Certificate Guaranty Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insured Payment which shall be due and owing on the applicable
Distribution Date.
"Owner" means each [Class _] Certificateholder (other than the Trust) who,
on the applicable Distribution Date, is entitled under the terms of the
applicable [Class _] Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Certificates that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended
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from time to time, in accordance with a final nonappealable order of a court
having competent jurisdiction.
Capitalized terms used in the Certificate Guaranty Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Agreement as of the date of execution of the Certificate Guaranty Insurance
Policy, without giving effect to any subsequent amendment or modification to the
Agreement.
The Certificate Guaranty Insurance Policy will be issued under and pursuant
to, and shall be construed under, the laws of the State of ___________, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Guaranty Insurance Policy is not
covered by the __________ Fund specified in _______ of the __________ Insurance
Law.
The Certificate Guaranty Insurance Policy is not cancelable for any reason.
The premiums on the Certificate Guaranty Insurance Policy is not refundable for
any reason including payment, or provision being made for payment, prior to
maturity of the [Class _] Certificates.
The table below presents selected financial information of the Certificate
Guaranty Insurer determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities ("SAP") and
generally accepted accounting principles ("GAAP"):
[INSERT TABLE]
Audited financial statements of the Certificate Guaranty Insurer as of
______ and each of the three years and each of the three years in the period
ended __________ are included herein as Exhibit B. Unaudited financial
statements of the Certificate Guaranty Insurer for the ___ month period ended
______ are included herein as Exhibit C. Such financial statements have been
prepared on the basis of GAAP. Copies of the Certificate Guaranty Insurer's
199____ year end audited financial statements prepared in accordance with
statutory accounting practices are available from the Certificate Guaranty
Insurer. The address of the Certificate Guaranty Insurer is _______________.
The Certificate Guaranty Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or the Prospectus or any
information or disclosure contained herein or therein, or omitted herefrom or
therefrom, other than with respect to the accuracy of the information regarding
the Certificate Guaranty Insurance Policy and the Certificate Guaranty Insurer
set forth under the heading "The Certificate Guaranty Insurance Policy and the
Certificate Guaranty Insurer" herein and in Exhibits A, B and C hereto.
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USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates [(together with the net proceeds of the sale of the Subordinated
Certificates)] to pay to the Seller the purchase price of the Mortgage Loans and
to pay certain expenses of the offering.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain of the anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereby. The discussion, and the opinions referred to below,
are based on laws, regulations, rulings and decisions now in effect (or, in the
case of certain regulations, proposed), all of which are subject to change or
possibly differing interpretations. The discussion below does not purport to
deal with federal tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors in determining the federal, state, local and other tax
consequences to them of the purchase, ownership and disposition of Certificates.
For purposes of this tax discussion (except with respect to information
reporting, or where the context indicates otherwise), the terms
"Certificateholder" and "holder" mean the beneficial owner of a Certificate.
[REMIC Election
Under the Internal Revenue Code of 1986, as amended (the "Code"), an
election will be made to treat the Trust [or certain assets of such Trust as a
REMIC]. [Certificateholders will also have the benefit of a Reserve Fund and of
certain agreements (each, a "Yield Supplement Agreement") under which payment
will be made from the Reserve Fund in the event that interest accrued on the
Mortgage Loans at their Mortgage Interest Rates is insufficient to pay interest
on the Certificates (a "Basis Risk Shortfall"). The [Class __] Certificates will
be designated as "regular interests" ("REMIC Regular Certificates") in the REMIC
(within the meaning of Section 860G(a)(1) of the Code) and the Class R
Certificate will be designated as the "residual interest" ("REMIC Residual
Certificates") in the REMIC (within the meaning of Section 860G(a)(2) of the
Code).
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust as long as there are any
Certificates outstanding. Substantially all of the assets of the REMIC must
consist of "qualified mortgages" and "permitted investments" as of the close of
the third month beginning after the day on which the REMIC issues all of its
regular and residual interests (the "Startup Day") and at all times thereafter.
The term "qualified mortgage" means any obligation (including a participation or
certificate of beneficial ownership in such obligation) which is principally
secured by an interest in real property that is transferred to the REMIC on the
Startup Day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the Startup
Day if such purchase is pursuant to a fixed price contract in effect on the
Startup Day. The regulations under
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sections 860A through 860G of the Code (the "REMIC Regulations") provide that an
obligation is principally secured by an interest in real property if the fair
market value of the real property securing the obligation is at least equal to
either (i) 80% of the issue price (generally, the principal balance) of the
obligation at the time it was originated, or (ii) 80% of the adjusted issue
price (the then-outstanding principal balance, with certain adjustments) of the
obligation at the time it is contributed to a REMIC. In the case of a second or
other junior mortgage, the fair market value of the underlying real property
must be reduced by the amount of any lien that is senior to such mortgage, and
must be further reduced by a proportionate amount of any lien which is in parity
with such mortgage. Alternatively, an obligation is principally secured by an
interest in real property if substantially all of the proceeds of the obligation
were used to acquire or to improve or protect an interest in real property that,
at the origination date, is the only security for the obligation (other than the
personal liability of the obligor). A qualified mortgage also includes a
qualified replacement mortgage that is used to replace any qualified mortgage
within three months of the Startup Day or to replace a defective mortgage within
two years of the Startup Day.
Permitted Investments. Permitted investments consist of (a) temporary
investments of cash received under qualified mortgages before distribution to
holders of interests in the REMIC ("cash-flow investments"), (b) amounts, such
as a fund (a "reserve fund"), if any, reasonably required to provide for full
payment of expenses of the REMIC, the principal and interest due on regular or
residual interests in the event of defaults on qualified mortgages, lower than
expected returns on cash-flow investments, prepayment interest shortfalls or
certain other contingencies ("qualified reserve assets"), and (c) certain
property acquired as a result of foreclosure of defaulted qualified mortgages
("foreclosure property"). Certain credit enhancement arrangements which provide
for full or partial payment on one or more classes of REMIC Regular Certificates
in the event of defaults or delinquencies on qualified mortgages, unanticipated
losses or expenses incurred by the REMIC or lower than expected returns on cash
flow investments are not treated as separate assets of the REMIC under the REMIC
Regulations and payments under such arrangements are treated as payments
received on qualified mortgages. In addition, the REMIC Regulations do not treat
certain reserve funds maintained outside of the REMIC as an asset of the REMIC.
A reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for less than three months, unless such sale is necessary to
prevent a default in payment of principal or interest on a regular interest as
the result of a default on a qualified mortgage. In accordance with Section
860G(a)(7) of the Code, a reserve fund must be "promptly and appropriately"
reduced as payments on Mortgage Loans are received. Foreclosure property will be
a permitted investment only to the extent that such property is not held for
more than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt from
United States tax, including the tax on unrelated business income ("Disqualified
Organizations"), not hold residual interests in the REMIC. Consequently, in the
case of any Trust for which a REMIC election is made the transfer, sale or other
disposition of a REMIC Residual Certificate to a Disqualified Organization will
be
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prohibited and the ability of a REMIC Residual Certificate to be transferred
will be conditioned on the Trustee's receipt of a certificate or other document
representing that the proposed transferee is not a Disqualified Organization.
The transferor of a REMIC Residual Certificate must not, as of the time of the
transfer, have actual knowledge that such representation is false. The Code
further requires that reasonable arrangements must be made to enable a REMIC to
provide the Internal Revenue Service (the "Service") and certain other parties,
including transferors of residual interests in a REMIC, with the information
needed to compute the tax imposed by Section 860E(e)(1) of the Code if, in spite
of the steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest.
If the Trust fails to comply with one or more of the ongoing requirements
for qualification as a REMIC, the Trust will not be treated as a REMIC for the
year during which such failure occurs and thereafter unless the Service
determines, in its discretion, that such failure was inadvertent (in which case,
the Service may require any adjustments which it deems appropriate). [Failure to
treat the Trust as a REMIC may cause the Trust to be treated as an association
taxable as a corporation. Such treatment could result in income of the Trust
being subject to corporate tax in the hands of the Trust and in a reduced amount
being available for distribution to Certificateholders as a result of the
payment of such taxes.]
Certificates
With respect to each series of Certificates, the Trustee will agree in the
Agreement to elect to treat the related Trust [or certain assets of such Trust]
as a REMIC. Qualification as a REMIC requires ongoing compliance with certain
conditions. Upon the issuance of each series of Certificates, Schulte Roth &
Zabel LLP, counsel to the Depositor, will deliver its opinion generally to the
effect that, with respect to each series of Certificates for which a REMIC
election is to be made, under then existing law and assuming (i) a proper and
timely REMIC election, and (ii) ongoing compliance with the provisions of the
Agreement and applicable provisions of the Code and applicable Treasury
regulations and rulings, and in reliance upon the representations and warranties
in the Agreement, at the initial issuance of Certificates in such Series, the
related Trust or certain assets of such Trust will be a REMIC and the
Certificates will be considered to evidence ownership of "regular interests" in
the REMIC within the meaning of Section 860G(a)(1) of the Code or "residual
interests" in the REMIC within the meaning of the Section 860G(a)(2) of the
Code.
[Holders of the REMIC Regular Certificates who are entitled to payments
from the Reserve Fund in the event of a Basis Risk Shortfall will be required to
allocate their purchase price between their beneficial ownership interests in
the related REMIC regular interests and Yield Supplement Agreements, and will be
required to report their income realized with respect to each, calculated taking
into account such allocation. In general, such allocation would be based on the
respective fair market values of the REMIC regular interests and the related
Yield Supplement Agreements on the date of purchase of the related Certificate.
No representation is or will be made as to the fair market value of the Yield
Supplement Agreements or the relative
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values of the REMIC regular interests and the Yield Supplement Agreements, upon
initial issuance of the related REMIC Regular Certificates or at any time
thereafter. Holders of the REMIC Regular Certificates are advised to consult
their own tax advisors concerning the determination of such fair market values.
Under the Agreement, holders of applicable classes of REMIC Regular Certificates
will agree that, for federal income tax purposes, they will be treated as owners
of the respective class of regular interests and of the corresponding Yield
Supplement Agreement.]
Status of Certificates as Real Property Loans. The Certificates will be
"real estate assets" for purposes of Section 856(c)(5)(A) of the Code and a
"regular . . . interest in a REMIC" within the meaning of Section
7701(a)(19)(C)(xi) of the Code (assets qualifying under one or more of those
sections, applying each section separately, "qualifying assets") to the extent
that the REMIC's assets are qualifying assets. However, if at least 95 percent
of the REMIC's assets are qualifying assets, then 100 percent of the
Certificates will be qualifying assets, but not to the extent that the Trust's
assets consist of Yield Supplement Agreements. Similarly, income on the
Certificates will be treated as "interest on obligations secured by mortgages on
real property" within the meaning of Section 856(c)(3)(B) of the Code, subject
to the limitations of the preceding two sentences. [In addition to Mortgage
Assets, the REMIC's assets will include payments on Mortgage Assets held pending
distribution to holders of Certificates, amounts in reserve accounts (if any),
other credit enhancements (if any) and possibly Buydown Funds.] The Mortgage
Assets generally will be qualifying assets under all three of the foregoing
sections of the Code. However, Mortgage Assets that are not secured by
residential real property or real property used primarily for church purposes
may not constitute qualifying assets under Section 7701(a)(19)(c)(v) of the
Code. The REMIC Regulations treat (credit enhancements) as part of the mortgage
or pool of mortgages to which they relate, and therefore (credit enhancements)
generally should be qualifying assets. Regulations issued in conjunction with
the REMIC Regulations provide that amounts paid on Mortgage Assets and held
pending distribution to holders of Certificates ("cash flow investments") will
be treated as qualifying assets. [It is unclear whether reserve funds or Buydown
Funds would also constitute qualifying assets under any of those provisions.] In
certain instances, the principal balance of a Mortgage Loan may exceed the value
of the Mortgaged Property which secures such Mortgage Loan. Although no specific
authority addresses this issue, in such instances, the extent to which such a
Mortgage Loan may be treated as a qualifying asset and the extent to which
interest on such a Mortgage Loan comprises "interest on obligations secured by
mortgages on real property" under Section 856(c)(3)(B) of the Code may be
limited. REMIC Regular Certificates held by a regulated investment company or a
real estate investment trust will not constitute "Government Securities" within
the meaning of Sections 851(b)(4)(A)(i) and 856(c)(5)(A) of the Code,
respectively.
[Tiered REMIC Structures
Two or more separate elections will be made to treat [designated portions
of the related Trust] as REMICs ("Tiered REMICs") for federal income tax
purposes. Upon the issuance of the Certificates, Schulte Roth & Zabel LLP will
deliver its opinion generally to the effect that, assuming (i) proper and timely
REMIC elections and (ii) compliance with all provisions of the
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Agreement and applicable provisions of the Code and applicable Treasury
regulations and rulings, and in reliance upon the representations and warranties
in the Agreement at the initial issuance of Certificates, the Tiered REMICs will
each qualify as a REMIC and the Certificates issued by the Tiered REMICs,
respectively, will be considered to evidence ownership of "regular interests" or
"residual interests" in the related REMIC within the meaning of the REMIC
provisions of the Code.
Solely for purposes of determining whether the Certificates will be "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code, and
"loans secured by an interest in real property" under Section 7701(a)(19)(C) of
the Code, and whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code, the Tiered REMICs will be treated as one
REMIC.]
REMIC Regular Certificates
Current Income on REMIC Regular Certificates -- General. Except as
otherwise indicated herein, the REMIC Regular Certificates will be treated for
federal income tax purposes (but not necessarily for accounting or other
purposes) as debt instruments that are issued by the REMIC on the date of
issuance of the REMIC Regular Certificates and not as ownership interests in the
REMIC or the REMIC's assets. Stated interest on a REMIC Regular Certificate will
be taxable as ordinary income. Holders of REMIC Regular Certificates who would
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Under Temporary Treasury Regulations, if a Trust, with respect to which a
REMIC election is made, is considered to be a "single-class REMIC," a portion of
the REMIC's servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by the Master
Servicer [or the Depositor] will be allocated as a separate item to those
holders of REMIC Regular Certificates that are "pass-through interest holders".
Generally, a single-class REMIC is defined as a REMIC that would be treated as a
fixed investment trust under applicable law but for its qualification as a
REMIC, or 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 Treasury Regulations. Generally, a pass-through
interest holder refers to individuals, entities taxed as individuals, such as
certain trusts and estates, which hold their REMIC Regular Certificates either
directly or through certain pass-through entities. Such a holder of a REMIC
Regular Certificate in a single-class REMIC will be allowed to deduct the
foregoing expenses under Section 212 of the Code only to the extent that, in the
aggregate and combined with certain other miscellaneous itemized deductions,
they exceed 2% of the adjusted gross income of the holder. In addition, Section
68 of the Code provides that the amount of certain itemized deductions
(including those provided for in Section 212 of the Code) otherwise allowable
for the taxable year for an individual whose adjusted gross income exceeds an
inflation-adjusted threshold amount specified in the Code ($121,200 for taxable
years beginning in 1997, in the case of a joint return) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount, or (ii) 80% of the amount
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of itemized deductions otherwise allowable for such taxable year. As a result of
the foregoing limitations, certain holders of REMIC Regular Certificates in
"single-class REMICs" may not be entitled to deduct all of any part of the
foregoing expenses.
Payments of interest on REMIC Regular Certificates may be based on a fixed
rate, a variable rate as permitted by the REMIC Regulations, or may consist of a
specified portion of the interest payments on qualified mortgages where such
portion does not vary during the period the REMIC Regular Certificate is
outstanding. The definition of a variable rate for purposes of the REMIC
Regulations is based on the definition of a qualified floating rate for purposes
of the rules governing original issue discount set forth in Sections 1271
through 1275 of the Code and the regulations thereunder (the "OID Regulations")
with certain modifications and permissible variations. See "REMIC Regular
Certificates-Current Income on REMIC Regular Certificates -- Original Issue
Discount---Variable Rate REMIC Regular Certificates," below, for a discussion of
the definition of a qualified floating rate for purposes of the OID Regulations.
In contrast to the OID Regulations, for purposes of the REMIC Regulations, a
qualified floating rate does not include any multiple of a qualified floating
rate (also excluding multiples of qualified floating rates that themselves would
constitute qualified floating rates under the OID Regulations), and the
characterization of a variable rate that is subject to a cap, floor or similar
restriction as a qualified floating rate for purpose of the REMIC Regulations
will not depend upon the OID Regulations relating to caps, floors, and similar
restrictions. See "REMIC Regular Certificates-Current Income on REMIC Regular
Certificates--Original Issue Discount---Variable Rate REMIC Regular
Certificates," below, for a discussion of the OID Regulations relating to caps,
floors and similar restrictions. A qualified floating rate, as defined above for
purposes of the REMIC Regulations (a "REMIC qualified floating rate"), qualifies
as a variable rate for purposes of the REMIC Regulations if such REMIC qualified
floating rate is set at a "current rate" as defined in the OID Regulations. In
addition, a rate equal to the highest, lowest or an average of two or more REMIC
qualified floating rates qualifies as a variable rate for REMIC purposes. A
REMIC Regular Certificate also may have a variable rate based on a weighted
average of the interest rates on some or all of the qualified mortgages held by
the REMIC where each qualified mortgage taken into account has a fixed rate or a
variable rate that is permissible under the REMIC Regulations. Further, a REMIC
Regular Certificate may have a rate that is the product of a REMIC qualified
floating rate or a weighted average rate and a fixed multiplier, is a constant
number of basis points more or less than a REMIC qualified floating rate or a
weighted average rate, or is the product, plus or minus a constant number of
basis points, of a REMIC qualified floating rate or a weighted average rate and
a fixed multiplier. An otherwise permissible variable rate for a REMIC Regular
Certificate, described above, will not lose its character as such because it is
subject to a floor or a cap, including a "funds available cap" as that term is
defined in the REMIC Regulations. Lastly, a REMIC Regular Certificate will be
considered as having a permissible variable rate if it has a fixed or otherwise
permissible variable rate during one or more payment or accrual periods and
different fixed or otherwise permissible variable rates during other payment or
accrual periods.
[Original Issue Discount. REMIC Regular Certificates of certain series will
be issued with "original issue discount" within the meaning of Section 1273(a)
of the Code ("OID"). Holders of REMIC Regular Certificates issued with original
issue discount generally must
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include original issue discount in gross income for federal income tax purposes
as it accrues, in advance of receipt of the cash attributable to such income,
under a method that takes account of the compounding of interest. The Code
requires that information with respect to the original issue discount accruing
on any REMIC Regular Certificate be reported periodically to the Service and to
certain categories of holders of such REMIC Regular Certificates.
Each Trust will report original issue discount, if any, to the holders of
REMIC Regular Certificates based on the OID Regulations. The OID Regulations
were effective April 4, 1994. Proposed OID Regulations concerning contingent
payments have not been finalized. Certificateholders should be aware that the
OID Regulations do not address certain issues relevant to prepayable securities
such as the REMIC Regular Certificates.
These rules provide that, in the case of a debt instrument such as a REMIC
Regular Certificate, (i) the amount and rate of accrual of original issue
discount will be calculated based on a reasonable assumed prepayment rate (the
"Prepayment Assumption"), and (ii) adjustments will be made in the amount and
rate of accrual of such discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The method for determining the
appropriate assumed prepayment rate will eventually be set forth in Treasury
regulations, but those regulations have not yet been issued. The applicable
legislative history indicates, however, that such regulations will provide that
the assumed prepayment rate for securities as the REMIC Regular Certificates
will be the rate used in pricing the initial offering of the securities. The
Prepayment Assumption is ____________ but no representation is made that the
REMIC Regular Certificates will, in fact, prepay at a rate based on the
Prepayment Assumption or at any other rate.
In general, a REMIC Regular Certificate will be considered to be issued
with original issue discount if its stated redemption price at maturity exceeds
its issue price. Except as discussed below under "Payment Lag REMIC Regular
Certificates," and "Qualified Stated Interest," and in the case of certain
Variable Rate REMIC Regular Certificates (as defined herein) and accrual
certificates, the stated redemption price at maturity of a REMIC Regular
Certificate is its principal amount. The issue price of a REMIC Regular
Certificate is the initial offering price to the public (excluding bond houses
and brokers) at which a substantial amount of the class of REMIC Regular
Certificates was sold. If a portion of the initial offering price of a REMIC
Regular Certificate is allocable to interest that has accrued prior to its date
of issue, the issue price of such a REMIC Regular Certificate will be computed
by including pre-issuance accrued interest. The issue price will be reduced if
any portion of such price is allocable to a related Yield Supplement Agreement.
Notwithstanding the general definition of original issue discount, such discount
will be considered to be zero for any REMIC Regular Certificate on which such
discount is less than 0.25% of its stated redemption price at maturity
multiplied by its weighted average life. Although there is some uncertainty, in
the absence of authority to the contrary, the Depositor expects to compute the
weighted average life of a REMIC Regular Certificate for purposes of this de
minimis rule as the sum, for all distributions included in the stated redemption
price at maturity of the REMIC Regular Certificate, of the amounts determined by
multiplying (i) the number of complete years (rounding down for partial years)
from the date of initial issuance of Certificates, (the "Closing Date") to the
date on which each such
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distribution is expected to be made, determined under the Prepayment Assumption,
by (ii) a fraction, the numerator of which is the amount of such distribution
and the denominator of which is the REMIC Regular Certificate's stated
redemption price at maturity. Generally, the original holder of a REMIC Regular
Certificate that includes a de minimis amount of original issue discount
includes that original issue discount in income as principal payments are made.
The amount includable in income with respect to each principal payment equals a
pro rata portion of the entire amount of de minimis original issue discount with
respect to that REMIC Regular Certificate. Any de minimis amount of original
issue discount includable in income by a holder of a REMIC Regular Certificate
is generally treated as a capital gain if the REMIC Regular Certificate is a
capital asset in the hands of the holder thereof.
The holder of a REMIC Regular Certificate issued with original issue
discount must include in gross income the sum of the "daily portions" of such
original issue discount for each day during its taxable year on which it held
such REMIC Regular Certificate. In the case of an original holder of a REMIC
Regular Certificate, the daily portions of original issue discount are
determined first by calculating the portion of the original issue discount that
accrued during each period (an "accrual period") that begins on the date
following a Distribution Date (or in the case of the first such period, begins
on the Closing Date) and ends on the next succeeding Distribution Date. The
original issue discount accruing during each accrual period is then allocated
ratably to each day during such period to determine the daily portion of
original issue discount for that day.
The portion of the original issue discount that accrues in any accrual
period will equal the excess, if any, of (i) the sum of (A) the present value,
as of the end of the accrual period, of all of the distributions to be made on
the REMIC Regular Certificate, if any, in future periods, and (B) the
distributions made on the REMIC Regular Certificate during the accrual period
that are included in such REMIC Regular Certificate's stated redemption price at
maturity, over (ii) the adjusted issue price of such REMIC Regular Certificate
at the beginning of the accrual period. The present value of the remaining
distributions referred to in the preceding sentence will be calculated (i)
assuming that the REMIC Regular Certificates will be prepaid in future periods
at a rate computed in accordance with the Prepayment Assumption, and (ii) using
a discount rate equal to the original yield to maturity of the REMIC Regular
Certificates. For these purposes, the original yield to maturity of the REMIC
Regular Certificates will be calculated based on their issue price and assuming
that the REMIC Regular Certificates will be prepaid in accordance with the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of such REMIC
Regular Certificate, increased by the portion of the original issue discount
that has accrued during prior accrual periods, and reduced by the amount of any
distributions made on such REMIC Regular Certificate in prior accrual periods
that were included in such REMIC Regular Certificate's stated redemption price
at maturity.
The daily portions of original issue discount may increase or decrease
depending on the extent to which the actual rate of prepayments diverges from
the Prepayment Assumption. If original issue discount accruing during any
accrual period computed as described above is negative, it is likely that a
holder will be entitled to offset such amount only against positive original
issue discount accruing on such REMIC Regular Certificate in future accrual
periods.
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Although not entirely fee from doubt, such a holder may be entitled to deduct a
loss to the extent that its remaining basis would exceed the maximum amount of
future payments to which such holder is entitled. It is unclear whether the
Prepayment Assumption is taken into account for this purpose.
A subsequent holder which purchases a REMIC Regular Certificate issued with
original issue discount at a cost less than its remaining stated redemption
price at maturity will also generally be required to include in gross income,
for each day on which it holds such REMIC Regular Certificate, the daily
portions of original issue discount with respect to the REMIC Regular
Certificate, calculated as described above. However, if (i) the excess of the
remaining stated redemption price at maturity over such cost is less than (ii)
the aggregate amount of such daily portions for all days after the date of
purchase until final retirement of such REMIC Regular Certificate, then such
daily portions will be reduced proportionately in determining the income of such
holder.
Qualified Stated Interest. Unless interest payable on a REMIC Regular
Certificate constitutes "qualified stated interest" for purposes of the OID
Regulations, such interest payments will be includable in the stated redemption
price at maturity of the REMIC Regular Certificate. Interest payments will not
qualify as qualified stated interest unless the interest payments are
"unconditionally payable." Under the OID Regulations, there is some uncertainty
as to treating stated interest on a debt obligation like a REMIC Regular
Certificate as "unconditionally payable." In the absence of authority to the
contrary, Depositor expects to treat stated interest of REMIC Regular
Certificates as unconditionally payable.]
Premium. A purchase of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost greater than its remaining stated redemption
price at maturity will be considered to have purchased such REMIC Regular
Certificate at a premium, and may, under Section 171 of the Code, elect to
amortize such premium under a constant yield method over the life of the REMIC
Regular Certificate. In addition, it appears that the same methods that apply to
the accrual of market discount on installment obligations are intended to apply
in computing the amortizable bond premium deduction with respect to a REMIC
Regular Certificate. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on REMIC Regular Certificates, and
(ii) whether the Prepayment Assumption should be taken into account in
determining the term of a REMIC Regular Certificate for this purpose. Except as
provided in regulations, amortizable premium will be treated as an offset to
interest income on the REMIC Regular Certificate.
[Payment Lag REMIC Regular Certificates. Certain REMIC Regular Certificates
will provide for distributions of interest based on a period that is the same
length as the interval between Distribution Dates but ends prior to each
Distribution Date. The OID Regulations provide a special application of the de
minimis rule for debt instruments with first accrual periods where the interest
payable for the first period is
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at a rate which is effectively less than that which applies in all other
periods. In such cases, for the sole purpose of determining whether original
issue discount is de minimis, the OID Regulations provide that the stated
redemption price is equal to the instrument's issue price plus the greater of
the amount of foregone interests or the excess (if any) of the instrument's
stated principal amount over its issue price.]
[Variable Rate REMIC Regular Certificates. Under the OID Regulations, REMIC
Regular Certificates paying interest at a variable rate (a "Variable Rate REMIC
Regular Certificate") are subject to special rules. A Variable Rate REMIC
Regular Certificate will qualify as a "variable rate debt instrument" if (i) its
issue price does not exceed the total noncontingent principal payments due under
the Variable Rate REMIC Regular Certificate by more than a specified de minimis
amount, and (ii) it provides for stated interest, paid or compounded at least
annually, at (A) one or more qualified floating rates, (B) a single fixed rate
and one or more qualified floating rates, (C) a single objective rate, or (D) a
single fixed rate and a single objective rate that is a qualified inverse
floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Rate REMIC Regular Certificate is denominated. A multiple of a
qualified floating rate will generally not itself constitute a qualified
floating rate for purposes of the OID Regulations. However, a variable rate
equal to (i) the product of a qualified floating rate and a fixed multiple that
is greater than zero but not more than 1.35 or (ii) the product of a qualified
floating rate and a fixed multiple that is greater than zero but not more than
1.35, increased or decreased by a fixed rate will constitute a qualified
floating rate for purposes of the OID Regulations. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Rate REMIC Regular Certificate will be treated as a single qualified
floating rate (a "Presumed Single Qualified Floating Rate"). Two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Rate REMIC Regular Certificate's issue date will be
conclusively presumed to be a Presumed Single Qualified Floating Rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute a
qualified floating rate but which is subject to one or more restrictions such as
a cap or floor, will not be a qualified floating rate for purposes of the OID
Regulations unless the restriction is fixed throughout the term of the Variable
Rate REMIC Regular Certificate or the restriction will not significantly affect
the yield of the Variable Rate REMIC Regular Certificate.
An "objective rate" is a rate that is not itself a qualified floating rate
but which is determined using a single fixed formula and which is based upon (i)
one or more qualified floating rates, (ii) one or more rates where each rate
would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Rate REMIC Regular
Certificate is denominated, (iii) either the yield or changes in the price of
one or more items of actively traded personal property, or (iv) a combination of
rates described in (i), (ii) and (iii). The OID Regulations also provide that
other variable rates may be treated as objective rates if so designated by the
Service in the future. Despite the foregoing, a variable rate of interest on a
Variable Rate REMIC Regular Certificate will not constitute an objective rate if
it is reasonably expected that the average value of such rate during the first
half of the Variable Rate REMIC Regular Certificate's term will be either
significantly less than or significantly greater than the
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average value of the rate during the final half of the Variable Rate REMIC
Regular Certificate's term. An objective rate will qualify as a "qualified
inverse floating rate" if such rate is equal to a fixed rate minus a qualified
floating rate and variations in the rate can reasonably be expected to inversely
reflect contemporaneous variations in the cost of newly borrowed funds. The OID
Regulations also provide that if a Variable Rate REMIC Regular Certificate
provides for stated interest at a fixed rate for an initial period of less than
one year followed by a variable rate that is either a qualified floating rate or
an objective rate and if the variable rate on the Variable Rate REMIC Regular
Certificate's issue date is intended to approximate the fixed rate, then the
fixed rate and the variable rate together will constitute either a single
qualified floating rate or objective rate, as the case may be (a "Presumed
Single Variable Rate"). If the value of the variable rate and the initial fixed
rate are within 25 basis points of each other as determined on the Variable Rate
REMIC Regular Certificate's issue date, the variable rate will be conclusively
presumed to approximate the fixed rate.
For Variable Rate REMIC Regular Certificates that qualify as a "variable
rate debt instrument" under the OID Regulations and provide for interest at
either a single qualified floating rate, a single objective rate, a Presumed
Single Qualified Floating Rate or a Presumed Single Variable Rate throughout the
term (a "Single Variable Rate REMIC Regular Certificate"), original issue
discount is computed as described in "REMIC Regular Certificates-Current Income
on REMIC Regular Certificates -- Original Issue Discount" based on the
following: (i) stated interest on the Single Variable Rate REMIC Regular
Certificate which is unconditionally payable in cash or property (other than
debt instruments of the issuer) at least annually will constitute qualified
stated interest and (ii) by assuming that the variable rate on the Single
Variable Rate REMIC Certificate is a fixed rate equal to: (a) in the case of a
Single Variable Rate REMIC Regular Certificate with a qualified floating rate or
a qualified inverse floating rate, the value of, as of the issue date, of the
qualified floating rate or the qualified inverse floating rate or (b) in the
case of a Single Variable Rate REMIC Regular Certificate with an objective rate
(other than a qualified inverse floating rate), a fixed rate which reflects the
reasonably expected yield for such Single Variable Rate REMIC Regular
Certificate.
In general, any Variable Rate REMIC Regular Certificate other than a Single
Variable Rate REMIC Regular Certificate (a "Multiple Variable Rate REMIC Regular
Certificate") that qualifies as a "variable rate debt instrument" will be
converted into an "equivalent" fixed rate debt instrument for purposes of
determining the amount and accrual of original issue discount and qualified
stated interest on the Multiple Variable Rate REMIC Regular Certificate. The OID
Regulations generally require that such a Multiple Variable Rate REMIC Regular
Certificate be converted into an "equivalent" fixed rate debt instrument by
substituting any qualified floating rate or qualified inverse floating rate
provided for under the terms of the Multiple Variable Rate REMIC Regular
Certificate with a fixed rate equal to the value of the qualified floating rate
or qualified inverse floating rate, as the case may be, as of the Multiple
Variable Rate REMIC Regular Certificate's issue date. Any objective rate (other
than a qualified inverse floating rate) provided for under the terms of the
Multiple Variable Rate REMIC Regular Certificate is converted into a fixed rate
that reflects the yield that is reasonably expected for the Multiple Variable
Rate REMIC Regular Certificate. In the case of a Multiple Variable Rate REMIC
Regular Certificate that qualifies as a "variable rate debt instrument" and
provides for stated
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interest at a fixed rate in addition to either one or more qualified floating
rates or a qualified inverse floating rate, the fixed rate is initially
converted into a qualified floating rate (or a qualified inverse floating rate,
if the Multiple Variable Rate REMIC Regular Certificate provides for a qualified
inverse floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Multiple Variable Rate REMIC Regular Certificate as
of the Multiple Variable Rate REMIC Regular Certificate's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse floating
rate, the Multiple Variable Rate REMIC Regular Certificate is then converted
into an "equivalent" fixed rate debt instrument in the manner described above.
Once the Multiple Variable Rate REMIC Regular Certificate is converted into
an "equivalent" fixed rate debt instrument pursuant to the foregoing rules, the
amount of original issue discount and qualified stated interest, if any, are
determined for the "equivalent" fixed rate debt instrument by applying the
original issue discount rules to the "equivalent" fixed rate debt instrument in
the manner described in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount". A holder of the Multiple
Variable Rate REMIC Regular Certificate will account for such original issue
discount and qualified stated interest as if the holder held the "equivalent"
fixed rate debt instrument. Each accrual period appropriate adjustments will be
made to the amount of qualified stated interest or original issue discount
assumed to have been accrued or paid with respect to the "equivalent" fixed rate
debt instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Multiple Variable Rate REMIC Regular Certificate
during the accrual period.
The OID Regulations do not clearly address the treatment of a Variable Rate
REMIC Regular Certificate that is based on a weighted average of the interest
rates on underlying Mortgage Assets. Under the OID Regulations, interest
payments on such a Variable Rate REMIC Regular Certificate may be characterized
as qualified stated interest which is includable in income in a manner similar
to that described in the previous paragraph. However, it is also possible that
interest payments on such a Variable Rate REMIC Regular Certificate would be
treated as contingent interest (possibly includable in income when the payments
become fixed) or in some other manner.
If a Variable Rate REMIC Regular Certificate does not qualify as a
"variable rate debt instrument" under the OID Regulations, then the Variable
Rate REMIC Regular Certificate would be treated as a contingent payment debt
obligation. It is not clear under current law how a Variable Rate REMIC Regular
Certificate would be taxed if such REMIC Regular Certificate were treated as a
contingent payment debt obligation.]
[Interest-Only REMIC Regular Certificates. The Trust intends to report
income from interest-only classes of REMIC Regular Certificates to the Service
and to holders of interest-only REMIC Regular Certificates based on the
assumption that the stated redemption price at maturity
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is equal to the sum of all payments determined under the Prepayment Assumption.
As a result, such interest-only REMIC Regular Certificates will be treated as
having original issue discount.]
Market Discount. A holder that acquires a REMIC Regular Certificate at a
market discount (that is, a discount that exceeds any unaccrued original issued
discount) will recognize gain upon receipt of a principal distribution,
regardless of whether the distribution is scheduled or is a prepayment. In
particular, the REMIC Regular Certificateholder will be required to allocate
that principal distribution first to the portion of the market discount on such
REMIC Regular Certificate that has accrued but has not previously been
includable in income, and will recognize ordinary income to that extent. In
general terms, unless Treasury regulations when issued state otherwise, market
discount on a REMIC Regular Certificate may be treated, at the REMIC Regular
Certificateholder's election, as accruing either (i) under a constant yield
method, taking into account the Prepayment Assumption, or (ii) in proportion to
accruals of original issue discount (or, if there is no original issue discount,
in proportion to payments of interest at the Pass-Through Rate).
In addition, a holder may be required to defer deductions for a portion of
the holder's interest expense on any debt incurred or continued to purchase or
carry a REMIC Regular Certificate purchased with market discount. The deferred
portion of any interest deduction would not exceed the portion of the market
discount on the REMIC Regular Certificate that accrues during the taxable year
in which such interest would otherwise be deductible and, in general, would be
deductible when such market discount is included in income upon receipt of a
principal distribution on, or upon the sale of, the REMIC Regular Certificate.
The Code requires that information necessary to compute accruals of market
discount be reported periodically to the Service and to certain categories of
holders of REMIC Regular Certificates.
Notwithstanding the above rules, market discount on a REMIC Regular
Certificate will be considered to be zero if such discount is less than 0.25% of
the remaining stated redemption price at maturity of such REMIC Regular
Certificate multiplied by its weighted average remaining life. Although there is
some uncertainty, in the absence of authority to the contrary, the Depositor
expects to calculate the weighted average remaining life in a manner similar to
weighted average life (described above under "Current Income on REMIC Regular
Certificates-Original Issue Discount"), taking into account distributions
(including prepayments) prior to the date of acquisition of such REMIC Regular
Certificate by the subsequent purchaser. If market discount on a REMIC Regular
Certificate is treated as zero under this rule, the actual amount of such
discount must be allocated to the remaining principal distributions on the REMIC
Regular Certificate, and when each such distribution is made, gain equal to the
discount, if any, allocated to the distribution will be recognized.
Election to Treat All Interest Under the Constant Yield Rules. The OID
Regulations provide that all holders may elect to include in gross income all
interest that accrues on a debt instrument by using the constant yield method.
For purposes of this election, interest includes stated interest, original issue
discount (including de minimis original issue discount), and market discount
(including any de minimis market discount), as adjusted to account for any
premium.
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Holders should consult their own tax advisors regarding the availability or
advisability of such an election.
Sales of REMIC Regular Certificates. If a REMIC Regular Certificate is
sold, the seller will recognize gain or loss equal to the difference between the
amount realized on the sale and its adjusted basis in the REMIC Regular
Certificate. A holder's adjusted basis in a REMIC Regular Certificate generally
equals the cost of the REMIC Regular Certificate to the holder, increased by
income reported by the holder with respect to the REMIC Regular Certificate and
reduced (but not below zero) by distributions on the REMIC Regular Certificate
received by the holder and by amortized premium. Except as indicated in the next
two paragraphs, any such gain or loss generally will be capital gain or loss
provided the REMIC Regular Certificate is held as a capital asset.
Gain from the sale of a REMIC Regular Certificate that might otherwise be
capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the seller's income with respect to the REMIC Regular Certificate
had income accrued thereon at a rate equal to 110% of "the applicable Federal
rate" (generally, an average of current yields on Treasury securities),
determined as of the date of purchase of the REMIC Regular Certificate, over
(ii) the amount actually includable in the seller's income. In addition, gain
recognized on the sale of a REMIC Regular Certificate by a seller who purchased
the REMIC Regular Certificate at a market discount would be taxable as ordinary
income in an amount not exceeding the portion of such discount that accrued
during the period the REMIC Regular Certificate was held by such seller, reduced
by any market discount includable in income under the rules described above
under "Current Income on REMIC Regular Certificates--Market Discount."
REMIC Regular Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(i) of the Code, so that gain or loss recognized from a
sale of a REMIC Regular Certificate by a bank or other financial institution to
which such section applies would be ordinary income or loss.
Certain Taxes on the REMIC. The REMIC provisions of the Code impose a 100%
tax on any net income derived by a REMIC from certain prohibited transactions.
Such transactions are (i) any disposition of a qualified mortgage, other than
pursuant to the substitution of a qualified replacement mortgage for a qualified
mortgage (or the repurchase in lieu of substitution of a defective obligation),
a disposition incident to the foreclosure, default, or imminent default of a
mortgage, the bankruptcy or insolvency of the REMIC, or a qualified liquidation
of the REMIC; (ii) the receipt of income from assets other than qualified
mortgages and permitted investments; (iii) the receipt of compensation for
services; and (iv) the receipt of gain from the dispositions of cash flow
investments. The REMIC Regulations provide that the modification of the terms of
a Mortgage Loan occasioned by default or a reasonably foreseeable default of the
Mortgage Loan, the assumption of the Mortgage Loan or the waiver of a
due-on-sale clause will not be treated as a disposition of the Mortgage Loan.
The Code also imposes a 100% tax on contributions to a REMIC made after the
Startup Day, unless such contributions are payments made to facilitate a cleanup
call or a qualified liquidation of the REMIC, payments in a nature of a
guaranty,
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contributions during the three-month period beginning on the Startup Day or
contributions to a qualified reserve fund of the REMIC by a holder of a residual
interest in the REMIC. The Code also imposes a tax on a REMIC at the highest
corporate rate on certain net income from foreclosure property that the REMIC
derives from the management, sale, or disposition of any real property, or any
personal property incident thereto, acquired by the REMIC in connection with the
default or imminent default of a loan. Generally, it is not anticipated that the
Trust will generate a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation." A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation and sells all of its
assets (other than cash) within the ninety-day period beginning on the date of
the adoption of the plan of liquidation, provided that it distributes to holders
of REMIC Regular Certificates or REMIC Residual Certificates, on or before the
last day of the ninety-day liquidation period, all the proceeds of the
liquidation (plus all cash), less amounts remained to meet claims.
Termination. The REMIC will terminate shortly following the REMIC's receipt
of the final payment in respect of the Mortgage Assets. The last distribution on
a REMIC Regular Certificate should be treated as a payment in full retirement of
a debt instrument.
[Tax Treatment of Yield Supplement Agreements
Whether a REMIC Regular Certificateholder of a series will have a separate
contractual right to payments under a Yield Supplement Agreement, and the tax
treatment of such payments, if any, will be addressed in the related Prospectus
Supplement.]
Foreign Investors
For purposes of this discussion, a "Foreign Holder" is a Certificateholder
who holds a REMIC Regular Certificate and who is not (i) a citizen or resident
of the United States, (ii) a corporation, partnership, or other entity organized
in or under the laws of the United States or a political subdivision thereof, or
(iii) an estate or trust the income of which is includable in gross income for
United States tax purposes regardless of its source. Unless the interest on a
REMIC Regular Certificate is effectively connected with the conduct by the
Foreign Holder of a trade or business within the United States, the Foreign
Holder is not subject to federal income or withholding tax on interest (or
original issue discount, if any) on a REMIC Regular Certificate (subject to
possible backup withholding of tax, discussed below), provided the Foreign
Holder is not a controlled foreign corporation related to the Depositor (or
subsequent holder of the REMIC Residual Certificates) and does not own actually
or constructively 10% or more of the voting stock of the Depositor (or
subsequent holder of the REMIC Residual Certificates). To qualify for this tax
exemption, the Foreign Holder will be required to provide periodically a
statement signed under penalties of perjury certifying that the Foreign Holder
meets the requirements for treatment as a Foreign Holder and providing the
Foreign Holder's name an address. The statement, which may be made on a Form
W-8 or substantially similar substitute form, generally
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must be provided in the year a payment occurs or in either of the two preceding
years. The statement must be provided either directly or through a clearing
organization financial institution intermediaries, to the person that otherwise
would withhold tax. This exemption may not apply to a Foreign Holder of a REMIC
Regular Certificate which also owns, actually or constructively, a REMIC
Residual Certificate. If the interest on a REMIC Regular Certificate is
effectively connected with the conduct by a Foreign Holder of a trade or
business within the United States, then the Foreign Holder will be subject to
tax at the regular graduated rates and such a Foreign Holder may avoid
withholding of tax on such interest (or original issue discount, if any) if the
Foreign Holder provides a properly completed Form 4224. Under Proposed
Regulations, which are proposed to be effective for Payments made after December
31, 1997, Form W-8 and Form 4224, as well as certain other forms, would be
combined into a new Form W-8 which would generally be valid from the date signed
through the end of the third succeeding calendar year, unless the beneficial
owner's taxpayer identification number is provided, in which case the form
generally would be valid indefinitely. The proposed regulations would also
provide certain alternative means for qualifying for interest withholding
exemptions.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a REMIC Regular Certificate generally will not be subject
to United States federal income tax unless either (i) the Foreign Holder is a
non-resident alien individual who holds the REMIC Regular Certificate as a
capital asset and who is present in the United States for 183 days or more in
the taxable year of the disposition and either the gain is attributable to an
office or other fixed place of business maintained in the U.S. by the individual
or the individual has a "tax home" in the United States, or (ii) the gain is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States.
A REMIC Regular Certificate will not be includable in the estate of a
Foreign Holder who does not own actually or constructively 10% or more of the
voting stock of the Depositor (or subsequent holder of the REMIC Residual
Certificates).
Backup Withholding
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. Backup withholding may apply to a Certificateholder
who is a United States person if the holder, among other circumstances, fails to
furnish his Social Security number or other taxpayer identification number to
the Trustee. Backup withholding may apply, under certain circumstances, to a
Certificateholder who is a foreign person if the Certificateholder fails to
provide the trustee or the Certificateholder's securities broker with the
statement necessary to establish the exemption from federal income and
withholding tax on interest on the Certificate. Backup withholding, however,
does not apply to payments on a Certificate made to certain exempt recipients,
such as corporations and tax-exempt organizations, and to certain foreign
persons.
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Reporting Requirements and Tax Administration
The Trustee will report annually to the Service, holders of record of the
REMIC Regular Certificates that are not excepted from the reporting requirements
and, to the extent required by the Code, other interested parties, information
with respect to the interest paid or accrued on the REMIC Regular Certificates,
original issue discount, if any, accruing on the REMIC Regular Certificates and
information necessary to compute the accrual of any market discount or the
amortization of any premium on the REMIC Regular Certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMIC's "tax matters person". The
tax matters person generally has responsibility for overseeing and providing
notice to the other Residual Certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. The Depositor will be
designated as the tax matters person for each REMIC, and in conjunction with the
Trustee will act as the agent of the Residual Certificateholders in the
preparation and filing of the REMIC's federal and state income tax and other
information returns.]
[Certificates
Tax Status of the Trust. Upon the issuance of each series of Certificates,
Schulte Roth & Zabel LLP, counsel to the Depositor, will deliver its opinion to
the effect that, under then current law, assuming compliance with the Agreement,
the related Trust will be classified for federal income tax purposes as a
grantor trust and not as an association taxable as a corporation or a taxable
mortgage pool. Accordingly, each holder of a Certificate will be treated for
federal income tax purposes as the owner of an undivided interest in the
Mortgage Assets included in the Trust. As further described below, each holder
of a Certificate therefore must report on its federal income tax return the
gross income from the portion of the Mortgage Assets that is allocable to such
Certificate and may deduct the portion of the expenses incurred by the Trust
that is allocable to such Certificate, at the same time and to the same extent
as such items would be reported by such holder if it had purchased and held
directly such interest in the Mortgage Assets and received directly its share of
the payments on the Mortgage Assets and incurred directly its share of expenses
incurred by the Trust when those amounts are received or incurred by the Trust.
Certificateholders will be required to report on their federal income tax
returns, and in a manner consistent with their respective methods of accounting,
their pro rata share of the entire income arising from the Mortgage Loans
comprising such Mortgage Loan pool, including interest, original issue discount,
if any, prepayment fees, assumption fees, and late payment charges received by
the Master Servicer or the Depositor, and any gain upon disposition of such
Mortgage Loans. (For purposes of this discussion, the term "disposition" when
used with respect to the Mortgage Loans, includes scheduled or prepaid
collections with respect to the Mortgage Loans, as well as the sale or exchange
of a Certificate.) Certificateholders will be entitled under Section 162 or 212
of the Code to deduct their pro rata share of related servicing fees,
administrative and other non-interest expenses, including assumption fees and
late payment
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charges retained by the Company. An individual, an estate, or a trust that holds
a Certificate either directly or through a pass-through entity will be allowed
to deduct such expenses under Section 212 of the Code only to the extent that,
in the aggregate and combined with certain other miscellaneous itemized
deductions, they exceed 2% of the adjusted gross income of the holder. In
addition, Section 68 of the Code provides that the amount of certain itemized
deductions (including those provided for in Section 212 of the Code) otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds an inflation-adjusted threshold amount specified in the Code ($121,200
for taxable years beginning in 1997, in the case of a joint return) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over the
specified threshold amount, or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. To the extent that a
Certificateholder is not permitted to deduct servicing fees allocable to a
Certificate, the taxable income of the Certificateholder attributable to that
Certificate will exceed the net cash distributions related to such income.
Certificateholders may deduct any loss on disposition of the Mortgage Loans to
the extent permitted under the Code.
Status of the Certificates as Real Property Loans. The Certificates may be
"real estate assets" for purposes of Section 856(c)(5)(A) of the Code and "loans
. . . secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code (assets qualifying under one or more of those
sections, applying each section separately, "qualifying assets") to the extent
that the Trust's assets are qualifying assets. [The Certificates may not be
qualifying assets under any of the foregoing sections of the Code to the extent
that the Trust's assets include Buydown Funds, reserve funds, or payments on
mortgages held pending distribution to Certificateholders.] Further, the
Certificates may not be "real estate assets" to the extent loans held by the
trust are not secured by real property, and may not be "loans . . . secured by
an interest in real property" to the extent loans held by the trust are not
secured by residential real property or real property used primarily for church
purposes. In certain instances, the principal balance of a Mortgage Loan may
exceed the value of the Mortgaged Property which secures such Mortgage Loan.
Although no specific authority addresses this issue, in such instances, the
extent to which such a Mortgage Loan may be treated as a qualifying asset and
the extent to which interest on such a Mortgage Loan comprises "interest on
obligations secured by mortgages on real property" under Section 856(c)(3)(B) of
the Code may be limited.
Taxation of Certificates Under Stripped Bond Rules. The federal income tax
treatment of the Certificates will depend on whether they are subject to the
rules of section 1286 of the Code (the "stripped bond rules"). The Certificates
will be subject to those rules if stripped interest-only Certificates are
issued. In addition, whether or not stripped interest-only Certificates are
issued, the Service may contend that the stripped bond rules apply on the ground
that the Master Servicer's servicing fee, or other amounts, if any, paid to (or
retained by) the Master Servicer, represent greater than an arm's length
consideration for servicing the Mortgage Loans and should be characterized for
federal income tax purposes as an ownership interest in the Mortgage Loans. The
Service has taken the position in Revenue Ruling 91-46 that retained interest in
excess of reasonable compensation for servicing is treated as a "stripped
coupon" under the rules of Code Section 1286.
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If interest retained for the Master Servicer's servicing fee or other
interest is treated as a "stripped coupon," the Certificates will either be
subject to the original issue discount rules or the market discount rules. A
holder of a Certificate will account for any discount on the Certificate as
market discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Certificate was treated as zero
under the original issue discount de minimis rule when the Certificate was
stripped or (ii) no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) is stripped off from the Mortgage
Loans. If neither of the above exceptions applies, the original issue discount
rules will apply to the Certificates.
If the original issue discount rules apply, the holder of a Certificate
(whether a cash or accrual method taxpayer) will be required to report interest
income from the Certificate in each taxable year equal to the income that
accrues on the Certificate in that year calculated under a constant yield method
based on the yield of the Certificate (or, possibly, the yield of each Mortgage
Asset underlying such Certificate) to such holder. Such yield would be computed
at the rate (assuming monthly compounding) that, if used in discounting the
holder's share of the payments on the Mortgage Assets, would cause the present
value of those payments to equal the price at which the holder purchased the
Certificate. With respect to certain categories of debt instruments, Section
1272(a)(6) of the Code requires that original issue discount be accrued based on
a prepayment assumption determined in a manner prescribed by forthcoming
regulations. It is unclear whether such regulations would apply this rule to the
Certificates, whether Section 1272(a)(6) might apply to the Certificates in the
absence of such regulations, or whether the Service could require use of a
reasonable prepayment assumption based on other tax law principles. If required
to report original issue discount on the Certificates to the Service under the
stripped bond rules, it is anticipated that the Trustee will calculate the yield
of the Certificates based on a representative initial offering price of the
Certificates and a reasonable assumed rate of prepayment of the Mortgage Assets
(although such yield may differ from the yield to any particular holder that
would be used in calculating the interest income of such holder). The Prospectus
Supplement for each series of Certificates will describe the prepayment
assumption that will be used for this purpose, but no representation is made
that the Mortgage Assets will prepay at that rate or at any other rate.
In the case of a Certificate acquired at a price equal to the principal
amount of the Mortgage Assets allocable to the Certificate, the use of a
reasonable prepayment assumption would not have any significant effect on the
yield used in calculating accruals of interest income. In the case, however, of
a Certificate acquired at a discount or premium (that is, at a price less than
or greater than such principal amount, respectively), the use of a reasonable
prepayment assumption would increase or decrease such yield, and thus accelerate
or decelerate the reporting of interest income, respectively.
If a Mortgage Loan is prepaid, the holder of a Certificate acquired at a
discount or premium generally will recognize ordinary income or loss equal to
the difference between the portion of the prepaid principal amount of the
Mortgage Loan that is allocable to the Certificate and the portion of the
adjusted basis of the Certificate (see "Sales of Certificates" below) that is
allocable to the portion of the Mortgage Loan that is prepaid. The method of
allocating such
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basis among the Mortgage Loans may differ depending on whether a reasonable
repayment assumption is used in calculating the yield of the Certificates for
purposes of accruing original issue discount. It is not clear whether any other
adjustments would be required to reflect differences between the prepayment rate
that was assumed in calculating yield and the actual rate of prepayments.
Certificates of certain series ("Variable Rate Certificates") may provide
for a Pass-Through Rate based on the weighted average of the interest rates of
the Mortgage Assets held by the Trust, which interest rates may be fixed or
variable. In the case of a Variable Rate Certificate that is subject to the
original issue discount rules, the daily portions of original issue discount
generally will be calculated under the principles discussed in "REMIC Regular
Certificates-Current Income on REMIC Regular Certificates--Original Issue
Discount--Variable Rate REMIC Regular Certificates."
Taxation of Certificates Where Stripped Bond Rules Do Not Apply. If the
stripped bond rules do not apply to a Certificate, then the holder will be
required to include in income its share of the interest earned on the Mortgage
Assets in accordance with its tax accounting method. In addition, if the holder
purchased the Certificate at a discount or premium, the holder will be required
to account for such discount or premium in the manner described below. The
treatment of any discount will depend on whether the discount is original issue
discount as defined in the Code and, in the case of discount other than original
issue discount, whether such other discount exceeds a de minimis amount. In the
case of original issue discount with respect to a Mortgage Loan originated on or
after March 2, 1984, the holder (whether a cash or accrual method taxpayer) will
be required to report as additional interest income in each month the portion of
such discount that accrues in that month, calculated based on a constant yield
method. In general it is not anticipated that the amount of original issue
discount to be accrued in each month, if any, will be significant relative to
the interest paid currently on the Mortgage Assets. However, original issue
discount could arise with respect to a Mortgage Loan that provides for interest
at an initial fixed rate for one or more periods below the then prevailing
market fixed interest rates followed by interest at a rate equal to the sum of
an index of market interest rates and a fixed number. The original issue
discount for Adjustable Rate Mortgages generally will be determined under the
principles discussed in "REMIC Regular Certificates-Current Income on REMIC
Regular Certificates--Original Issue Discount--Variable Rate REMIC Regular
Certificates."
If discount other than original issue discount exceeds a de minimis amount
(described below), the holder will also generally be required to include in
income in each month the amount of such discount accrued through such month and
not previously included in income, but limited, with respect to the portion of
such discount allocable to any Mortgage Asset, to the amount of principal on
such Mortgage Asset received by the Trust in that month. Because the Mortgage
Assets will provide for monthly principal payments, such discount may be
required to be included in income at a rate that is not significantly slower
than the rate at which such discount accrues (and therefore at a rate not
significantly slower than the rate at which such discount would be included in
income if it were original issue discount). The holder may elect to accrue such
discount under a constant yield method based on the yield of the Certificate to
such holder. In the absence of such an election, it may be necessary to accrue
such discount under a more
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rapid straight-line method. Under the de minimis rule, market discount with
respect to a Certificate will be considered to be zero if it is less than the
product of (i) 0.25% of the principal amount of the Mortgage Assets allocable to
the Certificate, and (ii) the weighted average life (in complete years) of the
Mortgage Assets remaining at the time of purchase of the Certificate.
If a holder purchases a Certificate at a premium, such holder may elect
under Section 171 of the Code to amortize the portion of such premium that is
allocable to a Mortgage Loan under a constant yield method based on the yield of
the Mortgage Loan to such holder, provided that such Mortgage Loan was
originated after September 27, 1985. Premium allocable to a Mortgage Loan
originated on or before that date should be allocated among the principal
payments on the Mortgage Loan and allowed as an ordinary deduction as principal
payments are made or, perhaps, upon termination.
It is not clear whether the foregoing adjustments for discount or premium
would be made based on the scheduled payments on the Mortgage Loans or taking
account of a reasonable prepayment assumption.
If a Mortgage Loan is prepaid, the holder of a Certificate acquired at a
discount or premium will recognize ordinary income or loss equal to the
difference between the portion of the prepaid principal amount of the Mortgage
Loan that is allocable to the Certificate and the portion of the adjusted basis
of the Certificate (see "Sales of Certificates" below) that is allocable to the
portion of the Mortgage Loan that is prepaid. The method of allocating such
basis among the Mortgage Loans may differ depending on whether a reasonable
prepayment assumption is used in calculating the yield of the Certificates for
purposes of accruing original issue discount. It is not clear whether any other
adjustments would be required to reflect differences between the prepayment rate
that was assumed in accounting for discount or premium and the actual rate of
prepayments.
Sales of Certificates. A holder that sells a Certificate will recognize
gain or loss equal to the difference between the amount realized in the sale and
its adjusted basis in the Certificate. In general, such adjusted basis will
equal the holder's cost for the Certificate, increased by the amount of any
income previously reported with respect to the Certificate and decreased by the
amount of any losses previously reported with respect to the Certificate and the
amount of any distributions received thereon. Any such gain or loss generally
will be capital gain or loss if the assets underlying the Certificate were held
as capital assets, except that, for a Certificate to which the stripped bond
rules do not apply and that was acquired with more than a de minimis amount of
discount other than original issue discount (see "Taxation of Certificates Where
Stripped Bond Rules Do Not Apply" above), such gain will be treated as ordinary
interest income to the extent of the portion of such discount that accrued
during the period in which the seller held the Certificate and that was not
previously included in income.
Foreign Investors. Generally, interest or original issue discount paid to
or accruing for the benefit of a Certificateholder who is a Foreign Holder (as
defined in "REMIC Series--Foreign Investors") will be treated as "portfolio
interest" and therefore will be exempt from the 30% withholding tax, but only to
the extent the Mortgage Loans were originated after July 18,
S-88
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1984 and provided that such Certificateholder periodically provides the Trustee
(or other person who would otherwise be required to withhold tax) with a
statement certifying under penalty of perjury that such Certificateholder is not
a United States person and providing the name and address of such
Certificateholder. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax. If
the interest on a Certificate is effectively connected with the conduct by a
Foreign Holder of a trade or business within the United States, then the Foreign
Holder will be subject to tax at the regular graduated rates and such a foreign
holder may avoid withholding tax on such interest (or original issue discount,
if any) if the Foreign Holder provides a properly completed Form 4224.
Tax Administration and Reporting. The Trustee will furnish to each
Certificateholder with each distribution a statement setting forth the amount of
such distribution allocable to principal and to interest. In addition, the
Trustee will furnish, within a reasonable time after the end of each calendar
year, to each Certificateholder who was a Certificateholder at any time during
such year, information regarding the amount of servicing compensation received
by the Master Servicer and any sub-servicer and such other customary factual
information as the Trustee deems necessary or desirable to enable
Certificateholders to prepare their tax returns. Reports will be made annually
to the Service and to Certificateholders of record that are not excepted from
the reporting requirements regarding information as may be required with respect
to interest and original issue discount, if any, with respect to the
Certificates.
Taxable Mortgage Pools
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC, (ii) substantially all of the assets of the entity are debt
obligations, and more than 50 percent of such debt obligations consist of real
estate mortgages (or interests therein), (iii) the entity is the obligor under
debt obligations with two or more maturities, and (iv) payments on the debt
obligations on which the entity is the obligor bear a relationship to the
payments on the debt obligations which the entity holds as assets. With respect
to requirement (iii), regulations provide that an ownership interest in an
entity classified as a grantor trust for federal income tax purposes will not be
treated as a debt obligation of the Trust. As described above, counsel will
opine that upon the issuance of each series of Certificates, the related Trust
will not be a "taxable mortgage pool."]
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ERISA CONSIDERATIONS
The following describes certain considerations under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the Code, which
apply to the Certificates.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds, separate accounts and
insurance company general accounts in which such plans, accounts or arrangements
are invested) (collectively "Plans") subject to ERISA and on persons who are
fiduciaries with respect to such 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 such
Plans. ERISA also imposes certain 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 such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as 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 such plans may be invested in [Senior]
Certificates without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which is
qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain 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 certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered security, as defined in Labor
Reg. Section 2510.3-101, is a security that is widely held, freely transferable
and registered under the Securities Exchange Act of 1934, as amended.
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 certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the
Mortgage 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 under ERISA Sections 406 and 407 and subject to an excise tax under
Code Section 4975 unless a statutory or administrative exemption applies.
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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 certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions that might
otherwise be prohibited between Plans and Parties in Interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or deeds
of trust on single-family residential property (defined as non-farm property
comprising one to four dwelling units and condominiums), and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools ("Single Family Certificates") by Plans. If the
general conditions (discussed below) of PTE 83-1 are satisfied, investments by a
Plan in certificates that represent interests in a mortgage pool, consisting of
mortgage loans representing loans for single family homes ("Single Family
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 the Plan purchases the Single Family 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
twenty-five percent (25%) of all Single Family Certificates and at least fifty
percent (50%) of all Single Family Certificates are purchased by persons
independent of the pool sponsor or pool trustee. [PTE 83-1 does not provide an
exemption for transactions involving Subordinated Certificates. No transfer of a
Subordinated Certificate may be made to a Plan.]
The discussion in this and the next succeeding paragraph applies only to
Single Family Certificates. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include [the
Certificates] [the Senior Certificates]. [It is not clear whether a class of
Certificates that evidences the beneficial ownership in a Trust divided into
mortgage loan groups, beneficial ownership of a specified percentage of interest
payments only or principal payments only, or a notional amount of either
principal or interest payments, or a class of Certificates entitled to receive
payments of interest and principal on the Mortgage Loans only after payments to
other classes or after the occurrence of certain specified events would be a
"mortgage pass-through certificate" for purposes of PTE 83-1.]
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system of
insurance or other protection for the pooled mortgage loans and property
securing such 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 (1%) of the aggregate
principal balance of all covered pooled mortgage loans or the principal balance
of the largest covered pooled mortgage loan; (ii) the existence of a pool
trustee who is not an affiliate of the pool sponsor; and (iii) 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 mortgage loans plus reasonable compensation for services provided by
the pool sponsor to the mortgage pool. The Depositor believes that the first
general condition referred to
S-91
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above will be satisfied with respect to [the Certificates] [Senior Certificates
provided that the subordination, the pool insurance or other form of credit
enhancement described herein (such subordination, pool insurance or other form
of credit enhancement being the system of insurance or other protection referred
to above) is maintained in an amount not less than the greater of one percent of
the aggregate principal balance of the Mortgage Loans or the principal balance
of the largest Mortgage Loan.] See "Description of the Certificates" herein. In
the absence of a ruling that the system of insurance or other protection with
respect to the Certificates satisfies the first general condition referred to
above, there can be no assurance that these features will be so viewed by the
DOL. The Trustee will not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment decisions
whether to purchase or commit to purchase and to hold Single Family Certificates
must make its own determination as to whether the first and third general
conditions, and the specific conditions described briefly in the preceding
paragraph, of PTE 83-1 have been satisfied, or as to the availability of any
other prohibited transaction exemptions. Each Plan fiduciary should also
determine whether, under the general fiduciary standards of investment prudence
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.
[The U.S. Department of Labor has granted to ____________________, an
administrative exemption (Prohibited Transaction Exemption ______; Exemption
Application No. ______) (the "Exemption") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The Exemption applies to mortgage loans such as
the Mortgage Loans in the Trust Fund.
[Insert general description of the Exemption and the conditions that must
be satisfied for the Exemption to apply].
The Underwriter believes that the Exemption will apply to the acquisition
and holding of the Class A Certificates and the Class S Certificates by Plans
and that all conditions of the Exemption other than those within the control of
the investors will be met. In addition, as of the date hereof, there is no
single Mortgagor that is the obligor on 5% of the Mortgage Loans included in the
Trust Fund by aggregate unamortized principal balance of the assets of the Trust
Fund.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences in
their specific circumstances, prior to making an investment in the Class A
Certificates or the Class S Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification, an investment in the Class A Certificates or the Class S
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.
S-92
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No transfer of Subordinated Certificates will be permitted to be made to a
Plan unless such Plan, at its expense, delivers to the Trustee and the Depositor
an opinion of counsel (in form satisfactory to the Trustee and the Depositor) to
the effect that the purchase or holding of a Subordinated Certificate by such
Plan will not result in the assets of the Trust being deemed to be "plan assets"
and subject to the prohibited transaction provisions of ERISA and the Code and
will not subject the Trustee, the Depositor or the Master Servicer to any
obligation or liability in addition to those undertaken in the Agreement. Unless
such opinion is delivered, each person acquiring a Subordinated Certificate will
be deemed to represent to the Trustee, the Depositor and the Master Servicer
that such person is neither a Plan nor acting on behalf of a Plan subject to
ERISA or to Section 4975 of the Code.
[Neither an Underwriter Exemption nor PTE 83-1 (each, as defined in the
Prospectus) is applicable to the purchase, holding or transfer of the
Certificates. Therefore, no Certificates may be purchased for, or on behalf of,
any employee benefit plan or other retirement arrangement which is subject to
Title I of the Employee Retirement Income Security Act of 1974, as amended,
and/or Section 4975 of the Internal Revenue Code of 1986, as amended, or any
entity whose underlying assets include plan assets by reason of such plan or
account investing in such entity (including insurance company separate or
general accounts and collective investment funds). Each Certificateholder will
be deemed to have represented and warranted that it is not subject to the
foregoing limitations. See "ERISA Considerations" in the Prospectus.]
LEGAL INVESTMENT
[Although upon their initial issuance the Class ____ Certificates will be
rated "___" by Moody's and "___" by S&P,] the [Class A] Certificates (other than
the Class __ Certificates) will [not] constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
[so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization and, as such,
are legal investments for certain entities to the extent provided for in SMMEA].
Institutions whose investment activities are subject to review by federal or
state regulatory authorities should consult with their counsel or the applicable
authorities to determine whether an investment in the Senior Certificates
complies with applicable guidelines, policy statements or restrictions. See
"Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and the Underwriter, the Depositor has agreed to sell to
the Underwriter, and the Underwriter has agreed to purchase from the Depositor,
the Senior Certificates. Distribution of the Senior Certificates will be made by
the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. In connection with the sale
of the Senior Certificates, the Underwriter may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
S-93
<PAGE>
The Depositor has been advised by the Underwriter that it intends to make a
market in the Senior Certificates but has no obligation to do so. There can be
no assurance that a secondary market for the Senior Certificates will develop
or, if it does develop, that it will continue.
The Seller has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
RATINGS
It is a condition of the issuance of the Class A Certificates and the Class
S Certificates that they be rated [ ] by [ ] and [ ] by [ ].
[The ratings assigned by _________________ to home equity loan pass-through
certificates address the likelihood of the receipt of all distributions on the
mortgage loans by the related Certificateholders under the agreements pursuant
to which such certificates are issued. __________ ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such mortgage pool
is adequate to make payments required by such certificates. __________ ratings
on such certificates do not, however, constitute a statement regarding frequency
of prepayments on the related mortgage loans.]
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 Rating Agencies.
No person is obligated to maintain the rating on any [Class __] Certificate and,
accordingly, there can be no assurance that the ratings assigned to the
Certificates upon initial issuance will not be lowered or withdrawn by a Rating
Agency at any time thereafter.
Neither of the ratings addresses the possibility that holders of the Class
S Certificates might fail to recoup their initial investments.
The Depositor has not requested a rating of the Senior Certificates by any
rating agency other than [ ] and [ ]; there can be no assurance, however, as to
whether any other rating agency will rate the Senior Certificates or, if it
does, what rating would be assigned by such other rating agency. The rating
assigned by such other rating agency to the Senior Certificates could be lower
than the respective ratings assigned by [ ] and [ ].
S-94
<PAGE>
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
S-95
<PAGE>
INDEX TO DEFINED TERMS
Page
----
Account Party 18, 63
Adjustable Rate 6, 30
Adjustable Rate Group 4, 5, 30
Adjustable Rate Mortgage Loan 6, 30
Adjustment Date 31
Advance 21, 44
Agreement 3, 45
Available Funds 48
Balloon Loans 6, 31
Balloon Payments 6, 31
Base Spread Account Requirement 18, 63
Basis Risk Shortfall 68
beneficial owner 46
Book-Entry Certificates 46
Business Day 9, 47
Call Date 6, 31
Call Loans 6, 31
Carry-Forward Amount 12, 13, 51
Cede 9, 10, 45
CEDEL 9
Certificate Account 46
Certificate Balance 46
Certificate Guaranty Insurance Policy 4, 5
Certificate Guaranty Insurer 4, 5
Certificateholders 10, 29
Certificates 1, 3, 45
CIT 3, 20, 26, 64
CIT Consumer Finance 1, 4, 26
Citibank 9, 10
CITSF 26, 41
Class A Certificate Balance 8, 48
Class A Certificates 1, 3, 45
Class A Pass-Through Rate 15, 49
Class A Percentage 13, 48
Class A Prepayment Percentage 53
Class A Principal Distribution Amount 12, 13, 51
Class A Remittance Rate 15, 49
Class S Certificates 1, 3, 45
Class S Notional Amount 8, 48
Class S Pass-Through Rate 15, 49
Closing Date 4, 28, 74
Code 23, 24, 68
Combined Loan-to-Value Ratio 32
Compensating Interest 21, 44
S-96
<PAGE>
CPR 59
Cross-over Date 11, 47
Cumulative Spread Account Receipts 19, 64
Curtailments 12, 13, 51
Cut-off Date 4, 28
Definitive Certificate 46
Deleted Mortgage Loan 41
Depositor 1, 3, 26
Depository 46
Detailed Description 28
Determination Date 9, 41
Direct Participants 27
Disqualified Organizations 69
Distribution Account 46
Distribution Date 2, 9, 47
DOL 90
DTC 9, 27
Due Dates 44
Due Period 9, 44
ERISA 23, 24, 90
Euroclear 9
European Depositories 9, 10
Excess Spread 18, 63
Exemption 92
Expense Fees 43
FHLMC 32
Fixed Rate 6, 30
Fixed Rate Group 30
Fixed Rate Mortgage Loan 6, 30
FNMA 32
Funding Period 7, 29
Graduated Payment Loan 6, 31
Gross Margin 6, 31
Guarantee Payment 20, 64
Index 1, 6, 7, 31
Indirect Participants 27
Insurance Account 21
Insurance Proceeds 48
Insured Payment 16
Issuer 3
Letter of Credit 18, 63
LIBOR 1, 31
Limited Guarantee 20, 64
Liquidated Mortgage 9, 52
Liquidation Proceeds 48
Master Servicer 1, 4
Master Servicing Fee 21, 43
Maximum Rate 6, 31
Minimum Rate 6, 31
Monthly Premium 21, 22
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Moody's 18, 19, 63
Morgan 9, 10
Mortgage 4, 28
Mortgage Assets 4, 28
Mortgage Documents 40
Mortgage Loan 4, 28
Mortgage Loan Group 4, 5, 30
Mortgage Loans 1
Mortgage Note 4, 28
Mortgage Pool 4, 28
Mortgage Rate 6, 28, 30
Mortgaged Property 4, 28
Multiple Variable Rate REMIC Regular Certificate 78
Net Interest Shortfall 49
Net Prepayment Interest Shortfall 49
Offered Certificates 1, 3, 45
OID 73
OID Regulations 73
Original Pool Principal Balance 4, 28
Original Subordinated Principal Balance 53
Participant 27
Percentage Interest 3, 45
Periodic Excess Spread Amount 18, 63
Periodic Rate Cap 6, 31
Plan 23
Plans 90
Pool 4, 28
Pool Principal Balance 13, 49
Pre-Funded Amount 7, 29
Pre-Funding Account 1, 7, 29
Prepayment Assumption 74
Prepayment Interest Shortfall 49
Presumed Single Qualified Floating Rate 77
Primary Mortgage Insurance Policy 20
Primary Mortgage Insurer 20
Principal Prepayments 12, 13
Private Mortgage-Backed Securities 4
Prospectus 2
PTE 83-1 91
Purchase Agreement 28
Qualified Substitute Mortgage Loan 41
Rating Agencies 25
Realized Loss 8, 52
Record Date 9, 47
Relief Act Reduction 49
Remainder Excess Spread Amount 19, 64
Remaining Available Funds 11, 47
REMIC 2, 23
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<PAGE>
REMIC Regular Certificates 68
REMIC Regulations 69
REMIC Residual Certificates 68
Reserve Fund 17, 61
Residual Certificateholders 45
Residual Certificates 1, 3, 45
S&P 18, 19, 63
Scheduled Payments 29
Seller 1, 4
Senior Certificateholders 2, 10, 45
Senior Certificates 1, 3, 45
Senior Distribution Amount 10, 47
Senior Interest Distribution Amount 12, 50
Service 70
Single Family Certificates 91
Single Variable Rate REMIC Regular Certificate 78
SMMEA 24, 93
Special Hazard Insurance Policy 20, 63
Special Hazard Insurer 20, 63
Specified Spread Account Requirement 18, 63
Spread Account 18, 63
Spread Account Cross-Over Date 19, 63
Spread Account Excess 19, 64
Standard Hazard Insurance Policies 20
Startup Day 68
Strip Rate 15, 49
Subordinated Amount 19, 64
Subordinated Certificateholders 2, 8, 45
Subordinated Certificates 1, 3, 45
Subordinated Class Certificate Balance 8, 48
Subordinated Distribution Amount 11, 47
Subordinated Pass-Through Rate 15, 49
Subordinated Percentage 15, 49
Subordinated Prepayment Percentage 53
Subordinated Remittance Rate 15, 49
Subsequent Mortgage Loans 5, 6, 29
Substitution Adjustment 41
Termination Events 55
Tiered REMICs 71
Trust 1, 4, 28
Trust Fund 1, 4, 28
Trustee 1, 4, 56
Underwriter 1
Underwriters' PTEs 23, 24
Unpaid Principal Shortfall 53
Unpaid Senior Interest Amounts 12, 50
Unpaid Subordinated Interest Amounts 14, 51
Variable Rate REMIC Regular Certificate 77
Yield Supplement Agreement 68
Yield Table 59
S-99
<PAGE>
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION; DATED APRIL 2, 1997
THE CIT GROUP SECURITIZATION CORPORATION III
Depositor
Home Equity Loan Asset Backed Certificates
(Issuable in Series)
-------------------
This Prospectus relates to Home Equity Loan Asset Backed Certificates (the
"Certificates"), which may be sold from time to time in one or more series
(each, a "Series") by The CIT Group Securitization Corporation III (the
"Depositor"), on terms determined at the time of sale and described in this
Prospectus and the related Prospectus Supplement. The Certificates of a Series
will evidence fractional undivided beneficial ownership interests in a trust
fund (a "Trust Fund" or "Trust"). As specified in the related Prospectus
Supplement, the primary assets of a Trust Fund for a Series of Certificates will
include one or more pools of certain mortgage related assets (the "Mortgage
Assets") consisting of (i) mortgage loans (or participation or other beneficial
interests therein) secured by mortgages, deeds of trust or similar security
instruments (the "Mortgages") creating first or subordinate liens on one- to
four-family residential properties (the "Mortgage Loans"), (ii) Private
Mortgage-Backed Securities (as defined herein), together with payments in
respect of such Mortgage Assets, and (iii) certain other accounts, obligations
or agreements, in each case as specified in the related Prospectus Supplement.
The Mortgage Assets will be acquired by the Depositor, either directly or
indirectly, from The CIT Group/Consumer Finance, Inc. ("CIT Consumer Finance")
and/or other affiliates of the Depositor (each, a "Seller"), and conveyed by the
Depositor to the related Trust Fund. The related Prospectus Supplement may
provide that monies will be on deposit in a separate trust account (the
"Pre-Funding Account") not to exceed 25% of the Certificate Balance (as defined
herein) to be maintained with the Trustee (as defined herein), which will be
used to purchase additional Mortgage Assets from the Depositor or any Seller
from time to time during the funding period specified in such Prospectus
Supplement in the manner set forth therein. If specified in the related
Prospectus Supplement, certain Certificates may evidence a fractional undivided
ownership interest in a Trust Fund which will hold a beneficial ownership
interest in another trust fund which will contain the Mortgage Assets. A Trust
Fund also may include insurance policies, cash accounts, reinvestment income,
limited guarantees by The CIT Group Holdings, Inc. ("CIT"), third party
guarantees (any of which may be limited in nature), letters of credit, other
forms of credit enhancement or other assets to the extent described in the
related Prospectus Supplement. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination as described herein
and in the related Prospectus Supplement. See "Description of the Certificates"
and "Credit Enhancement" herein.
(cover continued on next page)
THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN INTEREST IN OR
OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE CIT GROUP/CONSUMER
FINANCE, INC., THE CIT GROUP/SALES FINANCING, INC., THE CIT GROUP HOLDINGS, INC.
OR ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH HEREIN AND IN THE
RELATED PROSPECTUS SUPPLEMENT. NEITHER THE CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS WILL BE INSURED OR GUARANTEED BY THE DEPOSITOR, THE MASTER
SERVICER, THE CIT GROUP/CONSUMER FINANCE, INC., THE CIT GROUP/SALES FINANCING,
INC., THE CIT GROUP HOLDINGS, INC. OR ANY OF THEIR AFFILIATES EXCEPT AS SET
FORTH HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 22 FOR CERTAIN FACTORS TO BE CONSIDERED IN
PURCHASING THE CERTIFICATES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
Prior to issuance there will have been no market for the Certificates of
any Series, and there can be no assurance that a secondary market for any
Certificates will develop or, if it does develop, that it will continue. The
Depositor does not intend to list any of the Certificates on any securities
exchange and has not made any other arrangements for secondary trading of the
Certificates. This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, as more fully described under
"Method of Distribution" herein and in the related Prospectus Supplement.
The date of the Prospectus is April 2, 1997.
<PAGE>
Each Series of Certificates will be issuable in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership interests
of a specified percentage (which may be 0%) or portion of future interest
payments and a specified percentage (which may be 0%) or portion of future
principal payments on the Mortgage Assets in the related Trust. A class of
Certificates may be divided into two or more sub-classes, as specified in the
related Prospectus Supplement. A Series of Certificates may include one or more
classes that are senior in right of payment to one or more other classes of
Certificates of such Series. Certain Series or classes of Certificates may be
covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described herein and in the related Prospectus
Supplement. One or more classes of Certificates of a Series may be entitled to
receive distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Certificates may be made
prior to one or more other classes of Certificates of such Series, after the
occurrence of specified events, in accordance with a schedule or formula, on the
basis of collections from designated portions of the Mortgage Assets in the
related Trust, or on a different basis, or one or more classes of a Series of
Certificates may be required to absorb one or more types of losses prior to one
or more other classes of Certificates of such Series, in each case as specified
in the related Prospectus Supplement. The timing and amounts of such
distributions may vary among classes or over time as specified in the related
Prospectus Supplement.
Distributions to holders of Certificates (the "Certificateholders") will be
made monthly, quarterly, semiannually or at such other intervals and on the
dates specified in the related Prospectus Supplement. Distributions on the
Certificates of a Series will be made from the assets of the related Trust Fund
or funds or other assets held for the benefit of the Certificateholders as
specified in the related Prospectus Supplement.
The Certificates of any Series will not be insured or guaranteed by any
governmental agency or instrumentality or, unless otherwise specified in the
related Prospectus Supplement, by any other person. Unless otherwise specified
in the related Prospectus Supplement, the only obligations of the Depositor with
respect to a Series of Certificates will be to obtain certain representations
and warranties from each Seller and to assign to the Trustee for the related
Series of Certificates the Depositor's rights with respect to such
representations and warranties. Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer for each Series of Certificates will
be The CIT Group/Consumer Finance, Inc. The principal obligations of the Master
Servicer named in the related Prospectus Supplement with respect to the related
Series of Certificates will be limited to obligations pursuant to certain
representations and warranties and to its contractual servicing obligations,
including any obligation it may have to advance delinquent payments on the
Mortgage Assets in the related Trust Fund to the extent described in the related
Prospectus Supplement.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate and timing of payment of principal (including
prepayments) on the Mortgage Assets in the related Trust Fund and the timing of
receipt of such payments as described herein and in the related Prospectus
Supplement. A Trust Fund may be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
Each Trust Fund will be held in trust for the benefit of the holders of the
related Certificates of a Series pursuant to an Agreement (as defined herein) as
more fully described herein. If specified in the related Prospectus Supplement
for the Certificates of a Series, one or more elections may be made to treat the
related Trust Fund or specified portions thereof as one or more "real estate
mortgage investment conduits" (each, a "REMIC") for federal income tax purposes.
See "Certain Federal Income Tax Consequences" herein.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to the Certificates of each Series to be
offered hereunder will, among other things, set forth with respect to such
Certificates, as appropriate: (i) a description of the class or classes of
Certificates and the related Pass-Through Rate (as defined herein) or method of
determining the amount of interest, if any, to be passed through to each such
class, (ii) the initial aggregate Certificate Balance (as defined herein) of
each class of Certificates included in such Series, Distribution Dates (as
defined herein) relating to such Series and, if applicable, the initial and
final scheduled Distribution Dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of the
Mortgage Assets included therein and, if applicable, the insurance surety bonds,
guarantees, financial guaranty insurance policies, letters of credit or other
instruments or agreements included in the Trust Fund, any overcollateralization,
and the amount and source of any Reserve Fund (as defined herein) or any other
cash account; (iv) the circumstances, if any, under which the Trust Fund may be
subject to early termination; (v) the method used to calculate the amount of
principal, if any, to be distributed with respect to each class of Certificates;
(vi) the order of application of distributions to each of the classes within
such Series, whether sequential, pro rata, or otherwise; (vii) additional
information with respect to the plan of distribution of such Certificates;
(viii) whether one or more REMIC elections will be made and designation of the
regular interests and residual interests; (ix) the aggregate original percentage
ownership interest in the Trust Fund to be evidenced by each class of
Certificates; (x) information as to the nature and extent of subordination with
respect to any class of Certificates that is subordinate in right of payment to
any other class of Certificates; and (xi) information as to the Seller, the
Master Servicer, CIT and the Trustee.
AVAILABLE INFORMATION
The Depositor and CIT have filed with the Securities and Exchange
Commission (the "Commission") on behalf of each Trust Fund a Registration
Statement (together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended, with respect to the Certificates offered pursuant to this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to such Registration Statement including exhibits
filed as part thereof. Such Registration Statement and exhibits can be inspected
without charge and copied at prescribed rates at the public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661;
and New York Regional Office, Seven World Trade Center, New York, New York
10048. Both registrants also file electronically. The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's Web site is http://www.sec.gov. Statements made
in this Prospectus as to the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement, while complete in
all material respects, do not necessarily describe all terms or provisions of
such contract, agreement or other document. For a complete description,
reference is made to each such contract, agreement or other document filed as an
exhibit to the Registration Statement. The Master Servicer, on behalf of each
Trust Fund, will also file or cause to be filed with the Commission such
periodic reports as are required under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations of the Commission
thereunder. However, in accordance with the Exchange Act and the rules and
regulations of the Commission thereunder, the Depositor expects that each
Trust's obligation to file such reports will be terminated following the end of
the year in which such Trust Fund is formed. Such reports and other information
filed on behalf of each Trust Fund will be available for inspection as set forth
above.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
CIT's Annual Report on Form 10-K for the year ended December 31, 1996
together with the report of KPMG Peat Marwick LLP, independent certified public
accountants, has been filed with the Commission by CIT and is incorporated by
reference in this Prospectus.
All documents filed by CIT pursuant to Sections 13(a) and (c), 14, or 15(d) of
the Exchange Act after the date hereof and prior to the termination of the
offering of the securities offered hereby shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute part of this Prospectus.
CIT WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON REQUEST, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS
DESCRIBED ABOVE WHICH HAVE BEEN OR MAY BE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUEST SHOULD
BE DIRECTED TO:
CORPORATE SECRETARY
THE CIT GROUP HOLDINGS, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 536-1950
All documents subsequently filed by or on behalf of the Trust Fund referred
to in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this
Prospectus and prior to the termination of any offering of the Certificates
issued by such Trust Fund shall be deemed to be incorporated by reference in
this Prospectus and to be a part of this Prospectus from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for all purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference modifies or replaces such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Trustee on behalf of any Trust Fund will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus (not including
exhibits to the information that is incorporated by reference unless such
exhibits are specifically incorporated by reference into the information that
this Prospectus incorporates). Such requests should be directed to the corporate
trust office of the Trustee specified in the accompanying Prospectus Supplement.
--------------
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus Supplement,
whether or not participating in the distribution thereof, may be required to
deliver such Prospectus Supplement and this Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus and Prospectus Supplement when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby nor an offer of the Certificates to any person in any
state or other jurisdiction in which such offer would be unlawful. The delivery
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of this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date.
--------------------
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual reports concerning any Certificates and the related
Trust Fund will be provided to the Certificateholders. See "Description of the
Certificates -- Reports to Certificateholders" herein. If specified in the
related Prospectus Supplement, a Series of Certificates may be issuable in
book-entry form. In such event, the related Certificates will be registered in
the name of Cede & Co. ("Cede"), the nominee of The Depository Trust Company
("DTC"). All reports will be provided to Cede, which in turn will provide such
reports to its Participants and Indirect Participants (each, as defined herein).
Such Participants and Indirect Participants will then forward such reports to
the beneficial owners of Certificates. If specified in the related Prospectus
Supplement, Certificateholders may also hold Certificates of a Series through
Cedel Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear") in
Europe, if they are participants in such systems or indirectly through
organizations that are participants in such systems. See "Description of the
Certificates -- Book-Entry Certificates" herein.
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related Prospectus
Supplement with respect to the Series offered thereby. The Prospectus Supplement
for each Series will specify the extent (if any) to which the terms of such
Series or the related Trust Fund vary from the description of the Certificates
and Trust Funds in general that is contained in this Prospectus. Reference is
made to the Index to Defined Terms for the location herein of the definitions of
certain capitalized terms used herein.
Title of Securities............ Home Equity Loan Asset Backed Certificates
(the "Certificates"), issuable in series
(each, a "Series"). Each Series will be
issued under a separate pooling and servicing
agreement (each, an "Agreement") to be
entered into among the Depositor, the Master
Servicer, the applicable Sellers and the
Trustee (each, as defined herein) with
respect to each such Series.
Depositor...................... The CIT Group Securitization Corporation III,
a Delaware corporation (the "Depositor").
Seller......................... The entity or entities named as seller (each,
a "Seller") in the related Prospectus
Supplement, which will be The CIT
Group/Consumer Finance, Inc. ("CIT Consumer
Finance") and/or another affiliate of the
Depositor.
Master Servicer................ The CIT Consumer Finance or such other entity
named as master servicer in the related
Prospectus Supplement (the "Master
Servicer"), which may be an affiliate of the
Depositor. See "The CIT Group/Consumer
Finance, Inc., Master Servicer" and "The
Pooling and Servicing Agreement--Certain
Matters Regarding the Master Servicer and the
Depositor" herein.
Sub-Servicer................... Unless otherwise specified in the related
Prospectus Supplement, The CIT Group/Sales
Financing, Inc. ("CITSF") will be appointed
as a Sub-Servicer for all of the Mortgage
Loans (as defined herein) in each Mortgage
Pool (as defined herein), and as a
Sub-Servicer, will perform all or most of the
servicing responsibilities described under
"The Pooling and Servicing Agreement" herein
and "Servicing of Mortgage Loans" in the
related Prospectus Supplement. All references
in this Prospectus and any related Prospectus
Supplement to the "Master Servicer" or to CIT
Consumer Finance in a servicing capacity
shall include CIT Consumer Finance acting
through any Sub-Servicer, including CITSF, or
any agent.
Trustee........................ The trustee (the "Trustee") for each Series
of Certificates will be specified in the
related Prospectus Supplement. See "The
Pooling and Servicing Agreement" herein for a
description of the Trustee's rights and
obligations.
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Closing Date................... The date of initial issuance of a Series of
Certificates, as specified in the related
Prospectus Supplement (the "Closing Date").
Description of
the Certificates............... Each Certificate will represent a beneficial
ownership interest in a Trust created by the
Depositor pursuant to an Agreement among the
Depositor, the applicable Sellers, the Master
Servicer and the Trustee for the related
Series. The primary assets of such Trust will
be a Pool (as defined herein) of Mortgage
Loans and certain other Mortgage Assets (as
defined herein). See "-The Mortgage Assets"
below. The Certificates of any Series may be
issued in one or more classes as specified in
the related Prospectus Supplement. A Series
of Certificates may include one or more
classes of senior Certificates (the "Senior
Certificates") which receive certain
preferential treatment specified in the
related Prospectus Supplement with respect to
one or more classes of subordinate
Certificates (the "Subordinated
Certificates"). Each class may be divided
into sub-classes, each of which bears a
different Pass-Through Rate (as defined
herein) and has a specified priority in
payments of interest and principal. Certain
Series or classes of Certificates may be
covered by a Certificate Guaranty Insurance
Policy, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy, Bankruptcy
Bond (each, as defined herein) or other
insurance policies, a Reserve Fund (as
defined herein), guarantees (including
guarantees by The CIT Group Holdings, Inc.,
its affiliates or an unaffiliated third
party, any of which may be limited in
nature), letters of credit, a spread account,
cash collateral account and/or other
accounts, overcollateralization, or other
forms of credit enhancement, in each case as
described herein and in the related
Prospectus Supplement.
Each class of Certificates within a Series
will evidence the interests specified in the
related Prospectus Supplement, which may (i)
include the right to receive
disproportionate, nominal or no distributions
allocable only to principal, only to interest
or to any combination thereof; (ii) include
the right to receive disproportionate,
nominal or no distributions only of
prepayments of principal throughout the lives
of the Certificates or during specified
periods; (iii) be subordinated in the right
to receive distributions of scheduled
payments of principal, prepayments of
principal, interest or any combination
thereof to one or more other classes of
Certificates of such Series throughout the
lives of the Certificates or during specified
periods or may be subordinated with respect
to certain losses or delinquencies; (iv)
include the right to receive distributions
only after the occurrence of events specified
in the related Prospectus Supplement; (v)
include the right to receive distributions in
accordance with a schedule or formula or on
the basis of collections from designated
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portions of the assets in the related Trust;
(vi) include, as to Certificates entitled to
distributions allocable to interest, the
right to receive interest at a Fixed Rate or
at an Adjustable Rate (each, as defined
herein) that is subject to change from time
to time, or the right to receive interest
based on the weighted average Mortgage Rate
(as defined herein), or the right to receive
interest as otherwise determined as specified
in the related Prospectus Supplement; and
(vii) include, as to Certificates entitled to
distributions allocable to interest, the
right to distributions allocable to interest
only after the occurrence of events specified
in the related Prospectus Supplement, and in
each case, may accrue interest until such
events occur, as specified in the related
Prospectus Supplement. The timing and amounts
of such distributions may vary among classes,
over time, or otherwise as specified in the
related Prospectus Supplement. A Series of
Certificates may also include one or more
classes of Certificates entitled to payments
derived from a specified group or groups of
Mortgage Assets held by the related Trust.
Unless otherwise specified in the related
Prospectus Supplement, the Certificates will
be issuable in fully registered form, in
minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof, except
that one Certificate of each class may be
issued in a different denomination. See
"Description of the Certificates" herein.
Distributions
on the Certificates............. All distributions will be made to
Certificateholders in the priority, manner
and amount specified in the related
Prospectus Supplement. The amount allocable
to payments of principal and interest on any
Distribution Date will be determined as
specified in the related Prospectus
Supplement. The rate at which interest will
be passed through to holders of each class of
Certificates entitled thereto may be a Fixed
Rate or an Adjustable Rate from the date and
for the periods, in each case, as specified
in the related Prospectus Supplement. Any
such rate will be calculated as described in
the related Prospectus Supplement.
Distribution Date.............. Distributions on the Certificates entitled
thereto will be made monthly, quarterly,
semi-annually or at such other intervals and
on the dates specified in the related
Prospectus Supplement (each, a "Distribution
Date") out of the payments received in
respect of the assets of the related Trust or
other assets held for the benefit of the
Certificateholders as specified in the
related Prospectus Supplement.
Determination Date............. Unless otherwise specified in the related
Prospectus Supplement, the "Determination
Date" is the third Business Day (as defined
herein) prior to each Distribution Date. On
each Determination Date, the Master Servicer
will determine the
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amounts of principal and interest which will
be passed through to Certificateholders on
the related Distribution Date.
Due Period..................... The "Due Period" for any Series is the period
specified in the related Prospectus
Supplement. The "Due Period" is the period
during which principal, interest and other
amounts will be collected on the Mortgage
Loans for application to the payment of
principal and interest to the
Certificateholders and the payment of fees on
such Distribution Date.
Business Day................... A "Business Day" is any day other than a
Saturday, Sunday or any day on which banking
institutions or trust companies in the states
of New York, Oklahoma and such other states
(if any) specified in the related Prospectus
Supplement are authorized by law, regulation
or executive order to be closed.
Cut-off Date................... The first day of the month of the issuance of
the related Series of Certificates or such
other date as is specified in the related
Prospectus Supplement (the "Cut-off
Date").
The Mortgage Assets............ The primary assets of the trust fund for a
Series of Certificates (each, a "Trust Fund"
or "Trust") will consist of one or more pools
(each a "Mortgage Pool" or "Pool") of certain
mortgage related assets (the "Mortgage
Assets") consisting of (i) mortgage loans (or
participation or other beneficial interests
therein) secured by mortgages, deeds of trust
or similar security instruments (the
"Mortgages") creating first or subordinate
liens on one- to four-family residential
properties (the "Mortgage Loans"), and, if
specified in the related Prospectus
Supplement, (ii) mortgage pass-through
certificates or participation certificates
evidencing an undivided interest in a pool of
mortgage loans or collateralized mortgage
obligations secured by mortgage loans (the
"Private Mortgage-Backed Securities"),
together with payments in respect of such
Mortgage Assets, and (iii) certain other
accounts, obligations or agreements, in each
case as specified in the related Prospectus
Supplement.
A. Mortgage Loans............ Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans
will be secured by Mortgages creating first
or subordinate liens on one- to four-family
residential properties (each, a "Mortgaged
Property"). If specified in the related
Prospectus Supplement, the Mortgage Loans may
include loans or participations therein
secured by Mortgages on condominium units in
condominium buildings together with such
condominium units' appurtenant interests in
the common elements of the condominium
buildings. If specified in the related
Prospectus Supplement, the Mortgage Assets of
the related Trust may include mortgage
participation certificates evidencing
interests in mortgage loans. Unless otherwise
specified in the related Prospectus
Supplement, such Mortgage Loans
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<PAGE>
will be loans that are not insured or
guaranteed by any governmental agency.
B. General Attributes of
Mortgage Loans.............. The payment terms of the Mortgage Loans to be
included in a Trust will be described in the
related Prospectus Supplement and may include
any of the following features or combinations
thereof or other features described in the
related Prospectus Supplement:
(a) Interest may be payable at a fixed rate
(a "Fixed Rate" and a Mortgage Loan
subject thereto is a "Fixed Rate
Mortgage Loan"), a rate adjustable from
time to time in relation to an index
(which will be specified in the related
Prospectus Supplement), a rate that is
fixed for a period of time or under
certain circumstances and is followed by
an adjustable rate, a rate that
otherwise varies from time to time, or a
rate that is convertible from an
adjustable rate to a fixed rate (each of
the foregoing, an "Adjustable Rate" and
a Mortgage Loan subject thereto is an
"Adjustable Rate Mortgage Loan").
Changes to an Adjustable Rate may be
subject to periodic limitations, maximum
rates, minimum rates or a combination of
such limitations. Accrued interest may
be deferred and added to the principal
of a Mortgage Loan for such periods and
under such circumstances as may be
specified in the related Prospectus
Supplement. The loan agreement or
promissory note (the "Mortgage Note") in
respect of a Mortgage Loan may provide
for the payment of interest at a rate
lower than the interest rate (the
"Mortgage Rate") specified in such
Mortgage Note for a period of time or
for the life of the Mortgage Loan, and
the amount of any difference may be
contributed from funds supplied by the
seller of the related Mortgaged Property
or another source or may be treated as
accrued interest and added to the
principal of the Mortgage Loan.
(b) Principal may be payable on a declining
balance basis to fully amortize the
Mortgage Loan over its term, may be
calculated on the basis of an assumed
amortization schedule that is
significantly longer than the original
term to maturity or on an interest rate
that is different from the Mortgage Rate
or may not be amortized during all or a
portion of the original term. Payment of
all or a substantial portion of the
principal of certain Mortgage Loans
("Balloon Loans") may be due on maturity
("Balloon Payments"). Mortgage Loans may
permit the mortgagee to require the
Mortgagor (as defined herein) to pay the
full principal balance of the loan on a
specified date (the "Call Date") prior
to the maturity of the loan ("Call
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Loans"). Principal may include interest
that has been deferred and added to the
principal balance of the Mortgage Loan.
(c) Monthly payments of principal and
interest may be fixed for the life of
the Mortgage Loan, may increase over a
specified period of time (a "Graduated
Payment Loan") or may change from period
to period. The terms of a Mortgage Loan
may include limits on periodic increases
or decreases in the amount of monthly
payments and may include maximum or
minimum amounts of monthly payments.
(d) The Mortgage Loans generally may be
prepaid in whole or in part at any time.
If specified in the related Prospectus
Supplement, some prepayments of the full
principal balance of a loan may be
subject to a prepayment penalty or
premium. Such prepayment penalty or
premium will be applicable to certain
prepayments of principal made during a
specified period of time during the life
of the Mortgage Loan. The Mortgage Note
in respect of any Mortgage Loan subject
to a prepayment penalty or premium
generally will set forth the terms of
prepayment. Prepayments on the Mortgage
Loans as a result of a refinancing by
the Seller or Seller's transferee
generally will not be subject to a
prepayment penalty or premium. The
Mortgage Loans generally include "due on
sale" clauses which permit the mortgagee
to demand payment of the entire Mortgage
Loan in connection with the sale or
certain transfers of the related
Mortgaged Property. Other Mortgage Loans
may be assumable by persons meeting the
then applicable underwriting standards
for such Mortgage Loan.
(e) The real property constituting security
for repayment of a Mortgage Loan may be
located in any one of the fifty states
or the District of Columbia. Unless
otherwise specified in the related
Prospectus Supplement, all of the
Mortgage Loans will be covered by
standard hazard insurance policies
(each, a "Standard Hazard Insurance
Policy") insuring against losses due to
fire and various other causes. Mortgage
Loans with certain Combined
Loan-to-Value Ratios (as defined herein)
and/or certain principal balances are
generally not covered wholly or
partially by Primary Mortgage Insurance
Policies (as defined herein) unless
otherwise specified in the related
Prospectus Supplement.
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(f) Unless otherwise specified in the
related Prospectus Supplement, certain
of the Mortgage Loans underlying a given
Series of Certificates may have been
originated by CIT Consumer Finance or
affiliates thereof and certain Mortgage
Loans may have been purchased by CIT
Consumer Finance or an affiliate thereof
in the open market or in privately
negotiated transactions, including
transactions with entities affiliated
with CIT Consumer Finance.
The Prospectus Supplement for each Series of
Certificates will specify with respect to all
Mortgage Loans expected to be included in the
related Pool as of the date specified in the
related Prospectus Supplement, among other
things, (i) the expected aggregate
outstanding principal balance and the
expected average outstanding principal
balance of the Mortgage Loans in such Pool,
(ii) the largest expected principal balance
and the smallest expected principal balance
of any of the Mortgage Loans, (iii) the types
of Mortgaged Properties (e.g., detached
residential one- to four-family properties,
individual units in condominium apartment
buildings, vacation and second homes, or
other real property) and/or other assets
securing the Mortgage Loans, (iv) the
original terms to maturity of the Mortgage
Loans, (v) the expected weighted average term
to maturity of the Mortgage Loans as of the
date specified in such Prospectus Supplement
and the expected range of the terms to
maturity, (vi) the earliest origination date
and latest maturity date of any of the
Mortgage Loans, (vii) the expected aggregate
principal balance of Mortgage Loans having
Combined Loan-to-Value Ratios in specified
ranges, (viii) in the case of Fixed Rate
Mortgage Loans, the expected weighted average
Mortgage Rate and ranges of Mortgage Rates
borne by the Mortgage Loans (as the case may
be), (ix) in the case of Adjustable Rate
Mortgage Loans, the expected weighted average
of the Adjustable Rates as of the date set
forth in such Prospectus Supplement, any
periodic or lifetime rate caps or floors,
maximum permitted Adjustable Rates, if any,
and the Index (as defined herein) upon which
the Adjustable Rate is based, (x) the
expected aggregate outstanding principal
balance, if any, of Buydown Loans (as defined
herein) and Graduated Payment Loans, as of
the date set forth in such Prospectus
Supplement, (xi) the expected aggregate
outstanding principal balance, if any, of
Call Loans and Balloon Loans, (xii) the
amount of any Certificate Guaranty Insurance
Policy, Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or Bankruptcy
Bond to be maintained with respect to such
Pool, (xiii) the amount, if any, and terms of
any other Credit Enhancement (as defined
herein) to be provided with respect to all or
any Mortgage Loans or the Pool, (xiv) the
priority of the Mortgages (first, second,
third or fourth) and (xv) the expected
geographic location of the Mortgaged
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Properties. See "The Trusts - The Mortgage
Loans-General" herein.
C. Private Mortgage-Backed
Securities................ Private Mortgage-Backed Securities may
consist of (i) mortgage pass-through
certificates or participation certificates
evidencing an undivided interest in a pool of
mortgage loans or (ii) collateralized
mortgage obligations secured by such mortgage
loans. Private Mortgage-Backed Securities may
include stripped mortgage-backed securities
representing an undivided interest in all or
a part of any of the principal distributions
(but not the interest distributions) or the
interest distributions (but not the principal
distributions) or in some specified portion
of the principal and interest distributions
(but not all of such distributions) on
certain mortgage loans. Although individual
mortgage loans underlying a Private
Mortgage-Backed Security may be insured or
guaranteed by the United States or an agency
or instrumentality thereof, they need not be,
and the Private Mortgage-Backed Securities
themselves will not be so insured or
guaranteed. Unless otherwise specified in the
related Prospectus Supplement, payments on
the Private Mortgage-Backed Securities will
be distributed directly to the Trustee as
registered owner of such Private
Mortgage-Backed Securities. See "The
Trusts--Private Mortgage-Backed Securities"
herein.
The related Prospectus Supplement for a
Series for which the Trust includes Private
Mortgage-Backed Securities will specify, with
respect to any Private Mortgage-Backed
Securities owned by the related Trust, among
other things, (i) the approximate aggregate
principal amount and type of any Private
Mortgage-Backed Securities to be included in
the Trust for such Series; (ii) certain
characteristics of the mortgage loans that
comprise the underlying assets for the
Private Mortgage-Backed Securities including:
(A) the payment features of such mortgage
loans, (B) the approximate aggregate
principal amount, if known, of such mortgage
loans that are insured or guaranteed by a
governmental entity, (C) the servicing fee or
range of servicing fees with respect to such
mortgage loans and (D) the minimum and
maximum stated maturities of such mortgage
loans at origination; (iii) the maximum
original term-to-stated maturity of the
Private Mortgage-Backed Securities; (iv) the
weighted average term-to-stated maturity of
the Private Mortgage-Backed Securities; (v)
the pass-through or certificate rate or
ranges thereof for the Private
Mortgage-Backed Securities; (vi) the weighted
average pass-through or certificate rate of
the Private Mortgage-Backed Securities; (vii)
the issuer of the Private Mortgage-Backed
Securities (the "PMBS Issuer"), the servicer
of the Private Mortgage-Backed Securities
(the "PMBS Servicer") if other than the PMBS
Issuer and the trustee of the Private
Mortgage-Backed Securities (the "PMBS
Trustee"); (viii) certain characteristics of
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credit support, if any, such as reserve
funds, insurance policies, surety bonds,
letters of credit or guarantees, relating to
the mortgage loans that comprise the
underlying assets for the Private
Mortgage-Backed Securities or to such Private
Mortgage-Backed Securities themselves; (ix)
the terms on which the mortgage loans that
comprise the underlying assets for such
Private Mortgage-Backed Securities may, or
are required to, be repurchased prior to
their stated maturity or the stated maturity
of the Private Mortgage-Backed Securities;
and (x) the terms on which substitute
mortgage loans may be delivered to replace
those initially deposited with the PMBS
Trustee. See "The Trusts" herein.
Pre-Funding Account............ If provided in the related Prospectus
Supplement, the original principal amount of
a Series of Certificates may exceed the
principal balance of the Mortgage Assets
initially being delivered to the Trustee with
respect to such Series. Cash in an amount
equal to such difference (the "Pre-Funded
Amount") will be deposited into a separate
trust account (the "Pre-Funding Account")
maintained with the Trustee. The Pre-Funded
Amount will not exceed 25% of the Certificate
Balance (as defined herein). During the
period ("Funding Period") set forth in the
related Prospectus Supplement, amounts on
deposit in the Pre-Funding Account may be
used to purchase additional Mortgage Assets
for the related Trust. In addition, if
provided in the related Prospectus
Supplement, certain additional amounts in
respect of interest will be deposited into
the Pre-Funding Account or in a separate
trust account. The related Prospectus
Supplement will specify the conditions which
must be satisfied prior to the transfer of
any such additional Mortgage Assets,
including the requisite characteristics of
such Mortgage Assets. Any amounts remaining
in the Pre-Funding Account at the end of the
Funding Period will be distributed as a
principal prepayment to the holders of the
related Series of Certificates at the time
and in the manner set forth in the related
Prospectus Supplement. Unless otherwise
specified in the related Prospectus
Supplement, the specified period for the
acquisition by a Trust of additional Mortgage
Assets will not exceed three months from the
date such Trust is established.
Credit Enhancement............. The Mortgage Assets in a Trust or the
Certificates of one or more classes in the
related Series may have the benefit of one or
more types of credit enhancement described in
the related Prospectus Supplement. See
"Credit Enhancement" herein. The protection
against losses afforded by any such credit
support may be limited. Credit Enhancement
may include one or more of the following
types:
A. Subordination............. A Series of Certificates may consist of one
or more classes of Senior Certificates and
one or more classes of Subordinated
Certificates. The rights of the holders of
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<PAGE>
the Subordinated Certificates of a Series
(the Certificateholders Subordinated
distributions "Subordinated
Certificateholders") to receive with respect
to the assets in the related Trust will be
subordinated to such rights of the holders of
the Senior Certificates of the same Series
(the "Senior Certificateholders") to the
extent described in the related Prospectus
Supplement. This subordination is intended to
enhance the likelihood of regular receipt by
Senior Certificateholders of the full amount
of the monthly payments of principal and
interest due to them. The protection afforded
to the Senior Certificateholders of a Series
by means of the subordination feature will be
accomplished by (i) the preferential right of
such holders to receive, prior to any
distribution being made in respect of the
related Subordinated Certificates, the
amounts of principal and interest due them on
each Distribution Date out of the funds
available for distribution on such date in
the related Certificate Account (as defined
herein) and, to the extent described in the
related Prospectus Supplement, by the right
of such holders to receive future
distributions on the assets in the related
Trust that would otherwise have been payable
to the Subordinated Certificateholders, (ii)
reducing the ownership interest of the
related Subordinated Certificates, (iii) a
combination of clauses (i) and (ii) above, or
(iv) as otherwise described in the related
Prospectus Supplement. If specified in the
related Prospectus Supplement, subordination
may apply only in the event of certain types
of losses not covered by other forms of
credit support, such as hazard losses not
covered by Standard Hazard Insurance Policies
or losses due to the bankruptcy or fraud of
the Mortgagor not covered by a Bankruptcy
Bond. The protection afforded to Senior
Certificateholders through subordination also
may be accomplished by allocating certain
types of losses or delinquencies to the
related Subordinated Certificates to the
extent described in the related Prospectus
Supplement. The related Prospectus Supplement
will set forth information concerning, among
other things, the amount of subordination of
a class or classes of Subordinated
Certificates in a Series, the circumstances
in which such subordination will be
applicable and the manner, if any, in which
the amount of subordination will decrease
over time. If specified in the related
Prospectus Supplement, the same class of
Certificates may constitute Senior
Certificates with respect to certain types of
payments or certain losses or delinquencies
and Subordinated Certificates with respect to
other types of payments or losses or
delinquencies.
B. Overcollateralization..... If specified in the related Prospectus
Supplement, credit support may consist of
overcollateralization whereby the aggregate
principal amount of the Mortgage Assets
exceeds the Certificate Balance of the
Certificates of such Series.
Overcollateralization may exist on the
Closing Date or may develop thereafter as a
result of the application of certain interest
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<PAGE>
collections or other collections received in
connection with the Mortgage Assets in excess
of amounts necessary to pay the Pass-Through
Rate on the Certificates and certain other
amounts as may be specified in the related
Prospectus Supplement. The existence of any
overcollateralization and the manner, if any,
by which it increases or decreases, will be
set forth in the related Prospectus
Supplement.
C. Reserve Fund.............. One or more reserve funds (each, a "Reserve
Fund") may be established and maintained for
each Series. The related Prospectus
Supplement will specify whether or not any
such Reserve Fund will be included in the
corpus of the Trust for such Series and will
also specify the manner of funding the
related Reserve Fund and the conditions under
which the amounts in any such Reserve Fund
will be used to make distributions to holders
of Certificates of a particular class or
released from the related Trust.
D. Certificate Guaranty
Insurance Policy.......... A certificate guaranty insurance policy or
policies (each, a "Certificate Guaranty
Insurance Policy") may be obtained and
maintained for one or more class or classes
of a Series of Certificates. Certificate
Guaranty Insurance Policies generally
unconditionally and irrevocably guarantee to
Certificateholders that the full amount of
the distributions of principal and interest,
as well as any other amounts specified in the
related Prospectus Supplement, will be
received by an agent of the Trustee on behalf
of Certificateholders for distribution by the
Trustee to Certificateholders. If specified
in the related Prospectus Supplement, the
Certificate Guaranty Insurance Policy may
only cover ultimate payment of principal to
Certificateholders and not timely payment of
principal on each Distribution Date.
Certificate Guaranty Insurance Policies may
have certain limitations set forth in the
related Prospectus Supplement, including (but
not limited to) limitations on the insurer's
obligation to guarantee the Sellers' or the
Master Servicer's obligation to repurchase or
substitute for any Mortgage Loans, to
guarantee any specified rate of prepayments
or to provide funds to redeem Certificates on
any specified date. The Certificate Guaranty
Insurance Policy may also be limited in
amount.
E. Mortgage Pool
Insurance Policy.......... A mortgage pool insurance policy or policies
(each, a "Mortgage Pool Insurance Policy")
may be obtained and maintained for a Mortgage
Pool, which shall be limited in scope,
covering defaults on the related Mortgage
Loans in an initial amount equal to a
specified percentage of the aggregate
principal balance of all Mortgage Loans
included in the Mortgage Pool as of the
Cut-off Date and, if applicable, as of the
Subsequent Cutt-off Dates (as defined in the
related Prospectus Supplement) related to the
transfer of additional Mortage Loans, if any,
which are not covered as to their entire
outstanding principal balances by Primary
Mortgage Insurance Policies.
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<PAGE>
F. Special Hazard
Insurance Policy.......... A special hazard insurance policy or policies
(each, a "Special Hazard Insurance Policy"),
may be obtained and maintained for a Mortgage
Pool, covering certain physical risks that
are not otherwise insured against by standard
hazard insurance policies. Each Special
Hazard Insurance Policy will be limited in
scope and will cover losses pursuant to the
provisions of each such Special Hazard
Insurance Policy as described in the related
Prospectus Supplement.
G. Bankruptcy Bond........... A bankruptcy bond or bonds (each, a
"Bankruptcy Bond") may be obtained to cover
certain losses resulting from proceedings
under the federal Bankruptcy Code with
respect to a Mortgage Loan. The level of
coverage and the limitations in scope of each
Bankruptcy Bond will be specified in the
related Prospectus Supplement.
H. Cross Collateralization... If specified in the related Prospectus
Supplement, the beneficial ownership of
separate Trusts or separate groups of assets
included in a Trust may be evidenced by
separate classes of the related Series of
Certificates. In such case, credit support
may be provided by a cross collateralization
feature which requires that distributions be
made with respect to Certificates evidencing
beneficial ownership of one or more separate
Trusts or asset groups prior to distributions
to Certificates evidencing a beneficial
ownership interest in other separate Trusts
or asset groups within the same Trust. If
specified in the related Prospectus
Supplement, the coverage provided by one or
more forms of credit support may apply
concurrently to two or more separate Trusts,
without priority among such Trusts, until the
credit support is exhausted. If applicable,
the related Prospectus Supplement will
identify the Trusts or asset groups to which
such credit support relates and the manner of
determining the amount of the coverage
provided thereby and of the application of
such coverage to the identified Trusts or
asset groups.
I. Other Credit Enhancement.. Other credit enhancement arrangements, as
described in the related Prospectus
Supplement, including (but not limited to)
one or more spread accounts, cash collateral
accounts and/or other accounts, letters of
credit, surety bonds, financial guaranty
insurance policies, interest rate swaps,
caps, floors and other derivative products,
guaranteed investment contracts or third
party guarantees (including guarantees by The
CIT Group Holdings, Inc., its affiliates, or
an unaffiliated third party, any of which may
be limited in nature) or similar instruments
or agreements, may be used to provide
coverage for certain risks or defaults or
losses. These arrangements may be in addition
to or in substitution for any forms of credit
support described in this Prospectus. Any
such arrangement must be acceptable to each
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nationally recognized statistical rating
organization that provides a rating for one
or more classes of the related Series of
Certificates (each, a "Rating Agency").
Advances....................... Unless otherwise specified in the related
Prospectus Supplement, the Master Servicer
will be required to remit to the Trustee no
later than the day prior to the Distribution
Date and in no case earlier than the seventh
Business Day of such month the amount (an
"Advance"), if any, by which 30 days'
interest at the Mortgage Rate (or, if
specified in the related Prospectus
Supplement, at the Adjusted Mortgage Loan
Remittance Rate (as defined herein)) on the
then outstanding principal balance of a
Mortgage Loan exceeds the amount received by
the Master Servicer in respect of interest on
the Mortgage Loan as of the related Record
Date (as defined herein). Any Advances by the
Master Servicer will be reimbursable to the
Master Servicer out of recoveries on the
specific Mortgage Assets with respect to
which such Advances were made (e.g., late
payments made by the related Mortgagors, any
related Insurance Proceeds, Liquidation
Proceeds, Released Mortgaged Property
Proceeds (each, as defined herein) or
proceeds of any Mortgage Loan repurchased by
the Depositor, a Sub-Servicer or a Seller
pursuant to the related Agreement) and any
other amount that would otherwise be
distributed to the holder or holders of
Certificates representing the residual
interest of a Trust for which a REMIC
election has been made. In addition, Advances
by the Master Servicer also will be
reimbursable to the Master Servicer from cash
otherwise distributable to Certificateholders
(including Senior Certificateholders) to the
extent that the Master Servicer determines
that any such Advances previously made are
not ultimately recoverable as described in
the immediately preceding sentence. See
"Description of the Certificates -- Advances
and Compensating Interest" herein. Any
obligation to make Advances may be subject to
limitations as specified in the related
Prospectus Supplement. If provided in the
related Prospectus Supplement, the obligation
of the Master Servicer to make such Advances
will be limited to amounts corresponding to
delinquent interest payments on a Mortgage
Loan and/or will be limited to amounts that
the Master Servicer believes will be
recoverable out of late payments by
Mortgagors on a Mortgage Loan, Liquidation
Proceeds, Insurance Proceeds or otherwise.
Compensating Interest.......... Unless otherwise specified in the related
Prospectus Supplement, not later than the
close of business on the Business Day prior
to each Determination Date, with respect to
each Mortgage Loan as to which the Master
Servicer receives during the related Due
Period a principal payment in full in advance
of the final scheduled due date (a "Principal
Prepayment"), the Master Servicer will be
required to remit to the Trustee for deposit
in the Certificate Account from amounts
otherwise payable to the Master Servicer as
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servicing compensation, an amount
("Compensating Interest") equal to any excess
of (a) 30 days' interest on the principal
balance of each such Mortgage Loan as of the
beginning of the related Due Period at the
applicable Mortgage Rate (or, if specified in
the related Prospectus Supplement, at the
Adjusted Mortgage Loan Remittance Rate) over
(b) the amount of interest actually received
on the related Mortgage Loan during such Due
Period.
Optional Termination........... The Master Servicer, the Depositor, the
holder of the residual interest in a REMIC,
certain insurers or certain other entities
specified in the related Prospectus
Supplement may have the option to effect
early termination of a Series of Certificates
through the purchase of the Mortgage Assets
and other assets in the related Trust under
the circumstances and in the manner specified
in the related Prospectus Supplement and
herein under "The Pooling and Servicing
Agreement--Termination; Purchase of Mortgage
Loans."
Mandatory Termination.......... The Trustee, the Master Servicer or certain
other entities specified in the related
Prospectus Supplement may be required to
effect early termination of a Series of
Certificates under the circumstances and in
the manner specified in the related
Prospectus Supplement and herein under "The
Pooling and Servicing Agreement--Termination;
Purchase of Mortgage Loans."
Legal Investment............... The Prospectus Supplement for each Series of
Certificates will specify which, if any, of
the classes of Certificates offered thereby
will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of
Certificates that qualify as "mortgage
related securities" will be legal investments
for certain types of institutional investors
to the extent provided in SMMEA, subject, in
any case, to any other regulations that may
govern investments by such institutional
investors. Investors should consult with
their counsel or the applicable authorities
to determine whether an investment in a
particular class of Certificates (whether or
not such class constitutes a "mortgage
related security") complies with applicable
guidelines, policy statements or
restrictions. See "Legal Investment" herein.
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<PAGE>
Certain Federal Income Tax
Consequences................... The federal income tax consequences to
Certificateholders will vary depending on
whether one or more elections are made to
treat the Trust or specified portions thereof
as a "real estate mortgage investment
conduit" ("REMIC") under the provisions of
the Internal Revenue Code of 1986, as amended
(the "Code"). The Prospectus Supplement for
each Series of Certificates will specify
whether such an election will be made.
Investors are advised to consult their tax
advisors and to review "Certain Federal
Income Tax Consequences" herein and, if
applicable, in the related Prospectus
Supplement.
ERISA Considerations........... A fiduciary of any employee benefit plan or
other retirement plan or arrangement
(including individual retirement accounts,
certain Keogh plans, and collective
investment funds, separate accounts and
insurance company general accounts in which
such plans, accounts or arrangements are
invested) subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully
review with its legal advisors whether an
investment in Certificates will cause the
assets of the related Trust to be considered
plan assets under the Department of Labor
("DOL") regulations set forth in 29 C.F.R.
Section 2510.3-101 (the "Plan Asset
Regulations"), thereby subjecting the Trustee
and the Master Servicer to the fiduciary
investment standards of ERISA, and whether
the purchase, holding or transfer of
Certificates could give rise to a transaction
prohibited or not otherwise permissible under
ERISA or the Code or subject to the excise
tax provisions of Section 4975 of the Code,
unless a DOL administrative exemption
applies. See "ERISA Considerations" herein
and in the related Prospectus Supplement. If
specified in the related Prospectus
Supplement, certain classes of Certificates
may not be transferred unless the Trustee and
the Depositor are furnished with a letter of
representation or an opinion of counsel to
the effect that such transfer will not result
in a violation of the prohibited transaction
provisions of ERISA and the Code and will not
subject the Trustee, the Depositor or the
Master Servicer to additional obligations.
See "Description of the
Certificates--General" and "ERISA
Considerations" herein and in the related
Prospectus Supplement.
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<PAGE>
Registration of
Certificates................... If specified in the related Prospectus
Supplement, Certificates will be represented
by global certificates registered in the name
of Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), or another
nominee. In such case, Certificateholders
will not be entitled to receive Definitive
Certificates (as defined herein) representing
such Certificateholders' interests, except in
certain circumstances described in the
related Prospectus Supplement. If specified
in the related Prospectus Supplement,
Certificateholders may also hold Certificates
of a Series through Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System
("Euroclear") in Europe, if they are
participants in such systems or indirectly
through organizations that are participants
in such systems. See "Description of the
Certificates--Book-Entry Certificates"
herein.
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RISK FACTORS
Prospective Certificateholders (as defined herein) should consider, among
other things, the following risk factors in connection with the purchase of the
Certificates (as defined herein):
1. General. An investment in Certificates evidencing interests in Mortgage
Loans (as defined herein) may be affected, among other things, by a decline in
real estate values or changes in mortgage market rates. An overall decline in
the market value of residential real estate, the general condition of a
Mortgaged Property (as defined herein), or other factors, could adversely affect
the values of the Mortgaged Properties such that the outstanding balances of the
Mortgage Loans, together with any senior liens on the Mortgaged Properties,
equal or exceed the value of the Mortgaged Properties. Such a decline could
extinguish the interest of the related Trust (as defined herein) in the
Mortgaged Properties before having any effect on the interest of the related
senior mortgagee. Certain of the Mortgage Loans may be secured by Mortgaged
Properties located in areas of the country which have experienced declines in
real estate values over the last few years. The Depositor (as defined herein)
will not be able to quantify the impact of any property value declines on the
Mortgage Loans or predict whether, to what extent or how long such declines may
continue. In periods of such declines, the actual rates of delinquencies,
foreclosures and losses on the Mortgage Loans could be higher than those
historically experienced in the mortgage lending industry in general. See "The
Home Equity Lending Program--Servicing and Collections" herein. To the extent
that such losses are not covered by the subordination of any class or Series (as
defined herein) of Certificates, applicable insurance policies or alternate
credit enhancement, holders of the Certificates of a Series evidencing interests
in a Mortgage Pool (as defined herein) will bear all risk of loss resulting from
default by borrowers on such Mortgage Loans (each a "Mortgagor") and will have
to look primarily to the value of the Mortgaged Properties for recovery of the
outstanding principal and unpaid interest of the defaulted Mortgage Loans. See
"The Trusts" herein.
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of The CIT Group Securitization Corporation III (the "Depositor"),
The CIT Group/Sales Financing, Inc. ("CITSF"), The CIT Group/Consumer Finance,
Inc. ("CIT Consumer Finance"), The CIT Group Holdings, Inc. ("CIT") or any of
their respective affiliates, unless (and to the extent) expressly provided in
the related Prospectus Supplement. Unless expressly provided in the related
Prospectus Supplement, the Certificates will not be insured or guaranteed by any
government agency or instrumentality, nor by the Depositor, CIT Consumer
Finance, CITSF, CIT or any of their respective affiliates.
3. Yield and Prepayment Considerations. The yield to maturity of the
Certificates of each Series will depend on the rate of payment of principal
(including prepayments, liquidations due to defaults, and repurchases due to
conversion of Adjustable Rate Mortgage Loans to Fixed Rate Mortgage Loans (each,
as defined herein) or breaches of representations and warranties) on the
Mortgage Loans and the price paid by Certificateholders. Such yield may be
adversely affected by a higher or lower than anticipated rate of prepayments on
the related Mortgage Loans. The yield to maturity on Certificates purchased at
premiums or discounted to par will be extremely sensitive to the rate of
prepayments on the related Mortgage Loans. In addition, the yield to maturity on
certain other types of classes of Certificates, including certain other classes
in a Series including more than one class of Certificates, may be relatively
more sensitive to the rate of the prepayment on the related Mortgage Loans than
other classes of Certificates. See "Yield and Prepayment Considerations" herein.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans generally may be prepaid in whole or in part at any time.
However, if permitted by the mortgage documentation and applicable law, the
Master Servicer may charge a prepayment penalty or premium in connection with a
prepayment, but CIT Consumer Finance's current operating system cannot process
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<PAGE>
prepayment penalties for partial prepayments on any Mortgage Loan. Such
penalties or premiums will be property of the related Trust. See "Certain Legal
Aspects of the Mortgage Loans - Prepayment and Late Charges" and "Description of
the Certificates - Distributions on Certificates - Available Funds" herein. The
rate of prepayments of the Mortgage Loans cannot be predicted. The prepayment
experience on the Mortgage Loans and the mortgage loans underlying the Private
Mortgage-Backed Securities (as defined herein) will affect the average life of
the Certificates or each class of Certificates. Prepayments on the Mortgage
Loans and the mortgage loans underlying the Private Mortgage-Backed Securities
may be influenced by a variety of economic, geographic, social and other
factors, including the difference between the interest rates on the Mortgage
Loans or the mortgage loans underlying the Private Mortgage-Backed Securities
and prevailing mortgage rates (giving consideration to the cost of refinancing).
Therefore, no assurance can be given as to the level of prepayments that a Trust
will experience.
Evidence suggests that the prepayment behavior of a pool including home
equity loans may be significantly different from that of a pool composed
entirely of first-lien purchase money mortgage loans with equivalent interest
rates and maturities. For example, the smaller average principal balance of a
pool of home equity loans may result in a higher prepayment rate than that of a
pool of first-lien purchase money mortgage loans with a larger average balance,
regardless of the interest rate environment. A small principal balance, however,
also may make refinancing a home equity loan at a lower interest rate less
attractive to the borrower relative to refinancing a larger balance first-lien
purchase money mortgage loan because the borrower may perceive the impact of
lower interest rates on the size of the monthly payment for a home equity
mortgage loan to be less than for a first-lien purchase money mortgage loan with
a larger balance. The amounts of, and interest rates on, the underlying senior
mortgage loans might be expected to affect the prepayment rate of a pool of
junior mortgage loans. The use of first-lien mortgage loans as long-term
financing for home purchase and the use of junior lien mortgage loans as
shorter-term financing for a variety of purposes, including home improvement,
education expenses and purchases of consumer durables such as automobiles might
also affect prepayment rates. Accordingly, the Mortgage Loans which are home
equity loans may experience a higher rate of prepayment than traditional
fixed-rate mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on home equity mortgage loans for federal
income tax purposes may further increase the rate of prepayments of such home
equity loans. See "Yield and Prepayment Considerations" herein.
Prepayments of the Mortgage Loans may result from voluntary early payments
by Mortgagors (including payments in connection with refinancings of the related
senior mortgage loan or loans), sales of Mortgaged Properties subject to "due on
sale" provisions and liquidations due to default, as well as the receipt of
proceeds from physical damage, credit life and disability insurance policies, if
any. The Mortgage Loans generally contain "due on sale" provisions, and the
Master Servicer will be required to enforce such provisions unless (i) such
enforcement will impair or threaten to impair any recovery under any related
Primary Mortgage Insurance Policy (as defined herein) or will materially
increase the risk of default or delinquency on, or materially decrease the
security for, such Mortgage Loan or (ii) such enforcement is not permitted by
applicable law or the applicable Mortgage (as defined herein), in which case the
Master Servicer is authorized to permit the purchaser of the related Mortgaged
Property to assume the Mortgage Loan. See "The Pooling and Servicing Agreement"
and "Certain Legal Aspects of the Mortgage Loans - Due on Sale Clauses" herein
and the related Prospectus Supplement.
Collections on the Mortgage Loans may vary due to the level of incidence of
delinquent payments and of prepayments. Collections on the Mortgage Loans may
also vary due to seasonal purchasing and payment habits of Mortgagors.
Prepayments may also result from mandatory prepayments relating to unused
moneys held in Pre-Funding Accounts (as defined herein), if any, and
refinancings by a Seller (as defined herein) of the Mortgage Loan. In addition,
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repurchases or purchases from a Trust of Mortgage Loans or substitution
adjustments required to be made under the related Agreement will have the same
effect on the Certificateholders as a prepayment of such Mortgage Loans.
4. Risk of Early Defaults. Certain of the Mortgage Loans underlying a
Series of Certificates may be recently originated as of the date of inclusion in
the related Mortgage Pool. Although little data is available, defaults on
mortgage loans are generally expected to occur with greater frequency in their
early years. Certain of the Mortgage Loans underlying a Series of Certificates
may be delinquent in respect of the payment of principal and interest. In
addition, certain of the Mortgagors under the Mortgage Loans underlying a Series
of Certificates may be subject to personal bankruptcy proceedings. Such Mortgage
Loans may be subject to a greater risk of default. See "Trusts" herein and "The
Mortgage Pool" in the related Prospectus Supplement.
5. Risk of the Losses Associated with Junior Liens. A substantial
proportion of the residential mortgage loans originated by CIT Consumer Finance
historically have been mortgage loans secured by liens subordinate to the rights
of the mortgagee under each related senior mortgage ("Junior Lien Loans"). In
most (or all) cases such senior mortgage or deed or trust will not be included
in the Mortgage Pool. Although little data is available on CIT Consumer
Finance's portfolio, the rate of default of Junior Lien Loans may be greater
than that of mortgage loans secured by senior liens on comparable properties.
A primary risk to holders of Junior Lien Loans is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related senior lien to satisfy both the senior mortgage and the Junior Lien
Loan. The proceeds from any liquidation, insurance or condemnation proceedings
will be available to satisfy the principal balance of a Junior Lien Loan only to
the extent that the claims, if any, of each such senior mortgagee or beneficiary
are satisfied in full, including any related foreclosure costs and, in the case
of a judicial foreclosure, only to the extent that the junior mortgagee has
answered and established its claim. In addition, a mortgagee holding a Junior
Lien Loan may not foreclose on the related mortgaged property unless it
forecloses subject to the related senior mortgage or mortgages, in which case it
must either pay the entire amount of each senior mortgage to the applicable
mortgagee at or prior to the foreclosure sale or undertake the obligation to
make payments on each senior mortgage in the event of default thereunder. See
"Certain Legal Aspects of the Mortgage Loans - Foreclosure" herein.
In servicing Junior Lien Loans in its portfolio, it has been the practice
of CIT Consumer Finance to satisfy each such senior mortgage at or prior to the
foreclosure sale only to the extent that it determines any amount so paid will
be recoverable from future payments and collections on such Junior Lien Loans or
otherwise. In servicing Junior Lien Loans in its portfolio, it has been the
practice of CIT Consumer Finance to advance funds to keep the senior lien
current in the event the mortgagor is in default thereunder until such time as
CIT Consumer Finance satisfies the senior lien by sale of the mortgaged
property, but only to the extent that it determines such advances will be
recoverable from future payments and collections on that Junior Lien Loan or
otherwise. CIT Consumer Finance may modify these practices at any time. The
related Trust will have no source of funds to satisfy a senior mortgage or to
make payments due to any senior mortgagee. The Junior Lien Loans are subject and
subordinate to any senior liens affecting the related Mortgaged Property,
including limitations and prohibitions which may be contained in such senior
liens upon subordinate financing. See "Certain Legal Aspects of The Mortgage
Loans" herein.
6. Potential Conflict of Interest. CIT Consumer Finance may hold both a
senior mortgage and a Junior Lien Loan on the same Mortgaged Property (or CIT
Consumer Finance may in the future originate a mortgage loan which is junior or
senior to a Mortgage Loan included in the Mortgage Pool). In such circumstances,
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CIT Consumer Finance may, in its role as Master Servicer, be required to make
decisions regarding a Mortgage Loan which could affect the value or
collectability of a mortgage held by CIT Consumer Finance (or by a trust for
which CIT Consumer Finance acts as servicer) on the same Mortgaged Property.
7. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series or, if it does develop, that it
will provide the holders of Certificates of such Series with liquidity of
investment or that it will remain for the life of such Series of Certificates.
Although the Certificateholders of each Series will receive monthly statements
containing certain statistical information with respect to the related Mortgage
Pool, the Depositor publishes no information relating to the Certificates of any
Series or any Mortgage Pool. The limited availability of any such published
information may influence the liquidity of the Certificates.
8. Subordination. With respect to Certificates of a Series having a class
of Subordinated Certificates (as defined herein), while the subordination
feature is intended to enhance the likelihood of timely payment of principal and
interest to Senior Certificateholders (as defined herein), the level of
subordination may be limited, as specified in the Prospectus Supplement, the
Reserve Fund (as defined herein), if any, could be depleted, and payments
applied to the Senior Certificates (as defined herein) which are otherwise due
to the Subordinated Certificates may be less than the losses.
9. Risk of Losses Associated with Balloon and Call Loans. Certain of the
Mortgage Loans may constitute Balloon Loans and Call Loans (each, as defined
herein). Balloon Loans are originated with a stated maturity of less than the
period of time required to amortize the Balloon Loan principal based upon the
monthly payment amount. Consequently, upon the maturity of a Balloon Loan, the
Mortgagor will be required to make a Balloon Payment (as defined herein) that
will be significantly larger than the previous monthly payments. Call Loans have
a scheduled payment and term which fully amortizes principal. The terms of a
Call Loan permit the mortgagee to require the Mortgagor to pay the full
principal balance of the Mortgage Loan on a specified date before its scheduled
maturity date. If the mortgagee exercises the call option in a Call Loan, the
Mortgagor will be required to make a payment that will be significantly larger
than the previous monthly payments. The ability of such a Mortgagor to repay a
Balloon Loan at maturity or a Call Loan on the date a call option is exercised
frequently will depend on such Mortgagor's ability to refinance the Mortgage
Loan. The ability of a Mortgagor to refinance such a Mortgage Loan will be
affected by a number of factors, including the level of available mortgage rates
at the time, the value of the related Mortgaged Property, the Mortgagor's equity
in the related Mortgaged Property, the creditworthiness of the Mortgagor, the
tax laws and general economic conditions at the time.
Although a low interest rate environment may facilitate the refinancing of
a Balloon Payment, the receipt and reinvestment by Certificateholders of the
proceeds in such an environment may produce a lower return than that previously
received in respect of the related Mortgage Loan. Conversely, a high interest
rate environment may make it more difficult for the Mortgagor to accomplish a
refinancing and may result in delinquencies or defaults. Except as provided
below, none of the Depositor, the Sellers, the Master Servicer or the Trustee
will be obligated to provide funds to refinance any Mortgage Loan, including
Balloon Loans or Call Loans. However, CIT Consumer Finance may in certain
limited circumstances be required by law to provide such refinancing.
10. Risk of Losses Associated with Adjustable Rate Mortgage Loans.
Adjustable Rate Mortgage Loans (as defined herein) may be underwritten on the
basis of an assessment that Mortgagors will have the ability to make payments in
higher amounts after relatively short periods of time. In some instances, a
Mortgagor's income may not be sufficient to enable him or her to continue to
make his or her loan payments as such payments increase and thus the likelihood
of default will increase.
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11. Risk of Losses Associated with Bankruptcy of Mortgagors. General
economic conditions have an impact on the ability of Mortgagors to repay
Mortgage Loans. Loss of earnings, illness and other similar factors also may
lead to an increase in delinquencies and bankruptcy filings by Mortgagors. In
the event of personal bankruptcy of a Mortgagor, it is possible that a Trust
could experience a loss with respect to such Mortgagor's Mortgage Loan. In
conjunction with a Mortgagor's bankruptcy, a bankruptcy court may suspend or
reduce the payments of principal and interest to be paid with respect to such
Mortgage Loan or permanently reduce the principal balance of such Mortgage Loan,
thereby either delaying or permanently limiting the amount received by the Trust
with respect to such Mortgage Loan. Moreover, in the event a bankruptcy court
prevents the transfer of the related Mortgaged Property to a Trust, any
remaining balance on such Mortgage Loan may not be recoverable.
12. Delays in Liquidating Defaulted Mortgage Loans. Even if one assumes
that the Mortgaged Properties provide adequate security for the Mortgage Loans,
substantial delays could be encountered in connection with the liquidation of
defaulted Mortgage Loans resulting in corresponding delays in the receipt of
related proceeds by the Certificateholders. An action to foreclose on a
Mortgaged Property securing a Mortgage Loan is regulated by state statutes,
rules and judicial decisions and is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. Furthermore, in some states, an action to
obtain a deficiency judgment against the Mortgagor is not permitted following a
nonjudicial sale of a Mortgaged Property. In the event of a default by a
Mortgagor, these restrictions, among other things, may impede the ability of the
Master Servicer to foreclose on or sell the Mortgaged Property or to obtain
liquidation proceeds (net of expenses) sufficient to repay all amounts due on
the related Mortgage Loan. The Master Servicer will be entitled to deduct from
Liquidation Proceeds (as defined herein) all expenses reasonably incurred in
attempting to recover amounts due on the related liquidated Mortgage Loan and
not yet repaid, including payments to prior lienholders, accrued Master
Servicing Fees (as defined herein), legal fees and costs of legal action, real
estate taxes, and maintenance and preservation expenses. In the event that the
Mortgaged Properties fail to provide adequate security for the related Mortgage
Loans and insufficient funds are available from any applicable credit
enhancement, Certificateholders could experience a loss on their investment.
Liquidation expenses with respect to defaulted Mortgage Loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that the Master Servicer takes the same steps in
realizing upon a defaulted Mortgage Loan having a small remaining principal
balance as it would in the case of a defaulted Mortgage Loan having a larger
principal balance, the amount realized after expenses of liquidation would be
less as a percentage of the outstanding principal balance of the smaller
principal balance Mortgage Loan than would be the case with a larger principal
balance loan. Because the average outstanding principal balances of the Mortgage
Loans which are home equity loans are small relative to the size of the loans in
a typical pool composed entirely of first mortgages, realizations net of
liquidation expenses on defaulted Mortgage Loans which are home equity loans may
also be smaller as a percentage of the principal amount of such home equity
loans than would be the case with a typical pool of first Mortgage Loans.
13. Risk of Losses Associated with Mortgaged Properties. No assurance can
be given that values of the Mortgaged Properties have remained or will remain at
their levels on the dates of origination of the related Mortgage Loans. If the
residential real estate market should experience an overall decline in property
values such that the outstanding principal balances of the Mortgage Loans (and
any additional financing by other lenders on the Mortgaged Properties) in a
particular Mortgage Pool become equal to or greater than the value of the
Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses
could be higher than those now experienced by CIT Consumer Finance or those now
generally experienced in the mortgage lending industry. In addition, adverse
economic conditions and other factors (which may or may not affect real property
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values) may affect the timely payment by Mortgagors of scheduled payments of
principal and interest on the Mortgage Loans and, accordingly, the actual rates
of delinquencies, foreclosures and losses with respect to any Mortgage Pool. To
the extent that such losses are not covered by subordination provisions or
alternative credit enhancement arrangements, such losses will be borne, at least
in part, by the holders of the Certificates of the related Series.
Certain of the Mortgaged Properties relating to Mortgage Loans may not be
owner occupied. It is possible that the rate of delinquencies, foreclosures and
losses on Mortgage Loans secured by nonowner occupied properties could be higher
than for loans secured by the primary residence of the Mortgagor.
Other factors affecting Mortgagors' ability to repay Mortgage Loans include
excessive building resulting in an oversupply of housing stock or a decrease in
employment reducing the demand for units in an area; federal, state or local
regulations and controls affecting rents; prices of goods and energy;
environmental restrictions; increasing labor and material costs; and the
relative attractiveness of the Mortgaged Properties. To the extent that such
losses are not covered by credit enhancements, such losses will be borne, at
least in part, by the Certificateholders of the related Series.
14. Litigation. Any material litigation pending against the Depositor, a
Seller or the Master Servicer will be specified in the related Prospectus
Supplement.
15. Geographic Concentration of Mortgaged Properties. Certain geographic
regions from time to time will experience weaker regional economic conditions
and housing markets than will other regions, and, consequently, will experience
higher rates of loss and delinquency on mortgage loans generally. The Mortgage
Loans underlying certain Series of Certificates may be concentrated in such
regions, and such concentrations may present risk considerations in addition to
those generally present for similar mortgage loan asset-backed securities
without such concentrations. Information with respect to geographic
concentration of Mortgaged Properties will be specified in the related
Prospectus Supplement.
16. Legal Considerations. Applicable state laws generally regulate interest
rates and other charges, require certain disclosures, and require licensing of
the Mortgage Loan originators, the Master Servicer and any Sub-Servicer (as
defined herein). In addition, most states have other laws, public policy and
general principles of equity relating to the protection of consumers, unfair and
deceptive practices and practices that may apply to the origination, servicing
and collection of the Mortgage Loans. Depending on the provisions of the
applicable law and the specific facts and circumstances involved, violations of
these laws, policies and principles may limit the ability of a Trust or of the
Master Servicer to collect all or part of the principal of or interest on the
Mortgage Loans, may entitle the Mortgagor to a refund of amounts previously paid
and, in addition, could subject a Trust and the Master Servicer to damages and
administrative sanctions. See "Certain Legal Aspects of The Mortgage Loans"
herein. Unless otherwise specified in the related Prospectus Supplement, neither
the related Trust nor the Depositor will obtain any licenses under any federal
or state consumer laws or regulations. The absence of such licenses may impede
the enforcement of certain rights or may give rise to certain defenses in
actions seeking enforcement of such rights which may prevent a Trust from
collecting amounts due under the Mortgage Loans.
The Mortgage Loans may also be subject to federal laws, including: (i) the
Federal Truth-in-Lending Act and Regulation Z promulgated thereunder and the
Real Estate Settlement Procedures Act and Regulation X promulgated thereunder,
which require certain disclosures to the Mortgagors regarding the terms of the
Mortgage Loans; (ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination in the extension of credit
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and administration of loans on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act; (iii) the Fair Credit
Reporting Act, which regulates the use and reporting of information related to
the Mortgagor's credit experience, and (iv) the Fair Housing Act, which
prohibits discrimination on the basis of, among other things, familial status or
handicap.
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Ownership Act") which amended the Federal
Truth-in-Lending Act as it applies to mortgages subject to the Home Ownership
Act. The Home Ownership Act requires certain additional disclosures, specifies
the timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to the Home Ownership Act. The Home Ownership
Act also provides that any purchaser or assignee of a mortgage covered by the
Home Ownership Act is subject to all of the claims and defenses which the
borrower could assert against the original lender. The maximum damages that may
be recovered by a borrower from an assignee in an action under the Home
Ownership Act are the remaining amount of indebtedness plus the total amount
paid by the borrower in connection with the mortgage loan. Any Trust for which
the Mortgage Assets (as defined herein) include Mortgage Loans subject to the
Home Ownership Act would be subject to all of the claims and defenses which the
Mortgagor could assert against the original lender. Any violation of the Home
Ownership Act which would result in such liability would be a breach of the
Seller's representations and warranties, and the Seller would be obligated to
cure, repurchase or, if permitted by the related Agreement, substitute another
Mortgage Loan for the Mortgage Loan in question.
Depending on the provisions of the applicable law and the specific facts
and circumstances involved, violations of these laws, policies and general
principles of equity may limit the ability of a Trust or of the Master Servicer
to collect all or part of the principal of or interest on the Mortgage Loans,
may entitle the Mortgagor to rescind the Mortgage Loan and the Mortgage or to
obtain a refund of amounts previously paid and, in addition, could subject a
Trust or the Master Servicer to damages and administrative sanctions. If the
Master Servicer is unable to collect all or part of the principal or interest on
the Mortgage Loans because of a violation of the aforementioned laws, public
policies or general principles of equity, then the Trust may delay payments to,
or be unable to repay all amounts owed to, Certificateholders. Furthermore,
depending upon whether damages and sanctions are assessed against the Master
Servicer such violations may materially impact the financial ability of CIT
Consumer Finance to continue to act as Master Servicer or the ability of CIT
Consumer Finance to repurchase or replace Mortgage Loans if such violation
breaches a representation or warranty contained in the related Agreement.
In addition, numerous other federal and state statutory provisions,
including the federal bankruptcy laws, the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act") and state debtor relief laws, may
also adversely affect the Master Servicer's ability to collect the principal of
or interest on the Mortgage Loans and also would affect the interests of the
Certificateholders in such Mortgage Loans if such laws result in the Mortgage
Loans being uncollectible. See "Certain Legal Aspects of the Mortgage Loans"
herein.
Generally, under the terms of the Relief Act or similar state legislation,
a Mortgagor who enters military service after the origination of the related
Mortgage Loan (including a Mortgagor who is a member of the National Guard or is
in reserve status at the time of the origination of the Mortgage Loan and is
later called to active duty) may not be charged interest (including fees and
charges) above an annual rate of 6% during the period of such Mortgagor's active
duty status, unless a court orders otherwise upon application of the lender. It
is possible that such action could have an effect, for an indeterminate period
of time, on the ability of the Master Servicer to collect full amounts of
interest on certain of the Mortgage Loans. In addition, the Relief Act imposes
limitations that would impair the ability of the Master Servicer to foreclose on
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an affected Mortgage Loan during the Mortgagor's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the Mortgaged
Property in a timely fashion.
Under environmental legislation and judicial decisions applicable in
various states, a secured party which takes a deed in lieu of foreclosure, or
acquires at a foreclosure sale a mortgaged property that, prior to foreclosure,
has been involved in decisions or actions which may lead to contamination of a
property, may be liable for the costs of cleaning up the purportedly
contaminated site. It is unclear whether such costs, which could be substantial,
would be imposed on a holder of a mortgage note (such as a Trust) which does not
directly or through its agents use the Mortgaged Properties in a manner causing
an environmental hazard. See "Certain Legal Aspects of The Mortgage Loans"
herein.
17. Liens and Certain Other Aspects of the Mortgage Loans. A variety of
factors may limit the ability of the Certificateholders to realize upon the
Mortgaged Properties securing the Mortgage Loans or may limit the amount
realized to less than the amount due. See "Certain Legal Aspects of the Mortgage
Loans" herein.
Because of the expense and administrative inconvenience involved, the
Seller and the Depositor will not deliver to the Trustee any assignments in
recordable form of the Mortgages. Consequently, in some states, if the
assignment is not recorded in the proper office, the assignment to the Trustee
may not be effective against creditors of the Seller or the Depositor or a
trustee in bankruptcy of the Seller or the Depositor. As a result, the Trust
would not be able to claim the Mortgaged Property as collateral for a Mortgage
Loan.
18. The Status of the Mortgage Loans in the Event of Bankruptcy of the
Depositor, CIT Consumer Finance or CITSF. In the event of the bankruptcy of the
Depositor, CIT Consumer Finance, CITSF or any affiliate thereof which originated
any Mortgage Loans, a trustee in bankruptcy of the Depositor, CIT Consumer
Finance, CITSF or such affiliate, or the creditors thereof could attempt to
convince the relevant court to recharacterize the transfer of the Mortgage Loans
to the related Trust as a borrowing by the Depositor, CIT Consumer Finance,
CITSF or such affiliate with the result, if such recharacterization were upheld,
that the Certificateholders would be deemed creditors of the Depositor, CIT
Consumer Finance, CITSF or such affiliate, secured by a pledge of the Mortgage
Loans. If the Mortgage Loans were deemed "sold" to the related Trust, the
Mortgage Loans would not be assets of the Depositor, CIT Consumer Finance, CITSF
or such affiliate and would not be available to their creditors. In the event
that an attempt to convince the relevant court to recharacterize the transfer of
the Mortgage Loans as a secured loan were successful, the Trustee, on behalf of
the holders of the Certificates, would have a secured claim against the relevant
entity but would be delayed or prohibited from exercising remedies with respect
to the Mortgage Loans or taking actions with respect to the relevant entity
absent court approval. In addition, other collateral might be substituted for
the Mortgage Loans, and collections on the Mortgage Loans or such other
collateral might be applied to make distributions of principal and interest on
the Certificates at different times than those required by the related
Agreement. Moreover, payment of interest which accrued after the commencement of
the bankruptcy or insolvency proceeding might be limited, and payment of the
"loan" could be accelerated, with holders of Certificates losing the right to
future interest distributions. Even if such an attempt were not successful, it
is possible that distributions on the Certificates would be subject to delays
while the claim was being resolved by a court.
19. ERISA Considerations. An investment in a class of Certificates of any
Series by Plans (as defined herein) may give rise to a prohibited transaction
under ERISA (as defined herein) Section 406 and be subject to tax under Code (as
defined herein) Section 4975 unless a statutory or administrative exemption is
available. Accordingly, fiduciaries of any employee benefit plan or other
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retirement arrangement should consult their counsel before purchasing any class
of Certificates. Certain classes of Certificates will not be eligible for
purchase by Plans. See "ERISA Considerations" herein and in the related
Prospectus Supplement.
20. Limitations, Reduction and Substitution of Credit Enhancement. Credit
enhancement may be provided with respect to one or more classes of Certificates
of a Series to cover certain types of losses on the underlying Mortgage Loans.
Credit enhancement may be provided by one or more forms, including, but not
limited to, subordination of one or more classes of Certificates of such Series,
letter of credit, financial guaranty insurance policy, mortgage pool insurance
policy, special hazard insurance policy, reserve fund, spread account, cash
collateral account, overcollateralization, cross collateralization or other type
of credit enhancement (each, a "Credit Enhancement" and the entity providing it,
a "Credit Enhancer"). The coverage of any Credit Enhancement may be limited or
have exclusions from coverage and may decline over time or under certain
circumstances, all as specified in the related Prospectus Supplement. See
"Credit Enhancement" herein.
21. Certificate Rating. It will be a condition to the issuance of a Series
of Certificates that each class be rated in the rating categories specified in
the related Prospectus Supplement by each Rating Agency (as defined herein)
identified in the related Prospectus Supplement. Any such rating would be based
on, among other things, the adequacy of the value of the Mortgage Loans and any
credit enhancement with respect to such Series. Such rating should not be deemed
a recommendation to purchase, hold or sell Certificates, inasmuch as it does not
address market price or suitability for a particular investor. Ratings on
mortgage pass-through certificates do not represent an assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. There is also no
assurance that any such rating will remain in effect for any given period of
time or may not be lowered or withdrawn entirely by the Rating Agency if in its
judgment circumstances in the future so warrant. In addition to being lowered or
withdrawn due to any erosion in the adequacy of the value of the Mortgage Loans,
such rating might also be lowered or withdrawn, among other reasons, because of
an adverse change in the financial or other condition of a Credit Enhancer or a
change in the rating of such a Credit Enhancer's long term debt. In the event
the rating is lowered or withdrawn, the liquidity of the related Certificates
may be adversely affected.
The rating of Certificates credit enhanced through external Credit
Enhancement such as a letter of credit, financial guaranty insurance policy or
mortgage pool insurance will depend primarily on the creditworthiness of the
Credit Enhancer. Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer below the rating initially given to the
Certificates would likely result in a reduction in the rating of the
Certificates. See "Ratings" herein and in the related Prospectus Supplement.
22. The Subsequent Mortgage Loans. The conveyance of additional Mortgage
Assets by the Depositor during the Funding Period (as defined herein), is
subject to the conditions described in the related Prospectus Supplement. If the
Depositor is unable to originate Mortgage Loans satisfying such conditions
during the Funding Period, the Depositor will have insufficient Mortgage Loans
to sell to the Trust, thereby resulting in prepayments of principal to
Certificateholders as described below.
Each additional Mortgage Asset must satisfy the eligibility criteria
specified in the related Prospectus Supplement and in the related Agreement at
the time of its addition. The Depositor or its affiliate (the seller of any
additional Mortgage Assets to the Trust) will certify that all such eligibility
criteria have been satisfied and CIT Consumer Finance or its affiliate (the
seller of any additional Mortgage Assets to the Depositor) will certify that all
conditions precedent to the sale of the additional Mortgage Assets to the Trust
have been satisfied. It is a condition to the sale of any additional Mortgage
Assets to the Trust that the Rating Agencies, after receiving prior notice of
the proposed transfer of additional Mortgage Assets to the Trust, have not
advised the Seller or the Trustee that the conveyance of such additional
Mortgage Assets will result in a qualification, downgrade, or withdrawal of its
then current rating of the Certificates. Following the transfer of additional
Mortgage Assets to the Pool the aggregate characteristics of the Mortgage Assets
then held in the Pool may vary from those of the Mortgage Loans originally
included therein.
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The ability of the Trust to invest in additional Mortgage Assets is largely
dependent upon whether CIT Consumer Finance or its affiliates are able to
originate or purchase Mortgage Loans that meet the requirements for transfer
from CIT Consumer Finance to the Depositor under the related Agreement. The
ability of CIT Consumer Finance or its affiliates to originate or purchase such
Mortgage Loans may be affected by a variety of social and economic factors.
Moreover, such factors may affect the ability of the Mortgagors thereunder to
perform their obligations thereunder which may cause Mortgage Loans originated
or purchased by CIT Consumer Finance or its affiliates to fail to meet the
requirements for transfer under the related Agreement. Economic factors include
interest rates, unemployment levels, the rate of inflation and consumer
perception of economic conditions generally. However, CIT Consumer Finance is
unable to determine and has no basis to predict whether or to what extent
economic or social factors will affect the performance by such Mortgagors and
the availability of additional Mortgage Loans.
23. Prepayment from the Pre-Funding Account. To the extent that the
Pre-Funded Amount has not been fully applied by the Trust to purchase additional
Mortgage Assets by the end of the Funding Period, the amount remaining on
deposit in the Pre-Funding Account will be payable as principal to
Certificateholders on the first Distribution Date following the end of the
Funding Period, or, if the end of the Funding Period is on a Distribution Date,
then on such date.
In the event that amounts remain on deposit in the Pre-Funding Account at
the end of the Funding Period and are applied to the payment of principal to the
Certificateholders, such partial retirement of Certificates may shorten the
average life of the Certificates and may cause the Certificateholders to
experience a lower yield on the Certificates. In addition, any reinvestment risk
resulting from such partial retirement will be borne by the holders of such
Certificates.
24. Risk of Commingling. At any time that the requirements as specified
under "The Pooling and Servicing Agreement--Payments on Mortgage Assets;
Deposits to Certificate Account," are met, the Master Servicer may deposit
payments and collections received on or with respect to the Mortgage Loans in
the Certificate Account monthly on the Deposit Date (as defined herein). Until
the Master Servicer makes such a monthly deposit into the Certificate
Account,the Master Servicer may invest collections on the Mortgage Loans at its
own risk and for its own benefit and need not segregate the collections from its
own funds. If the Master Servicer were unable to remit such funds or if the
Master Servicer became insolvent, the holders of the Certificates could incur a
loss with respect to collections not deposited in the Certificate Account.
25. Book-Entry Registration. Issuance of the Certificates in book-entry
form may reduce the liquidity of such Certificates in the secondary trading
market since investors may be unwilling to purchase Certificates for which they
cannot obtain definitive physical securities representing such
Certificateholders' interests, except in certain circumstances described in the
related Prospectus Supplement.
Transactions in Certificates will, in most cases, be able to be effected
only through The Depository Trust Company ("DTC"), Participants or Indirect
Participants (each, as defined herein) and certain banks or through Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe. Since
a Certificateholder will not generally be able to obtain a physical security
under such systems, the ability of a Certificateholder to use effectively the
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Certificate as collateral for a loan from persons or entities that do not
participate in such systems, or otherwise to take actions in respect of such
Certificates, may be limited.
Certificateholders may experience delay in their receipt of distributions
of interest on and principal of the Certificates since distributions will be
forwarded by the Trustee to DTC and, in such a case, DTC will be required to
credit such distributions to the accounts of its Participants which thereafter
will be required to credit them to the accounts of the applicable class of
Certificateholders either directly or indirectly through Indirect Participants.
Unless and until Definitive Certificates (as defined herein) are issued, it
is anticipated that the only "Certificateholder" of the Book-Entry Certificates
(as defined herein) will be DTC or its nominee. Beneficial owners of the
Book-Entry Certificates will not be Certificateholders, as that term will be
used in the Agreement relating to such Series of Certificates. Beneficial owners
are only permitted to exercise the rights of Certificateholders indirectly
through Financial Intermediaries (as defined herein) and DTC. Monthly and annual
reports on the related Trust provided to DTC or its nominee, as the case may be,
as holder of record of the Book-Entry Certificates, may be made available to
beneficial owners upon request, in accordance with the rules, regulations and
procedures creating and affecting DTC, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such beneficial owners are
credited. See "Description of the Certificates -- Book-Entry Certificates"
herein.
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THE TRUSTS
The Trust for each Series will be held by the Trustee for the benefit of
the related Certificateholders. Each Trust will consist of one or more pools
(each, a "Mortgage Pool" or "Pool") of certain mortgage related assets (the
"Mortgage Assets") consisting of (i) mortgage loans (or participation or other
beneficial interests therein) secured by mortgages, deeds of trust or similar
security instruments (the "Mortgages") creating first or subordinate liens on
one- to four-family residential properties (the "Mortgage Loans") and, if
specified in the related Prospectus Supplement, (ii) Private Mortgage-Backed
Securities, together with payments in respect of such Mortgage Assets, and (iii)
certain other accounts, obligations or agreements, in each case as specified in
the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificates will be entitled to payment from the assets of the related Trust or
other assets held for the benefit of the holders of such Certificates (the
"Certificateholders") as specified in the related Prospectus Supplement and will
not be entitled to payments in respect of the assets of any other trust
established by the Depositor, a Seller or any of their affiliates.
The Mortgage Assets will be acquired by the Depositor either directly or
indirectly from CIT Consumer Finance and/or other affiliates of the Depositor
(each, a "Seller") and conveyed by the Depositor to the related Trust Fund.
Mortgage Loans acquired by the Depositor will have been originated or purchased
by CIT Consumer Finance or its affiliates in accordance with the underwriting
criteria specified below under "Mortgage Loan Program--Underwriting Standards"
or as otherwise described in a related Prospectus Supplement. Certain Mortgage
Loans originated in the State of Minnesota will have been originated or
purchased by CITSF in accordance with the same underwriting criteria. Certain
Mortgage Loans originated in the State of New York will have been originated or
purchased by The CIT Group/Consumer Finance, Inc. (NY), a New York corporation
and a wholly owned subsidiary of CIT, in accordance with the same underwriting
criteria. Mortgage Loans may have been acquired by CIT Consumer Finance or an
affiliate thereof in the open market or in privately negotiated transactions,
including transactions with entities affiliated with CIT Consumer Finance.
The following is a brief description of the Mortgage Assets expected to be
included in the Trusts. If provided in the related Prospectus Supplement, the
original principal amount of a Series of Certificates may exceed the principal
balance of the Mortgage Assets initially being delivered to the Trustee with
respect to such Series. Cash in an amount equal to such difference (the
"Pre-Funded Amount") will be deposited into a separate trust account (the
"Pre-Funding Account") maintained with the Trustee. The Pre-Funded Amount will
not exceed 25% of the Certificate Balance (as defined herein). During the period
(the "Funding Period") set forth in the related Prospectus Supplement, amounts
on deposit in the Pre-Funding Account may be used to purchase additional
Mortgage Assets for the related Trust. In addition, if so provided in the
related prospectus Supplement, certain additional amounts in respect of interest
will be deposited into the Pre-Funding Account or in a separate trust account.
The related Prospectus Supplement will specify the conditions which must be
satisfied prior to the transfer of any such additional Mortgage Assets,
including the requisite characteristics of such Mortgage Assets. Any amounts
remaining in the Pre-Funding Account at the end of such Funding Period will be
distributed as a principal prepayment to the holders of the related Series of
Certificates at the time and in the manner set forth in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, the
specified period for the acquisition by a Trust of additional Mortgage Assets
will not exceed three months from the date such Trust is established.
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If specific information with respect to the Mortgage Assets is not known at
the time the related Series of Certificates initially is offered, more general
information of the nature described below will be provided in the related
Prospectus Supplement, and specific information will be set forth in a report on
a Current Report on Form 8-K to be filed with the Securities and Exchange
Commission (the "Commission") within fifteen days after the initial issuance of
such Certificates (the "Detailed Description"). A copy of the Agreement with
respect to each Series of Certificates will be attached to the Current Report on
Form 8-K and will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Mortgage Assets relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
THE MORTGAGE LOANS-GENERAL
For purposes hereof, the real property that secures repayment of the
Mortgage Loans is referred to collectively as "Mortgaged Properties." The
Mortgaged Properties may be located in any one of the fifty states or the
District of Columbia. Unless otherwise specified in the related Prospectus
Supplement, all of the Mortgage Loans will be loans that are not insured or
guaranteed by any governmental agency. Mortgage Loans with certain Combined
Loan-to-Value Ratios and/or certain principal balances may be covered wholly or
partially by primary mortgage guaranty insurance policies (each, a "Primary
Mortgage Insurance Policy") to the extent provided in the related Prospectus
Supplement. Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will generally be covered by standard hazard insurance policies
(each, a "Standard Hazard Insurance Policy"). The existence, extent and duration
of any such coverage will be described in the related Prospectus Supplement.
The Mortgage Loans in a Mortgage Pool will have monthly payments due on
various days of each month. The payment terms of the Mortgage Loans to be
included in a Trust will be described in the related Prospectus Supplement and
may include any of the following features or combination thereof or other
features described in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate ("Fixed Rate" and a
Mortgage Loan subject thereto is a "Fixed Rate Mortgage Loan"), a rate
adjustable from time to time in relation to an index which will be
specified in the related Prospectus Supplement, a rate that is fixed for a
period of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a rate
that is convertible from an adjustable rate to a fixed rate (each of the
foregoing, an "Adjustable Rate" and a Mortgage Loan subject thereto is an
"Adjustable Rate Mortgage Loan"). Changes to an Adjustable Rate may be
subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and added
to the principal of a loan for such periods and under such circumstances as
may be specified in the related Prospectus Supplement. The loan agreement
or promissory note (the "Mortgage Note") in respect of a Mortgage Loan may
provide for the payment of interest at a rate lower than the interest rate
(the "Mortgage Rate") specified in such Mortgage Note for a period of time
or for the life of the Mortgage Loan, and the amount of any difference may
be contributed from funds supplied by the seller of the related Mortgaged
Property or another source or may be treated as accrued interest added to
the principal of the Mortgage Loan.
(b) Principal may be payable on a declining balance basis to fully
amortize the Mortgage Loan over its term, may be calculated on the basis of
an assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from the
Mortgage Rate or may not be amortized during all or a portion of the
original term. Payment of all or a substantial portion of the principal of
certain Mortgage Loans ("Balloon Loans") may
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be due on maturity ("Balloon Payments"). Mortgage Loans may permit the
mortgagee to require the Mortgagor to pay the full principal balance of the
loan on a specified date the ("Call Date") prior to the maturity of the
Loan ("Call Loans"). Principal may include interest that has been deferred
and added to the principal balance of the Mortgage Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the Mortgage Loan, may increase over a specified period of time (a
"Graduated Payment Loan") or may change from period to period. The terms of
a Mortgage Loan may include limits on periodic increases or decreases in
the amount of monthly payments and may include maximum or minimum amounts
of monthly payments. Graduated Payment Loans may require the monthly
payments of principal and interest to increase for a specified period,
provide for deferred payment of a portion of the interest due monthly
during such period, and recoup the deferred interest through negative
amortization whereby the difference between the scheduled payment of
interest and the amount of interest actually accrued is added monthly to
the outstanding principal balance. Other Mortgage Loans sometimes referred
to as "growing equity" mortgage loans may provide for periodic scheduled
payment increases for a specified period with the full amount of such
increases being applied to reduce principal.
(d) The Mortgage Loans generally may be prepaid in whole or in part at
any time. If specified in the related Prospectus Supplement, some
prepayments of the full principal balance of a loan may be subject to a
prepayment penalty or premium. Such prepayment penalty or premium will be
applicable to certain prepayments of principal made during a specified
period of time during the life of the Mortgage Loan. The Mortgage Note in
respect of any Mortgage Loan subject to a prepayment penalty or premium
generally will set forth the terms of prepayment. Prepayments on the
Mortgage Loans as a result of a refinancing by the Seller or Seller's
transferee generally will not be subject to a prepayment penalty or
premium. The Mortgage Loans generally include "due on sale" clauses which
permit the mortgagee to demand payment of the entire Mortgage Loan in
connection with the sale or certain transfers of the related Mortgaged
Property. Other Mortgage Loans may be assumable by persons meeting the then
applicable underwriting standards for such Mortgage Loan.
A Trust may contain certain Mortgage Loans ("Buydown Loans") that include
provisions whereby a third party partially subsidizes the monthly payments of
the Mortgagors on such Buydown Loans during the early years of such Buydown
Loans, the difference to be made up from a fund (a "Buydown Fund") contributed
by such third party at the time of origination of the Buydown Loan. 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 inflation, so that the Mortgagor
will be able to meet the full mortgage payments at the end of the buydown
period. To the extent that this assumption as to increased income is not
fulfilled, the possibility of defaults on Buydown Loans is increased. The
related Prospectus Supplement will contain information with respect to 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.
Unless otherwise specified in the Prospectus Supplement, the Mortgage Loans
will be Simple Interest Loans, Scheduled Accrual Loans and Precomputed Loans.
"Simple Interest Loans" provide that interest is charged to the Mortgagor
at the applicable Mortgage Rate (as defined herein) on the outstanding principal
balance of the related Mortgage Note (as defined herein) and calculated based on
the actual days elapsed from receipt of the Mortgagor's last payment to receipt
of the Mortgagor's most current payment. Such interest is deducted from the
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Mortgagor's payment amount and the remainder, if any, of the payment is applied
as a reduction to the outstanding principal balance of such Mortgage Note.
Although the Mortgagor is required to remit equal monthly payments on a
specified monthly payment date that would reduce the outstanding principal
balance of such Mortgage Note to zero at such Mortgage Note's maturity date,
payments that are made by the Mortgagor after the due date therefor (assuming
all other payments are made on their specified monthly payment dates) would
cause the outstanding principal balance of such Mortgage Note not to be reduced
to zero. In such a case, the Mortgagor would be required to make an additional
principal payment at the maturity date for such Mortgage Note. On the other
hand, if a Mortgagor makes a payment before the due date therefor or pays an
amount greater than the scheduled payment amount (assuming all other payments
are made on their specified monthly payment dates), the reduction in the
outstanding principal balance of such Mortgage Note would occur over a shorter
period of time than it would have occurred had it been based on the original
amortization schedule of such Mortgage Note.
"Scheduled Accrual Loans" provide that interest is charged to the Mortgagor
at the applicable Mortgage Rate (as defined herein) on the outstanding principal
balance of the related Mortgage Note and calculated as though each payment is
made on the scheduled payment date. Scheduled monthly payments made by the
Mortgagors on the Scheduled Accrual Loans either earlier or later than the
scheduled due dates thereof will not affect the amortization schedule or the
relative application of such payments to principal and interest. Interest on
such Scheduled Accrual Loans will be calculated based on a 360-day year of
twelve 30-day months. When the Mortgagor remits a payment greater than the
amount currently due on the Mortgage Note, the additional payment is generally
applied to the next scheduled installment unless otherwise specified by the
Mortgagor. This application will not affect the amortization schedule or the
relative application of such payment to principal and interest. No more than two
future installments can be paid ahead in such manner. If payments are received
which would result in the Mortgage Note being paid ahead more than two months or
if the Mortgagor specifically instructs that any additional payment be applied
to principal, then this partial prepayment of principal is generally effective
as of the most recently paid installment and the relative application of
principal and interest of future payments will be adjusted to reflect the
partial principal prepayment. When a full prepayment of principal is made on a
Scheduled Accrual Loan during a month, the Mortgagor is charged interest only on
the days of the month actually elapsed up to the date of such prepayment, at a
daily interest rate that is applied to the principal amount of the loan so
prepaid.
A "Precomputed Loan" provides for the payment by the related Mortgagor of a
specified total amount of payments, payable in monthly installments on each due
date, which total represents the principal and precomputed interest in an amount
calculated at the stated Mortgage Rate for the term of the Mortgage Loan on the
declining principal balance on the assumption that all scheduled payments are
made when due. Any partial prepayment received in excess of the current amount
due will be applied against future installments and will have no effect on the
amortization of principal and interest. If a Mortgage Loan prepays in full, the
Mortgagor will receive a refund of unearned interest calculated on an actuarial
basis, which calculation may vary from state to state depending on state
regulations.
The Prospectus Supplement for each Series of Certificates will specify with
respect to all Mortgage Loans expected to be included in the related Pool as of
the date specified in the related Prospectus Supplement, among other things, (i)
the expected aggregate outstanding principal balance and the expected average
outstanding principal balance of the Mortgage Loans in such Pool, (ii) the
largest expected principal balance and the smallest expected principal balance
of any of the Mortgage Loans, (iii) the types of Mortgaged Properties (e.g.,
detached residential one- to four-family properties, individual units in
condominiums, vacation and second homes, or other real property) and/or other
assets securing the Mortgage Loans, (iv) the original terms to maturity of the
Mortgage Loans, (v) the expected weighted average term to maturity of the
Mortgage Loans as of the date specified in such Prospectus Supplement and the
expected range of the terms of maturity, (vi) the earliest origination date and
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latest maturity date of any of the Mortgage Loans, (vii) the expected aggregate
principal balance of Mortgage Loans having Combined Loan-to-Value Ratios (as
defined herein) in specified ranges, (viii) in the case of Fixed Rate Mortgage
Loans, the expected weighted average Mortgage Rate and ranges of Mortgage Rates
borne by the Mortgage Loans (as the case may be), (ix) in the case of Adjustable
Rate Mortgage Loans, the expected weighted average of the Adjustable Rates as of
the date set forth in such Prospectus Supplement, any periodic or lifetime rate
caps or floors, maximum permitted Adjustable Rates, if any, and the Index (as
defined herein) upon which the Adjustable Rate is based, (x) the expected
aggregate outstanding principal balance, if any, of Buydown Loans and Graduated
Payment Loans, as of the date set forth in the Prospectus Supplement, (xi) the
expected aggregate outstanding principal balance, if any, of Call Loans and
Balloon Loans, (xii) the amount of any Certificate Guaranty Insurance Policy,
Mortgage Pool Insurance Policy, Special Hazard Insurance Policy or Bankruptcy
Bond (each, as defined herein) to be maintained with respect to such Pool,
(xiii) the amount, if any, and terms of any other Credit Enhancement to be
provided with respect to all or any Mortgage Loans or the Pool, (xiv) the
priority of the Mortgages (first, second, third or fourth) and (xv) the expected
geographic location of the Mortgaged Properties. If specific information
respecting the Mortgage Loans is not known to the Depositor at the time the
related Certificates are initially offered, more general information of the
nature described above will be provided in the Detailed Description.
The "Combined Loan-to-Value Ratio" of a Mortgage Loan at any given time is
the ratio, expressed as a percentage, determined by dividing (x) the sum of the
original principal balance of the Mortgage Loan (less the amount, if any, for
the items specified in the related Prospectus Supplement) plus the principal
balance of any loan or loans secured by a senior lien on the Mortgaged Property
at the time of origination of the Mortgage Loan, by (y) the value of the related
Mortgaged Property, based upon the appraisal or other valuation made at the time
of origination of the Mortgage Loan (see "The Home Equity Lending Program --
Underwriting Standards").
The Depositor will cause the Mortgage Loans comprising each Mortgage Pool
to be assigned to the Trustee named in the related Prospectus Supplement for the
benefit of the Certificateholders of the related Series. The Master Servicer
named in the related Prospectus Supplement will service the Mortgage Loans,
either directly or through other mortgage servicing institutions (each, a
"Sub-Servicer"), pursuant to a Pooling and Servicing Agreement (each, an
"Agreement"), and will receive a fee for such services. See "The Home Equity
Lending Program" and "The Pooling and Servicing Agreement" herein.
Unless otherwise specified in the related Prospectus Supplement, CITSF will
be appointed as a Sub-Servicer for all of the Mortgage Loans in each Mortgage
Pool, and as a Sub-Servicer, will perform all or most of the servicing
responsibilities described under "The Pooling and Servicing Agreement" herein
and "Servicing of Mortgage Loans" in the related Prospectus Supplement. All
references in this Prospectus and any related Prospectus Supplement to the
"Master Servicer" or to CIT Consumer Finance in a servicing capacity shall
include CIT Consumer Finance acting through any Sub-Servicer, including CITSF,
or any agent. With respect to Mortgage Loans serviced by the Master Servicer
through a Sub-Servicer, the Master Servicer will remain liable for its servicing
obligations under the related Agreement as if the Master Servicer alone were
servicing such Mortgage Loans.
The Mortgage Loans generally will be evidenced by Mortgage Notes and
secured by Mortgages. The "Mortgage Documents" for each Mortgage Loan are (i)
the original Mortgage Note (except in the circumstances discussed under "The
Pooling and Servicing Agreement--Assignment of Mortgage Assets"), (ii) the
Mortgage with evidence of recording indicated thereon (except for any Mortgage
not returned from the public recording office or which has been lost, in which
case the Depositor will, unless otherwise specified in the related Prospectus
Supplement, deliver or cause to be delivered to the custodian a copy of such
Mortgage together with a certificate that the original of such Mortgage was
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delivered to such recording office), (iii) any intervening assignments of the
Mortgages (iv) any title insurance policies with respect to the Mortgages, (v)
any assumption or modification agreement and (vi) such other security documents
as may be specified in the related Prospectus Supplement or the related
Agreement. Some or all of the Mortgage Documents may, as specified in the
related Prospectus Supplement, be held for the benefit of the Trust by a
custodian appointed pursuant to the related Agreement or a separate custodial
agreement among the Depositor, the Trustee and such custodian. If specified in
the related Prospectus Supplement, CIT Consumer Finance will be appointed as
custodian of the Mortgage Documents pursuant to the related Agreement and, in
such capacity, will retain possession of the Mortgage Documents.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will have no obligations with respect to a Series of Certificates. See
"The Pooling and Servicing Agreement--Assignment of Mortgage Assets" herein.
The obligations of the Master Servicer with respect to the Mortgage Loans will
consist principally of its contractual servicing obligations under the related
Agreement, including its obligation to enforce the obligations of the
Sub-Servicers or Sellers, or both, as more fully described herein under "The
Home Equity Lending Program--Representations by Sellers; Repurchases" and its
obligation to make certain cash advances in the event of delinquencies in
payments on or with respect to the Mortgage Loans in the amounts described
herein under "Description of the Certificates--Advances" herein. The obligations
of the Master Servicer to make advances may be subject to limitations, to the
extent provided herein and in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans will be secured by Mortgages creating first or subordinate liens
on one- to four-family residential properties (each such property, a "Mortgaged
Property"). If so specified in the related Prospectus Supplement, the Mortgage
Loans may include loans or participations therein secured by Mortgages on
condominium units in condominium buildings together with such condominium units'
appurtenant interests in the common elements of the condominium buildings. If
specified in the related Prospectus Supplement, the Mortgage Assets of the
related Trust may include mortgage participation certificates evidencing
interests in Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, such Mortgage Loans will be loans that are not insured or
guaranteed by any governmental agency.
The Mortgaged Properties relating to Mortgage Loans will consist of
detached or semi-detached one-family dwelling units, two- to four-family
dwelling units, townhouses, rowhouses, individual condominium units, individual
units in planned unit developments and certain other dwelling units. Such
Mortgaged Properties may include vacation and second homes, investment
properties and leasehold interests. In the case of leasehold interests, the term
of the leasehold will exceed the scheduled maturity of the Mortgage Loan by at
least five years, unless otherwise specified in the related Prospectus
Supplement.
PRIVATE MORTGAGE-BACKED SECURITIES
"Private Mortgage-Backed Securities" may consist of (i) mortgage
pass-through certificates or participation certificates evidencing an undivided
interest in a pool of mortgage loans, (ii) collateralized mortgage obligations
secured by mortgage loans, together with payments in respect of such Mortgage
Assets, and (iii) certain other accounts, obligations or agreements, in each
case as specified in the related Prospectus Supplement. Private Mortgage-Backed
Securities may include stripped mortgage-backed securities representing an
undivided interest in all or a part of either the principal distributions (but
not the interest distributions) or the interest distributions (but not the
principal distributions) or in some specified portion of the principal and
interest distributions (but not all of such distributions) on certain mortgage
loans. Private Mortgage-Backed Securities will have been issued pursuant to a
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pooling and servicing agreement, an indenture or similar agreement (a "PMBS
Agreement"). Unless otherwise specified in the related Prospectus Supplement,
the seller/servicer of the underlying mortgage loans will have entered into the
PMBS Agreement with the trustee under such PMBS Agreement (the "PMBS Trustee").
The PMBS Trustee or its agent, or a custodian, will possess the mortgage loans
underlying such Private Mortgage-Backed Security. Mortgage loans underlying a
Private Mortgage-Backed Security will be serviced by a servicer (the "PMBS
Servicer") directly or by one or more sub-servicers who may be subject to the
supervision of the PMBS Servicer.
The issuer of the Private Mortgage-Backed Securities (the "PMBS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for the
purpose of, among other things, establishing trusts and acquiring and selling
housing loans to such trusts and selling beneficial interests in such trusts. If
specified in the related Prospectus Supplement, the PMBS Issuer may be an
affiliate of the Depositor. The obligations of the PMBS Issuer will generally be
limited to certain representations and warranties with respect to the assets
conveyed by it to the related Trust. Unless otherwise specified in the related
Prospectus Supplement, the PMBS Issuer will not have guaranteed any of the
assets conveyed to the related Trust or any of the Private Mortgage-Backed
Securities issued under the PMBS Agreement. Additionally, although the
individual mortgage loans underlying the Private Mortgage-Backed Securities may
be guaranteed by the United States or an agency or instrumentality thereof, they
need not be, and the Private Mortgage-Backed Securities themselves will not be
so insured or guaranteed.
Distributions of principal and interest will be made on the Private
Mortgage-Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Mortgage-Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest distributions.
Principal and interest distributions will be made on the Private Mortgage-Backed
Securities by the PMBS Trustee or the PMBS Servicer directly to the Trustee as
registered owner of such Private Mortgage-Backed Securities, unless otherwise
specified in the related Prospectus Supplement. The PMBS Issuer or the PMBS
Servicer may have the right to repurchase assets underlying the Private
Mortgage-Backed Securities after a certain date or under other circumstances
specified in the related Prospectus Supplement.
The mortgage loans underlying the Private Mortgage-Backed Securities may
consist of Fixed Rate, level payment, fully amortizing Mortgage Loans or
Graduated Payment Loans, Buydown Loans, Adjustable Rate Mortgage Loans or
Mortgage Loans having balloon or other special payment features. Such Mortgage
Loans may be secured by single family property or multifamily property or by a
condominium or by an assignment of the proprietary lease or occupancy agreement
relating to a specific dwelling within a Cooperative and the related shares
issued by such Cooperative.
The related Prospectus Supplement for a Series for which the Trust includes
Private Mortgage-Backed Securities will specify, with respect to any Private
Mortgage-Backed Securities owned by the related Trust, among other things, (i)
the approximate aggregate principal amount and type of any Private
Mortgage-Backed Securities to be included in the Trust for such Series; (ii)
certain characteristics of the mortgage loans that comprise the underlying
assets for the Private Mortgage-Backed Securities including: (A) the payment
features of such mortgage loans, (B) the approximate aggregate principal amount,
if known, of such mortgage loans that are insured or guaranteed by a
governmental entity, (C) the servicing fee or range of servicing fees with
respect to such mortgage loans and (D) the minimum and maximum stated maturities
of such mortgage loans at origination; (iii) the maximum original term-to-stated
maturity of the Private Mortgage-Backed Securities; (iv) the weighted average
term-to-stated maturity of the Private Mortgage-Backed Securities; (v) the
pass-through or certificate rate of the Private Mortgage-Backed Securities; (vi)
the weighted average pass-through or certificate rate of the Private
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Mortgage-Backed Securities; (vii) the PMBS Issuer, the PMBS Servicer (if other
than the PMBS Issuer) and the PMBS Trustee for such Private Mortgage-Backed
Securities; (viii) certain characteristics of credit support, if any, such as
reserve funds, insurance policies, surety bonds, letters of credit or
guarantees, relating to the mortgage loans that comprise the underlying assets
for the Private Mortgage-Backed Securities or to such Private Mortgage-Backed
Securities themselves; (ix) the terms on which the mortgage loans that comprise
the underlying assets for such Private Mortgage-Backed Securities may, or are
required to, be purchased prior to their stated maturity or the stated maturity
of the Private Mortgage-Backed Securities; and (x) the terms on which substitute
mortgage loans may be delivered to replace those initially deposited with the
PMBS Trustee.
SUBSTITUTION OF MORTGAGE ASSETS
Substitution of Mortgage Assets will be permitted in the event of breaches
of representations and warranties with respect to any Mortgage Asset or in the
event the documentation with respect to any Mortgage Asset is determined by the
Trustee to be incomplete. The period during which such substitution will be
permitted generally and the criteria for substituting for a Mortgage Asset will
be indicated in the related Prospectus Supplement. The related Prospectus
Supplement will describe any other conditions upon which Mortgage Assets may be
substituted for Mortgage Assets initially included in the Trust.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will be
applied by the Depositor to the purchase of Mortgage Assets from the applicable
Sellers and to pay expenses of the offering. The applicable Sellers will apply
the proceeds for general corporate purposes, including the origination and
acquisition of residential mortgage loans and other loans. The Depositor expects
to sell Certificates in Series from time to time, but the timing and amount of
offerings of Certificates will depend on a number of factors, including the
volume of Mortgage Assets acquired by the Depositor, prevailing interest rates,
availability of funds and general market conditions.
THE CIT GROUP HOLDINGS, INC.
CIT, a Delaware corporation, is a successor to a company founded in St.
Louis, Missouri on February 11, 1908. It has its principal executive offices at
1211 Avenue of the Americas, New York, New York 10036, and its telephone number
is (212) 536-1950. CIT, operating directly or through its subsidiaries primarily
in the United States, engages in financial services activities through a
nationwide distribution network. CIT provides financing primarily on a secured
basis to commercial borrowers, ranging from middle-market to larger companies,
and to a lesser extent to consumers. While these secured lending activities
reduce the risk of losses from extending credit, CIT's results of operations can
also be affected by other factors, including general economic conditions,
competitive conditions, the level and volatility of interest rates,
concentrations of credit risk, and government regulation and supervision. CIT
does not finance the development or construction of commercial real estate. CIT
has eight strategic business units which offer commercial and consumer financing
and factoring products and services to clients.
The Dai-Ichi Kangyo Bank, Limited ("DKB") owns eighty percent (80%) of the
issued and outstanding shares of common stock of CIT. DKB purchased a sixty
percent (60%) common stock interest in CIT from Manufacturers Hanover
Corporation ("MHC") at year-end 1989 and acquired an additional twenty percent
(20%) common stock interest in CIT on December 15, 1995, from CBC Holding
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(Delaware) Inc. (formerly known as MHC Holdings (Delaware) Inc.) ("CBC
Holding"), a wholly owned subsidiary of Chemical Banking Corporation ("CBC").
The Chase Manhattan Corporation ("Chase") acquired CBC Holding as part of the
merger between Chase and CBC on March 31, 1996 and continues to own the
remaining twenty percent (20%) common stock interest in CIT through CBC Holding.
DKB has a five-year option, expiring December 15, 2000, to purchase the
remaining twenty percent (20%) common stock interest from CBC and its parent.
In accordance with a stockholders agreement among DKB, Chase, as direct
successor to CBC, and CIT, dated as of December 29, 1989, as amended by an
Amendment to Stockholders' Agreement, dated December 15, 1995 (the "Stockholders
Agreement"), one nominee of the Board of Directors is designated by Chase. The
Stockholders Agreement also contains restrictions with respect to the transfer
of the stock of CIT to third parties.
CIT is subject to the informational requirements of The Securities Exchange
Act of 1934, as amended, and, in accordance therewith, files reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the offices of the Commission. Certain of CIT's
securities are listed on the New York Stock Exchange and reports and other
information concerning CIT can also be inspected at the offices of the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. See "Available
Information" herein.
Unless CIT has issued a Limited Guarantee (as defined herein) with respect
to any Series of Certificates, CIT will have no obligations or liabilities with
respect to any Series of Certificates.
THE CIT GROUP SECURITIZATION CORPORATION III,
THE DEPOSITOR
The CIT Group Securitization Corporation III (the "Depositor") was
incorporated in the State of Delaware on April 8, 1996 and is a wholly-owned,
limited purpose finance subsidiary of CIT. The Depositor maintains its principal
office at 650 CIT Drive, Livingston, New Jersey 07039. Its telephone number is
(201) 535-3512.
As described herein and in the related Prospectus Supplement, the
obligations, if any, of the Depositor with respect to any Series of Certificates
are limited. The Depositor will have no ongoing servicing obligations or
responsibilities with respect to any Mortgage Assets. CIT Consumer Finance is an
affiliate of the Depositor. Unless otherwise specified in the Prospectus
Supplement, the Depositor will acquire the Mortgage Assets in a privately
negotiated transaction from CIT Consumer Finance.
Unless otherwise specified in the related Prospectus Supplement, neither
CIT nor any of its affiliates, including the Depositor and CIT Consumer Finance,
will be obligated with respect to any Series of Certificates. Accordingly, the
Depositor has determined that financial statements of CIT Consumer Finance and
its affiliates, including the Depositor, are not material to the offering of any
Series of Certificates. If, with respect to a Series of Certificates any such
financial statements are material, they will be included or incorporated by
reference in the related Prospectus Supplement.
THE CIT GROUP/CONSUMER FINANCE, INC., SELLER AND MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, the
Mortgage Loans and any other applicable Mortgage Assets will be purchased by the
Depositor, either directly or through affiliates, from CIT Consumer Finance or
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its affiliates, as Seller. Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Loans so acquired by the Depositor will have been
originated or purchased by CIT Consumer Finance or its affiliates in accordance
with the underwriting criteria specified below under "Underwriting Standards."
Unless otherwise specified in the related Prospectus Supplement, CIT
Consumer Finance will be appointed pursuant to the related Agreement as the
master servicer for each Trust (the "Master Servicer").
CIT Consumer Finance is a Delaware corporation and a wholly-owned
subsidiary of CIT. It has its principal executive office at 650 CIT Drive,
Livingston, New Jersey 07039, and its telephone number is (201) 740-5000.
CIT Consumer Finance offers loans to consumers secured by first and
subordinate mortgages on residential real estate (including condominiums).
Business is generated through several distribution channels across the country.
CIT Consumer Finance originates loans directly to consumers, using both its own
employees and mortgage brokers. CIT Consumer Finance also purchases loans from
mortgage bankers and other mortgage lenders, often referred to as
"correspondents." CIT Consumer Finance purchases loans individually and in
larger batches, including bulk portfolio purchases.
CIT Consumer Finance is the master servicer for the loans held in its
portfolio. CITSF performs many servicing functions for CIT Consumer Finance as
its Sub-Servicer from CITSF's Oklahoma City, Oklahoma Asset Service Center as
described below. CIT Consumer Finance has a network of offices nationwide which
handle business origination, credit, administration and management. In addition,
CIT Consumer Finance maintains its quality control department and its original
document retention and processing facility at its Marlton, New Jersey office.
THE CIT GROUP/SALES FINANCING, INC., SUB-SERVICER
Unless otherwise specified in the related Prospectus Supplement, CITSF will
be appointed as a Sub-Servicer for all of the Mortgage Loans in each Mortgage
Pool, and as a Sub-Servicer, will perform all or most of the servicing
responsibilities described under "The Pooling and Servicing Agreement". All
references in this Prospectus and any related Prospectus Supplement to the
"Master Servicer" or to CIT Consumer Finance in a servicing capacity shall
include CIT Consumer Finance acting through any Sub-Servicer, including CITSF,
or any agent.
Unless otherwise specified in the related Prospectus Supplement, CITSF
originated the Mortgage Loans, if any, for which the Mortgaged Properties are
located in the State of Minnesota and will sell such Mortgage Loans to CIT
Consumer Finance for resale to the Depositor and then to a Trust.
CITSF is a Delaware corporation and a wholly-owned subsidiary of CIT. It
has its principal executive office at 650 CIT Drive, Livingston, New Jersey
07039 and its telephone number is (201) 740-5000.
CITSF originates, purchases and services retail installment sales
contracts, direct loans and mortgages for manufactured housing, recreational
vehicles, recreational marine and other consumer goods throughout the United
States and services mortgage loans originated and purchased by CIT Consumer
Finance and other affiliates of CIT. CITSF has a centralized asset service
facility (the "Asset Service Center") in Oklahoma City, Oklahoma. CITSF
services, on behalf of other owners, retail installment contracts, direct loans
and mortgage loans that were not originated by CITSF. These servicing
arrangements may be made with
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respect to the portfolios of other lending institutions or finance companies,
the portfolios of governmental agencies or instrumentalities, or portfolios that
have been sold by CITSF or others to securitization trusts.
The Asset Service Center of CITSF services consumer credit transactions in
50 states and the District of Columbia. It provides full servicing for retail
installment contracts, direct loans and mortgages. In order to service these
transactions, CITSF uses sub-servicers, outside collectors and field remarketers
located throughout the United States.
THE HOME EQUITY LENDING PROGRAM
Overview
The mortgage lending activities of CIT Consumer Finance consist primarily
of originating, purchasing and selling Mortgage Loans secured by Mortgages
creating first or subordinate liens on Mortgaged Properties (each such Mortgage
Loan, a "Home Equity Loan"). Such Mortgaged Properties include condominiums,
single-family detached homes, single-family attached homes and planned unit
developments. It has been the policy of CIT Consumer Finance generally not to
make Home Equity Loans secured by cooperative residences or other categories of
properties that management believes have demonstrated relatively high levels of
risk. CIT Consumer Finance makes the majority of its Home Equity Loans to
borrowers who own a single-family detached home. CIT Consumer Finance approves
Home Equity Loans to enable its borrowers to refinance an existing mortgage (in
many cases replacing the existing loan with a loan with a larger principal
balance), purchase a home, pay for education, pay for home improvements and
consolidate debt, among other purposes.
Initially, CIT Consumer Finance originated or purchased the majority of its
Home Equity Loans with original terms of up to 180 months. Starting in 1994, CIT
Consumer Finance began more frequently to originate and purchase Home Equity
Loans with original terms of up to 360 months. CIT Consumer Finance believes
that the longer term, and correspondingly lower monthly payments, of these Home
Equity Loans are attractive to customers who might otherwise refinance an
existing loan or obtain a new loan from a bank or other traditional long term
lender. CIT Consumer Finance believes that its rapid turnaround time from
application to funding a Home Equity Loan also makes CIT Consumer Finance more
competitive with more traditional lenders.
CIT Consumer Finance's area offices are located throughout the country.
Three regional offices supervise the operations of a group of states. All Home
Equity Loan area offices have a manager who reports to senior management. The
supervision of all of CIT Consumer Finance's underwriting and administrative
functions is conducted from the Livingston, New Jersey headquarters.
The following sections describe the origination, underwriting and servicing
procedures which CIT Consumer Finance follows in its Home Equity Loan program.
Home Equity Loan Origination
The entire application process for Home Equity Loans is generally conducted
either in person or by phone, facsimile, direct mail response, or the internet.
Each loan application is entered into an automated application processing system
which obtains a credit bureau report and calculates CIT Consumer Finance's
proprietary internal credit score. CIT Consumer Finance attempts to process the
applications as quickly as possible. An underwriter is responsible for
completing, evaluating and processing the loan application of a prospective
borrower based on information obtained from the borrower, some of which is
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verified with third parties. Depending on the characteristics of the requested
loan, loan applications will be reviewed by an underwriter in the area office,
regional office, or the Livingston, New Jersey headquarters.
Underwriters are trained to structure loans that meet the applicant's
needs, while satisfying CIT Consumer Finance's underwriting criteria. If an
applicant does not meet the underwriting criteria under the applicable loan
program, the underwriter may decline the application or suggest a loan on
different terms.
CIT Consumer Finance originates business directly to the consumer through a
direct marketing campaign and through mortgage brokers.
Direct Marketing
Utilizing a staff of marketing professionals, CIT Consumer Finance markets
directly to the consumer through print ads, direct mail, and other media.
Prospective applicants submit an application by mailing in a loan application
included in the advertisement or by calling a toll free telephone number and
giving the information to a representative. Applicants who apply by mail will
also supply additional required information by telephone after CIT Consumer
Finance has received the application. Once a completed application is received,
a preliminary approval may be given within twenty four hours.
Broker Business
CIT Consumer Finance also originates Home Equity Loans based upon
applications received from independent mortgage brokers. CIT Consumer Finance
will directly underwrite and fund these broker loans. A nationwide network of
CIT Consumer Finance sales executives solicits broker business. These sales
executives are responsible for the development and maintenance of the broker
relationships and the coordination between the mortgage broker and CIT Consumer
Finance's offices. Mortgage brokers participating in this program must be
approved by CIT Consumer Finance by satisfying its established requirements
pertaining to experience, financial stability, and licensing. After the mortgage
broker is approved, CIT Consumer Finance conducts regular periodic reviews of
the relationship and the broker's performance. In these reviews, CIT Consumer
Finance will examine the performance of loans originated by the broker and
sometimes other factors, including maintenance of required regulatory licenses.
Based upon the review, CIT Consumer Finance may adjust or terminate its
relationship with the broker.
CIT also purchases loans from mortgage bankers and other mortgage lenders,
as described below.
Correspondent Lending
CIT Consumer Finance also purchases Mortgage Loans through its
correspondent lending program. CIT Consumer Finance will purchase loans on an
individual basis from correspondents based upon applications which CIT Consumer
Finance has previously approved. CIT Consumer Finance will also purchase from
correspondents groups of loans submitted in small batches referred to as
"bulks." CIT Consumer Finance establishes certain requirements which every
correspondent must meet. These requirements concern the correspondent's
experience, financial stability, and licensing. CIT Consumer Finance has
agreements with the correspondents governing the nature of the relationship.
Generally, all loans acquired through these correspondents conform to the
underwriting criteria used by CIT Consumer Finance for its direct originations.
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Institutional Bulk Portfolios
CIT Consumer Finance also purchases portfolios of Home Equity Loans from
other lenders ("Institutional Bulk Portfolios") which originated these loans
under their own underwriting criteria. Institutional Bulk Portfolios are
reviewed at the Livingston, New Jersey headquarters by senior level management,
who formulate a bid to purchase the portfolio. CIT Consumer Finance performs a
financial analysis on the portfolio as a whole. Depending upon the size of the
portfolio, CIT Consumer Finance performs a due diligence review on either all
the loans in the portfolio or on a statistical sample of the loans in the
portfolio. The due diligence review includes legal and credit file reviews and
recertification of property values. When purchasing Institutional Bulk
Portfolios, CIT Consumer Finance may rely upon representations and warranties
made by the seller to cover certain risks relating to origination, documentation
and other matters which might have come to the attention of CIT Consumer Finance
during the due diligence review process. CIT Consumer Finance also adjusts the
price it offers for an Institutional Bulk Portfolio based upon CIT Consumer
Finance's perception of the risk inherent in the portfolio as a whole.
When CIT Consumer Finance purchases an Institutional Bulk Portfolio, the
origination, underwriting, valuation and documentation standards are those of
the originating lender. The description of CIT Consumer Finance's origination,
underwriting and valuation practices set forth herein may not apply to a
transaction from an Institutional Bulk Portfolio. Each Institutional Bulk
Portfolio is different and the loans in its pool have different characteristics.
When CIT Consumer Finance reviews an Institutional Bulk Portfolio, it may find
certain risks inherent in the portfolio which are different from the risks which
CIT Consumer Finance accepts for direct originations. In purchasing an
Institutional Bulk Portfolio, CIT Consumer Finance may adjust its offering price
or require representations and warranties from the seller to cover any such
risks in origination, underwriting, valuation or documentation for loans in the
portfolio.
Underwriting Policies and Procedures
Overview
The following is a brief description of certain of the underwriting
policies and procedures used by CIT Consumer Finance to underwrite Home Equity
Loans. Underwriting standards are applied by a lender to evaluate the borrower's
credit standing and repayment ability, and the value and adequacy of the
mortgaged property as collateral for the Home Equity Loan.
CIT Consumer Finance uses a combination of credit scoring and judgmental
credit analysis in making its underwriting decisions. As part of its
underwriting process, CIT Consumer Finance will adjust the interest rate it
charges on each Home Equity Loan to reflect CIT Consumer Finance's evaluation of
the relative risk associated with a particular loan applicant. This practice is
known as "risk-based" pricing.
Initially, CIT Consumer Finance's credit criteria focused on high credit
quality loans. These loans generally had shorter terms and were mostly second
mortgages. In 1994, CIT Consumer Finance introduced risk-based pricing and
changed its credit criteria to include certain specialized loan programs such as
high loan to value, no income verification and purchase money loan programs.
Under these specialized programs, underwriters can approve applicants with
certain positive attributes (such as a high credit score, good credit bureau
history, or characteristics of stability) with low equity in the property,
without income verification, or if the purpose of the loan is to purchase real
estate. These factors might have disqualified the applicant under CIT Consumer
Finance's pre-1994 loan programs. CIT Consumer Finance believes that the
positive attributes of these applicants overcome the other less favorable
indicators that may be present.
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In 1995, CIT Consumer Finance added loan programs accommodating applicants
with a record of more serious credit problems. Under the terms of these
programs, the underwriter places greater emphasis on the applicant's equity in a
home as well as other positive factors which are intended to compensate for the
previous blemished credit record.
CIT Consumer Finance may in the future change the underwriting policies and
procedures described herein.
Description of Underwriting Process
CIT Consumer Finance's underwriting process occurs at the local office,
regional office, and the home office. Generally, loan applications for direct,
broker, and correspondent business are input into an automated application
processing system which allows CIT Consumer Finance to track its underwriting
systematically and to achieve more uniform underwriting decisions. The system
displays both an internal proprietary credit score and in some cases the credit
bureau score ("FICO"). The internal credit score which CIT Consumer Finance
utilizes is a proprietary model that was purchased from Fair, Isaac Company. CIT
Consumer Finance's internal score is calculated by evaluating the
characteristics of each individual loan application. The characteristics
include: (1) occupancy status; (2) length of time at the residence; (3) length
of time at the present employer; (4) debt to income ratio; (5) bank account
references; (6) credit bureau information; and (7) loan-to-value ratio.
The underwriter evaluates the application and loan package based upon both
the applicable credit scores and other characteristics of the application. The
underwriter may approve or deny the application even if the credit score does
not indicate that approval or denial is warranted if, in the opinion of the
underwriter, other factors exist which would support an approval or denial of
the application. The extent of an underwriter's credit authority will be based
in part on certain minimum internal credit scores and the FICO score.
The Chief Credit Officer of CIT Consumer Finance assigns credit authority
to individual underwriters based upon their experience and understanding of CIT
Consumer Finance's underwriting policies and procedures. There is a hierarchy of
credit authority in the organization beginning at the office level, progressing
to the regional office and then to headquarters. If an underwriter believes that
an approval is warranted but the underwriter does not have the authority to
issue a loan approval, the underwriter recommends the loan application to the
next higher credit authority. This more senior underwriter may have the
appropriate level of authority to approve the loan. This process insures that an
underwriter with the appropriate level of experience is reviewing the loan
application. CIT Consumer Finance's Credit Department management monitors the
performance of its underwriters.
CIT Consumer Finance has produced and consistently updates a written
policies and procedures manual detailing the loan underwriting process and
procedures as well as the loan programs.
Generally, loan applications are subject to a credit investigation. A
prospective borrower applying for a home equity loan directly from CIT Consumer
Finance is required to fill out or to submit information to complete an
application. The application is designed to provide to the underwriter pertinent
credit information with respect to the applicant's liabilities, income, credit
history, employment history and personal information. In addition, with respect
to each purchase money mortgage, each applicant may be required to have adequate
cash to pay the down payment and closing costs.
Credit reports, whether or not received as part of the original loan
application, are generally obtained and reviewed for all lines of business. For
direct originations, correspondent lending and broker business, CIT Consumer
Finance requires a credit report on each applicant from a credit reporting
company. The credit report typically contains information relating to such
matters as credit history with local and
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national merchants and lenders, installment debt payments and any record of
defaults, bankruptcy, repossession, suits or judgments. All adverse information
obtained relative to legal actions, payment records and character may be
required to be satisfactorily explained and acceptable to the underwriter. The
applicant may also be required to provide a letter explaining all late payments
on mortgage and consumer (i.e., non-mortgage) debt noted on the credit report.
CIT Consumer Finance generally obtains other evidence of employment to
verify information provided by the borrower. CIT Consumer Finance sometimes
obtains a written verification from the borrower's employer. This verification
usually reports the length of employment with that organization, the borrower's
current salary and whether it is expected that the borrower will continue such
employment in the future. Instead of the written verification from the
borrower's employer, CIT Consumer Finance may instead obtain from the applicant
recent tax returns or other tax forms (e.g., W-2 forms) or current pay stubs or
may telephone the applicant's employer to verify an applicant's employment
status. If the employer will not verify employment history over the telephone,
CIT Consumer Finance may rely solely on the other information provided by the
applicant. If a prospective borrower is self-employed, the borrower may be
required to submit copies of the two most recent signed tax returns. The
borrower may also be required to authorize verification of deposits at financial
institutions where the borrower has demand or savings accounts.
As part of the loan approval, the underwriter will assign a credit risk
rating or program code to the proposed loan. The underwriter may also add
written conditions required in order to fund the loan.
Correspondent Business Underwriting
For correspondent business, the loan package or application is reviewed,
the information input into an automated application processing system, a credit
report obtained (except where not permitted by law), and the property appraisal
reviewed by a collateral risk manager. After this process is complete, the
underwriter will review the loan application and other materials. If the
underwriter approves the loan, the underwriter will do so based upon the
criteria applicable to the program under which the loan is approved. In the loan
approval, the underwriter will add written conditions required in order to fund
the loan. CIT Consumer Finance will purchase the loan only if the borrower and
correspondent meet these written conditions.
Loans purchased from a correspondent on a bulk basis are reviewed in some
cases at the correspondent's office. CIT Consumer Finance's underwriter will
approve the loan package based on the information in the file and subject to the
confirmation of this information. When CIT Consumer Finance receives the loan
documentation from the correspondent for funding, CIT Consumer Finance generally
obtains a credit report, verifies employment and determines that all other
conditions to funding have been met.
Institutional Bulk Portfolio Underwriting
In the case of an Institutional Bulk Portfolio, CIT Consumer Finance may
underwrite the entire portfolio by taking a representative statistical sample of
loans from the portfolio to review to determine if these loans would, at the
time of their origination, have met the underwriting criteria of CIT Consumer
Finance. Based upon the sampling, the senior underwriter may approve the
purchase of the entire portfolio without underwriting each loan in the pool.
Since CIT Consumer Finance does not actually review the documents in each loan
file, it cannot determine if all loan files have the same characteristics as the
sample. Similarly, CIT Consumer Finance cannot determine if all its underwriting
criteria have been met for each loan in the Institutional Bulk Portfolio since
it has not reviewed the files on every loan. If, during the credit review of an
Institutional Bulk Portfolio, CIT Consumer Finance determines that the loans do
not conform to its underwriting standards, CIT Consumer Finance may purchase the
Institutional Bulk Portfolio at a price which CIT Consumer Finance believes will
reflect the increased risk in the portfolio.
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Valuation Underwriting - General
In determining the adequacy of the mortgaged property as collateral,
Combined Loan-to-Value Ratio guidelines are established depending on the type of
loan. Except as otherwise set forth in the related Prospectus Supplement, the
maximum Combined Loan-to-Value Ratio is determined by the loan program and
credit risk rating. Property values for properties appraised at over $400,000
(or $500,000 in California, New Jersey, Connecticut and the New York
metropolitan area) are adjusted downward, generally by 20% of the appraised
amount in excess of $400,000 (or $500,000 in California, New Jersey, Connecticut
and the New York metropolitan area). The Combined Loan-to-Value Ratio is
generally lower for self-employed individuals, and is generally reduced in
respect of properties other than single family detached owner occupied
properties. Generally, CIT Consumer Finance confirms the value of the property
to be mortgaged by appraisals performed by independent appraisers or other
valuation methods.
Valuation Methods And Standards By Different Lines Of Business
For loans originated by CIT Consumer Finance including loans referred by
third party brokers, appraisals may be obtained from outside service companies
approved by CIT Consumer Finance. Standards for this approval may vary by line
of business. Such appraisals are based upon an appraiser's inspection of the
subject property and verification that such property is in acceptable condition.
Following each appraisal, the appraiser prepares a report which includes a
market data analysis based on recent sales of comparable homes in the area and,
when deemed appropriate, a replacement cost analysis based on the current cost
of constructing a similar home. All appraisals are required to conform to FNMA
or FHLMC appraisal standards then in effect. Every independent appraisal is
reviewed by a CIT Consumer Finance underwriter before the loan is funded. CIT
Consumer Finance's collateral risk managers also perform desktop reviews on
selected appraisals. If CIT Consumer Finance determines that these valuations
are inaccurate, it may reevaluate the appraiser or in some cases require a
recourse party to repurchase the transaction.
CIT Consumer Finance requires a full appraisal for certain transactions
based upon its underwriting guidelines which take into account the loan amount,
the loan to value ratio and the type of property. Based upon the underwriting
guidelines, CIT Consumer Finance may not require a full appraisal for a loan.
Instead, CIT Consumer Finance may accept a "drive-by" valuation, which is made
by an appraiser who may not inspect the interior of the building. Some drive-by
valuations may only involve a visual observation of the exterior characteristics
and condition of the property and the neighborhood. Since the appraiser has not
inspected the interior dimensions, improvements and conditions of the property,
the drive-by method produces only a general approximation of value for the
particular property. If there is an appraisal which was completed within six
months of the loan application, in certain cases CIT Consumer Finance may rely
on the prior appraisal.
Application packages received from correspondents for pre-approval will
have the property appraisal reviewed by a CIT Consumer Finance collateral risk
manager prior to funding. Each appraisal for correspondent loans purchased in
bulk from correspondents is reviewed by a CIT Consumer Finance collateral risk
manager after purchasing the loan. Each property appraisal is reviewed by a
collateral risk manager and if there is any variance outside of the tolerance
shown in the correspondent agreement, the loan may be presented to the
correspondent for repurchase.
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CIT Consumer Finance will review the accuracy of appraised values of all or
a portion of the mortgaged properties securing the loans in an Institutional
Bulk Portfolio. This verification may include obtaining review or drive-by
appraisals or relying on an external vendor's automated appraised value
database. In addition, CIT Consumer Finance's collateral risk managers will
generally conduct a desktop review of the appraisals from the statistical
sampling of loan files selected for due diligence review.
Underwriting - Other Issues
CIT Consumer Finance has several procedures which it uses to verify the
applicant's outstanding balance and payment history on any senior mortgage,
including a telephone call to the senior mortgage lender. If the senior mortgage
lender does not verify this information by telephone, CIT Consumer Finance may
rely upon information provided by the applicant, such as a recent statement from
the senior lender and evidence of payment, such as canceled checks, or upon
information provided by national credit bureaus.
Once all applicable employment, credit and property information is
received, CIT Consumer Finance makes a determination as to whether the
prospective borrower has sufficient monthly income available to meet the
borrower's (i) monthly obligations on the proposed mortgage and any other
mortgage debt on the mortgaged property and other expenses related to the
mortgaged property (such as property taxes and hazard insurance), (ii) monthly
housing expenses and other financial obligations and (iii) monthly living
expenses. Specialized underwriting programs described below may also apply to
prospective borrowers.
Currently, CIT Consumer Finance generally accepts debt service ratios with
respect to fixed rate mortgage loans and adjustable rate mortgage loans of up to
45% of the proposed borrower's estimated monthly gross income, generally based
upon historically consistent income over a two year period. For adjustable rate
mortgage loans, CIT Consumer Finance computes the borrower's monthly obligation
on the proposed mortgage loan using the initial mortgage amount and the maximum
mortgage rate permitted after one year. CIT Consumer Finance makes exceptions to
the underwriting criteria described above. For example, for certain types of
loans CIT Consumer Finance may approve debt service ratios up to 55% with
generally lower maximum Combined Loan-to-Value Ratios.
CIT Consumer Finance also offers different loan programs with different
underwriting standards, particularly with respect to the level of loan
documentation and the mortgagor's income and credit history, in appropriate
cases where factors such as low Combined Loan-to-Value Ratios or other favorable
credit factors exist.
Certain of the types of loans in CIT Consumer Finance's portfolio have been
originated under new programs and may involve additional credit uncertainties
not present in traditional types of loans. For example, certain of the mortgage
loans may provide for escalating or variable payments by the mortgagor. CIT
Consumer Finance may underwrite such a loan on the basis of a judgment that the
mortgagor can make the initial monthly payments. In some instances, however, a
mortgagor may not have sufficient income to continue to make the required loan
payments as such payments increase. CIT Consumer Finance may also underwrite
such a loan in reliance on Combined Loan-to-Value Ratios or other favorable
credit factors.
CIT Consumer Finance will not purchase or close a Home Equity Loan prior to
receiving evidence that the property securing the loan is insured against
casualty loss. CIT Consumer Finance requires evidence of fire and extended
coverage casualty insurance on the home in an amount at least equal to the
principal balance of the related mortgage loan plus, in the case of a mortgage
loan secured by a subordinate priority lien on the mortgaged property, the
amount of each mortgage secured by senior priority liens, or, if required by
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law, the replacement cost of the property if such replacement cost is less than
the mortgages. In addition, at the closing, the borrower is required to sign a
letter addressed to his insurance carrier naming CIT Consumer Finance as a loss
payee under the insurance policy, which CIT Consumer Finance will thereafter
mail to the insurer. Accordingly, CIT Consumer Finance normally will not be
named as a loss payee with respect to the property securing the Home Equity Loan
at the time the loan is made or purchased and insurance proceeds might not be
available to cover any loss to CIT Consumer Finance.
After closing, CIT Consumer Finance monitors the continued existence of
casualty insurance on the mortgaged properties. However, CIT Consumer Finance
does not generally "force place" casualty insurance coverage if CIT Consumer
Finance discovers that casualty insurance coverage has lapsed. Instead, CIT
Consumer Finance requires its borrowers to reinstate any lapsed insurance as
required by the terms of the mortgage documentation.
CIT Consumer Finance requires title insurance on all of its mortgage loans
secured by liens on real property if the principal balance is over $100,000, if
the Combined Loan-to-Value Ratio is greater than 85% on a first lien position,
if the borrower is a trust, if there is a transfer of title, if closing is
conducted pursuant to a power of attorney, if the home was not subject to an
existing mortgage or, if the first lien holder is a not an institutional lender.
In cases where CIT Consumer Finance does not require title insurance, it instead
obtains a last owner title search which is ordered to verify that the borrower
is the last owner of record of the mortgaged property.
The actual maximum amount that CIT Consumer Finance will lend is determined
by an evaluation of the applicant's ability to repay the loan, the value of the
applicant's equity in the real estate, and the ratio of such equity to the real
estate's appraised value.
Specialized Underwriting Programs
CIT Consumer Finance also originates or purchases mortgage loans pursuant
to alternative sets of underwriting criteria under its No Income Verification
program, No Income Qualify program and Lite Documentation program. Under these
programs, relatively more emphasis is placed on property underwriting than on
credit underwriting and certain credit underwriting documentation concerning
income and employment verification therefore is waived. Mortgage loans
underwritten under these programs are limited to self-employed borrowers with
credit histories that demonstrate an established ability to repay indebtedness
in a timely fashion. Self-employed borrowers with poorer credit histories are
considered with lower Combined Loan-to-Value Ratios. Permitted maximum Combined
Loan-to-Value Ratios under these programs are more restrictive than under CIT
Consumer Finance's standard underwriting criteria. Mortgage loans underwritten
pursuant to these programs generally must be secured by owner-occupied primary
residences. These programs are designed to facilitate the loan approval process
and thereby improve CIT Consumer Finance's competitive position among other
mortgage loan originators. Under the No Income Verification program, the
customer does not provide income documentation. Under the No Income Qualify
program income documentation is provided by the customer but the documentation
does not support the stated income reported by the prospective borrower to CIT
Consumer Finance. The stated income must appear reasonable and realistic to the
underwriter compared to the customer's assets and credit history. The Lite
Documentation program stresses the verification of the borrower's cash flow by
reviewing bank statements.
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CIT Consumer Finance may modify or eliminate these specialized underwriting
programs from time to time. CIT Consumer Finance may also introduce new,
additional specialized underwriting programs in the future, which may modify the
underwriting guidelines set forth herein. If changes in underwriting guidelines
are applicable to a material portion of the Mortgage Pool, these changes will be
described in the related Prospectus Supplement.
QUALITY CONTROL
CIT Consumer Finance implements quality control programs in three areas: 1)
lending and documentation standards, 2) re-certification of appraisals, and 3)
re-verification of employment.
CIT Consumer Finance applies the lending and documentation standards
quality control program to its own originations and to purchased loans. The
quality control procedures are designed to assure that a consistent level of
quality applies to all loans in the portfolio, regardless of source. CIT
Consumer Finance may vary quality control procedures based upon the business
source for the loan. CIT Consumer Finance also performs general quality control
review through a central quality control effort. These procedures include a
review of a sample of originated and purchased loans from each of CIT Consumer
Finance's production offices. Every office is audited monthly and loans
originated during prior months are reviewed for compliance with lending and
documentation standards. In addition, loans originated by CIT Consumer Finance
are audited at random on a monthly basis for compliance with lending and
documentation standards.
In order to confirm the validity of appraisals obtained at the time loans
are made, reappraisals are obtained for the property securing some of such
loans. In this manner, CIT Consumer Finance monitors the quality of the original
appraiser and the appraisal process.
In addition, CIT Consumer Finance re-verifies employment of its borrowers.
These re-verifications are conducted monthly on some of the loans in the
portfolio to detect fraud and to confirm the accuracy of the information
provided in the application.
Refinancing Policy
Where CIT Consumer Finance believes that borrowers having existing loans
with it are likely to refinance such loans due to interest rate changes or other
reasons, CIT Consumer Finance actively attempts to retain such borrowers through
solicitations of such borrowers to refinance with CIT Consumer Finance. Such
refinancings may generate fee income for CIT Consumer Finance. CIT Consumer
Finance may refinance Mortgage Loans held by a Trust. Since the solicited
borrowers may refinance their existing loans in any case, CIT Consumer Finance
believes that this practice will be unlikely to affect the prepayment experience
of the Home Equity Loans in a material respect. CIT Consumer Finance also
solicits its borrowers who are in good standing to apply for additional loans
secured by the same property, consistent with its origination standards. As a
result, CIT Consumer Finance may, now or in the future, hold a loan (or may sell
a loan to another trust) which is also secured by a Mortgaged Property securing
a Mortgage Loan held by a Trust.
Servicing and Collections
CIT Consumer Finance, as Master Servicer, will be required under the
related Agreement to service the Mortgage Loans and other Mortgage Assets
underlying a particular Series of Certificates with the same degree of skill and
care that it exercises with respect to all comparable loans and assets that it
services for its own account. In the servicing of its own portfolio, CIT
Consumer Finance currently delegates most of the servicing duties described
below to CITSF, as Sub-Servicer, pursuant to a servicing
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agreement between CIT Consumer Finance and CITSF. Accordingly, references herein
to actions taken by CIT Consumer Finance as Master Servicer refer in most cases
to actions taken by CITSF as Sub-Servicer. CIT Consumer Finance typically
performs the quality control reviews, oversees the recording of the mortgages,
follows through on insurance documentation and maintains the Mortgage Loan
files. CITSF is generally responsible for billing, collecting, foreclosure
procedures and liquidations. Servicing by CITSF also includes customer service
and remittance handling.
Borrowers are sent monthly statements which specify the payment due. Due
dates for payments occur throughout the calendar month. Generally if payment is
not received within 10 working days after the due date, an initial collection
effort by telephone is made in an attempt to bring the delinquent account
current. CIT Consumer Finance continues to monitor and evaluate the various
stages of delinquency on a continuous basis.
Delinquent accounts are contacted by collection staff by various methods
including, but not limited to, telephone calls and collection letters. When an
account is 30 days past due, the collection supervisor analyzes the account to
determine the appropriate course of action. If a borrower is experiencing
difficulty in making payments on time, CIT Consumer Finance may modify the
payment schedule consistent with CIT Consumer Finance's procedures.
The course of action taken by CIT Consumer Finance is dependent upon a
number of factors including the borrower's payment history, the amount of equity
in the related mortgaged property and the reason for the current inability to
make timely payments.
When a loan is 60 days past due, the related mortgaged property may be
reappraised and the results evaluated by CIT Consumer Finance to determine a
course of action. Foreclosure laws and practices and the rights of the owner in
default vary from state to state, but generally foreclosure procedures may be
initiated if: (i) the loan is 90 days or more delinquent; (ii) a notice of
default on a senior lien is received or (iii) the loan is otherwise in default.
During the foreclosure process, any expenses incurred by CIT Consumer Finance
may be added to the amount owed by the borrower, to the extent permitted by
applicable law. Upon completion of the foreclosure, the property is sold to an
outside bidder, or passes to the mortgagee in which case CIT Consumer Finance
proceeds to liquidate the asset.
CIT Consumer Finance may not foreclose on the property securing a Junior
Lien Loan unless it forecloses subject to the related senior mortgages. In such
cases, CIT Consumer Finance may pay the amount due on the senior mortgages to
the senior mortgagees, if CIT Consumer Finance considers it to be advisable to
do so. In the event that foreclosure proceedings have been instituted on a
senior mortgage prior to the initiation of CIT Consumer Finance's foreclosure
action, CIT Consumer Finance will either satisfy such mortgage at the time of
the foreclosure sale or take other appropriate action. In servicing Junior Lien
Loans in its portfolio, it has been the practice of CIT Consumer Finance to
satisfy each such senior mortgage at or prior to the foreclosure sale only to
the extent that it determines any amount so paid will be recoverable from future
payments and collections on such Junior Lien Loans or otherwise. In servicing
Junior Lien Loans, it is generally the practice of CIT Consumer Finance to
advance funds to keep the senior lien current in the event the mortgagor is in
default thereunder until such time as CIT Consumer Finance satisfies the senior
lien by sale of the mortgaged property, but only to the extent that it
determines such advances will be recoverable from future payments and
collections on that Junior Lien or otherwise. Such practice may not be followed
by CIT Consumer Finance in servicing loans more junior than second Mortgages or
may be modified at any time.
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CIT Consumer Finance's servicing and charge-off policies and collection
practices may change over time in accordance with CIT Consumer Finance's
business judgment, changes in its serviced loan portfolio and applicable laws
and regulations, as well as other items.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of the borrower in default vary greatly from state
to state. CIT Consumer Finance will generally initiate a foreclosure only if the
delinquency or other breach will not be cured. If, after determining that
purchasing a property securing a mortgage loan will minimize the loss associated
with such defaulted loan, CIT Consumer Finance may bid at the foreclosure sale
for such property or accept a deed in lieu of foreclosure.
DESCRIPTION OF THE CERTIFICATES
The Home Equity Loan Asset Backed Certificates (the "Certificates") will be
issuable in series (each, a "Series") and each Series of Certificates will be
issued pursuant to an Agreement (see "The Pooling and Servicing AgreementThe
Pooling and Servicing Agreement" herein), dated as of the first day of the month
of issuance of such Series of Certificates or such other date as is specified in
the related Prospectus Supplement (the "Cut-off Date"), among the Depositor, the
Master Servicer, the applicable Sellers and the Trustee for the benefit of the
holders of the Certificates of such Series. The provisions of each Agreement
will vary depending upon the nature of the Certificates to be issued thereunder
and the nature of the related Trust. A form of an Agreement is an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries describe certain provisions that may appear in each Agreement. The
Prospectus Supplement for a Series of Certificates will describe any provision
of the Agreement relating to such Series that materially differs from, or is in
addition to, the description thereof contained in this Prospectus. The following
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Agreement for each
Series of Certificates and the related Prospectus Supplement. The Depositor will
provide a copy of the Agreement (without exhibits) relating to any Series
without charge upon written request of a holder of record of a Certificate of
such Series addressed to the Depositor at 650 CIT Drive, Livingston, New Jersey
07039.
General
The Certificates of each Series will not represent an interest in or
obligation of the Depositor, CIT Consumer Finance, CITSF, CIT or any of their
respective affiliates, except as set forth herein and in the related Prospectus
Supplement. Neither the certificates nor the underlying mortgage loans will be
insured or guaranteed by the Depositor, CIT Consumer Finance, CITSF, CIT, or any
of their affiliates except as set forth herein and in the related Prospectus
Supplement.
Unless otherwise specified in the Prospectus Supplement, the Certificates
of each Series will be issued in either fully registered or book-entry form in
the authorized denominations specified in the related Prospectus Supplement,
will evidence specified beneficial ownership interests in certain trusts (each,
a "Trust Fund" or "Trust") created pursuant to the related Agreement and will
not be entitled to payments in respect of the assets included in any other Trust
established by the Depositor. The Mortgage Loans will not be insured or
guaranteed by any governmental entity or other person, unless otherwise
specified in the related Prospectus Supplement. Each Trust will consist of, to
the extent provided in the related Agreement, (i) the Mortgage Assets that from
time to time are subject to the related Agreement (exclusive of any amounts
specified in the related Prospectus Supplement (the "Retained Interest")); (ii)
such assets as from time to time are required to be deposited in the related
Certificate Account (as defined herein) or other fund or account which, pursuant
to the related Agreement, constitutes part of a Trust; (iii) properties that
secured Mortgage Loans and that are acquired on behalf of the
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Certificateholders by foreclosure or deed in lieu of foreclosure or comparable
procedure ("REO Property"); (iv) any Primary Mortgage Insurance Policies and any
other insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement; and (v) such other property
(including amounts on deposit in a Pre-Funding Account) as may be specified in
the related Prospectus Supplement. If specified in the related Prospectus
Supplement, a Trust may also include one or more of the following: reinvestment
income on payments received on the Mortgage Assets, a Reserve Fund, a
Certificate Guaranty Insurance Policy, a Mortgage Pool Insurance Policy, a
Special Hazard Insurance Policy, a Bankruptcy Bond, one or more spread accounts,
cash collateral accounts and/or other accounts, letters of credit, surety bonds,
financial guarantee insurance policies, third party guarantees (including
guarantees by CIT, its affiliates, or an unaffiliated third party, any of which
may be limited in nature), interest rate swaps, caps, floors or other derivative
products, or similar instruments or other agreements.
Each Series of Certificates will be issued in one or more classes. Each
class of Certificates of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Mortgage Assets in the related Trust. A class of Certificates
may be divided into two or more sub-classes, as specified in the related
Prospectus Supplement. A Series of Certificates may include one or more classes
that are senior in right to payment to one or more other classes of Certificates
of such Series (See "Credit Enhancement--Subordination" herein). Certain Series
or classes of Certificates may be covered by insurance policies, surety bonds or
other forms of credit enhancement, in each case as described herein and in the
related Prospectus Supplement. One or more classes of Certificates of a Series
may be entitled to receive distributions of principal, interest or any
combination thereof. Distributions on one or more classes of a Series of
Certificates may be made prior to one or more other classes of Certificates of
such Series, after the occurrence of specified events, in accordance with a
schedule or formula, on the basis of collections from designated portions of the
Mortgage Assets in the related Trust, or on a different basis, or one or more
classes of a Series of Certificates may be required to absorb one or more types
of loses prior to one or more other classes of Certificates of such Series, in
each case as specified in the related Prospectus Supplement. The timing and
amounts of such distributions may vary among classes or over time as specified
in the related Prospectus Supplement.
Definitive Certificates, if issued, will be freely transferable and
exchangeable at the corporate trust office of the Trustee as set forth in the
related Prospectus Supplement or, at the election of the Trustee, at the office
of a certificate registrar appointed by the Trustee. No service charge will be
made for any registration of exchange or transfer of Certificates of any Series,
but the Trustee may require payment of a sum sufficient to cover any related tax
or other governmental charge.
Under current law the purchase and holding by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code of a class of Certificates entitled only to a specified
percentage of payments of either interest or principal or a notional amount of
either interest or principal on the related Mortgage Assets or a class of
Certificates entitled to receive payments of interest and principal on the
Mortgage Assets only after payments to other classes or after the occurrence of
certain specified events may result in "prohibited transactions" within the
meaning of ERISA and the Code. See "ERISA Considerations" herein and in the
related Prospectus Supplement. If specified in the related Prospectus
Supplement, transfer of Certificates of such a class will not be registered
unless the transferee (i) represents that it is not, and is not purchasing on
behalf of, any such plan, account or arrangement or (ii) provides an opinion of
counsel satisfactory to the Trustee and the Depositor that the purchase of
Certificates of such a class by or on behalf of such plan, account or
arrangement is permissible under applicable law and will not subject the
Trustee, the Master Servicer or the Depositor to any obligation or liability in
addition to those undertaken in the Agreement.
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As to each Series, an election may be made to treat the related Trust or
designated portions thereof as one or more "real estate mortgage investment
conduits" (each, a "REMIC") as defined in the Code. The related Prospectus
Supplement will specify whether a REMIC election is to be made. Alternatively,
the Agreement for a Series may provide that a REMIC election may be made at the
discretion of the Depositor or the Master Servicer and may be made only if
certain conditions are satisfied. As to any such Series, the terms and
provisions applicable to the making of a REMIC election, as well as any material
federal income tax consequences to Certificateholders not otherwise described
herein, will be set forth in the related Prospectus Supplement. If such an
election is made with respect to a Series, one of the classes will be designated
as evidencing the sole class of "residual interests" in the related REMIC, as
defined in the Code. All other classes of Certificates in such a Series will
constitute "regular interests" in the related REMIC, as defined in the Code. As
to each Series with respect to which a REMIC election is to be made, the Master
Servicer or a holder of the related residual certificate or certificates will be
obligated to take all actions required in order to comply with applicable laws
and regulations and will be obligated to pay any prohibited transaction taxes.
The Master Servicer, unless otherwise specified in the related Prospectus
Supplement, will be entitled to reimbursement for any such payment from any
holder of the related residual certificate or certificates.
Distributions on Certificates
General. In general, the method of determining the amount of distributions
on a particular Series of Certificates will depend on the type of credit
support, if any, that is used with respect to such Series. See "Credit
Enhancement" herein and in the related Prospectus Supplement. The Prospectus
Supplement for each Series of Certificates will describe the method to be used
in determining the amount of distributions on the Certificates of such Series.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal only
or interest only) on the related Certificates will be made by the Trustee,
monthly, quarterly, semi-annually or at such other intervals and on the dates
specified in the Prospectus Supplement (each, a "Distribution Date") out of the
payments received in respect of the assets of the related Trust or other assets
held for the benefit of the Certificateholders as specified in the related
Prospectus Supplement. The amount allocable to payments of principal and
interest on any Distribution Date will be determined as specified in the related
Prospectus Supplement. Distributions will be made to the persons in whose names
the Certificates are registered at the close of business on the dates specified
in the related Prospectus Supplement (each, a "Record Date"). Distributions will
be made by check or money order mailed to the persons entitled thereto at the
address appearing in the register maintained for holders of Certificates (the
"Certificate Register") or, if specified in the related Prospectus Supplement,
in the case of Certificates that are of a certain minimum denomination, upon
written request by the Certificateholder, by wire transfer or by such other
means as are described therein; provided, however, that the final distribution
in retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency of the Trustee or other person
specified in the notice to Certificateholders of such final distribution.
Distributions allocable to principal of and interest on the Certificates
will be made by the Trustee out of, and only to the extent of, funds in the
related Certificate Account, including any funds transferred from any Reserve
Fund or Pre-Funding Account. (See "The Pooling And Servicing Agreement--Payments
on Mortgage Assets; Deposits to Certificate Account" herein.) As between
Certificates of different classes and as between distributions of principal
(and, if applicable, between distributions of
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Principal Prepayments (as defined herein) and scheduled payments of principal)
and interest, distributions made on any Distribution Date will be allocated and
applied as specified in the related Prospectus Supplement. All distributions to
any class of Certificates will be made in the priority, manner and amount
specified in the related Prospectus Supplement.
Available Funds. All distributions on the Certificates of each Series on
each Distribution Date will be made from the Available Funds, in accordance with
the terms described in the related Prospectus Supplement and specified in the
related Agreement. Unless otherwise provided in the related Prospectus
Supplement, "Available Funds" for each Distribution Date will generally equal
the amount on deposit in the related Certificate Account (including any
prepayment charges, assumption fees and late payment charges and other
administrative fees and charges, to the extent collected from Mortgagors), and,
if applicable, the amount on deposit in the related Pre-Funding Account on such
Distribution Date or on the last day of the Due Period (net of related fees and
expenses payable by the related Trust) (see "The Pooling And Servicing
Agreement--Payments on Mortgage Assets; Deposits to Certificate Account" and
"The Pooling and Servicing Agreement -- Servicing and Other Compensation and
Payment of Expenses") other than amounts to be held therein for distribution on
future Distribution Dates.
Unless otherwise specified in the related Prospectus Supplement, the
"Determination Date" is the third Business Day prior to each Distribution Date.
On each Determination Date, the Master Servicer will determine the amounts of
principal and interest which will be passed through to Certificateholders on the
related Distribution Date. The "Due Period" for any Series is the period
specified in the related Prospectus Supplement. The "Due Period" is the period
during which principal, interest and other amounts will be collected on the
Mortgage Loans for application to the payment of principal and interest to the
Certificateholders and the payment of fees on such Distribution Date. A
"Business Day" is any day other than a Saturday, Sunday or any day on which
banking institutions or trust companies in the states of New York, Oklahoma and
such other states (if any) specified in the related Prospectus Supplement are
authorized by law, regulation or executive order to be closed.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate Certificate Balance
(or, in the case of Certificates entitled only to distributions allocable to
interest, the aggregate notional amount) of each class of Certificates (the
"Class Certificate Balance") entitled to interest at the "Pass-Through Rate"
(which may be a Fixed Rate or an Adjustable Rate as specified in such Prospectus
Supplement) from the date and for the periods specified in such Prospectus
Supplement. To the extent funds are available therefor, interest accrued during
each such specified period on each class of Certificates entitled to interest
(other than a class of Certificates that provides for interest that accrues, but
is not currently payable, referred to hereafter as "Accrual Certificates") will
be distributable on the Distribution Dates specified in the related Prospectus
Supplement until the Class Certificate Balance of such class has been
distributed in full or, in the case of Certificates entitled only to
distributions allocable to interest, until the aggregate notional amount of such
Certificates is reduced to zero or for the period of time designated in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, the original Certificate Balance of each Certificate will
equal the aggregate distributions allocable to principal to which such
Certificate is entitled. Unless otherwise specified in the related Prospectus
Supplement, distributions allocable to interest on each Certificate which is not
entitled to distributions allocable to principal will be calculated based on the
notional amount of such Certificate. The notional amount of a Certificate will
not evidence an interest in or entitlement to distributions allocable to
principal but will be used solely for convenience in expressing the calculation
of interest and for certain other purposes.
If specified in the related Prospectus Supplement, one or more class or
classes of Certificates may provide that any interest that has accrued but is
not paid on a given Distribution Date will be added to the Class Certificate
Balance of such class of Certificates on that Distribution Date (such
Certificates,
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"Accrual Certificates"). Unless otherwise specified in the related Prospectus
Supplement, distributions of interest on each class of Accrual Certificates will
commence only after the occurrence of the events specified in such Prospectus
Supplement and, prior to such time, the beneficial ownership interest of such
class of Accrual Certificates in the Trust, as reflected in the Class
Certificate Balance of such class of Accrual Certificates, will increase on each
Distribution Date by the amount of interest that accrued on such class of
Accrual Certificates during the preceding interest accrual period but that was
not required to be distributed to such class on such Distribution Date. Any such
class of Accrual Certificates will thereafter accrue interest on its outstanding
Class Certificate Balance as so adjusted.
Distributions of Principal. Unless otherwise specified in the related
Prospectus Supplement, the aggregate original balance of the Certificates (the
"Certificate Balance") will equal the aggregate distributions allocable to
principal that such Certificates will be entitled to receive. Unless otherwise
specified in the related Prospectus Supplement, the Class Certificate Balance of
any class of Certificates entitled to distributions of principal will be the
original Class Certificate Balance of such class of Certificates specified in
such Prospectus Supplement, reduced by all distributions allocable to principal
and (i) in the case of Accrual Certificates, unless otherwise specified in the
related Prospectus Supplement, increased by all interest accrued but not then
distributable on such Accrual Certificates, and (ii) in the case of Adjustable
Rate Certificates, unless otherwise specified in the related Prospectus
Supplement, subject to the effect of negative amortization. The related
Prospectus Supplement will specify the method by which the amount of principal
to be distributed on the Certificates on each Distribution Date will be
calculated and the manner in which such amount will be allocated among the
classes of Certificates entitled to distributions of principal.
If so provided in the related Prospectus Supplement, one or more classes of
senior Certificates (the "Senior Certificates") will be entitled to receive all
or a disproportionate percentage of the payments of principal that are received
from Mortgagors in advance of their scheduled due dates and are not accompanied
by amounts representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or for
the periods specified in such Prospectus Supplement. Any such allocation of
Principal Prepayments to such class or classes of Senior Certificates will have
the effect of accelerating the amortization of such Senior Certificates while
increasing the interests evidenced by the subordinated Certificates (the
"Subordinated Certificates") in the Trust. Increasing the interests of the
Subordinated Certificates relative to that of the Senior Certificates is
intended to preserve the availability of the subordination provided by the
Subordinated Certificates. See "Credit Enhancement--Subordination" herein and
"Credit Enhancement--Subordination of the Subordinated Certificates" in the
related Prospectus Supplement.
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Certificates will be subject to receipt of distributions before
the next scheduled Distribution Date under the circumstances and in the manner
described below and in such Prospectus Supplement. If applicable, the Trustee
will be required to make such unscheduled distributions on the day and in the
amount specified in the related Prospectus Supplement if, due to substantial
payments of principal (including Principal Prepayments) on the Mortgage Assets,
the Trustee or the Master Servicer determines that the funds available or
anticipated to be available from the Certificate Account and, if applicable, any
Pre-Funding Account or Reserve Fund, may be insufficient to make required
distributions on the Certificates on such Distribution Date. Unless otherwise
specified in the related Prospectus Supplement, the amount of any such
unscheduled distribution that is allocable to principal will not exceed the
amount that would otherwise have been required to be distributed as principal on
the Certificates on the next Distribution Date. Unless otherwise specified in
the related Prospectus Supplement, all unscheduled distributions will include
interest at the applicable Pass-Through Rate (if any) on the amount of the
unscheduled distribution allocable to principal for the period and to the date
specified in such Prospectus Supplement.
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Unless otherwise specified in the related Prospectus Supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Certificates would have been made on the next Distribution Date. With respect to
Certificates of the same class, unscheduled distributions of principal will be
made in the priority and manner specified in the related Prospectus Supplement.
The Trustee will give notice to Certificateholders of any unscheduled
distribution prior to the date of such distribution.
Example of Distributions
The following is an example of the flow of funds as it would relate to a
hypothetical Series of Certificates issued, and with a Cut-off Date occurring in
July, 1997 (all days are assumed to be Business Days):
July 1 - July 30........... (1) Due Period. Master Servicer
receives scheduled payments on the
Mortgage Assets and any Principal
Prepayments made by Mortgagors and
applicable interest thereon.
July 30.................... (2) Record Date.
August 12.................. (3) Determination Date. Distribution
amount determined.
August 14.................. (4) Deposit Date.
August 15.................. (5) Distribution Date.
Succeeding months follow the pattern above, subject to adjustment if the
Distribution Date is not a Business Day as specified in the related Prospectus
Supplement. The flow of funds with respect to any Series of Certificates may
differ from the above, and the flow of funds for each Series of Certificates
will be specified in the related Prospectus Supplement. Reference should be made
to the related Prospectus Supplement to determine the flow of funds for any
particular Series of Certificates. In addition, there are other sources and uses
of funds with respect to each Series of Certificates, as outlined herein and in
the related Prospectus Supplement, that are not specified in the above example
(see "The Pooling and Servicing Agreement" and "Credit Enhancement" herein).
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(1) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited on the Deposit Date in the
Certificate Account by the Master Servicer for distribution to
Certificateholders. When a Mortgage Loan is prepaid in full, interest on
the amount prepaid is collected from the Mortgagor only to the date of
payment.
(2) Distributions on the Distribution Date will be made to Certificateholders
of record at the close of business on the last business day of the month
immediately preceding the month of distribution.
(3) On August 12 (the third Business Day prior to the Distribution Date), the
Master Servicer will determine the amounts of principal and interest which
will be passed through on the Distribution Date.
(4) On August 14 (the Business Day immediately preceding the Distribution
Date), the Master Servicer may advance funds to cover any delinquencies, in
which event the distribution to Certificateholders on the Distribution Date
will include the full amounts of principal and interest due during the
period in respect of the delinquencies. The Master Servicer will also
calculate any changes in the relative interests evidenced by the Senior
Certificates and the Subordinate Certificates in the Trust Fund, if
applicable.
(5) On August 15, the amounts determined on August 12 will be distributed to
Certificateholders of record on the Record Date.
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Advances and Compensating Interest
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer will be required to remit to the Trustee no later than the day prior to
each Distribution Date and in no case earlier than the seventh Business Day of
such month, the amount (an "Advance"), if any by which 30 days' interest at the
Mortgage Rate (or, if specified in the related Prospectus Supplement, at the
Adjusted Mortgage Loan Remittance Rate) on the then outstanding principal
balance of a Mortgage Loan exceeds the amount received by the Master Servicer in
respect of interest on the Mortgage Loan as of the related Record Date. If
provided in the related Prospectus Supplement, the obligation of the Master
Servicer to make such Advances will be limited to amounts corresponding to
delinquent interest payments on a Mortgage Loan and/or will be limited to
amounts that the Master Servicer believes will be recoverable out of late
payments by Mortgagors on a Mortgage Loan, Liquidation Proceeds, Insurance
Proceeds (each, as defined herein) or otherwise. If and to the extent specified
in the related Prospectus Supplement, the amount of the Advance may be
determined based on an "Adjusted Mortgage Loan Remittance Rate" (determined as
set forth in the Prospectus Supplement), and may include delinquent principal
payments and other amounts.
Unless otherwise specified in the related Prospectus Supplement, in making
Advances, the Master Servicer will endeavor to maintain a regular flow of
scheduled interest payments to Certificateholders, rather than to guarantee or
insure against losses. Unless otherwise specified in the related Prospectus
Supplement, if Advances are made by the Master Servicer from cash being held for
future distribution to Certificateholders, the Master Servicer will replace such
funds on or before any future Distribution Date to the extent that funds in the
applicable Certificate Account on such Distribution Date would be less than the
amount required to be available for distributions to Certificateholders on such
date. Unless otherwise specified in the related Prospectus Supplement, any
Advances by the Master Servicer will be reimbursable to the Master Servicer out
of recoveries on the specific Mortgage Assets with respect to which such
Advances were made (e.g., late payments made by the related Mortgagors, any
related Insurance Proceeds, Liquidation Proceeds, Released Mortgaged Property
Proceeds (as defined herein) or proceeds of any Mortgage Loan repurchased by the
Depositor, a Sub-Servicer or a Seller pursuant to the related Agreement) and any
other amount that would otherwise be distributed to the holder or holders of
Certificates representing the residual interest of a Trust for which a REMIC
election has been made. Unless otherwise specified in the related Prospectus
Supplement, Advances by the Master Servicer also will be reimbursable to the
Master Servicer from cash otherwise distributable to Certificateholders
(including Senior Certificateholders) to the extent that the Master Servicer
determines that any such Advances previously made are not ultimately recoverable
as described in the immediately preceding sentence.
If specified in the Prospectus Supplement, the Master Servicer also will be
obligated to make Advances, to the extent recoverable out of Insurance Proceeds,
Liquidation Proceeds or otherwise, in respect of certain taxes and insurance
premiums not paid by Mortgagors on a timely basis and to otherwise protect the
related Mortgaged Property. Funds so advanced are reimbursable to the Master
Servicer to the extent permitted by the related Agreement.
If specified in the related Prospectus Supplement, the obligations of the
Master Servicer to make Advances may be supported by a cash advance reserve
fund, a surety bond or other arrangement, in each case as described in such
Prospectus Supplement.
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Unless otherwise specified in the related Prospectus Supplement, not later
than the close of business on the Business Day prior to each Determination Date,
with respect to each Mortgage Loan as to which the Master Servicer receives
during the related Due Period a principal payment in full in advance of the
final scheduled due date (a "Principal Prepayment"), the Master Servicer will be
required to remit to the Trustee for deposit in the Certificate Account from
amounts otherwise payable to the Master Servicer as servicing compensation, an
amount ("Compensating Interest") equal to the excess of (a) 30 days' interest on
the principal balance of each such Mortgage Loan as of the beginning of the
related Due Period at the applicable Mortgage Rate (or, if specified in the
related Prospectus Supplement, at the Adjusted Mortgage Loan Remittance Rate),
over (b) the amount of interest actually received on the related Mortgage Loan
for such Due Period.
REPORTS TO CERTIFICATEHOLDERS
Prior to or concurrently with each distribution on a Distribution Date and
except as otherwise set forth in the related Prospectus Supplement, the Master
Servicer or the Trustee will furnish to each Certificateholder of record of the
related Series a statement setting forth, to the extent applicable to such
Series of Certificates, among other things:
(i) the amount available in the Certificate Account;
(ii) the amount of such distribution allocable to principal for each
class of the related Series, separately identifying the aggregate amount of
any Principal Prepayments and, if so specified in the related Prospectus
Supplement, prepayment penalties included therein;
(iii) the amount of such distribution allocable to interest for each
class of the related Series;
(iv) the amount of any Advance;
(v) the aggregate amount (a) otherwise allocable to the Subordinated
Certificateholders on such Distribution Date and (b) withdrawn from the
Reserve Fund, if any, that is included in the amounts distributed to the
Certificateholders;
(vi) the aggregate amount, if any, withdrawn from letters of credit,
pool policies or other forms of credit enhancement that is included in
amounts distributed to Certificateholders;
(vii) the Class Certificate Balance and corresponding pool factor or
notional amount of each class of the related Series after giving effect to
the distribution of principal on such Distribution Date;
(viii) the percentage of principal payments on the Mortgage Assets
(excluding prepayments), if any, which each such class will be entitled to
receive on the following Distribution Date;
(ix) the percentage of Principal Prepayments with respect to the
Mortgage Assets, if any, which each such class will be entitled to receive
on the following Distribution Date;
(x) the related amount of the servicing compensation 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
similar charges and items;
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(xi) the number and aggregate principal balances of Mortgage Loans:
(A) delinquent (exclusive of Mortgage Loans in foreclosure) (1) 30 to 59
days, (2) 60 to 89 days and (3) 90 or more days, and (B) in foreclosure as
of the close of business on the last day of the calendar month preceding
such Distribution Date;
(xii) the number and aggregate principal balances of Mortgage Loans
acquired (and not subsequently sold) through foreclosure or grant of a deed
in lieu of foreclosure as of the end of the related Due Period;
(xiii) the number and aggregate principal balances of Mortgage Loans
acquired through foreclosure or grant of a deed in lieu of foreclosure
during the related Due Period;
(xiv) the number and aggregate principal balance of Mortgage Loans
which became Liquidated Mortgages and the amount of Liquidation Proceeds
received during the related Due Period;
(xv) the cumulative number and aggregate principal balance of Mortgage
Loans which became Liquidated Mortgages and the cumulative amount of
Liquidation Proceeds;
(xvi) if applicable, the amount remaining in the Reserve Fund at the
close of business on the Distribution Date;
(xvii) the Pass-Through Rate and the applicable Index for Adjustable
Rate classes expected to be applicable on the next Distribution Date to
such class;
(xviii) any amounts remaining under financial guaranty insurance
policies, letters of credit, guarantees, pool policies or other forms of
credit enhancement;
(xix) the aggregate amount on deposit in the Pre-Funding Account, if
any; and
(xx) the number and aggregate principal amount of additional Mortgage
Assets purchased by the Trust, if any.
Where applicable, any amount set forth above may be expressed as a dollar
amount per single Certificate of the relevant class having the Percentage
Interest (as defined herein) specified in the related Prospectus Supplement. The
report to Certificateholders for any Series of Certificates may include
additional or other information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Certificateholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to clause (i) and (ii) above
for such calendar year or, in the event such person was a Certificateholder of
record during a portion of such calendar year, for the applicable portion of
such year, and (b) such other customary information as may be deemed necessary
or desirable for Certificateholders to prepare their tax returns.
Book-Entry Certificates
If specified in the related Prospectus Supplement, one or more classes of
the Certificates of any Series (each, a class of "Book-Entry Certificates") may
be initially issued through the book-entry facilities of DTC in the United
States or Cedel or Euroclear in Europe. Each class of Book-Entry Certificates of
a Series will be issued in one or more certificates which equal the aggregate
initial Class
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Certificate Balance of each such class and which will be registered in the name
of Cede as nominee of DTC. Cedel and Euroclear will hold omnibus positions with
respect to the Certificates on behalf of Cedel Participants and Euroclear
Participants (each, as defined herein), respectively, through customers'
securities accounts in Cedel's and Euroclear's name on the books of their
respective depositories (each, a "Depository") which in turn will hold such
positions in customers' securities accounts in the Depositories' names on the
books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations. Indirect access to the DTC system
is also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants").
Beneficial interests in the Book-Entry Certificates of a Series will be
held indirectly by investors through the book-entry facilities of DTC, as
described herein. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing an original principal amount
of $1,000 and integral multiples in excess thereof. Accordingly, DTC or its
nominee is expected to be the holder of record of the Book-Entry Certificates.
Except as described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate").
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will be recorded on the records of DTC, if the
beneficial owner's Financial Intermediary is not a Participant). Therefore, the
beneficial owner must rely on the foregoing procedures to evidence its
beneficial ownership of a Book-Entry Certificate. Beneficial ownership of a
Book-Entry Certificate may only be transferred by compliance with the procedures
of such Financial Intermediaries and Participants.
In accordance with its normal procedures, DTC is expected to record the
positions held by each Participant in the Book-Entry Certificates, whether held
for its own account or as a nominee for another person. In general, beneficial
ownership of Book-Entry Certificates will be subject to the rules, regulations
and procedures governing DTC and Participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable Participants in
accordance with DTC's normal procedures. Each Participant will be responsible
for disbursing such payments to the beneficial owners of the Book-Entry
Certificates that it represents and to each Financial Intermediary for which it
acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the beneficial owners of the Book-Entry Certificates that it
represents.
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Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience delay in their receipt of payments, since payments will be
forwarded by the Trustee to DTC or its nominee, as the case may be, as holder of
record of the Book-Entry Certificates. Because DTC can act only on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-Entry
Certificates to persons or entities that do not participate in DTC system, or
otherwise take actions in respect of such Book-Entry Certificates, may be
limited due to the lack of physical certificates for such Book-Entry
Certificates. In addition, issuance of the Book-Entry Certificates in book-entry
form may reduce the liquidity of such Certificates in the secondary market since
certain potential investors may be unwilling to purchase Certificates for which
they cannot obtain physical certificates.
Unless and until Definitive Certificates are issued, it is anticipated that
the only "Certificateholder" of the Book-Entry Certificates will be DTC or its
nominee. Beneficial owners of the Book-Entry Certificates will not be
Certificateholders, as that term will be used in the Agreement relating to such
Series of Certificates. Beneficial owners are only permitted to exercise the
rights of Certificateholders indirectly through Financial Intermediaries and
DTC. Monthly and annual reports on the related Trust provided to DTC or its
nominee, as the case may be, as holder of record of the Book-Entry Certificates,
may be made available to beneficial owners upon request, in accordance with the
rules, regulations and procedures creating and affecting DTC, and to the
Financial Intermediaries to whose DTC accounts the Book-Entry Certificates of
such beneficial owners are credited.
Unless otherwise specified in the related Prospectus Supplement, unless and
until Definitive Certificates are issued, DTC will take any action permitted to
be taken by the holders of the Book-Entry Certificates of a particular Series
under the related Agreement only at the direction of one or more Financial
Intermediaries to whose DTC accounts such Book-Entry Certificates are credited
to the extent that such actions are taken on behalf of Financial Intermediaries
whose holdings include such Book-Entry Certificates.
Transfers between Participants will occur in accordance with DTC's rules,
regulations and procedures. Transfers between Cedel Participants and Euroclear
Participants will occur in accordance with their respective rules and operating
procedures.
Due to time zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participant on such business day. Cash received in Cedel or Euroclear as
result of sales of Certificates by or through a Cedel Participant or Euroclear
Participant to a DTC Participant will be received with value on the DTC
settlement date but will be available in the relevant Cedel or Euroclear cash
account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly or indirectly holding
Certificates through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC's rules, regulations and procedures on behalf of the
relevant European international clearing system by its Depository; however, such
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadline
(European time). The relevant European international clearing system will, if
the transaction meets its settlement requirements, deliver instructions to its
Depository to take action to effect final settlement on its behalf by delivering
or receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly to
the Depositories.
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Definitive Certificates
Unless otherwise specified in the related Prospectus Supplement, Definitive
Certificates will be issued to beneficial owners of Book-Entry Certificates, or
their nominees, rather than to DTC, only if (i) DTC or the Depositor advises the
Trustee in writing that DTC is no longer willing, qualified or able to discharge
properly its responsibilities as nominee and depository with respect to the
Book-Entry Certificates and the Depositor or the Trustee is unable to locate a
qualified successor; (ii) the Depositor, at its sole option, elects to terminate
the book-entry system through DTC; or (iii) after the occurrence of an Event of
Default (as defined in the related Agreement), beneficial owners of Certificates
representing not less than 51% of the aggregate Percentage Interests evidenced
by each class of Certificates of the related Series issued as Book-Entry
Certificates advise the Trustee and DTC through the Financial Intermediaries in
writing that the continuation of a book-entry system through DTC (or a successor
thereto) is no longer in the best interests of the beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability of Definitive
Certificates. Upon surrender by DTC of the global certificate or certificates
representing the Book-Entry Certificates and instructions for re-registration,
the Trustee will issue the Definitive Certificates, and thereafter the Trustee
will recognize the holders of such Definitive Certificates as Certificateholders
under the Agreement relating to such Series of Certificates.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more classes of a
Series of Certificates or with respect to the Mortgage Assets in the related
Trust. Credit enhancement may be in the form of a limited Certificate Guaranty
Insurance Policy issued by an entity named in the related Prospectus Supplement,
the subordination of one or more classes of the Certificates of such Series, the
establishment of one or more reserve funds, the use of a cross collateralization
feature, the use of overcollateralization, the use of a Mortgage Pool Insurance
Policy, Certificate Guaranty Insurance Policy, Bankruptcy Bond, Special Hazard
Insurance Policy, surety bond, letter of credit, guaranteed investment contract,
financial guaranty insurance policy, third party guarantee (which may be limited
in nature), a Limited Guarantee issued by CIT, spread accounts, cash collateral
accounts and/or other accounts, or the use of any similar instruments or
agreements or other methods of credit enhancement described in the related
Prospectus Supplement, or any combination of the foregoing. Unless otherwise
specified in the related Prospectus Supplement, no credit enhancement will
provide protection against all risks of loss or guarantee repayment of the
entire principal balance of the Certificates and interest thereon. If losses
occur which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, Certificateholders will bear their allocable
share of any deficiencies. If a form of credit enhancement applies to several
classes of Certificates, and if principal payments equal to the aggregate
principal balances of certain classes will be distributed prior to such
distributions to other classes, the classes which receive such distributions at
a later time are more likely to bear any losses which exceed the amount covered
by credit enhancement. Unless otherwise specified in the Prospectus Supplement,
coverage under any credit enhancement may be canceled or reduced by the Master
Servicer if such cancellation or reduction would not adversely affect the rating
or ratings of the related Certificates. The Trustee of the related Trust will
have the right to sue providers of credit enhancement if a default is made on a
required payment.
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Subordination
If specified in the related Prospectus Supplement, the rights of the
holders of one or more classes of Subordinated Certificates (the "Subordinated
Certificateholders") will be subordinate to the rights of holders of one or more
other classes of Senior Certificates (the "Senior Certificateholders") of such
Series to receive distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise would have been
payable to holders of Subordinated Certificates under the circumstances and to
the extent specified in the related Prospectus Supplement. This subordination is
intended to enhance the likelihood of regular receipt by Senior
Certificateholders of the full amount of the monthly payments of principal and
interest which such holders would be entitled to receive if there had been no
losses or delinquencies.
The protection afforded to the Senior Certificateholders of a Series by
means of the subordination feature will be accomplished by (i) the preferential
right of such holders to receive, prior to any distribution being made in
respect of the related Subordinated Certificates, the amounts of principal and
interest due them on each Distribution Date out of the funds available for
distribution on such date in the related Certificate Account (as defined herein)
and, to the extent described in the related Prospectus Supplement, by the right
of such holders to receive future distributions on the assets in the related
Trust that would otherwise have been payable to the Subordinated
Certificateholders; (ii) reducing the ownership interest of the related
Subordinated Certificates; (iii) a combination of clauses (i) and (ii) above; or
(iv) as otherwise described in the related Prospectus Supplement. If specified
in the related Prospectus Supplement, subordination may apply only in the event
of certain types of losses not covered by other forms of credit support, such as
hazard losses not covered by Standard Hazard Insurance Policies or losses due to
the bankruptcy or fraud of the Mortgagor not covered by a Bankruptcy Bond. The
protection afforded to Senior Certificateholders through subordination also may
be accomplished by allocating certain types of losses or delinquencies to the
related Subordinated Certificates to the extent described in the related
Prospectus Supplement. The related Prospectus Supplement will set forth
information concerning, among other things, the amount of subordination of a
class or classes of Subordinated Certificates in a Series, the circumstances in
which such subordination will be applicable and the manner, if any, in which the
amount of subordination will decrease over time, the manner of funding any
Reserve Fund, and the conditions under which amounts in any such Reserve Fund
will be used to make distributions to Senior Certificateholders or released to
Subordinated Certificateholders from the related Trust.
If specified in the related Prospectus Supplement, delays in receipt of
scheduled payments on the Mortgage Assets and losses with respect to the
Mortgage Assets will be borne first by the various classes of Subordinated
Certificates and thereafter by the various classes of Senior Certificates, in
each case under the circumstances and subject to the limitations specified in
such Prospectus Supplement. The aggregate distributions in respect of delinquent
payments on the Mortgage Assets over the lives of the Certificates or at any
time, the aggregate losses in respect of Mortgage Assets which must be borne by
the Subordinated Certificates by virtue of subordination and the amount of the
distributions otherwise distributable to the Subordinated Certificateholders
that will be distributable to Senior Certificateholders on any Distribution Date
may be limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Mortgage Assets or
aggregate losses in respect of such Mortgage Assets were to exceed the total
amounts payable and available for distribution to holders of Subordinated
Certificates or, if applicable, were to exceed the amount specified in the
related Prospectus Supplement, Senior Certificateholders would experience losses
on the Certificates.
In addition to or in lieu of the foregoing, if so specified in the
Prospectus Supplement, all or any portion of distributions otherwise payable to
holders of Subordinated Certificates on any Distribution Date may instead be
deposited into one or more Reserve Funds established and maintained with the
Trustee. If specified in the Prospectus Supplement, such deposits may be made on
each Distribution Date for specified periods or until the balance in the Reserve
Fund has reached a specified amount and,
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following payments from the Reserve Fund, to holders of Senior Certificates or
otherwise, thereafter to the extent necessary to restore balance in the Reserve
Fund to required levels, in each case as specified in the Prospectus Supplement.
If specified in the related Prospectus Supplement, amounts on deposit in the
Reserve Fund may be released to the holders of the class of Certificates
specified in the Prospectus Supplement at the times and under the circumstances
specified in the Prospectus Supplement. See "--Reserve Fund" below.
If specified in the related Prospectus Supplement, the same class of
Certificates may be Senior Certificates with respect to certain types of
payments or certain types of losses or delinquencies and Subordinated
Certificates with respect to other types of payment or types of losses or
delinquencies.
If specified in the related Prospectus Supplement, various classes of
Senior Certificates and Subordinated Certificates may themselves be subordinate
in their right to receive certain distributions to other classes of Senior and
Subordinated Certificates, respectively, through a cross collateralization
mechanism or otherwise.
As between classes of Senior Certificates and as between classes of
Subordinated Certificates, distributions may be allocated among such classes (i)
in the order of their scheduled final distribution dates, (ii) in accordance
with a schedule or formula, (iii) in relation to the occurrence of events or
(iv) otherwise, in each case as specified in the related Prospectus Supplement.
The related Prospectus Supplement will set forth information concerning the
amount of subordination of a class or classes of Subordinated Certificates in a
Series, the circumstances in which such subordination will be applicable, the
manner, if any, in which the amount of subordination will decrease over time,
the manner of funding any Reserve Funds, and the conditions under which amounts
in any such Reserve Funds will be used to make distributions to Senior
Certificateholders or released to Subordinated Certificateholders from the
related Trust. As between classes of Subordinated Certificates, payments to
Senior Certificateholders on account of delinquencies or losses and payments to
the Reserve Fund will be allocated as specified in the related Prospectus
Supplement.
Overcollateralization
If specified in the related Prospectus Supplement, credit support may
consist of overcollateralization whereby the aggregate principal amount of the
Mortgage Assets exceeds the Certificate Balance (as defined herein) of the
Certificates of such Series. Overcollateralization may exist on the Closing Date
or may develop thereafter as a result of the application of certain interest
collections or other collections received in connection with the Mortgage Assets
in excess of amounts necessary to pay the Pass-Through Rate on the Certificates
and certain other amounts as may be specified in the related Prospectus
Supplement. The existence of any overcollateralization and the manner, if any,
by which it increases or decreases, will be set forth in the related Prospectus
Supplement.
Reserve Fund
If so specified in the related Prospectus Supplement, credit support with
respect to a Series of Certificates may be provided by the establishment and
maintenance with the Trustee for such Series of Certificates, of one or more
reserve funds (each, a "Reserve Fund") for such Series. The related Prospectus
Supplement will specify whether or not a Reserve Fund will be included in the
corpus of the Trust for such Series.
The Reserve Fund for a Series will be funded (i) by the deposit therein of
cash, investment securities or instruments evidencing ownership of principal or
interest payments thereon, letters of credit, demand notes, certificates of
deposit or a combination thereof in the aggregate amount specified in the
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related Prospectus Supplement, (ii) by the deposit therein from time to time of
certain amounts, as specified in the related Prospectus Supplement, to which the
Subordinated Certificateholders, if any, would otherwise be entitled, or (iii)
in such other manner as may be specified in the related Prospectus Supplement.
Any amounts on deposit in the Reserve Fund and the proceeds of any other
instrument deposited therein upon maturity will be held in cash or will be
invested in "Permitted Investments" which, unless otherwise specified in the
related Prospectus Supplement, will include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper
(including commercial paper issued by CIT), time deposits and bankers
acceptances sold by eligible commercial banks and certain repurchase agreements
of United States government securities with eligible commercial banks. If a
letter of credit is deposited with the Trustee, such letter of credit will be
irrevocable unless replaced. Unless otherwise specified in the related
Prospectus Supplement, any letter of credit deposited therein will name the
Trustee, in its capacity as trustee for the Certificateholders, as beneficiary
and will be issued by an entity acceptable to each Rating Agency. Additional
information with respect to such instruments deposited in the Reserve Funds will
be set forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will be
available for withdrawal from the Reserve Fund for distribution to the
Certificateholders for the purposes, in the manner and at the times specified in
the related Prospectus Supplement.
Certificate Guaranty Insurance Policies
If so specified in the related Prospectus Supplement, a certificate
guaranty insurance policy or policies (each, a "Certificate Guaranty Insurance
Policy") may be obtained and maintained for one or more class or classes of
Series of Certificates. The issuer of any Certificate Guaranty Insurance Policy
(a "Certificate Guaranty Insurer") will be described in the related Prospectus
Supplement. A copy of any such Certificate Guaranty Insurance Policy will be
attached as an exhibit to the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
Certificate Guaranty Insurance Policies generally unconditionally and
irrevocably guarantee to Certificateholders that an amount equal to each full
and complete Insured Payment will be received by an agent of the Trustee (an
"Insurance Paying Agent") on behalf of Certificateholders, for distribution by
the Trustee to each Certificateholder. The "Insured Payment" will equal the full
amount of the distributions of principal and interest to which
Certificateholders are entitled under the related Agreement plus any other
amounts specified therein or in the related Prospectus Supplement. If specified
in the related Prospectus Supplement, the Certificate Guaranty Insurance Policy
may only cover ultimate payment of principal to Certificateholders and not
timely payment of principal on each Distribution Date.
The specific terms of any Certificate Guaranty Insurance Policy will be as
set forth in the related Prospectus Supplement. Certificate Guaranty Insurance
Policies may have limitations including (but not limited to) limitations on the
Certificate Guaranty Insurer's obligation to guarantee the Seller's or the
Master Servicer's obligation to repurchase or substitute for any Mortgage Loans,
to guarantee any specified rate of prepayments or to provide funds to redeem
Certificates on any specified date. The Certificate Guaranty Insurance Policy
may also be limited in amount.
Subject to the terms of the related Agreement, the Certificate Guaranty
Insurer may be subrogated to the rights of each Certificateholder to receive
payments under the Certificates to the extent of any payments by such
Certificate Guaranty Insurer under the related Certificate Guaranty Insurance
Policy.
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Mortgage Pool Insurance Policies
If specified in the related Prospectus Supplement relating to a Mortgage
Pool, a separate mortgage pool insurance policy or policies (each, a "Mortgage
Pool Insurance Policy") will be obtained and maintained for the Mortgage Pool
and issued by the insurer (the "Pool Insurer") named in such Prospectus
Supplement. Each Mortgage Pool Insurance Policy will, subject to the limitations
described below, cover loss by reason of default in payment on Mortgage Loans in
the Mortgage Pool in an amount equal to a percentage specified in such
Prospectus Supplement of the aggregate principal balance of such Mortgage Loans
on the Cut-off Date and, if applicable, as of the Subsequent Cut-off Dates (as
defined in the related Prospectus Supplement) related to the transfer of
additional Mortgage Loans, if any, which are not covered as to their entire
outstanding principal balances by Primary Mortgage Insurance Policies. As more
fully described below, the Master Servicer will present claims thereunder to the
Pool Insurer on behalf of itself, the Trustee and the Certificateholders. The
Mortgage Pool Insurance Policies, however, are not blanket policies against
loss, since claims thereunder may be made only respecting particular defaulted
Mortgage Loans and only upon satisfaction of certain conditions precedent
described below. Unless otherwise specified in the related Prospectus
Supplement, the Mortgage Pool Insurance Policies will not cover losses due to a
failure to pay or denial of a claim under a Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Pool Insurance Policy will provide that no claims may be validly
presented unless (i) any required Primary Mortgage Insurance Policy is in effect
for the defaulted Mortgage Loan and a claim thereunder has been submitted and
settled; (ii) hazard insurance on the related Mortgaged Property has been kept
in force and real estate taxes and other protection and preservation expenses
have been paid; (iii) if there has been physical loss or damage to the Mortgaged
Property, the damaged property has been restored to its physical condition
(reasonable wear and tear excepted) at the time of issuance of the policy; and
(iv) the insured has acquired good and marketable title to the Mortgaged
Property free and clear of liens except certain permitted encumbrances. Upon
satisfaction of these conditions, the Pool Insurer will have the option either
(i) to purchase the Mortgaged Property at a price equal to the principal balance
of the related Mortgage Loan plus accrued and unpaid interest at the Mortgage
Rate to the date of such purchase and certain expenses incurred by the Master
Servicer on behalf of the Trustee and Certificateholders, or (ii) to pay the
amount by which the sum of the principal balance of the defaulted Mortgage Loan
plus accrued and unpaid interest at the Mortgage Rate to the date of payment of
the claim and the aforementioned expenses exceeds the proceeds received from an
approved sale of the Mortgaged Property, in either case net of certain amounts
paid or assumed to have been paid under the related Primary Mortgage Insurance
Policy. If any Mortgaged Property is damaged, and proceeds, if any, from the
related hazard insurance policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the Mortgage Pool Insurance Policy, the
Master Servicer will not be required to expend its own funds to restore the
damaged property unless it determines that (i) such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses, and (ii) such expenses
will be recoverable by it through proceeds of the sale of the Mortgaged Property
or proceeds of the related Mortgage Pool Insurance Policy or any related Primary
Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, no
Mortgage Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Mortgaged Property in accordance with plans and specifications. If
specified in the related Prospectus Supplement, an endorsement to the Mortgage
Pool Insurance Policy, a bond or other credit support may cover fraud in
connection with the origination of Mortgage Loans. If specified in the related
Prospectus Supplement, a failure of coverage attributable to one of the
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foregoing events might result in a breach of the related Seller's
representations described above and, in such event, might give rise to an
obligation on the part of such Seller to repurchase the defaulted Mortgage Loan
if the breach cannot be cured by such Seller. No Mortgage Pool Insurance Policy
will cover (and many Primary Mortgage Insurance Policies do not cover) a claim
in respect of a defaulted Mortgage Loan occurring when the Master Servicer of
such Mortgage Loan, at the time of default or thereafter, was not approved by
the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Mortgage Pool Insurance Policy will be
reduced over the life of the related 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 certain expenses incurred by the Master Servicer as well as accrued
interest on delinquent Mortgage Loans to the date of payment of the claim,
unless otherwise specified in the related Prospectus Supplement. Accordingly, if
aggregate net claims paid under any Mortgage Pool Insurance Policy reach the
original policy limit, coverage under that Mortgage Pool Insurance Policy will
be exhausted and any further losses will be borne by the Certificateholders.
The terms of any pool insurance policy relating to a Pool will be described
in the related Prospectus Supplement.
Special Hazard Insurance Policies
If specified in the related Prospectus Supplement, a separate special
hazard insurance policy or policies (each, a "Special Hazard Insurance Policy")
will be obtained and maintained for the Mortgage Pool and will be issued by the
insurer (the "Special Hazard Insurer") named in such Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to limitations described below,
protect holders of the related Certificates from (i) loss by reason of damage to
Mortgaged Properties caused by certain hazards (including earthquakes and, to a
limited extent, tidal waves and related water damage or as otherwise specified
in the related Prospectus Supplement) not insured against under the standard
form of hazard insurance policy for the respective states in which the Mortgaged
Properties are located or under a flood insurance policy if the Mortgaged
Property is located in a federally designated flood area, and (ii) loss caused
by reason of the application of the coinsurance clause contained in hazard
insurance policies. See "The Pooling and Servicing Agreement--Hazard Insurance"
herein. No Special Hazard Insurance Policy will cover losses occasioned by fraud
or conversion by the Trustee or Master Servicer, war, insurrection, civil war,
certain governmental action, errors in design, faulty workmanship or materials
(except under certain circumstances), nuclear or chemical reaction, flood (if
the Mortgaged Property is located in a federally designated flood area), nuclear
or chemical contamination and certain other risks. The amount of coverage under
any Special Hazard Insurance Policy will be specified in the related Prospectus
Supplement. Each Special Hazard Insurance Policy will provide that no claim may
be paid unless hazard and, if applicable, flood insurance on the property
securing the Mortgage Loan have been kept in force and other protection and
preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in the
related Prospectus Supplement, each Special Hazard Insurance Policy will provide
that where there has been damage to property securing a foreclosed Mortgage Loan
(title to which has been acquired by the insured) and to the extent such damage
is not covered by the hazard insurance policy or flood insurance policy, if any,
maintained by the Mortgagor or the Master Servicer, the Special Hazard Insurer
will pay the lesser of (i) the cost of repair or replacement of such property,
or (ii) upon transfer of the property to the Special Hazard Insurer, the unpaid
principal balance of such Mortgage Loan at the time of acquisition of such
property by foreclosure or deed in lieu of foreclosure, plus accrued interest to
the date of claim settlement and certain expenses incurred by the Master
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Servicer with respect to such property. If the unpaid principal balance of a
Mortgage Loan plus accrued interest and certain expenses is paid by the Special
Hazard Insurer, the amount of further coverage under the related Special Hazard
Insurance Policy will be reduced by such amount less any net proceeds from the
sale of the property. Any amount paid as the cost of repair of such property
will further reduce coverage by such amount. So long as a Mortgage Pool
Insurance Policy remains in effect, the payment by the Special Hazard Insurer of
the cost of repair or of the unpaid principal balance of the related Mortgage
Loan plus accrued interest and certain expenses will not affect the total
insurance proceeds paid to Certificateholders, but will affect the relative
amounts of coverage remaining under the related Special Hazard Insurance Policy
and Mortgage Pool Insurance Policy. Any hazard losses not covered by either the
standard hazard insurance policies or the Special Hazard Insurance Policy will
not be insured against, and, unless otherwise specified in the related
Prospectus Supplement, will be borne by the Certificateholders.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each Rating Agency in a special trust account to provide
protection in lieu of or in addition to that provided by a Special Hazard
Insurance Policy. The amount of any Special Hazard Insurance Policy or of the
deposit to the special trust account in lieu thereof relating to such
Certificates may be reduced so long as any such reduction will not result in a
downgrading of the rating of such Certificates by any such Rating Agency.
Unless otherwise specified in the related Prospectus Supplement, since each
Special Hazard Insurance Policy will be designed to permit full recovery under
the Mortgage Pool Insurance Policy in circumstances in which such recoveries
would otherwise be unavailable because property has been damaged by a cause not
insured against by a standard hazard policy and thus would not be restored, each
Agreement will provide that, if the related Mortgage Pool Insurance Policy shall
have been terminated or been exhausted through payment of claims, the Master
Servicer will be under no further obligation to maintain such Special Hazard
Insurance Policy.
The terms of any Special Hazard Insurance Policy relating to a Pool will be
described in the related Prospectus Supplement.
Bankruptcy Bonds
If specified in the related Prospectus Supplement, a bankruptcy bond or
bonds (each, a "Bankruptcy Bond") may be obtained to cover certain losses
resulting from proceedings under the federal Bankruptcy Code with respect to a
Mortgage Loan. Such Bankruptcy Bond will be issued by an insurer named in such
Prospectus Supplement. Each Bankruptcy Bond will cover, to the extent specified
in the related Prospectus Supplement, certain losses resulting from a reduction
by a bankruptcy court of scheduled payments of principal and interest on a
Mortgage Loan or a reduction by such court of the principal amount of a Mortgage
Loan and will cover certain unpaid interest on the amount of such a principal
reduction from the date of the filing of a bankruptcy petition. The required
amount of coverage under, and the limitations in scope of, each Bankruptcy Bond
will be set forth in the related Prospectus Supplement. Coverage under a
Bankruptcy Bond may be canceled or reduced by the Master Servicer if such
cancellation or reduction would not adversely affect the then current rating or
ratings of the related Certificates. See "Certain Legal Aspects of the Mortgage
Loans--Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
To the extent specified in the Prospectus Supplement, the Master Servicer
may deposit cash, an irrevocable letter of credit or any other instrument
acceptable to each Rating Agency in a special trust account to provide
protection in lieu of or in addition to that provided by a Bankruptcy Bond. The
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amount of any Bankruptcy Bond or of the deposit to the special trust account in
lieu thereof relating to such Certificates may be reduced so long as any such
reduction will not result in a downgrading of the rating of such Certificates by
any such Rating Agency.
The terms of any Bankruptcy Bond relating to a Pool will be described in
the related Prospectus Supplement.
Cross Collateralization
If specified in the related Prospectus Supplement, the beneficial ownership
of separate Trusts or separate groups of assets included in a Trust may be
evidenced by separate classes of the related Series of Certificates. In such
case, credit support may be provided by a cross collateralization feature which
requires that distributions be made with respect to Certificates evidencing
beneficial ownership of one or more separate Trusts or asset groups prior to
distributions to Certificates evidencing a beneficial ownership interest in
other separate Trusts or asset groups within the same Trust. The related
Prospectus Supplement for a Series that includes a cross collateralization
feature will describe the manner and conditions for applying such cross
collateralization feature.
If specified in the related Prospectus Supplement, the coverage provided by
one or more forms of credit support may apply concurrently to two or more
separate Trusts, without priority among such Trusts, until the credit support is
exhausted. If applicable, the related Prospectus Supplement will identify the
Trusts or asset groups to which such credit support relates and the manner of
determining the amount of the coverage provided thereby and of the application
of such coverage to the identified Trusts or asset groups.
Limited Guarantee
If specified in the related Prospectus Supplement, certain payments on a
class of the Certificates of a Series, certain deficiencies in principal or
interest payments on the Mortgage Loans, or certain liquidation losses on the
Mortgage Loans, may be covered by a limited guarantee or other similar
instrument (the "Limited Guarantee") limited in scope and amount, issued by CIT.
If not specified, the Certificateholders will have no recourse to CIT for any
amounts due on the Certificates. If specified, CIT may be obligated to take one
or more of the following actions in the event the Seller or Master Servicer
fails to do so: make deposits to an account, make advances, or purchase
defaulted Mortgage Loans. Any such Limited Guarantee will be limited in an
amount and a portion of the coverage of any such Limited Guarantee may be
separately allocated to certain events. The scope, amount and, if applicable,
the allocation of any Limited Guarantee will be described in the related
Prospectus Supplement.
Other Insurance, Surety Bonds, Guarantees, Letters of Credit and Similar
Instruments or Agreements
If specified in the related Prospectus Supplement, a Trust may also include
insurance, third party guarantees (any of which may be limited in nature),
surety bonds, spread accounts, cash collateral accounts and/or other accounts,
letters of credit, interest rate swaps, caps, floors or other derivative
products, or similar arrangements for the purpose of (i) maintaining timely
payments or providing additional protection against losses or interest rate
fluctuations on the assets included in such Trust, (ii) paying administrative
expenses, (iii) establishing a minimum reinvestment rate on the payments made in
respect of such assets or principal payment rate on such assets, or (iv)
accomplishing such other purpose as may be described in the Prospectus
Supplement. The Trust may include a guaranteed investment contract or
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reinvestment agreement pursuant to which funds held in one or more accounts will
be invested at a specified rate. If any class of Certificates has a floating
interest rate, or if any of the Mortgage Assets has a floating interest rate,
the Trust may include an interest rate swap contract, an interest rate cap
agreement or similar contract providing limited protection against interest rate
risks. Such arrangements may include agreements under which Certificateholders
are entitled to receive amounts deposited in various accounts held by the
Trustee upon the terms specified in such Prospectus Supplement. These
arrangements may be in addition to or in substitution for any forms of credit
support described in this Prospectus. Any such arrangement must be acceptable to
each Rating Agency.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Certificates will
be affected primarily by the amount and timing of principal payments received on
or in respect of the Mortgage Assets included in the related Trust, the
allocation of available funds to various classes of Certificates, the
Pass-Through Rates for various classes of Certificates and the purchase price
paid for the Certificates. The original terms to maturity of the underlying
Mortgage Loans with respect to the Mortgage Assets in a given Mortgage Pool will
vary depending upon the type of Mortgage Loans included therein, and each
Prospectus Supplement will contain information with respect to the type and
maturities of such Mortgage Loans. Unless otherwise specified in the related
Prospectus Supplement, the Mortgage Loans may be prepaid without penalty in full
or in part at any time, although a prepayment fee or penalty may be imposed in
connection therewith. The prepayment experience on the underlying Mortgage Loans
with respect to the Mortgage Assets will affect the life of the related Series
of Certificates.
Generally, home equity loans have smaller average principal balances than
senior or first mortgage loans and are not viewed by borrowers as permanent
financing. Accordingly, mortgage loans which are home equity loans may
experience a higher rate of prepayment than mortgage loans which represent first
liens. In addition, any future limitations on the right of borrowers to deduct
interest payments on mortgage loans for Federal income tax purposes may result
in a higher rate of prepayment of the mortgage loans (particularly the home
equity loans). The obligation of the Master Servicer to enforce "due on sale"
provisions (described below) of the mortgage loans may also increase
prepayments. The prepayment experience of the Mortgage Pools may be affected by
a wide variety of factors, including general and local economic conditions,
mortgage market interest rates, the availability of alternative financing and
homeowner mobility.
Unless otherwise provided in the related Prospectus Supplement, the Master
Servicer generally will enforce any "due on sale" or due on encumbrance clause,
to the extent it has knowledge of the conveyance or further encumbrance or the
proposed conveyance or proposed further encumbrance of the Mortgaged Property
and reasonably believes that it is entitled to do so under applicable law and
the applicable Mortgage; provided, however, that the Master Servicer will not
take any enforcement action that would impair or threaten to impair any recovery
under any related insurance policy or materially increase the risk of default or
delinquency on, or materially decrease the security for, the Mortgage Loan. See
"The Pooling and Servicing Agreement -- Collection Procedures" and "Certain
Legal Aspects of the Mortgage Loans" herein for a description of certain
provisions of each Agreement and certain legal developments that may affect the
prepayment experience on the Mortgage Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing rates fall
significantly below the Mortgage Rates borne by the Mortgage Loans, the Mortgage
Loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above such Mortgage Rates. Conversely, if prevailing
interest rates rise appreciably above the Mortgage Rates borne by the Mortgage
Loans, the Mortgage Loans are likely to experience a lower prepayment rate than
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if prevailing rates remain at or below such Mortgage Rates. However, there can
be no assurance that such will be the case.
Greater than anticipated prepayments of principal will increase the yield
on Certificates purchased at a price less than par. Similarly, greater than
anticipated prepayments of principal will decrease the yield on Certificates
purchased at a price greater than par. The effect on an investor's yield of
principal prepayments on the Mortgage Loans occurring at a rate that is faster
(or slower) than the rate anticipated by the investor in the period immediately
following the issuance of the applicable class of Certificates may not be offset
by a subsequent like reduction (or increase) in the rate of principal payments.
The weighted average lives of Certificates will also be affected by the
amount and timing of delinquencies and defaults on the Mortgage Loans and the
liquidations of defaulted Mortgage Loans. Delinquencies and defaults will
generally slow the rate of payment of principal to the Certificateholders.
However, this effect will be offset to the extent that lump sum recoveries on
defaulted Mortgage Loans and foreclosed Mortgaged Properties result in principal
payments on the Mortgage Loans faster than otherwise scheduled.
When a full prepayment is made on a Simple Interest Loan, the Mortgagor is
charged interest on the principal amount of the Simple Interest Loan so prepaid
only for the number of days in the month actually elapsed up to the date of the
prepayment. This is generally also the case with respect to Scheduled Accrual
Loans and Precomputed Loans. With respect to each Simple Interest Loan, when a
principal payment is made that exceeds the principal portion of the scheduled
payment, but which was not intended by the Mortgagor to satisfy the Mortgage
Loan in full or to cure a delinquency, interest will cease to accrue on the
principal amount so prepaid as of the date of the prepayment. Unless otherwise
specified in the related Prospectus Supplement, the effect of prepayments will
be to reduce the amount of interest passed through in the following month to
Certificateholders because interest on the principal amount of any Simple
Interest Loan so prepaid will be paid only to the date of prepayment. Partial
prepayments in a given month may be applied to the outstanding principal
balances of the Simple Interest Loans so prepaid on the date of receipt. Unless
otherwise specified in the related Prospectus Supplement, both full and partial
prepayments will not be passed through until the Distribution Date following the
Due Period in which it is received. Interest shortfalls also could result from
the application of the Relief Act as described under "Certain Legal Aspects of
the Mortgage Loans--Soldiers' and Sailors' Civil Relief Act" herein. Unless
otherwise specified in the related Prospectus Supplement, in the event that less
than 30 days' interest is collected on a Mortgage Loan during a Due Period due
to prepayment in full, the Master Servicer will be obligated to pay Compensating
Interest with respect thereto. To the extent such shortfalls exceed the amount
of Compensating Interest that the Master Servicer is obligated to pay, the yield
on the Certificates could be adversely affected.
As a result of the payment terms of Simple Interest Loans, the making of a
scheduled payment, or the prepayment of, such a Simple Interest Loan prior to
its scheduled due date may result in the collection of less than one month's
interest on such Simple Interest Loan for the period since the preceding payment
was made. Conversely, if the scheduled payment on such a Simple Interest Loan is
made after its scheduled payment date or the Simple Interest Loan is prepaid
after the scheduled due date, the collection of interest on such Simple Interest
Loan for such period may be greater than one month's interest on such Simple
Interest Loan. In addition, the extent to which Simple Interest Loans experience
early payment or late payment of scheduled payments will correspondingly change
the amount of principal received during a monthly period and, accordingly, the
amount of principal to be distributed on the related Distribution Date and the
amount of unpaid principal due at the stated maturity of such Simple Interest
Loans. To the extent shortfalls attributable to prepayments or the early receipt
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of scheduled payments on Simple Interest Loans are not compensated for by any
forms of credit enhancement described in the related Prospectus Supplement, the
Certificateholders will experience delays or losses in amounts due them.
If a Mortgagor pays more than one scheduled installment on a Simple
Interest Loan at a time, the entire amount of the additional installment will be
treated as a principal prepayment and passed through to Certificateholders in
the month following the month of receipt. In such case, although the Mortgagor
may not be required to make the next regularly scheduled installment, interest
will continue to accrue on the principal balance of the Simple Interest Loan, as
reduced by the application of the additional installment. As a result, when the
Mortgagor pays the next required installment, the installment so paid may be
insufficient to cover the interest that has accrued since the last payment by
the Mortgagor. Notwithstanding such insufficiency, the Mortgagor's Simple
Interest Loan would be considered to be current. If specified in the related
Prospectus Supplement, the Master Servicer will be required to advance the
amount of such insufficiency. This insufficiency will continue until the
installment payments received are once again sufficient to cover all accrued
interest and to reduce the principal balance of the Simple Interest Loan.
Depending on the principal balance and interest rate of the related Simple
Interest Loan and on the number of installments that were paid early, there may
be extended periods of time during which Simple Interest Loans that are current
are not amortizing.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC, certain insurers or other entities specified in
the related Prospectus Supplement may have the option to purchase the assets of
a Trust Fund thereby effecting earlier retirement of the related Series of
Certificates. See "The Pooling and Servicing Agreement--Termination; Purchase of
Mortgage Loans" herein.
If and to the extent specified in the related Prospectus Supplement, one or
more class or classes of Certificates of a Series may receive a principal
payment at the end of the Funding Period from the portion of the Pre-Funded
Amount, if any, not used to purchase additional Mortgage Assets during such
Funding Period.
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and over
the lives of the Certificates. The relative contribution of the various factors
affecting prepayment may also vary from time to time. There can be no assurance
as to the rate of payment of principal of the Mortgage Assets at any time or
over the lives of the Certificates.
The Prospectus Supplement relating to a Series of Certificates will discuss
in detail the effect of the rate and timing of principal payments (including
Principal Prepayments), delinquencies and losses on the yield, weighted average
lives and maturities of such Certificates.
THE POOLING AND SERVICING AGREEMENT
Set forth below is a summary of certain provisions of each Agreement which
are not described elsewhere in this Prospectus. Where particular provisions or
terms used in an Agreement are referred to, such provisions or terms are as
specified in the related Agreement. The summary does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the provisions
of each Agreement.
Assignment of Mortgage Assets
Assignment of the Mortgage Loans. At the time of issuance of the
Certificates of a Series, the Depositor will cause the Mortgage Loans and other
Mortgage Assets comprising the related Trust to be assigned to the Trustee,
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together with all principal and interest received (or, in certain circumstances,
due) on or with respect to such Mortgage Loans on and after the Cut-off Date,
other than, if specified in the related Prospectus Supplement, principal and
interest due before the Cut-off Date and other than any Retained Interest
specified in the related Prospectus Supplement. The Trustee will, concurrently
with such assignment, deliver the Certificates to the Depositor in exchange for
the Mortgage Loans and other Mortgage Assets. Each Mortgage Loan will be
identified in a schedule appearing as an exhibit to the related Agreement. Such
schedule will include information as to the outstanding principal balance of
each Mortgage Loan transferred to the Trust, as well as information regarding
the Mortgage Rate, the current scheduled monthly payment of principal and
interest, the maturity of the loan, and certain other information.
In addition, unless otherwise specified in the related Prospectus
Supplement or as described below, the Seller and the Depositor will deliver or
cause to be delivered to the Trustee (or the custodian hereinafter referred to)
the Mortgage Documents relating to each Mortgage Loan. If specified in the
related Prospectus Supplement, CIT Consumer Finance will be appointed as
custodian of the Mortgage Documents pursuant to the related Agreement and, in
such capacity, will retain possession of the Mortgage Documents. However, except
as otherwise specified in the related Prospectus Supplement, the Seller and the
Depositor will not deliver to the Trustee (or the custodian) assignments of the
related Mortgages to be recorded in the appropriate public office for real
property records. Subsequent to the issuance of the Certificates, the Seller may
be required in the circumstances specified in the related Agreement to deliver
to the Trustee (or the custodian) assignments of the related Mortgages to be
recorded (at the expense of the Seller) at such time after issuance of the
Certificates as may be specified in the related Prospectus Supplement, in such
an event, the Agreement may, as specified in the related Prospectus Supplement,
require any such Seller to repurchase from the Trustee any Mortgage Loan the
related Mortgage of which is not recorded within the specified time period, at
the Purchase Price. Unless otherwise provided in the related Prospectus
Supplement, the enforcement of the repurchase obligation would constitute the
sole remedy available to the Certificateholders and the Trustee for the failure
of a Mortgage to be recorded.
If the Depositor were to make a sale, assignment, satisfaction or discharge
of any Mortgage Loan prior to recording or filing the assignments to the
Trustee, the other parties to such sale, assignment, satisfaction or discharge
might have rights superior to those of the Trustee. If the Depositor were to do
so without authority under the Agreement, it would be liable to the related
Certificateholders. In addition, if insolvency proceedings relating to the
Depositor were commenced prior to such recording or filing, creditors of the
Depositor might be able to assert rights in the affected Mortgage Loans superior
to those of the Trustee.
In no event will the Seller be required to cause assignments of the
Mortgages to be recorded in states in which, in the opinion of counsel
acceptable to the Trustee, such recording is not required to protect the
Trustee's interest in such loans against the claim of any subsequent transferee
or any successor to or creditor of the Depositor or the originator of such
loans. Under each Agreement, the Trustee will be appointed attorney-in-fact for
each Seller and the Depositor with power to prepare, execute and record
assignments of the related Mortgages to the related Trust in the event that the
Seller and the Depositor fail to do so on a timely basis.
For certain Mortgage Loans transferred by the Depositor to the Trust, CIT
Consumer Finance will deliver to the Trustee (or the custodian), in lieu of the
original Mortgage Note, a new promissory note signed by the borrower confirming
its obligation under the original Mortgage Note (a "Confirmatory Mortgage
Note"). Furthermore, a Trust may include Mortgage Loans where the original
Mortgage Note or a Confirmatory Mortgage Note is not delivered to the Trustee
(or the custodian) if CIT Consumer Finance instead delivers to the Trustee (or
the custodian) an affidavit of the Seller certifying
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that the Seller or the Depositor was the sole owner of the indebtedness
evidenced by such note and the original thereof has been lost or destroyed and
the Seller indemnifies the Trust against any loss, liability, damage, claim or
expense resulting from CIT Consumer Finance's failure to deliver to the Trustee
(or the custodian) the original Mortgage Note or Confirmatory Mortgage Note.
Such indemnification will be terminated if CIT Consumer Finance subsequently
delivers the original Mortgage Note or a Confirmatory Mortgage Note. If CIT
Consumer Finance delivers such a lost note affidavit or fails to deliver any
assumption and modification agreement, within 45 days after the date of initial
issuance of the related series of Certificates it will deliver to the Trustee
(or the custodian) either the original Mortgage Note or Confirmatory Mortgage
Note and assumption and modification agreement, as applicable, or an opinion of
counsel satisfactory to the Trustee from counsel admitted to practice in the
jurisdiction in which the related Mortgaged Property is located to the effect
that the absence of the originals of such documents will not preclude the Master
Servicer from initiating or prosecuting to completion any foreclosure proceeding
with respect to such Mortgaged Property. If CIT Consumer Finance does not
deliver such documents or an opinion of counsel within such 45-day period, it
will be required to use its best reasonable efforts to substitute another
Mortgage Loan or, if it is unable to make such substitution, to repurchase the
original Mortgage Loan at the Purchase Price.
The Trustee (or the custodian if such custodian is not the Master Servicer
or CITSF) will review such Mortgage Documents within the time period specified
in the related Prospectus Supplement after receipt thereof, and will hold such
documents in trust for the benefit of the Certificateholders. Unless otherwise
specified in the related Prospectus Supplement, if any such document is found to
be missing or defective in any material respect, is not properly executed, is
unrelated to the Mortgage Loans of the related Trust or does not conform in a
material respect to the description thereof provided by or on behalf of CIT
Consumer Finance, the Trustee (or the custodian) or the Certificate Guaranty
Insurer, if any, will notify the Master Servicer and the Depositor, and the
Master Servicer will notify the related Seller. The related Seller is required
to use reasonable efforts to remedy a material defect in a document of which it
is so notified. If, however (unless otherwise specified in the related
Prospectus Supplement), within 90 days after the Trustee's notice to it
respecting such defect, such Seller has not remedied the defect and the defect
materially and adversely affects the interest of the Trust in the related
Mortgage Loan or the interests of the Certificate Guaranty Insurer, if any, such
Seller is required to (i) substitute in lieu of such Mortgage Loan a Qualified
Substitute Mortgage Loan (as defined herein) and, if the then outstanding
principal balance of such Qualified Substitute Mortgage Loan is less than the
principal balance of such Mortgage Loan as of the date of such substitution,
deposit in the related Certificate Account the Substitution Adjustment (as
defined herein), or (ii) purchase such Mortgage Loan at a price equal to the
Purchase Price related to such Mortgage Loan, which purchase price will be
deposited in the Certificate Account and delivered to the Trustee on the next
succeeding Deposit Date, except for the portion thereof, if any, relating to
unreimbursed Insured Payments, if any, which shall be paid directly to the
Certificate Guaranty Insurer.
There can be no assurance that a Seller will fulfill this purchase
obligation. Although the Master Servicer may be obligated to enforce such
obligation to the extent described above under "Mortgage Loan
Program--Representations by Sellers; Repurchases," neither the Master Servicer
nor the Depositor will be obligated to purchase such Mortgage Loan if such
Seller defaults on its purchase obligation. Unless otherwise specified in the
related Prospectus Supplement, this purchase obligation constitutes the sole
remedy available to the Certificateholders or the Trustee for omission of, or a
material defect in, a Mortgage Document.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will appoint a custodian (which, if specified in the related Prospectus
Supplement, may be the Master Servicer or CITSF) pursuant to a custodial
agreement to maintain possession of and, if applicable, to review the Mortgage
Documents as agent of the Trustee.
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Notwithstanding the foregoing provisions, with respect to a Trust for which
a REMIC election is to be made, unless the related Prospectus Supplement
otherwise provides, no purchase of or substitution for a Mortgage Loan will be
made without having first received an opinion of counsel knowledgeable in
federal income tax matters that such purchase or substitution would not result
in a prohibited transaction tax or would cause such Trust to fail to qualify as
a REMIC. If a REMIC election is to be made with respect to a Trust, unless
otherwise provided in the related Prospectus Supplement, the Master Servicer or
a holder of the related residual certificate will be obligated to pay any
prohibited transaction tax that may arise in connection with any such repurchase
or substitution. The Master Servicer, unless otherwise specified in the related
Prospectus Supplement, will be entitled to reimbursement for any such payment
from any holder of the related residual certificate. See "Description of the
Certificates--General" herein and in the related Prospectus Supplement.
Assignment of Private Mortgage-Backed Securities. The Depositor will cause
the Private Mortgage-Backed Securities to be registered in the name of the
Trustee. The Trustee (or the custodian) will have possession of any certificated
Private Mortgage-Backed Securities. Unless otherwise specified in the related
Prospectus Supplement, the Trustee will not be in possession of or be assignee
of record of any underlying assets for a Private Mortgage-Backed Security. See
"The Trusts--Private Mortgage-Backed Securities" herein. Each Private
Mortgage-Backed Security will be identified in a schedule appearing as an
exhibit to the related Agreement which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date, annual
pass-through rate or interest rate and maturity date and certain other pertinent
information for each Private Mortgage-Backed Security conveyed to the Trustee.
Payments on Mortgage Assets; Deposits to Certificate Account
The Master Servicer will establish and maintain or cause to be established
and maintained with respect to the related Trust a separate account or accounts
for the collection of payments on the related Mortgage Assets in the Trust (the
"Certificate Account"), which unless otherwise specified in the related
Prospectus Supplement, must be either (i) maintained with a depository
institution the short-term debt obligations of which (or in the case of a
depository institution that is the principal subsidiary of a holding company,
the short-term debt obligations of which) are rated in the highest short-term
rating category by the nationally recognized statistical rating organization(s)
that provides a rating for one or more classes of the related Series of
Certificates (each, a "Rating Agency"), (ii) an account or accounts the deposits
in which are fully insured by the FDIC, (iii) an account or accounts the
deposits in which are insured by the FDIC, and the uninsured deposits in which
are otherwise secured such that the Certificateholders have a claim with respect
to the funds in the Certificate Account or a perfected first priority security
interest against any collateral securing such funds that is superior to the
claims of any other depositors or general creditors of the depository
institution with which the Certificate Account is maintained, (iv) a trust
account or accounts maintained with the trust department of a Federal or a state
chartered depository institution or trust company, acting in a fiduciary
capacity or (v) an account or accounts otherwise acceptable to each such Rating
Agency. The collateral eligible to secure amounts in the Certificate Account is
limited to Permitted Investments. A Certificate Account may be maintained as an
interest bearing account or the funds held therein may be invested pending each
succeeding Distribution Date in Permitted Investments. Unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or its
designee will be entitled to receive any such interest or other income earned on
funds in the Certificate Account as additional compensation and will be
obligated to deposit in the Certificate Account the amount of any loss
immediately as realized. The Certificate Account may be maintained with the
Master Servicer or with a depository institution that is an affiliate of the
Master Servicer, provided it meets the standards set forth above.
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Unless otherwise specified herein or in the related Prospectus Supplement,
the Master Servicer will deposit in the Certificate Account no later than two
Business Days following receipt thereof the following payments and collections
received or made by it (net of the Master Servicing Fee and other amounts due to
the Master Servicer) subsequent to the Cut-off Date (including scheduled
payments of principal and interest due on or after the Cut-off Date but received
by the Servicer on or before the Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
prepayment penalties, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies and any
other insurance policies covering a Mortgage Loan, Mortgaged Property or
REO Property, to the extent such proceeds are not applied to the
restoration of the Mortgaged Property or released to the Mortgagor in
accordance with the Master Servicer's normal servicing procedures
(collectively, "Insurance Proceeds") and all other cash amounts (net of
unreimbursed expenses and Servicing Advances incurred in connection with
liquidation or foreclosure ("Liquidation Expenses") and unreimbursed
Advances, if any) received and retained in connection with the liquidation
of defaulted Mortgage Loans, by foreclosure or otherwise ("Liquidation
Proceeds"), together with any net proceeds received on a monthly basis with
respect to any Mortgaged Properties acquired on behalf of the
Certificateholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Mortgage Loan or Mortgaged Property in
respect thereof purchased by the Master Servicer, the Depositor or any
Seller as described under "The Pooling and Servicing
Agreement--Representations by Sellers; Repurchases" or "The Pooling and
Servicing Agreement--Assignment of Mortgage Assets" above and all proceeds
of any Mortgage Loan repurchased as described under "The Pooling and
Servicing Agreement--Termination; Optional Termination" below;
(v) all payments required to be deposited in the Certificate Account
with respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Certificate Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls;
(vii) all other amounts required to be deposited in the Certificate
Account pursuant to the Agreement including, if applicable, funds from (A)
any credit enhancement, (B) the Pre-Funding Account, and (C) all payments
on Private Mortgage-Backed Securities; and
(viii) proceeds received during the related Due Period in connection
with a taking of a related Mortgaged Property with respect to a Mortgage
Loan by condemnation or the exercise of eminent domain or in connection
with a release of part of any such Mortgaged Property from the related lien
("Released Mortgaged Property Proceeds").
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Subject to compliance with the Agreement, for as long as CIT Consumer
Finance remains the Master Servicer under the Agreement and CIT Consumer Finance
remains a direct or indirect subsidiary of CIT, and if CIT has and maintains a
short-term debt rating of at least A-1 by S&P (as defined herein) and either a
short-term debt rating of P-1 or higher or a long-term debt rating of at least
A2 by Moody's (as defined herein), the Master Servicer (or any Sub-Servicer
which is an affiliate of CIT) will not be required to make such deposits into
the Certificate Account (the "Delayed Deposits") until the Business Day
immediately preceding the Distribution Date (the "Deposit Date") following the
last day of the Due Period within which such payments were processed by the
Servicer.
In those cases where a Sub-Servicer which is not an affiliate of CIT is
servicing a Mortgage Loan, the Sub-Servicer will establish and maintain an
account ("Sub-servicing Account") that will comply with the standards set forth
above, and which is otherwise acceptable to the Master Servicer. The
Sub-Servicer is required to deposit into the Sub-servicing Account on a daily
basis all amounts enumerated in the preceding paragraph in respect of the
Mortgage Loans received by the Sub-Servicer, less its servicing compensation. On
the date specified in the related Prospectus Supplement, the Sub-Servicer shall
remit to the Master Servicer all funds held in the Sub-servicing Account with
respect to each Mortgage Loan. The Sub-Servicer may, to the extent described in
the related Prospectus Supplement, be required to advance any monthly
installment of principal and interest that was not received less its servicing
fee, by the date specified in the related Prospectus Supplement.
The Master Servicer (or the Sub-Servicer or the Depositor, as applicable)
may from time to time direct the institution that maintains the Certificate
Account to withdraw funds from the Certificate Account for the following
purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the Master Servicing Fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the Certificate Account;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Mortgage Loan being limited to amounts
received that represent late recoveries of payments of principal and/or
interest on such Mortgage Loan (or Insurance Proceeds, Liquidation Proceeds
or Released Mortgaged Property Proceeds with respect thereto) with respect
to which such Advance was made, proceeds of any Mortgage Loans repurchased
by the Depositor, a Sub-Servicer or a Seller pursuant to the related
Agreement and any other amount otherwise distributable to the holder or
holders of Certificates representing the residual interest in the related
Trust if a REMIC election has been made with respect thereto;
(iii) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid Master Servicing Fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations;
(vi) to pay to the Master Servicer, with respect to each Mortgage Loan
or Mortgaged Property acquired in respect thereof that has been purchased
by the Master Servicer pursuant to the Agreement, all amounts received
thereon and not taken into account in determining the principal balance of
such repurchased Mortgage Loan;
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(vii) to reimburse the Master Servicer or the Depositor for
liquidation expenses incurred in connection with Liquidated Mortgages and
reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein; and
(ix) to clear and terminate the Certificate Account upon termination
of the Agreement.
Unless otherwise specified in the related Prospectus Supplement, on or
prior to the Business Day immediately preceding each Distribution Date, the
Master Servicer shall withdraw from the Certificate Account the amount of
Available Funds, to the extent on deposit, for deposit in an account maintained
by the Trustee for the related Series of Certificates.
Except as otherwise provided in the related Prospectus Supplement with
respect to each Buydown Loan, the Master Servicer will deposit the Buydown Funds
in a custodial account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account (the "Buydown
Account"). The amount of such deposit, together with investment earnings thereon
at the rate specified in the related Prospectus Supplement, will provide funds
sufficient to support the payments on such Buydown Loan on a level debt service
basis. The Master Servicer will not be obligated to add to the Buydown Account
should investment earnings prove insufficient to maintain the scheduled level of
payments on the Buydown Loans, in which event, distributions to the
Certificateholders may be affected.
With respect to each Graduated Payment Loan, the Master Servicer will, if
and to the extent provided in the related Prospectus Supplement, deposit in a
custodial account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account an amount which,
together with investment earnings thereon at the rate set forth in the related
Prospectus Supplement, will provide funds sufficient to support the payments
thereon on a level debt service basis (the "Graduated Payment Account"). The
Master Servicer will not be obligated to supplement the Graduated Payment
Account should investment earnings thereon prove insufficient to maintain the
scheduled level of payments, in which event, distributions to the
Certificateholders may be affected.
Representations by Sellers; Repurchases
Each Seller will have made representations and warranties in the related
Agreement in respect of the Mortgage Loans sold by such Seller and evidenced by
a Series of Certificates. Such representations and warranties, unless otherwise
provided in the related Prospectus Supplement, generally include, among other
things: (i) that any required title insurance (or in the case of Mortgaged
Properties located in areas where such policies are generally not available, an
attorney's certificate of title) and any required hazard insurance policy were
effective at the origination of each Mortgage Loan, and that each policy (or
certificate of title as applicable) remained in effect on the date of purchase
of the Mortgage Loan from the Seller by or on behalf of the Depositor; (ii) that
the Seller had good title to each such Mortgage Loan and such Mortgage Loan was
subject to no offsets, defenses, counterclaims or rights of rescission except to
the extent that any buydown agreement described herein may forgive certain
indebtedness of a Mortgagor; (iii) that each Mortgage Loan constituted a valid
lien on the Mortgaged Properties (subject only to exceptions described in the
related Agreement) and that the Mortgaged Property, to the best knowledge of the
Seller, was free from damage and was in good repair; (iv) that there were no
delinquent tax or assessment liens against the Mortgaged Property; (v) as of the
related Cut-off Date, no Mortgage Loan will be 60 days or more delinquent in
payment; and (vi) that each Mortgage Loan was made in compliance with, and is
enforceable under, all applicable local, state and federal laws and regulations
in all material respects except as limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.
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If specified in the related Prospectus Supplement, the representations and
warranties of a Seller in respect of a Mortgage Loan will be made not as of the
Cut-off Date but as of the date on which such Seller sold the Mortgage Loan to
the Depositor or one of its affiliates. Under such circumstances, a substantial
period of time may have elapsed between such date and the date of initial
issuance of the Series of Certificates evidencing an interest in such Mortgage
Loan. Since the representations and warranties of a Seller do not address events
that may occur following the sale of a Mortgage Loan by such Seller, its
repurchase obligation described below will not arise if the relevant event that
would otherwise have given rise to such an obligation with respect to a Mortgage
Loan occurs after the date of sale of such Mortgage Loan by such Seller to the
Depositor or its affiliates. However, the Depositor will not include any
Mortgage Loan in the Trust for any Series of Certificates if anything has come
to the Depositor's attention that would cause it to believe that the
representations and warranties of a Seller will not be accurate and complete in
all material respects in respect of such Mortgage Loan as of the date of initial
issuance of the related Series of Certificates. If the Master Servicer is also a
Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
by the Master Servicer in its capacity as the Master Servicer.
If the Depositor elects to cause the Trust relating to a Series of
Certificates to be treated as a REMIC, each Seller will make representations and
warranties in the related Agreement with respect to the related Mortgage Loans
as of the date of initial issuance of such Series of Certificates (the "Closing
Date"), including that (i) each Mortgage Loan is a "qualified mortgage" under
Section 860G(a)(3) of the Code, and (ii) none of the Mortgage Loans had a
loan-to-value ratio greater than 125% at the time of origination and, in the
case of a Mortgage Loan that has been modified, at the time of origination and
at the time such Mortgage Loan has been modified. For purposes of computing such
loan-to-value ratio for a Mortgage Loan which, with respect to the real estate
on which the related Mortgaged Property is located, is not secured by a first
mortgage, the fair market value of the Mortgaged Property and other property
securing the Mortgage Loan must be reduced by the amount of any lien that is
senior to the Mortgage Loan, and must be further reduced by a proportionate
amount of any lien that is on a parity with the Mortgage Loan.
Pursuant to the Agreement, the Master Servicer, the Trustee, any
Sub-Servicer, CIT Consumer Finance, or the Certificate Guaranty Insurer, if any,
will promptly notify the relevant Seller of any material breach of any
representation or warranty made by such Seller in respect of a Mortgage Loan
that materially and adversely affects the interests of the Certificateholders
(or the interests of the Certificate Guaranty Insurer, if any) in such Mortgage
Loan. Unless otherwise specified in the related Prospectus Supplement, if such
Seller does not cure such breach by the earlier of (i) 90 days after such Seller
became aware of such breach, and (ii) 85 days after receipt of notice from the
Master Servicer, the Trustee, CIT Consumer Finance, any Sub-Servicer, or the
Certificate Guaranty Insurer, if any, then such Seller will be obligated (A) to
remove such Mortgage Loan and substitute in lieu of such Mortgage Loan a
substitute Mortgage Loan which qualifies for substitution under the related
Agreement (a "Qualified Substitute Mortgage Loan") and, if the then outstanding
principal balance of such Qualified Substitute Mortgage Loan is less than the
principal balance of such Mortgage Loan as of the date of such substitution,
deposit in the related Certificate Account the amount of such shortfall in
principal balance arising from such substitution (the "Substitution
Adjustment"), or (B) to repurchase such Mortgage Loan from the Trust at a price
(the "Purchase Price") equal to 100% of the outstanding principal balance
thereof as of the date of the repurchase plus accrued interest thereon to the
first day of the month in which the Purchase Price is to be distributed at the
Mortgage Rate (less any unreimbursed Advances or amount payable as related
servicing compensation if such Seller is the Master Servicer with respect to
such Mortgage Loan), which Purchase Price will be deposited in the Certificate
Account and delivered to
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the Trustee on the next succeeding Deposit Date, except for the portion thereof,
if any, relating to unreimbursed Insured Payments, if any, which shall be paid
directly to the Certificate Guaranty Insurer. Notwithstanding the foregoing
provisions, with respect to a Trust for which a REMIC election is to be made,
unless the related Prospectus Supplement otherwise provides, no purchase of or
substitution for a Mortgage Loan will be made without having first received an
opinion of counsel knowledgeable in federal income tax matters that such
purchase or substitution would not result in a prohibited transaction tax or
would cause such Trust to fail to qualify as a REMIC. If a REMIC election is to
be made with respect to a Trust, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer or a holder of the related residual
certificate will be obligated to pay any prohibited transaction tax that may
arise in connection with any such repurchase or substitution. The Master
Servicer, unless otherwise specified in the related Prospectus Supplement, will
be entitled to reimbursement for any such payment from any holder of the related
residual certificate. See "Description of the Certificates--General" herein and
in the related Prospectus Supplement. Except in those cases in which the Master
Servicer is a Seller, the Master Servicer will be required under the applicable
Agreement to enforce this obligation for the benefit of the Trustee and the
Certificateholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. This repurchase
obligation will constitute the sole remedy available to Certificateholders, the
Trustee or the Certificate Guaranty Insurer, if any, for a breach of
representation by a Seller.
Neither the Depositor nor the Master Servicer (unless the Master Servicer
is a Seller) will be obligated to purchase a Mortgage Loan if a Seller defaults
on its obligation to do so, and no assurance can be given that Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans.
Collection Procedures
Unless otherwise specified in the related Prospectus Supplement, the Master
Servicer will agree to master service the Mortgage Loans in accordance with the
related Agreement and, where applicable, prudent mortgage servicing standards.
"Prudent mortgage servicing standards" generally will require the Master
Servicer to exercise collection and foreclosure procedures with respect to the
Mortgage Loans with the same degree of care and skill that it would use in
master servicing similar mortgage loans for its own account and for the account
of its affiliates. The Master Servicer will make reasonable efforts to collect
all payments called for under the Mortgage Loans and will, consistent with each
Agreement and any Mortgage Pool Insurance Policy, Primary Mortgage Insurance
Policy and Bankruptcy Bond or alternative arrangements, follow such collection
procedures as are customary with respect to mortgage loans that are comparable
to the Mortgage Loans. Nonetheless, the Master Servicer, in determining the type
of action that is reasonable to pursue may consider, among other things, the
unpaid principal balance of a Mortgage Loan against the estimated cost of
collection or foreclosure action, the unpaid balance of the related prior
mortgage, if any, the condition and estimated market value ("as is" and "if
repaired"), the estimated marketability of the related Mortgage Property and the
borrower's ability to repay.
Waivers And Deferrals
Consistent with the above, the Master Servicer may, in its discretion, (i)
waive any assumption fee, prepayment charge, penalty interest, late payment or
other charge in connection with a Mortgage Loan, and (ii) to the extent not
inconsistent with the coverage of such Mortgage Loan by a Mortgage Pool
Insurance Policy, Primary Mortgage Insurance Policy or Bankruptcy Bond or
alternative arrangements, if applicable, arrange with a Mortgagor a schedule for
the repayment of delinquent amounts subject to any limitations set forth in the
Agreement. To the extent the Master Servicer
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consents to the deferment of the due dates for payments due on a Mortgage Note,
the Master Servicer will nonetheless make payment of any required Advance with
respect to the payments so extended to the same extent as if such installment
had not been deferred.
Escrow Account
If and to the extent specified in the related Prospectus Supplements and
under the related Agreement, the Master Servicer, to the extent permitted by
law, may establish and maintain an escrow account (the "Escrow Account") in
which Mortgagors will be required to deposit amounts sufficient to pay taxes,
assessments, mortgage and hazard insurance premiums, collection expenses, other
comparable items and any other amount permitted to be escrowed by law.
Withdrawals from the Escrow Account maintained for Mortgagors may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to Mortgagors amounts determined to be overages, to pay interest to
Mortgagors on balances in the Escrow Account to the extent required by law, to
repair or otherwise protect the Mortgaged Property, to clear and terminate such
account and to pay such other amounts as may be permitted by applicable law or
the escrow agreement. The Master Servicer will be responsible for the
administration of the Escrow Account and will be obligated to make payments to
such account when a deficiency exists therein.
Enforcement of Due on Sale Clauses
Unless otherwise specified in the related Prospectus Supplement, in any
case in which Mortgaged Property securing a conventional Mortgage Loan has been,
or is about to be, conveyed by the Mortgagor, the Master Servicer will, to the
extent it has knowledge of such conveyance or proposed conveyance, exercise or
cause to be exercised its rights to accelerate the maturity of such Mortgage
Loan under any "due on sale" clause applicable thereto, but only if, in the
reasonable belief of the Master Servicer, the exercise of such rights is
permitted by applicable law and the applicable Mortgage, will not impair or
threaten to impair any recovery under any related Primary Mortgage Insurance
Policy and will not materially increase the risk of default or delinquency on,
or materially decrease the security for, such Mortgage Loan. If these conditions
are not met or if the Master Servicer reasonably believes it is unable under
applicable law and under the applicable Mortgage to enforce such "due on sale"
clause, the Master Servicer will enter into or cause to be entered into an
assumption and modification agreement with the person to whom such Mortgaged
Property has been or is about to be conveyed, pursuant to which such person
becomes liable for repayment of the Mortgage Loan and, to the extent permitted
by applicable law and the applicable Mortgage, the Mortgagor also remains liable
thereon. Any fee collected by or on behalf of the Master Servicer for entering
into an assumption agreement will be retained by or on behalf of the Master
Servicer as additional servicing compensation. See "Certain Legal Aspects of the
Mortgage Loans--Due on Sale Clauses" herein. The Master Servicer also will be
authorized to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note.
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Hazard Insurance
Unless otherwise specified in the related Prospectus Supplement, all
Mortgages will contain provisions requiring the Mortgagor on each Mortgage Loan
to maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary for
the type of Mortgaged Property in the state in which such Mortgaged Property is
located. Such coverage will be in an amount that is at least equal to the lesser
of (i) the maximum insurable value of the improvements securing such Mortgage
Loan or (ii) the outstanding principal balance of the Mortgage Loan and the
related senior mortgage (if any) and (iii) the minimum amount required to
compensate for damage or loss on a replacement cost basis. If the Mortgagor
fails to maintain such insurance coverage, however, the Master Servicer will not
be obligated to obtain such insurance and advance premiums for such insurance on
behalf of the Mortgagor (i.e. "force placement" of hazard insurance). All
amounts collected by the Master Servicer under any hazard policy (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) will be deposited in the related Certificate Account. In
the event that the Master Servicer maintains a blanket policy insuring against
hazard losses on all the Mortgage Loans comprising part of a Trust, it will
conclusively be deemed to have satisfied its obligation relating to the
maintenance of hazard insurance. Such blanket policy may contain a deductible
clause, in which case the Master Servicer will be required to deposit from its
own funds into the related Certificate Account the amounts that would have been
deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements securing a Mortgage Loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Although the policies relating to the Mortgage Loans may have been
underwritten by different insurers under different state laws in accordance with
different applicable forms and therefore may not contain identical terms and
conditions, the basic terms thereof are dictated by the respective state laws,
and most such policies typically do not cover any physical damage resulting from
the following: war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides and mud
flows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds of uninsured risks
and is not intended to be all inclusive. If the appraisal (if any) of the
Mortgaged Property securing a Mortgage Loan indicates that the Mortgaged
Property is located in a federally designated special flood area at the time of
origination identified in the Federal Register by the Flood Emergency Management
Agency as having special flood hazards (and such flood insurance has been made
available), the Seller will in some cases require the Mortgagor to obtain flood
insurance subject to the maximum amount of insurance available under the
National Flood Insurance Act of 1968, as amended.
The Master Servicer will also be required to maintain, to the extent such
insurance is available, on REO Property, fire and hazard insurance in the
applicable amounts described above, liability insurance and, to the extent
required and available under the National Flood Insurance Act of 1968, as
amended, flood insurance in an amount equal to that required above.
The hazard insurance policies covering Mortgaged Properties typically
contain a 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 Mortgaged 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 the event of partial loss will not
exceed the larger of (i) the actual cash value (generally defined as replacement
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cost at the time and place of loss, less physical depreciation) of the
improvements damaged or destroyed, or (ii) such proportion of the loss as the
amount of insurance carried bears to the specified percentage of the full
replacement cost of such improvements. Since improved real estate generally has
appreciated in value over time in the past, in the event of partial loss the
hazard insurance proceeds may be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special hazard
insurance policy will be obtained to insure against certain of the uninsured
risks described above. See "Credit Enhancement--Special Hazard Insurance
Policies" herein.
Realization Upon Defaulted Mortgage Loans
Unless otherwise specified in the Prospectus Supplement, the Master
Servicer will be required to foreclose upon or otherwise comparably convert the
ownership to the name of the Trustee (or to a nominee of the Trustee or the
Master Servicer) of Mortgaged Properties relating to defaulted Mortgage Loans as
to which no satisfactory arrangements can be made for collection of delinquent
payments to the extent that such action would be consistent with prudent
mortgage servicing standards. However, the Master Servicer will be required to
take into account the existence of any hazardous substances, hazardous wastes or
solid wastes on a Mortgaged Property in determining whether to foreclose upon or
otherwise comparably convert the ownership of such Mortgaged Property.
Primary Mortgage Insurance Policies. The Master Servicer will maintain or
cause to be maintained, as the case may be, in full force and effect, but only
if and to the extent specified in the related Prospectus Supplement, a Primary
Mortgage Insurance Policy with regard to each Mortgage Loan for which such
coverage is required. The Master Servicer will not cancel or refuse to renew any
such Primary Mortgage Insurance Policy in effect at the time of the initial
issuance of a Series of Certificates that is required to be kept in force under
the applicable Agreement unless the replacement Primary Mortgage Insurance
Policy for such canceled or nonrenewed policy is maintained with an insurer
whose claims-paying ability is sufficient to maintain the current rating of the
classes of Certificates of such Series which have been rated.
Although the terms and conditions of primary mortgage insurance vary, the
amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Mortgage Loan will consist of the insured percentage of the unpaid
principal amount of the covered Mortgage Loan and accrued and unpaid interest
thereon and reimbursement of certain expenses, less (i) all rents or other
payments collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Mortgaged
Property, (ii) hazard insurance proceeds in excess of the amount required to
restore the Mortgaged Property and which have not been applied to the payment of
the Mortgage Loan, (iii) amounts expended but not approved by the issuer of the
related Primary Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim
payments previously made by the Primary Insurer, and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained by
reason of defaults in payments by borrowers. Primary Mortgage Insurance Policies
will not insure against, and exclude from coverage, a loss sustained by reason
of a default arising from or involving certain matters, including (i) fraud or
negligence in origination or servicing of the Mortgage Loans, including
misrepresentation by the originator, Seller, Mortgagor or other persons involved
in the origination of the Mortgage Loan; (ii) failure to construct the Mortgaged
Property subject to the Mortgage Loan in accordance with specified plans; (iii)
physical damage to the Mortgaged Property; and (iv) the related Sub-Servicer not
being approved as a servicer by the Primary Insurer.
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Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Mortgage Loan, the insured will be required to (i)
advance or discharge (a) all hazard insurance policy premiums, and (b) as
necessary and approved in advance by the Primary Insurer, (1) real estate
property taxes, (2) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (3)
Mortgaged Property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property, and (5)
foreclosure costs, including court costs and reasonable attorneys' fees; (ii) in
the event of any physical loss or damage to the Mortgaged Property, restore and
repair the Mortgaged Property to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear
excepted; and (iii) tender to the Primary Insurer good and marketable title to
and possession of the Mortgaged Property.
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the insurer under each Primary
Mortgage Insurance Policy, and will take such reasonable steps as are necessary
to receive payment or to permit recovery thereunder with respect to defaulted
Mortgage Loans. As set forth above, all collections by or on behalf of the
Master Servicer under any Primary Mortgage Insurance Policy and, when the
Mortgaged Property has not been restored, the related hazard insurance policy
are to be deposited in the Certificate Account, subject to withdrawal as
heretofore described.
If the Mortgaged Property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged Mortgaged Property to a condition sufficient to permit
recovery under the related Primary Mortgage Insurance Policy, if any, the Master
Servicer is not required to expend its own funds to restore the damaged
Mortgaged Property unless it determines (i) that such restoration will increase
the proceeds to Certificateholders on liquidation of the Mortgage Loan after
reimbursement of the Master Servicer for its expenses; and (ii) that such
expenses will be recoverable by it from related Insurance Proceeds or
Liquidation Proceeds.
If coverage under a Primary Mortgage Insurance Policy is not available or
is insufficient. If recovery on a defaulted Mortgage Loan under any related
Primary Mortgage Insurance Policy is not available for the reasons set forth in
the preceding paragraph, or if the defaulted Mortgage Loan is not covered by a
Primary Mortgage Insurance Policy, the Master Servicer will be obligated to
follow or cause to be followed such normal practices and procedures as it deems
necessary or advisable to realize upon the defaulted Mortgage Loan. If the
proceeds of any liquidation of the Mortgaged Property securing the defaulted
Mortgage Loan are less than the principal balance of such Mortgage Loan plus
interest accrued thereon that is payable to Certificateholders, the Trust will
realize a loss in the amount of such difference plus the aggregate of expenses
incurred by the Master Servicer in connection with such proceedings that are
reimbursable under the Agreement. In the unlikely event that any such
proceedings result in a total recovery which is, after reimbursement to the
Master Servicer of its expenses, in excess of the principal balance of such
Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
compensation with respect to such Mortgage Loan and, unless otherwise specified
in the related Prospectus Supplement, amounts representing the balance of such
excess, exclusive of any amount required by law to be forwarded to the related
Mortgagor, as additional servicing compensation.
If the Master Servicer or its designee recovers Insurance Proceeds which,
when added to any related Liquidation Proceeds and after deduction of certain
expenses reimbursable to the Master Servicer, exceed the principal balance of a
Mortgage Loan plus interest accrued thereon that is payable to
Certificateholders, the Master Servicer will be entitled to withdraw or retain
from the Certificate Account amounts representing its normal servicing
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compensation with respect to such Mortgage Loan. In the event that the Master
Servicer has expended its own funds to restore the damaged Mortgaged Property
and such funds have not been reimbursed under the related hazard insurance
policy, it will be entitled to withdraw from the Certificate Account out of
related Liquidation Proceeds or Insurance Proceeds an amount equal to such
expenses incurred by it, in which event the Trust may realize a loss up to the
amount so charged. Since Insurance Proceeds cannot exceed deficiency claims and
certain expenses incurred by the Master Servicer, no such payment or recovery
will result in a recovery to the Trust that exceeds the principal balance of the
defaulted Mortgage Loan together with accrued interest thereon. See "Credit
Enhancement" herein and in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement or the
related Agreement, the proceeds from any liquidation of a Mortgage Loan will be
applied in the following order of priority: first, to reimburse the Master
Servicer for any unreimbursed costs of collection and expenses incurred by it in
the liquidation or to restore the related Mortgaged Property and any servicing
compensation payable to the Master Servicer with respect to such Mortgage Loan;
second, to reimburse the Master Servicer for any unreimbursed Advances or
Servicing Advances with respect to such Mortgage Loan; third, to repay accrued
and unpaid interest (to the extent no Advance has been made for such amount) on
such Mortgage Loan; and fourth, to repay principal of such Mortgage Loan.
Servicing and Other Compensation and Payment of Expenses
The principal servicing compensation to be paid to the Master Servicer in
respect of its master servicing activities for each Series of Certificates will
be equal to the percentage per annum described in the related Prospectus
Supplement (which may vary under certain circumstances) of the outstanding
principal balance of each Mortgage Loan, and such compensation will be retained
by it from collections of interest on such Mortgage Loan in the related Trust
(the "Master Servicing Fee"). Unless otherwise specified in the related
Prospectus Supplement, as compensation for its servicing duties, the Master
Servicer will be entitled to a monthly servicing fee as described in the related
Prospectus Supplement. In addition, the Master Servicer will retain any benefit
that may accrue as a result of the investment of funds in the applicable
Certificate Account (unless otherwise specified in the related Prospectus
Supplement), and certain other excess amounts.
The Master Servicer will pay or cause to be paid the reasonable and
customary ongoing expenses associated with each Trust and incurred by it in
connection with its responsibilities under the related Agreement, including,
without limitation, payment of the fees and disbursements of the Trustee, any
custodian appointed by the Trustee, the certificate registrar and any paying
agent, and payment of expenses incurred in enforcing the obligations of
Sub-Servicers and Sellers. The Master Servicer will be entitled to reimbursement
of expenses incurred in enforcing the obligations of Sub-Servicers and Sellers
under certain limited circumstances. In addition, the Master Servicer will pay
the cost of (i) the preservation, restoration and protection of any Mortgaged
Property, (ii) any enforcement or judicial proceedings, including foreclosures,
and (iii) the management and liquidation of Mortgaged Property acquired in
satisfaction of the related Mortgage Loan. Such expenditures may include costs
of collection efforts, reappraisals when a Mortgage Loan is past due, legal fees
in connection with foreclosure actions, advancing payments on the related senior
mortgage, if any, advances of delinquent property taxes, upkeep and maintenance
of the Mortgaged Property if it is acquired through foreclosure and similar
types of expenses. Each such expenditure constitutes a "Servicing Advance." The
Master Servicer will be obligated to make the Servicing Advances incurred in the
performance of its servicing obligations only if it determines (i) that such
actions will increase the proceeds of liquidation of the Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses, and (ii)
that such expenses will be recoverable to it as described below. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
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will be entitled to recover Servicing Advances to the extent permitted by the
Mortgage Loans or, if not theretofore recovered from the Mortgagor on whose
behalf such Servicing Advance was made, from Liquidation Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Master Servicer from
the Mortgagor or otherwise relating to the Mortgage Loan. Servicing Advances
will be reimbursable to the Master Servicer from the sources described above out
of the funds on deposit in the Certificate Account, such right of reimbursement
being prior to the rights of Certificateholders to receive any related
Liquidation Proceeds (including Insurance Proceeds). A "Liquidated Mortgage" is
a Mortgage Loan as to which the Master Servicer has determined that all
recoverable Liquidation Proceeds and Insurance Proceeds have been received.
Evidence as to Compliance
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers, the servicing by or on behalf of the Master
Servicer of Mortgage Loans, or Private Mortgage-Backed Securities, under
Agreements substantially similar to each other (including the related Agreement)
was conducted in compliance with the minimum servicing standards set forth in
the Uniform Single Attestation Program for Mortgage Bankers except for any
significant exceptions or errors in records that, in the opinion of the firm,
the Uniform Single Attestation Program for Mortgage Bankers requires it to
report. In rendering its statement such firm may rely, as to matters relating to
the direct servicing of Mortgage Loans or Private Mortgage-Backed Securities by
Sub-Servicers, upon comparable statements for examinations conducted
substantially in compliance with the Uniform Single Attestation Program for
Mortgage Bankers (rendered within one year of such statement) of firms of
independent public accountants with respect to the related Sub-Servicer.
Each Agreement will also provide for delivery to the Trustee, on or before
a specified date in each year, of an annual statement signed by an officer of
the Master Servicer to the effect that the Master Servicer has fulfilled its
obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of officers
of the Master Servicer may be obtained by Certificateholders of the related
Series without charge upon written request to the Master Servicer at the address
set forth in the related Prospectus Supplement.
List of Certificateholders
Each Agreement will provide that three or more holders of Certificates of
any Series may, by written request to the Trustee and at their expense, obtain
access to the list of all Certificateholders maintained by the Trustee for the
purpose of communicating with other Certificateholders with respect to their
rights under the Agreement and the Certificates.
Certain Matters Regarding the Master Servicer and the Depositor
CIT Consumer Finance will be the Master Servicer under each Agreement, and
is an affiliate of the Depositor. Unless otherwise specified in the related
Prospectus Supplement, CIT Consumer Finance will appoint CITSF as a Sub-Servicer
for all of the Mortgage Loans in each Mortgage Pool.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under such Agreement except upon a determination that
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the performance by it of its duties thereunder is no longer permissible under
applicable law. No such resignation will become effective until the Trustee or a
successor servicer has assumed the Master Servicer's obligations and duties
under the Agreement.
Each Agreement will further provide that neither the Master Servicer, the
Sub-Servicer (if an affiliate of CIT), the Depositor nor any director, officer,
employee, or agent of the Master Servicer, or the Depositor will be under any
liability to the related Trust or Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the Master
Servicer, the Sub-Servicer (if an affiliate of CIT), the Depositor nor any such
person will be protected against any liability that would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will provide that
neither the Master Servicer, the Sub-Servicer (if an affiliate of CIT), nor the
Depositor will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its respective responsibilities under
the Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer, the Sub-Servicer (if an affiliate of CIT), or
the Depositor may, however, in their discretion undertake, appear in or defend
any such action including any cross claims or third party claims which either
may deem necessary or desirable with respect to the Agreement and the rights and
duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust, and the Master Servicer, the Sub-Servicer (if an affiliate of CIT), the
Depositor, as the case may be, will be entitled to be reimbursed therefor out of
funds otherwise distributable to Certificateholders.
Any person into which the Master Servicer or the Sub-Servicer (if an
affiliate of CIT), may be merged or consolidated, or any person resulting from
any merger or consolidation to which the Master Servicer or the Sub-Servicer (if
an affiliate of CIT), is a party, or any person succeeding to the business of
the Master Servicer, or the Sub-Servicer (if an affiliate of CIT), will be the
successor of the Master Servicer or the Sub-Servicer (if an affiliate of CIT),
as applicable, under each Agreement, provided that such person is qualified to
service mortgage loans under the related Agreement, and further provided that
such merger, consolidation or succession does not adversely affect the then
current rating or ratings of the class or classes of Certificates of such Series
that have been rated.
Termination Events
Unless otherwise specified in the related Prospectus Supplement,
Termination Events under each Agreement will consist of (i) any failure by the
Master Servicer to deposit or cause to be deposited any required amount (other
than an Advance or Servicing Advance) into the Certificate Account which
continues unremedied for five Business Days after the giving of written notice
of such failure to the Master Servicer by the Trustee or to the Master Servicer
and the Trustee by the Certificate Guaranty Insurer (if any) or the holders of
Certificates having not less than 51% of the aggregate Percentage Interest
constituting each class of Certificates (other than the Certificates
representing the residual interest in a Trust for which a REMIC election has
been made) (the "Majority Certificateholders"); (ii) any failure by the Master
Servicer to make an Advance or, Servicing Advance, as required under the
Agreement, unless cured as specified therein, to the extent such failure
materially or adversely affects the interests of the Certificate Guaranty
Insurer, if any, or the Certificateholders; (iii) any failure by the Master
Servicer duly to observe or perform in any material respect any of its other
covenants or agreements in the Agreement which continues unremedied for thirty
days after the giving of written notice of such failure to the Master Servicer
by the Trustee, or to the Master Servicer and the Trustee by the Certificate
Guaranty Insurer (if any) or the Majority; and (iv) certain events of
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insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceeding and certain actions by or on behalf of the Master Servicer
indicating its insolvency, reorganization or inability to pay its obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Mortgage Assets and the other assets of the Trust
in the event that payments in respect thereto are insufficient to make payments
required in the Agreement. The assets of the Trust will be sold only under the
circumstances and in the manner specified in the related Prospectus Supplement.
Rights Upon Termination Event
Unless otherwise specified in the related Prospectus Supplement, so long as
a Termination Event under an Agreement remains unremedied, the Depositor or the
Trustee may, and at the direction of (i) the Certificate Guaranty Insurer (if
any), or (ii) the Majority Certificateholders and under such other circumstances
as may be specified in such Agreement, the Trustee shall, terminate all of the
rights and obligations of the Master Servicer under the Agreement relating to
such Trust (other than its right to recovery of Advances, Servicing Advances and
other expenses and amounts advanced pursuant to the terms of such Agreement,
which rights the Master Servicer will retain under all circumstances), and with
respect to the Mortgage Assets by written notice to the Master Servicer (with,
if specified in the related Prospectus Supplement, the prior written consent of
the Certificate Guaranty Insurer, if any, which consent may not be unreasonably
withheld), whereupon the Trustee will succeed to all of the responsibilities,
duties and liabilities of the Master Servicer under the Agreement, including, if
specified in the related Prospectus Supplement, the obligation to make Advances,
and will be entitled to similar compensation arrangements not to exceed the
Servicing Fee. "Percentage Interest" means the original principal amount (or
notional principal amount) of a Certificate divided by the original Certificate
Balance of such class of Certificates. In the event that the Trustee is
unwilling or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a mortgage loan servicing institution with
a net worth of at least $15,000,000 to act as successor to the Master Servicer
under the Agreement. Pending such appointment, the Trustee is obligated to act
in such capacity. The Trustee and any such successor may agree without consent
of the Certificateholders upon the servicing compensation to be paid to the
successor servicer, which in no event may be greater than the compensation
payable to the Master Servicer under the Agreement.
No Certificateholder, solely by virtue of such holder's status as a
Certificateholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of any
class of Certificates of such Series evidencing not less than 25% of the
aggregate Percentage Interests constituting such class (with, if specified in
the related Prospectus Supplement, the prior written consent of the Certificate
Guaranty Insurer, if any, which consent may not be unreasonably withheld), have
made written request upon the Trustee to institute such proceeding in its own
name as Trustee thereunder and have offered to the Trustee reasonable indemnity,
and the Trustee for 60 days has neglected or refused to institute any such
proceeding.
Amendment
Unless otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the Trustee,
without the consent of any of the Certificateholders, (i) to cure any ambiguity;
(ii) to correct or supplement any provision therein which may be defective or
inconsistent with any other provision therein; (iii) to add to the duties of a
Seller, the Trustee or the Master Servicer or a Sub-Servicer; (iv) to add any
other provisions with respect to matters or questions arising under such
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Agreement or related Credit Enhancement; (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of the Certificates (it being understood that none of any Seller, the
Servicer, the Depositor or the Trustee is obligated to maintain or improve such
rating); (vi) to make any other revisions with respect to matters or questions
arising under the Agreement that are not inconsistent with the provisions
thereof, provided, that such amendment pursuant to clause (vi) will not
materially and adversely affect in any material respect the interests of any
Certificateholder of such Series or, if specified in the related Prospectus
Supplement, the interests of the Certificate Guaranty Insurer; or (vii) to make
any revisions to the Agreement, provided that such amendment will not materially
and adversely affect in any material respect the interests of any
Certificateholder of such Series or, if specified in the related Prospectus
Supplement, the interests of the Certificate Guaranty Insurer, if any. An
amendment will be deemed not to adversely affect in any material respect the
interests of the Certificateholders if the person requesting such amendment
obtains a letter from each Rating Agency stating that such amendment will not
result in the downgrading or withdrawal of the respective ratings then assigned
to such Certificates. In addition, to the extent provided in the related
Agreement, an Agreement may be amended without the consent of any of the
Certificateholders to change the manner in which the Certificate Account is
maintained, provided, that any such change does not adversely affect the then
current rating of the class or classes of Certificates of such Series that have
been rated. In addition, if a REMIC election is made with respect to a Trust,
the related Agreement may be amended to modify, eliminate or add to any of its
provisions to such extent as may be necessary to maintain the qualification of
the related Trust as a REMIC, provided that the Trustee has received an opinion
of counsel to the effect that such action is necessary or helpful to maintain
such qualification. Unless otherwise specified in the related Prospectus
Supplement, each Agreement may also be amended by the Depositor, the Master
Servicer, the applicable Sellers and the Trustee with the consent of holders of
Certificates of such Series evidencing not less than 51% of the aggregate
Percentage Interests of each class affected thereby (and, if specified in the
related Prospectus Supplement, the consent of the Certificate Guaranty Insurer)
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Agreement or of modifying in any manner
the rights of the holders of the related Certificates; provided, however, that
no such amendment may (i) reduce in any manner the amount of, or delay the
timing of, payments on any Certificate without the consent of the holder of such
Certificate, or (ii) reduce the aforesaid percentage of Certificates of any
class of holders that is required to consent to any such amendment without the
consent of the holders of all Certificates of such class covered by such
Agreement then outstanding.
If a REMIC election is made with respect to a Trust, the Trustee will not
be entitled to consent to an amendment to the related Agreement without having
first received an opinion of counsel knowledgeable in federal income tax matters
to the effect that such amendment will not cause such Trust to fail to qualify
as a REMIC.
Each Agreement may be amended from time to time by the Master Servicer, the
applicable Sellers, the Depositor and the Trustee by written agreement, upon the
prior written consent of the Certificate Guaranty Insurer, if any, without the
notice to or consent of the Certificateholders in connection with the
substitution of cash, a letter of credit or any other collateral deposited in a
Reserve Fund.
It will not be necessary for the consent of holders of any Certificate to
approve the particular form of any proposed amendment, but it will be sufficient
if such consent shall approve the substance thereof.
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Termination; Purchase of Mortgage Loans
Unless otherwise specified in the related Agreement, the obligations
created by each Agreement for each Series of Certificates will terminate upon
the payment to the related Certificateholders of all amounts held in the
Certificate Account or by the Master Servicer and required to be paid to them
pursuant to such Agreement following the later of (i) the final payment or other
liquidation of the last of the Mortgage Assets subject thereto or the
disposition of all property acquired upon foreclosure of any such Mortgage
Assets remaining in the Trust; or (ii) the purchase by the Master Servicer or,
if REMIC treatment has been elected and if specified in the related Prospectus
Supplement, by the holder of the residual interest in the REMIC (see "Certain
Federal Income Tax Consequences" below and in the related Prospectus
Supplement), or by such other entity as may be specified in the related
Prospectus Supplement from the related Trust of all of the remaining Mortgage
Assets and all property acquired in respect of such Mortgage Assets.
Unless otherwise specified in the related Prospectus Supplement, any
purchase of Mortgage Assets and property acquired in respect of Mortgage Assets
evidenced by a Series of Certificates will be made at the option of the Master
Servicer, the Depositor or, if applicable, the holder of the REMIC residual
interest, by the Certificate Guaranty Insurer (if any), or by such other entity
as may be specified in the related Prospectus Supplement, at a price, and in
accordance with the procedures, specified in the related Prospectus Supplement.
The exercise of such right will effect early termination of the Certificates of
that Series, but the right of the Master Servicer, the Depositor or, if
applicable, such holder of the REMIC residual interest, Certificate Guaranty
Insurer or other entity, so to purchase is subject to the principal balance of
the related Mortgage Assets being less than 10% (or such other percentage
specified in the related Prospectus Supplement) of the aggregate principal
balance of the Mortgage Assets at the Cut-off Date for the Series (together with
the original balance of any Pre-Funding Account). The foregoing is subject to
the provision that if a REMIC election is made with respect to a Trust, any
repurchase pursuant to clause (ii) above will be made only in connection with a
"qualified liquidation" of the REMIC within the meaning of Section 860F(g)(4) of
the Code and the repurchases of the Mortgage Loans will not constitute
"prohibited transactions" within the meaning of section 860F(a)(2) of the Code.
In no event shall the trust created by an Agreement for a Series of Certificates
continue beyond the expiration of 21 years from the death of the last survivor
of the persons named in the Agreement. Unless otherwise provided in the related
Prospectus Supplement, the repurchase price will equal the principal amount of
such Mortgage Loans or Private Mortgage-Backed Securities (or, with respect to
any property acquired in respect of a Mortgage Loan, the outstanding principal
balance of the Mortgage Loan at the time of foreclosure) plus accrued interest
from the first day of the month of repurchase to the first day of the next
succeeding month at the Mortgage Rates borne by such Mortgage Loans or Private
Mortgage-Backed Securities or at the weighted average of such Mortgage Rates,
less related unreimbursed Advances (to the extent not already reflected in the
computation of the aggregate principal balance of such Mortgage Assets) and
unreimbursed expenses (that are reimbursable pursuant to the terms of the
Pooling and Servicing Agreement).
The Trustee
The trustee (the "Trustee") under each Agreement will be named in the
related Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have banking relationships with the Depositor, the Master Servicer,
the Sub-Servicer, any Seller and any of their respective affiliates.
The Trustee may resign at any time, in which event the Master Servicer will
be obligated to appoint a successor Trustee. The Master Servicer may also remove
the Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time by the Majority Certificateholders in the related Trust as specified
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in the Agreement. Any resignation or removal of the Trustee and appointment of a
successor Trustee will not become effective until acceptance of the appointment
by the successor Trustee.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS
The following discussion contains summaries, which are general in nature,
of certain legal matters relating to the Mortgage Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete or to reflect the
laws of any particular state or to encompass the laws of all states in which the
Mortgaged Properties are located. The summaries are qualified in their entirety
by reference to the appropriate laws of the states in which Mortgage Loans may
be originated.
General
The Mortgage Loans will be secured by deeds of trust, mortgages, security
deeds or deeds to secure debt, depending upon the prevailing practice in the
state in which the property subject to the loan is located. A mortgage creates a
lien upon the real property encumbered by the mortgage, which lien is generally
not prior to the lien for real estate taxes and assessments. Priority between
mortgages depends generally on the order of recording with a state or county
office. Priority also may be affected by the express terms of the mortgage or
the deed of trust and any subordination agreement among the lenders.
Although priority among liens on the same property generally depends in the
first instance on the order of filing, there are a number of ways in which a
lien that is a senior lien when it is filed can become subordinate to a lien
filed at a later date. A deed of trust or mortgage generally is not prior to any
liens for real estate taxes and assessments, certain federal liens (including
certain federal criminal liens, environmental liens and tax liens), certain
mechanics and materialmen's liens, and other liens given priority by applicable
law.
There are two parties to a mortgage - the mortgagor, who is the borrower
and owner of the mortgaged property, and the mortgagee, who is the lender. Under
the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond
and the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust formally has three parties - the borrower-property owner (similar to a
mortgagor) called the trustor, a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys title
to the property to the grantee, as opposed to merely creating a lien upon the
property, until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
Foreclosure
Deed of Trust. Foreclosure of a deed of trust is generally accomplished by
a nonjudicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any default
by the borrower under the terms of the note or deed of trust. In certain states
such foreclosure also may be accomplished by judicial action in the manner
provided for foreclosure of mortgages. In some states, the trustee must record a
notice of default and send a copy to the borrower-trustor and to any person who
has recorded a request for a copy of any notice of default and notice of sale.
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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, these notice provisions generally require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recoverable by a lender.
The trustee's sale generally must be conducted by public auction in the
county or city in which all or some part of the property is located. At the
sale, the trustee generally requires a bidder to deposit with the trustee a set
amount or a percentage of the full amount of the bidder's final bid in cash (or
an equivalent thereto satisfactory to the trustee) prior to and as a condition
to recognizing such bid, and may conditionally accept and hold these amounts for
the duration of the sale. The beneficiary of the deed of trust generally need
not bid cash at the sale, but may instead make a "credit bid" up to the extent
of the total amount due under the deed of trust, including costs and expenses
actually incurred in enforcing the deed of trust, as well as the trustee's fees
and expenses. The trustee will sell the property to the highest proper bidder at
the sale.
A sale conducted in accordance with the terms of the power of sale
contained in the deed of trust generally is presumed to be conducted regularly
and fairly, and, on a conveyance of the property by trustee's deed, confers
absolute legal title to the property to the purchaser, free of all junior deeds
of trust and free of all other liens and claims subordinate to the deed of trust
under which the sale is made. The purchaser's title, however, is subject to all
senior liens and other senior claims. Thus, if the deed of trust being enforced
is a junior deed of trust, the trustee will convey title to the property to the
purchaser subject to the first deed of trust and any other prior liens and
claims. A trustee's sale or judicial foreclosure under a junior deed of trust
generally has no effect on any senior deed of trust, with the possible exception
of the right of a senior beneficiary to accelerate its indebtedness under a
default clause or a "due on sale" clause contained in the senior deed of trust.
Because a potential buyer at the sale may find it difficult to determine
the exact status of title and other facts about the property, and because the
physical condition of the property may have deteriorated, third parties may not
be interested in purchasing the property at a trustee's sale or judicial
foreclosure sale. In a non-judicial foreclosure, it is common for the lender to
purchase the property from the trustee or referee for an amount equal to the
principal amount of the deed of trust, accrued and unpaid interest and expenses
of foreclosure. In judicial foreclosures, it is not uncommon for the lender to
make a bid to purchase the property. The amount of the bid may vary depending on
applicable law, the value of the property, the amount of senior liens and other
considerations. In either case, after a foreclosing lender purchases the
mortgage property, as a business practice it will frequently assume the burdens
of ownership, including the obligations to service any senior deed of trust, to
obtain hazard insurance and to make such repairs at its own expense as are
necessary to render the property suitable for sale. The lender will commonly
attempt to sell the property and 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 any mortgage insurance proceeds.
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The proceeds received by the trustee from the sale generally are applied
first to the costs, fees and expenses of sale and then to satisfy the
indebtedness secured by the deed of trust under which the sale was conducted.
Any remaining proceeds generally are payable to the holders of junior deeds of
trust and other liens and claims in order of their priority. Any balance
remaining generally is payable to the grantor. Following the sale, if there are
insufficient proceeds to repay the secured debt, the beneficiary under the
foreclosed lien generally may obtain a deficiency judgment against the grantor.
See "- Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of the
borrower's defaults under the loan documents. Some courts have been faced with
the issue of whether federal or state constitutional provisions reflecting due
process concerns for fair notice require that borrowers under deeds of trust
receive notice longer than that prescribed by statute. 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 does not involve sufficient state
action to afford constitutional protection to the borrower.
Mortgages. Foreclosure of a mortgage is generally accomplished by judicial
action. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties defendant. Judicial foreclosure proceedings are often not contested by
any of the parties defendant. However, when the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time
consuming. Since a foreclosure action historically was equitable in nature, the
court may exercise equitable powers to relieve a mortgagor of a default and deny
the mortgagee foreclosure on proof that either the mortgagor's default was
neither willful nor in bad faith or the mortgagee's action established a waiver,
fraud, bad faith, or oppressive or unconscionable conduct such as to warrant a
court of equity to refuse affirmative relief to the mortgagee. Some mortgages
contain a power of sale, and non-judicial foreclosure is permitted. See "--
Foreclosure - Deed of Trust" above for a discussion of non-judicial foreclosure.
A foreclosure action is subject to most of the delays and expenses of other
lawsuits if defenses or counterclaims are interposed, sometimes requiring up to
several years to complete. However, a suit against the debtor on the related
mortgage note may take several years and, generally, is an alternative remedy to
foreclosure, since the mortgagee is precluded from pursuing both actions at the
same time. After the completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other court
officer to conduct the sale of the property.
In case of foreclosure under a mortgage, the sale by the referee or other
designated officer or the sale 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 other facts about the property, and because the
physical condition of the property may have deteriorated, third parties may not
be interested in purchasing the property at the foreclosure sale. In a
non-judicial foreclosure, it is common for the lender to purchase the property
from the trustee or referee for an amount equal to the principal amount of the
mortgage, accrued and unpaid interest and expenses of foreclosure. In judicial
foreclosures, it is not uncommon for the lender to make a bid to purchase the
property. The amount of the bid may vary depending on applicable law, the value
of the property, the amount of senior liens and other considerations. In either
case, after a foreclosing lender purchases the mortgaged property, as a business
practice it will frequently assume the burdens of ownership, including the
obligations to service any senior mortgage, to obtain hazard insurance and to
make such repairs at its own expense as are necessary to render the property
suitable for sale. The lender will commonly attempt to sell the property and
obtain the services of a real estate broker and pay the broker a commission in
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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 any
mortgage insurance proceeds.
Rights of Redemption
In some states after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. (The
right of redemption should be distinguished from the equity of redemption, which
is a non-statutory right that must be exercised prior to the foreclosure sale.)
In certain other states, this right of redemption applies only to sales
following judicial foreclosure, and not to sales pursuant to a nonjudicial power
of sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and taxes. In some states, the right to redeem is an equitable right.
The effect of a right of redemption is to diminish the ability of the lender to
sell the foreclosed property. The exercise of a right of redemption would defeat
the title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to retain the property and pay the expenses of ownership until the
redemption period has run.
Junior Mortgages; Rights of Senior Mortgages
The mortgage loans comprising or underlying the Mortgage Assets included in
the Trust Fund for a Series will be secured by mortgages or deeds of trust which
may be second or more junior mortgages to other mortgages held by other lenders
or institutional investors. The rights of the Trust (and therefore the Holders),
as mortgagee under a junior mortgage, are subordinate to those of the mortgagee
under the senior mortgage, including the prior rights of the senior mortgagee to
receive hazard insurance and condemnation proceeds and to cause the property
securing the mortgage loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In some states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee. In addition, as described above, the rights of
the Trust may be or become subject to liens for real estate taxes and other
obligations. It is CIT Consumer Finance's standard practice to protect its
interest by monitoring any such sale of which it is aware and bidding for
property if it determines that it is in CIT Consumer Finance's best interests to
do so.
The standard form of the mortgage used by most institutional lenders, like
that generally used by CIT Consumer Finance, confers on the mortgagee the right
both to receive all proceeds collected under any hazard insurance policy
required to be maintained by the borrower and all awards made in connection with
condemnation proceedings. The lender generally has the right, subject to the
specific provisions of the deed of trust or mortgage securing its loan, to apply
such proceeds and awards to repair of any damage to the security property or to
payment of any indebtedness secured by the deed of trust or mortgage, in such
order as the beneficiary may determine. Thus, in the event improvements on the
property are damaged or destroyed by fire or other casualty, or in the event the
property is taken by condemnation, the mortgagee or beneficiary under underlying
senior mortgages 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
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senior mortgages or deeds of trust. If available, proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, will be applied to the
indebtedness of a junior mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay all taxes and
assessments on the property and, when due, 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 thereof. Upon a failure of the grantor or
mortgagor to perform any of these obligations, the mortgagee or beneficiary is
given the right under certain mortgages to perform the obligation itself, at its
election, with the mortgagor agreeing to reimburse the mortgagee or beneficiary
for any sums expended by the mortgagee or beneficiary on behalf of the mortgagor
or grantor. The mortgage or deed of trust typically provides that all sums so
expended by the mortgagee become part of the indebtedness secured by the
mortgage.
Anti-deficiency Legislation and Other Limitations on Lenders
Anti-Deficiency Legislation. Certain states have imposed statutory
restrictions that limit the remedies of a beneficiary under a deed of trust or a
mortgagee under a mortgage. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. The purpose of these
statutes is generally to prevent a beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
A deficiency judgment is a personal judgment against the borrower equal in
most cases to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. However, some states
calculate the deficiency as the difference between the outstanding indebtedness
and the greater of the fair market value of the property and the sales price of
the property. As a result of these restrictions, it is anticipated that in many
instances the Master Servicer will utilize the nonjudicial foreclosure remedy
and forego any possible deficiency, and after a judicial foreclosure will not
seek deficiency judgments against defaulting Mortgagors where anti-deficiency
statutes may apply.
Election of Remedies. 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 certain other states, the lender has the option
of bringing a personal action against the borrower on the debt without first
exhausting such property; however, in some of these states, the lender following
judgment on such personal action, may be deemed to have elected a remedy and may
be precluded from exercising remedies with respect to the property.
Consequently, the practical effect of the election requirement, when applicable,
is that lenders will usually proceed first against the property rather than
bringing a personal action against the borrower.
Other Limitations on Lenders. In addition to anti-deficiency and related
legislation, numerous other federal and state statutory provisions, including
the federal bankruptcy laws, the Relief Act and state laws affording relief to
debtors, may interfere with or affect the ability of the secured mortgage lender
to realize upon its security. For example, in a proceeding under the federal
Bankruptcy Code, the filing of a petition acts as a stay against the enforcement
of remedies for collection of a debt, and a lender may not foreclose on a
mortgaged property without the permission of the bankruptcy court. Moreover, a
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court with federal bankruptcy jurisdiction may permit a debtor through a Chapter
13 Bankruptcy Code rehabilitative plan to cure a monetary default with respect
to a loan on a debtor's residence by paying arrearages within a reasonable time
period and reinstating the original loan payment schedule even though the lender
accelerated the loan and the lender has taken all steps to realize upon his
security (provided no sale of the property has yet occurred) prior to the filing
of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default by permitting
the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the
terms of a mortgage loan may be modified if the borrower has filed a petition
under Chapter 13. The rehabilitation plan proposed by the debtor may provide, if
the mortgaged property is not the debtor's principal residence and the court
determines that the value of the mortgaged property is less than the principal
balance of the mortgage loan, for the reduction of the secured indebtedness to
the value of the mortgaged property as of the date of the commencement of the
bankruptcy, rendering the lender a general unsecured creditor for the
difference, and also may reduce the monthly payments due under such mortgage
loan, change the rate of interest and alter the mortgage loan repayment
schedule. The effect of any such proceedings under the federal Bankruptcy Code,
including but not limited to any automatic stay, could result in delays in
receiving payments on the Mortgage Loans underlying a Series of Certificates and
possible reductions in the aggregate amount of such payments.
In a case under the Bankruptcy Code, the lender is precluded from
foreclosing without authorization from the bankruptcy court. In a Chapter 11
case, 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 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 plans of
reorganization.
The Bankruptcy Code and federal tax laws provide priority to certain tax
liens over the lien of a mortgagee or secured party. This may delay or interfere
with the enforcement of rights in respect of a defaulted Mortgage Loan. Numerous
federal and state consumer protection laws impose substantive requirements upon
mortgage lenders and servicers in connection with the origination, servicing and
enforcement of mortgage loans. These laws include the Federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Housing Act, Fair Credit Reporting Act and related statutes and regulations.
These federal and state laws impose specific statutory liabilities upon lenders
who fail to comply with the provisions of the law. In some cases, this liability
may affect assignees of the loans.
Environmental Risks
Real property pledged as security to a lender may be subject to unforeseen
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to assure the payment of the
costs of clean-up. In several states, such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended, the United States Environmental Protection Agency
("EPA") may impose a lien on property where the EPA has incurred clean-up costs
with respect to the property. However, a CERCLA lien is subordinate to
pre-existing, perfected security interests. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a property
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at a foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Such cleanup costs may be substantial. In the event that a Trust acquired
title to a property securing a Mortgage Loan and cleanup costs were incurred in
respect of the property, the holders of the Certificates might incur a delay in
the payment if such costs were required to be paid by such Trust. It is possible
that such cleanup costs could reduce the amounts otherwise distributable to the
Certificateholders if the Trust Fund were deemed to be liable for such cleanup
costs and if such cleanup costs were incurred.
Except as otherwise specified in the applicable Prospectus Supplement, at
the time the Mortgage Loans were originated, no environmental assessment of the
Mortgage Properties was conducted, although an appraiser might comment upon
environmental factors.
Due on Sale Clauses
The Mortgage Loans generally include a "due on sale" clause which will
provide that if the Mortgagor sells, transfers or conveys the Mortgaged
Property, the Mortgage Loan may in most cases be accelerated by the mortgagee.
In recent years, court decisions and legislative actions have placed substantial
restriction on the right of lenders to enforce such clauses in many states. For
instance, the California Supreme Court in August 1978 held that "due on sale"
clauses were generally unenforceable. However, the Garn-St Germain Depository
Institutions Act of 1982 (the "Garn-St Germain Act"), subject to certain
exceptions, preempts state constitutional, statutory and case law prohibiting
the enforcement of "due on sale" clauses. As to loans secured by an
owner-occupied residence, the Garn-St Germain Act sets forth nine specific
instances in which a mortgagee covered by the Garn-St Germain Act may not
exercise its rights under a "due on sale" clause, notwithstanding the fact that
a transfer of the property may have occurred. For example, "due on sale" clauses
are not enforceable in those states whose legislatures exercised their authority
to regulate the enforceability of such clauses with respect to mortgage loans
that were (i) originated or assumed during the "window period" under the
Garn-St. Germain Act which ended in all cases not later than October 15, 1982,
and (ii) originated by lenders other than national banks, federal savings
institutions and federal credit unions. FHLMC has taken the position in its
published mortgage servicing standards that, out of a total of eleven "window
period states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah)
have enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of "due on sale" clauses with respect to certain
categories of window period loans. Also, the Garn-St. Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
In addition, under federal bankruptcy law, "due on sale" clauses may not be
enforceable in bankruptcy proceedings and may, under certain circumstances, be
eliminated in any modified mortgage resulting from such bankruptcy proceeding.
The inability to enforce a "due on sale" clause may result in transfer of
the related Mortgaged Property to an uncreditworthy person, which could increase
the likelihood of default or may result in a Mortgage Loan bearing an interest
rate below the current market rate being assumed by a new home buyer, which may
affect the average life of the Mortgage Loans and the number of Mortgage Loans
which may extend to maturity.
Prepayment Charges and Late Charges
Under certain state laws, prepayment charges may not be imposed after a
certain period of time following the origination of mortgage loans with respect
to prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the Mortgaged Properties will be owner-occupied, it is
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anticipated that prepayment charges may not be imposed with respect to many of
the Mortgage Loans. The absence of such a restraint on prepayment, particularly
with respect to fixed rate Mortgage Loans having higher Mortgage Rates, may
increase the likelihood of refinancing or other early retirement of such
Mortgage Loans.
Forms of notes, mortgages, and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In certain states, there are or may be specific limitations upon
the late charges which a lender may collect from a borrower for delinquent
payments.
Late charges and prepayment fees are property of the Trust and will be made
available to pay the Certificateholders. The Mortgage Loans originated by CIT
Consumer Finance generally do not make provision for late charges, but other
Mortgage Loans in a Mortgage Pool may make provision for late charges. CIT
Consumer Finance's current practice is to waive such fees (by noncollection) in
most cases. CIT Consumer Finance's current operating system cannot process
prepayment penalties for partial prepayments on any Mortgage Loan.
Equitable Limitations on Remedies
In connection with lenders' attempts to realize upon their collateral,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of his defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon his
security if the default under the security agreement is not monetary, such as
the borrower's failure to adequately maintain the property or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily-prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in cases involving the
sale by a trustee under a deed of trust or by a mortgagee under a mortgage
having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or in
part without penalty. A mortgagee to whom a prepayment in full has been tendered
may be compelled to give either a release of the mortgage or an instrument
assigning the existing mortgage. The absence of a restraint on prepayment,
particularly with respect to mortgage loans having higher mortgage rates, may
increase the likelihood of refinancing or other early retirements of such
mortgage loans.
Alternative Mortgage Transactions Parity Act
The Alternative Mortgage Transactions Parity Act ("AMTPA"), enacted in
1982, preempts state laws which restrict or limit the structure of adjustable
rate provisions, balloon payments, graduated payments and other terms contained
in non-traditional (fixed rate fixed term) mortgage loans. These state statutes
are replaced, at the option of the lender, by federal regulations. The lender
must follow in their entirety either state laws or federal regulations, and
cannot select and combine the most advantageous terms of each. Six states
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(Arizona, Maine, Massachusetts, New York, South Carolina and Wisconsin) have
used their now-expired ability to opt out of all or part of the AMTPA
provisions. CIT Consumer Finance generally elects to have the federal
regulations apply, in the states where applicable, to the types of mortgage
loans originated by it that are covered by AMTPA.
Applicability of Usury Laws
Many states have usury laws which limit the interest and other amounts that
may be charged under certain loans. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, enacted in March 1980 ("Title
V"), provides that state usury limitations shall not apply to certain types of
residential first mortgage loans originated by certain lenders after March 31,
1980. The statute authorized the states to reimpose interest rate limits by
adopting, before April 1, 1983, a law or constitutional provision which
expressly rejects an application of the federal law. Fifteen states adopted such
a law prior to the April 1, 1983 deadline. In addition, even where Title V is
not so rejected, any state is authorized by the law to adopt a provision, which
need not expressly reject Title V, limiting discount points or other charges on
mortgage loans covered by Title V. Certain states have taken action to limit
discount points or other charges.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Relief Act, a borrower who enters
military service after the origination of such borrower's mortgage loan
(including a borrower who is a member of the National Guard or is in reserve
status at the time of the origination of the mortgage loan and is later called
to active duty) (i) may not be charged interest above an annual rate of 6%
during the period of such borrower's active duty status, unless a court orders
otherwise upon application of the lender, (ii) may be entitled to a stay of
proceedings on any kind of foreclosure or repossession action in the case of
defaults on such obligations entered into prior to military service for the
duration of military service, and (iii) may have the maturity of such
obligations incurred prior to military service extended, the payments lowered
and the payment schedule readjusted for a period of time after the completion of
military service. However, the benefits of (i), (ii), or (iii) above are subject
to challenge by creditors and if, in the opinion of the court, the ability of a
person to comply with such obligations is not materially impaired by military
service, the court may apply equitable principles accordingly. If a borrower's
obligation to repay amounts otherwise due on a Mortgage Loan included in a Trust
Fund for a Series is relieved pursuant to the Relief Act, none of the Trustee,
the Master Servicer, the Depositor, the Sellers nor the Trustee will be required
to advance such amounts, and any loss in respect thereof may reduce the amounts
available to be paid to the Certificateholders of such Series. Unless otherwise
specified in the related Prospectus Supplement, any shortfalls in interest
collections on the mortgage loans underlying the Private Mortgage-Backed
Securities included in a Trust Fund for a Series resulting from application of
the Relief Act will be allocated to each class of Certificates of such Series
that is entitled to receive interest in respect of such mortgage loans in
proportion to the interest that each such class of Certificates would have
otherwise been entitled to receive in respect of such mortgage loans had such
interest shortfall not occurred.
It is possible that such interest rate limitation could have an effect, for
an indeterminate period of time, on the ability of the Master Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Unless
otherwise provided in the applicable Prospectus Supplement, any shortfall in
interest collections resulting from the application of the Relief Act could
result in losses to the holders of the Certificates. In the event that such a
Mortgage Loan goes into default, there may be delays and losses occasioned by
the inability to realize upon the Mortgaged Property in a timely fashion.
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Home Ownership Act
The Mortgage Loans may be subject to the Home Ownership and Equity
Protection Act of 1994 (the "Home Ownership Act") which amended the Federal
Truth-in-Lending Act as it applies to mortgages subject to the Home Ownership
Act. The Home Ownership Act requires certain additional disclosures, specifies
the timing of such disclosures and limits or prohibits the inclusion of certain
provisions in mortgages subject to the Home Ownership Act. The Home Ownership
Act also provides that any purchaser or assignee of a mortgage covered by the
Home Ownership Act is subject to all of the claims and defenses which the
borrower could assert against the original lender. The maximum damages that may
be recovered by a borrower from an assignee in an action under the Home
Ownership Act are the remaining amount of indebtedness plus the total amount
paid by the borrower in connection with the mortgage loan. Any Trust for which
the Mortgage Assets include Mortgage Loans subject to the Home Ownership Act
would be subject to all of the claims and defenses which the Mortgagor could
assert against the original lender. Any violation of the Home Ownership Act
which would result in such liability would be a breach of the Seller's
representations and warranties, and the Seller would be obligated to cure,
repurchase or, if permitted by the related Agreement, substitute for, the
Mortgage Loan in question.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below and in the related Prospectus Supplement for each Series of
Certificates is a general discussion of certain of the anticipated federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereby. The discussion and the opinions referred to below,
are based on laws, regulations, rulings and decisions now in effect (or, in the
case of certain regulations, proposed), all of which are subject to change or
possibly differing interpretations. The discussion below does not purport to
deal with federal tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors in determining the federal, state, local and other tax
consequences to them of the purchase, ownership and disposition of Certificates.
For purposes of this tax discussion (except with respect to information
reporting, or where the context indicates otherwise), the terms
"Certificateholder" and "holder" mean the beneficial owner of a Certificate.
Each Trust will be provided with an opinion of Schulte Roth & Zabel LLP,
counsel for the Depositor, regarding certain of the federal income tax matters
discussed below and in the related Prospectus Supplement. An opinion of counsel,
however, is not binding on the IRS, and no ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Certificates and related terms, parties and
documents will be deemed to refer, unless otherwise specified herein, to each
Trust and the Certificates and related terms, parties and documents applicable
to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a REMIC for
federal income tax purposes or if the Trust is classified as a grantor trust or
is given an alternative characterization for federal income tax purposes. The
related Prospectus Supplement for each Series of Certificates will specify
whether an election to treat the Trust as a REMIC for federal income tax
purposes will be made and, if not, how the Trust is intended to be treated.
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Scope of the Tax Opinions
It is expected that Schulte Roth & Zabel LLP will deliver, upon issuance of
a Series of Certificates, its opinion that, with respect to each Series of
Certificates for which a REMIC election is to be made, the related Trust or
certain assets of such Trust will be, under then existing law and assuming (i) a
proper and timely REMIC election, and (ii) ongoing compliance with the
provisions of the related Agreement and applicable provisions of the Code and
applicable Treasury regulations and rulings, and in reliance upon the
representations and warranties in the related Agreement, a REMIC and the
Certificates will be considered to evidence ownership of "regular interests" in
the REMIC within the meaning of Section 860G(a)(1) of the Code or "residual
interests" in the REMIC within the meaning of the Section 860G(a)(2) of the
Code.
It is expected that Schulte Roth & Zabel LLP, will deliver, upon issuance
of a Series of Certificates, its opinion that, with respect to each Series of
Certificates for which a REMIC election is not made, the related Trust will be,
under then existing law and assuming compliance with the related Agreement,
classified for federal income tax purposes as a grantor trust and not as an
association taxable as a corporation or a taxable mortgage pool.
In addition, Schulte Roth & Zabel LLP will render its opinion that it has
reviewed the statements herein and in the related Prospectus Supplement under
the heading "Certain Federal Income Tax Consequences," and is of the opinion
that such statements are correct in all material respects. Such statements are
intended as an explanatory discussion for the possible effects of the
classification of the Trust as a REMIC, a grantor trust or other classification,
as the case may be, for federal income tax purposes on investors generally and
of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
Certificates.
Other Tax Consequences
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect of
ownership of the Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of the Certificates.
Alternative Tax Treatment
In the event that, as a result of a change in applicable laws or
regulations or the interpretation thereof, the federal income tax
characteristics of the Certificates are not anticipated to be as described
above, the related Prospectus Supplement will include a discussion of the
anticipated federal income tax treatment of the Certificates.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Considerations," potential investors should consider the
state and local income, franchise, personal property, or other tax consequences
of the acquisition, ownership, and disposition of the Certificates. State and
local income tax law may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential investors should consult
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their own tax advisors with respect to the various tax consequences of
investments in the Certificates.
ERISA CONSIDERATIONS
Set forth below and in the related Prospectus Supplement for each Series of
Certificates is a general discussion of certain considerations of the purchase,
ownership and disposition of the Certificates under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and the Code. The discussion
in the related Prospectus Supplement and below, are based on laws, regulations,
rulings and decisions now in effect (or, in the case of certain regulations,
proposed), all of which are subject to change or possibly differing
interpretations. The discussion below does not purport to deal with all issues
applicable to an investor subject to ERISA. Investors should consult their own
advisors in determining the consequences to them under ERISA and the Code of the
purchase, ownership and disposition of Certificates. If Certificates are divided
into subclasses the related Prospectus Supplement will contain information
concerning considerations relating to ERISA and the Code that are applicable to
such Certificates.
ERISA imposes requirements on employee benefit plans (and on certain other
retirement plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and collective investment funds, separate accounts and
insurance company general accounts in which such plans, accounts or arrangements
are invested) (collectively "Plans") subject to ERISA and on persons who are
fiduciaries with respect to such 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 such
Plans. ERISA also imposes certain 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 such Plan (subject to certain exceptions not here relevant).
Certain employee benefit plans, such as 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 such plans may be invested in Senior
Certificates without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which is
qualified and exempt from taxation under Code Sections 401(a) and 501(a),
however, is subject to the prohibited transaction rules set forth in Code
Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain 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 certain circumstances.
However, the regulation provides that, generally, the assets of a corporation or
partnership in which a Plan invests will not be deemed for purposes of ERISA to
be assets of such Plan if the equity interest acquired by the investing Plan is
a publicly-offered security. A publicly-offered security, as defined in Labor
Reg. Section 2510.3-101, is a security that is widely held, freely transferable
and registered under the Securities Exchange Act of 1934, as amended.
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 certain
specified relationships to a Plan and imposes additional prohibitions where
Parties in Interest are fiduciaries with respect to such Plan. Because the
Mortgage Loans may be deemed Plan assets of each Plan that purchases
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Certificates, an investment in the Certificates by a Plan might be a prohibited
transaction under ERISA Sections 406 and 407 and subject to an excise tax under
Code Section 4975 unless a statutory or administrative 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 certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" in the initial issuance of such certificates.
The DOL also has granted to certain underwriters individual administrative
exemptions (the "Underwriter Exemptions") from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of Section 4975
of the Code with respect to the initial purchase, the holding and the subsequent
resale by Plans of certificates in pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Underwriter Exemptions.
The Prospectus Supplement for each Series of Certificates will indicate the
classes of Certificates, if any, offered thereby as to which it is expected that
PTE 83-1, an Underwriter Exemption or any other exemptions will apply.
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 PTE 83-1, the availability and applicability of any Underwriter
Exemption or any other exemptions from the prohibited transaction provisions of
ERISA and the Code and the potential consequences in their specific
circumstances, prior to making such 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.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the classes of Certificates offered thereby will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Certificates that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including depository institutions, life insurance companies and pension funds)
created pursuant to or existing under the laws of the United States or of any
state (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 such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
the Certificates will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline. SMMEA provides,
however, that in no event will the enactment of any such 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 such contractual commitment was made or such Certificates acquired prior to
the enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitations as to the percentage of their assets represented thereby,
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federal credit unions may invest in mortgage related securities, and national
banks may purchase Certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
authority may prescribe. In this connection, federal credit unions should review
the National Credit Union Administration ("NCUA") Letter to Credit Unions No.
96, as modified by Letter to Credit Unions No. 108, which includes guidelines to
assist federal credit unions in making investment decisions for mortgage related
securities, and the NCUA's regulation "Investment and Deposit Activities" (12
C.F.R. Part 703), (whether or not the class of Certificates under consideration
for purchase constitutes a "mortgage related security").
All depository institutions considering an investment in the Certificates
(whether or not the class of certificates under consideration for purchase
constitutes a "mortgage related security" should review the Federal Financial
Institutions Examination Council's Supervisory Policy Statement on Securities
Activities (to the extent adopted by their respective regulators) (the "Policy
Statement"), setting forth, in relevant part, certain securities trading and
sales practices deemed unsuitable for an institution's investment portfolio, and
guidelines for (and restrictions on) investing in mortgage derivative products
including "mortgage related securities" that are "high-risk mortgage securities"
as defined in the Policy Statement. According to the Policy Statement, such
"high-risk mortgage securities" include securities such as Certificates not
entitled to distributions allocated to principal or interest, or Subordinated
Certificates. Under the Policy Statement, it is the responsibility of each
depository institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security", and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines, or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain 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 consult their own legal advisors in
determining whether and to what extent the Certificates constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
Certificates are being offered hereby in Series from time to time (each
Series evidencing a separate Trust) through any of the following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional
investors.
A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
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sell the Certificates will be determined. Each Prospectus Supplement for an
underwritten offering will also contain information regarding the nature of the
underwriters' obligations, any material relationship between the Depositor and
any underwriter and, where appropriate, information regarding any discounts or
concessions to be allowed or reallowed to dealers or others and any arrangements
to stabilize the market for the Certificates so offered. In firm commitment
underwritten offerings, the underwriters will be obligated to purchase all of
the Certificates of such Series if any such Certificates are purchased.
Certificates may be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor and CIT Consumer Finance to indemnification by the Depositor and
CIT Consumer Finance against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribution with respect to
payments which such underwriters or agents may be required to make in respect
thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Certificates of such Series.
LEGAL MATTERS
The validity of the Certificates, including certain federal income tax
consequences with respect thereto, will be passed upon for the Depositor by
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
FINANCIAL INFORMATION
A new Trust will be formed with respect to each Series of Certificates and
no Trust will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Certificates.
Accordingly, no financial statements with respect to any Trust will be included
in this Prospectus or in the related Prospectus Supplement.
CIT Consumer Finance and CITSF each has determined that its financial
statements are not material to the offering made hereby.
RATINGS
It is a condition to the issuance of the Certificates of each Series
offered hereby and by the related Prospectus Supplement that they shall have
been rated in the rating categories specified in the related Prospectus
Supplement by the Rating Agency or Agencies specified in the related Prospectus
Supplement.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or 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 such
prepayments might differ from those originally anticipated. As a result,
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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 security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
EXPERTS
The financial statements listed under the heading "Exhibits, Financial
Statement Schedule and Reports on Form 8-K" in CIT's 1996 Annual Report on Form
10-K have been incorporated by reference herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, also
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
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Page
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INDEX TO DEFINED TERMS
Accrual Certificates.........................................................57
Adjustable Rate..........................................................10, 34
Adjustable Rate Mortgage Loan............................................10, 34
Adjusted Mortgage Loan Remittance Rate.......................................59
Advance..................................................................18, 59
Agreement.................................................................6, 37
AMTPA.......................................................................100
Asset Service Center.........................................................42
Available Funds..............................................................56
Balloon Loans............................................................10, 34
Balloon Payments.........................................................10, 35
Bankruptcy Bond..........................................................17, 70
beneficial owner.............................................................62
Book-Entry Certificates......................................................61
Business Day..............................................................9, 56
Buydown Account..............................................................80
Buydown Fund.................................................................35
Buydown Loans................................................................35
Call Date................................................................10, 35
Call Loans...............................................................10, 35
CBC Holding..................................................................41
Cede......................................................................5, 21
Cedel.................................................................5, 21, 31
CERCLA.......................................................................98
Certificate Account..........................................................77
Certificate Balance..........................................................57
Certificate Guaranty Insurance Policy....................................16, 67
Certificate Guaranty Insurer.................................................67
Certificate Register.........................................................55
Certificateholders........................................................2, 33
Certificates...........................................................1, 6, 53
CIT.......................................................................1, 22
CIT Consumer Finance...................................................1, 6, 22
CITSF.....................................................................6, 22
Class Certificate Balance....................................................56
Closing Date..............................................................7, 81
Code.........................................................................20
Combined Loan-to-Value Ratio.................................................37
Commission................................................................3, 34
Compensating Interest....................................................19, 60
Confirmatory Mortgage Note...................................................75
Credit Enhancement...........................................................30
Credit Enhancer..............................................................30
Cut-off Date..............................................................9, 53
Definitive Certificate.......................................................62
Delayed Deposits.............................................................79
Deposit Date.................................................................79
Depositor..............................................................1, 6, 22
Depository...................................................................62
Detailed Description.........................................................34
Determination Date........................................................8, 56
Distribution Date.........................................................8, 55
DKB..........................................................................40
DOL.....................................................................20, 104
DTC...................................................................5, 21, 31
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Page
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Due Period................................................................9, 56
EPA..........................................................................98
ERISA...................................................................20, 104
Escrow Account...............................................................83
Euroclear.............................................................5, 21, 31
Exchange Act..................................................................3
Financial Intermediary.......................................................62
Fixed Rate...............................................................10, 34
Fixed Rate Mortgage Loan.................................................10, 34
Funding Period...........................................................14, 33
Garn-St Germain Act..........................................................99
Graduated Payment Account....................................................80
Graduated Payment Loan...................................................11, 35
Home Equity Loan.............................................................43
Home Ownership Act......................................................28, 102
Indirect Participants........................................................62
Insurance Paying Agent.......................................................67
Insurance Proceeds...........................................................78
Insured Expenses.............................................................78
Insured Payment..............................................................67
Junior Lien Loans............................................................24
Limited Guarantee............................................................71
Liquidated Mortgage..........................................................88
Liquidation Expenses.........................................................78
Liquidation Proceeds.........................................................78
Majority Certificateholders..................................................89
Master Servicer...........................................................6, 42
Master Servicing Fee.........................................................87
MHC..........................................................................40
Mortgage Assets........................................................1, 9, 33
Mortgage Documents...........................................................37
Mortgage Loans.........................................................1, 9, 33
Mortgage Note............................................................10, 34
Mortgage Pool.............................................................9, 33
Mortgage Pool Insurance Policy...........................................16, 68
Mortgage Rate............................................................10, 34
Mortgaged Properties.........................................................34
Mortgaged Property........................................................9, 38
Mortgages..............................................................1, 9, 33
Mortgagor....................................................................22
NCUA........................................................................106
Participants.................................................................62
Pass-Through Rate............................................................56
Percentage Interest..........................................................90
Permitted Investments........................................................67
Plan Asset Regulations.......................................................20
Plans.......................................................................104
PMBS Agreement...............................................................39
PMBS Issuer..............................................................13, 39
PMBS Servicer............................................................13, 39
PMBS Trustee.............................................................13, 39
Policy Statement............................................................106
Pool......................................................................9, 33
Pool Insurer.................................................................68
Precomputed Loan.............................................................36
Pre-Funded Amount........................................................14, 33
Pre-Funding Account...................................................1, 14, 33
Primary Insurer..............................................................85
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Primary Mortgage Insurance Policy............................................34
Principal Prepayment.....................................................18, 60
Principal Prepayments........................................................57
Private Mortgage-Backed Securities........................................9, 38
PTE 83-1....................................................................105
Purchase Price...............................................................81
Qualified Substitute Mortgage Loan...........................................81
Rating Agency............................................................18, 77
Record Date..................................................................55
Registration Statement........................................................3
Released Mortgaged Property Proceeds.........................................78
Relief Act...................................................................28
REMIC.................................................................2, 20, 55
REO Property.................................................................54
Reserve Fund.............................................................16, 66
Retained Interest............................................................53
Scheduled Accrual Loans......................................................36
Seller.................................................................1, 6, 33
Senior Certificateholders................................................15, 65
Senior Certificates.......................................................7, 57
Series.................................................................1, 6, 53
Servicing Advance............................................................87
Simple Interest Loans........................................................35
SMMEA...................................................................19, 105
Special Hazard Insurance Policy..........................................17, 69
Special Hazard Insurer.......................................................69
Standard Hazard Insurance Policy.........................................11, 34
Stockholders Agreement.......................................................41
Subordinated Certificateholders..........................................15, 65
Subordinated Certificates.................................................7, 57
Sub-Servicers................................................................37
Sub-servicing Account........................................................79
Substitution Adjustment......................................................81
The Pooling and Servicing Agreement..........................................53
Title V.....................................................................101
Trust..................................................................1, 9, 53
Trust Fund.............................................................1, 9, 53
Trustee...................................................................6, 92
Underwriter Exemptions......................................................105
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================================================================================
No dealer, sales person or other individual has been authorized to give any
information or to make any representations other than those contained in this
prospectus supplement and the accompanying prospectus and, if given or made,
such information or representations must not be relied upon. This prospectus
supplement and the accompanying prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby, nor an
offer of offered certificates in any state or jurisdiction in which, or to any
person to whom, such offer would be unlawful. The delivery of this prospectus
supplement or the accompanying prospectus at any time does not imply that the
information contained herein or therein is correct as of any time subsequent to
its date.
------------------------
TABLE OF CONTENTS
Page
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Prospectus Supplement
Summary of Terms.............................................................S-3
Risk Factors................................................................S-26
The Mortgage Pool...........................................................S-28
Servicing of Mortgage Loans.................................................S-41
Description of the Certificates.............................................S-45
Yield, Prepayment and Maturity Considerations...............................S-57
Credit Enhancement..........................................................S-60
[The Certificate Guaranty Insurance Policy
and the Certificate Guaranty Insurer].......................................S-65
Use of Proceeds.............................................................S-68
Certain Federal Income Tax Consequences.....................................S-68
ERISA Considerations........................................................S-90
Legal Investment............................................................S-93
Method of Distribution......................................................S-93
Legal Matters...............................................................S-94
Ratings.....................................................................S-94
Annex I-Global Clearance, Settlement
and Tax Documentation Procedures............................................S-95
Index to Defined Terms......................................................S-96
Prospectus
Prospectus Supplement..........................................................3
Available Information..........................................................3
Incorporation of Certain Documents by Reference................................4
Reports to Certificateholders..................................................4
Summary of Terms...............................................................6
Risk Factors..................................................................22
The Trusts....................................................................33
Use of Proceeds...............................................................40
The CIT Group Holdings, Inc...................................................40
The CIT Group Securitization Corporation III,
The Depositor.................................................................41
The CIT Group/Consumer Finance, Inc., Seller
and Master Servicer...........................................................41
The CIT Group/Sales Financing, Inc., Sub-Servicer.............................42
The Home Equity Lending Program...............................................43
Description of the Certificates...............................................53
Credit Enhancement............................................................64
Yield and Prepayment Considerations...........................................72
The Pooling and Servicing Agreement...........................................74
Certain Legal Aspects of the Mortgage Loans...................................93
Certain Federal Income Tax Consequences......................................102
State Tax Considerations.....................................................103
ERISA Considerations.........................................................104
Legal Investment.............................................................105
Method of Distribution.......................................................106
Legal Matters................................................................107
Financial Information........................................................107
Ratings......................................................................107
Experts......................................................................108
Index to Defined Terms.......................................................109
================================================================================
================================================================================
$________________
(Approximate)
THE CIT GROUP
SECURITIZATION
CORPORATION III
Depositor
THE CIT GROUP/CONSUMER
FINANCE, INC.
Master Servicer
HOME EQUITY LOAN ASSET BACKED
CERTIFICATES
(Issuable in Series)
----------------------------
PROSPECTUS
----------------------------
April 2, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC registration fee.......................................... $ 303,030.30
Attorney's fees and expenses ................................. 300,000.00
Accounting fees and expenses ................................. 100,000.00
Blue sky fees and expenses ................................... 30,000.00
Rating agency fees ........................................... 370,000.00
Trustee's fees and expenses .................................. 25,000.00
Printing expenses ............................................ 150,000.00
Miscellaneous fees and expenses .............................. 25,000.00
-------------
Total..................................................... $1,303,030.30
=============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of Delaware
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation except that no indemnification may be made in
respect of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee, or agent of a corporation has been successful in the defense of any
action, suit, or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue, or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and empowers the corporation to purchase and maintain insurance on
behalf of any person acting in any of the capacities set forth in the second
preceding paragraph against any liability asserted against him or incurred by
him in any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The Registrants' By-Laws provide for indemnification of directors and
officers of each Registrant to the full extent permitted by Delaware law.
Article X of the By-laws of CIT and Article VIII of the By-laws of the
Depositor provide, in effect, that, in addition to any rights afforded to an
officer, director or employee of such Registrant by contract or operation of
law, such Registrant may indemnify any person who is or was a director, officer,
employee, or agent of such Registrant, or of any other corporation which he
served at the request of such Registrant, against any and all liability and
reasonable expense incurred by him in connection with or resulting from any
claim, action, suit, or proceeding (whether brought by or in the right of such
Registrant or such other corporation or otherwise), civil or criminal, in which
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<PAGE>
he may have become involved, as a party or otherwise, by reason of his being or
having been such director, officer, employee, or agent of such Registrant or
such other corporation, whether or not he continues to be such at the time such
liability or expense is incurred, provided that such person acted in good faith
and in what he reasonably believed to be the best interests of such Registrant
or such other corporation, and, in connection with any criminal action
proceeding, had no reasonable cause to believe his conduct was unlawful.
Such Articles further provide that any person who is or was a director,
officer, employee, or agent of such Registrant or any direct or indirect
wholly-owned subsidiary of such Registrant shall be entitled to indemnification
as a matter of right if he has been wholly successful, on the merits or
otherwise, with respect to any claim, action, suit, or proceeding of the type
described in the foregoing paragraph.
In addition, the Registrants maintain directors' and officers'
reimbursement and liability insurance pursuant to standard form policies with
aggregate limits of $90,000,000. The risks covered by such policies do not
exclude liabilities under the Securities Act of 1933.
Pursuant to the form of Underwriting Agreement, the Underwriters will
agree, subject to certain conditions, to indemnify the Registrants, their
directors, certain of their officers and persons who control the Registrants
within the meaning of the Securities Act of 1933 against certain liabilities.
Pursuant to the form of Underwriting Agreement, the Underwriters will
agree, subject to certain conditions, to indemnify the Registrant, its
directors, certain of its officers and persons who control the Registrant within
the meaning of the Securities Act of 1933 against certain liabilities.
Item 16. Exhibits and Financial Statements Schedules.
a. Exhibits:
* 1.1 Form of Underwriting Agreement.
* 3.1 Certificate of Incorporation of The CIT Group Securitization
Corporation III.
* 3.2 Bylaws of The CIT Group Securitization Corporation III.
* 4.1 Form of Pooling and Servicing Agreement.
* 4.2 Form of Limited Guarantee.
* 5.1 Opinion of Schulte Roth & Zabel LLP as to legality of the
Certificates.
* 8.1 Opinion of Schulte Roth & Zabel LLP as to certain tax matters.
* 10.1 Form of Mortgage Loan Purchase Agreement.
* 10.2 Form of Subsequent Mortgage Loan Purchase Agreement.
* 23.1 Consent of Schulte Roth & Zabel LLP (included in exhibits 5.1 and 8.1
hereof).
* 23.2 Consent of KPMG Peat Marwick LLP.
* 24.1 Powers of Attorney of The CIT Group Securitization Corporation III
(included on page II-4).
* 24.2 Powers of Attorney of The CIT Group Holdings, Inc.
- ---------
* Previously Filed
II-2
<PAGE>
b. Financial Statement Schedules:
Not applicable.
ITEM 17. Undertakings.
The Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any fact or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants undertake that, for purposes of determining any
liability under the Act, each filing of the Registrants' annual reports pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrants hereby agree to provide to the underwriter at
the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Livingston, State of New
Jersey, on April 2, 1997.
THE CIT GROUP SECURITIZATION CORPORATION III
By: /s/ Thomas B. Hallman
---------------------------------------
Name: Thomas B. Hallman
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Thomas B. Hallman President and Director April 2, 1997
- ---------------------
Thomas B. Hallman
* Vice President and Director
- --------------------
Ron G. Arrington
* Director
- ---------------------
Joseph J. Carroll
* Vice President and Controller
- ---------------------- (principal financial
Daniel A. Andriola and accounting officer)
*By: /s/ Thomas B. Hallman April 2, 1997
------------------------
Thomas B. Hallman
Attorney-in-fact
Original powers of attorney authorizing Thomas B. Hallman, Ron G. Arrington
and Joseph J. Carroll and each of them to sign the Registration Statement and
amendments thereto on behalf of the directors and officers of the Registrant
indicated above are held by The CIT Group Securitization Corporation III and
available for examination pursuant to Item 302(b) of Regulation S-T.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York and State of New
York, on April 2, 1997.
THE CIT GROUP HOLDINGS, INC.
By:/s/ ERNEST D. STEIN
---------------------------
Ernest D. Stein
Executive Vice President, General
Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendement
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Signature and Title Date
------------------- ----
Albert R. Gamper, Jr.*
- -----------------------------------
President, Chief Executive Officer,
and Director (Principal executive
officer)
Hisao Kobayashi*
- -----------------------------------
Director
Takasuke Kaneko*
- -----------------------------------
Director
Kenji Nakamura*
- -----------------------------------
Director
Joseph A. Pollicino*
- -----------------------------------
Director
Paul N. Roth*
- -----------------------------------
Director
II-5
<PAGE>
Signature and Title Date
------------------- ----
*By: /s/ ERNEST D. STEIN
-------------------------------
Ernest D. Stein
Attorney-in-fact
April 2, 1997
Peter J. Tobin*
-------------------------
Director
Keiji Torii*
-------------------------
Director
Yukihara Uno*
-------------------------
Director
Yasuo Tsunemi*
-------------------------
Director
/s/ JOSEPH M. LEONE April 2, 1997
- -----------------------------------
Joseph M. Leone
Executive Vice President and
Chief Financial Officer
(principal financial and
accounting officer)
Original powers of attorney authorizing Albert R. Gamper, Jr., Ernest D.
Stein, and Donald J. Rapson and each of them to sign the Registration Statement
and amendments thereto on behalf of the directors and officers of the Registrant
indicated above are held by The CIT Group Holdings, Inc. and available for
examination pursuant to Item 302(b) of Regulation S-T.
II-6
