AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 27, 1996
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE PROVIDENT BANK
(Exact name of registrant as specified in its charter)
Ohio 31-0412725
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARK E. MAGEE, ESQ.
THE PROVIDENT BANK
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
WITH A COPY TO:
JAMES R. WHITAKER, ESQ. MICHAEL P. BRAUN, ESQ.
KEATING, MUETHING & KLEKAMP, P.L.L. BROWN & WOOD LLP
1800 PROVIDENT TOWER ONE WORLD TRADE CENTER
ONE EAST FOURTH STREET NEW YORK, NEW YORK 10048-0557
CINCINNATI, OHIO 45202
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time on or after the effective date of the registration
statement, as determined by market conditions.
---------------------------
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, PLEASE CHECK THE FOLLOWING BOX. /X/
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN
OFFERING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK
THE FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT
NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME
OFFERING./ /____________
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE
462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE
SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING./ /____________
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE
434, PLEASE CHECK THE FOLLOWING BOX./ /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION> Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class to be Offering Price Aggregate Registration
of Securities to Be Registered Per Unit/(1)/ Offering Fee
Registered Price/(1)/
<S> <C> <C> <C> <C>
Asset Backed Notes
and Asset Backed
Certificates/(2)/ . . $1,000,000 100% $1,000,000 $303.03
</TABLE>
/(1)/ Estimated for the purpose of calculating the registration
fee.
/(2)/ Not specified as to each class of Asset Backed Securities
to be registered pursuant to General Instruction II.D of Form S-3.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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 DECEMBER 27, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated ______________, 199__)
$___________________
(APPROXIMATE)
HOME EQUITY LOAN ASSET BACKED CERTIFICATES, SERIES 199_-_
THE PROVIDENT BANK
TRANSFEROR AND MASTER SERVICER
Each Home Equity Loan Asset Backed Certificate, Series 199_-_
(collectively, the "Certificates") will represent an undivided interest in
the Provident Home Equity Loan Trust 199_-_ (the "Trust Fund") to be
formed pursuant to a Pooling and Servicing Agreement between The Provident
Bank ("Provident"), as Transferor and Master Servicer and (
), as Trustee. The property of the Trust Fund will include a pool of
(adjustable rate) home equity revolving credit line loans made or to be
made in the future (the "Mortgage Loans") under certain home equity
revolving credit line loan agreements. The Mortgage Loans are secured by
either first and second deeds of trust or mortgages on one- to four-family
residential properties. See "Index of Defined Terms" on Page (S-56) of
this Prospectus Supplement and on Page (98) of the Prospectus for the
location of the definitions of certain capitalized terms.
The aggregate undivided interest in the Trust Fund represented by the
Certificates will, as of ____________, 199_ (the "Cut-off Date"),
represent approximately __% of the outstanding principal balances of the
Mortgage Loans. The remaining undivided interest in the Trust Fund not
represented by the Certificates (the "Transferor Interest") will initially
be equal to $_________________, which as of the Cut-off Date is _% of the
outstanding principal balances of the Mortgage Loans. Only the
Certificates are offered hereby.
Distributions of principal and interest on the Certificates will be
made on the __________th day of each month or, if such date is not a
Business Day, then on the succeeding Business Day (each, a "Distribution
Date"), commencing ___________, 199_. On each Distribution Date, holders
of the Certificates will be entitled to receive, from and to the limited
extent of funds available in the Collection Account (as defined herein),
distributions with respect to interest and principal calculated as set
forth under "Summary--Interest," "Summary--Principal Payments from
Principal Collections" and "Description of the Certificates--Distributions
on the Certificates" herein. The Certificates are not guaranteed by
Provident or any affiliate thereof. (However, the Certificates will be
unconditionally and irrevocably guaranteed as to the payment of the
Guaranteed Distributions (as defined herein) on each Distribution Date
pursuant to the terms of a financial guaranty insurance policy (the
"Policy") to be issued by
(INSURER)
There is currently no market for the Certificates offered hereby and
there can be no assurance that such a market will develop or if it does
develop that it will continue. See "Risk Factors" herein and in the
Prospectus.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-16 HEREIN AND ON PAGE (13) IN THE
ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST FUND ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF PROVIDENT,
THE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO
THE EXTENT PROVIDED HEREIN. NEITHER THE
CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
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. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Proceeds to
Price to Underwriting the
Public (1) Discount(2) Provident(3)
Per % % %
Certificate .
Total . . . . $ $ $
(1) Plus accrued interest, if any, from _______________, 199_.
(2) Provident has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
(3) Before deducting expenses, estimated to be $_______________.
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected
that delivery of the Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company, CEDEL Bank,
soci t anonyme, and the Euroclear System on or about ______________, 199_
(the "Closing Date"). The Certificates will be offered in Europe and the
United States of America.
(UNDERWRITER)
_____________, 199_
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS ACTING AS UNDERWRITERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The Certificates offered hereby constitute part of a separate series
of Home Equity Loan Asset Backed Certificates being offered by The
Provident Bank from time to time pursuant to its Prospectus dated
_______________, 199__. This Prospectus Supplement does not contain
complete information about the offering of the Certificates. Additional
information is contained in the Prospectus and investors are urged to read
both this Prospectus Supplement and the Prospectus in full. Sales of the
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
The Trustee on behalf of any Trust Fund will provide without charge
to each person to whom this Prospectus Supplement is delivered, on the
written or oral request of such person, a copy of any or all of the
documents referred to in the Prospectus under "Incorporation of Certain
Documents by Reference" that have been or may be incorporated by reference
in the Prospectus (not including exhibits to the information that is
incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus
incorporates). Such requests should be directed to the Corporate Trust
Office of the Trustee at _____________, telephone:_________, facsimile
number:_____________, attention:__________.
SUMMARY
The following summary of certain pertinent information is qualified
in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus.
Certain capitalized terms used in the Summary are defined elsewhere in the
Prospectus Supplement or in the Prospectus. See "Index of Defined Terms"
on Page S-56 of this Prospectus Supplement and on Page 99 of the
Prospectus for the location of the definitions of certain capitalized
terms.
Trust Fund Provident Home Equity Loan Trust 199_-_ (the "Trust
Fund") will be formed pursuant to a pooling and
servicing agreement (the "Agreement") to be dated as
of ______________, 199_ (the "Cut-off Date") between
The Provident Bank ("Provident"), as transferor and
servicer (together with any successor in such
capacity, the "Transferor" and the "Master Servicer",
respectively) and ( ), as trustee (the
"Trustee"). The property of the Trust Fund will
include: a pool of (adjustable rate) home equity
revolving credit line loans made or to be made in the
future (the "Mortgage Loans"), under certain home
equity revolving credit line loan agreements (the
"Credit Line Agreements") and secured by either first
or second mortgages on residential properties that are
one- to four-family properties (the "Mortgaged
Properties"); the collections in respect of the
Mortgage Loans received after the Cut-off Date
(exclusive of payments in respect of accrued interest
due on or prior to the Cut-off Date); property that
secured a Mortgage Loan which has been acquired by
foreclosure or deed in lieu of foreclosure; an
irrevocable and unconditional limited financial
guaranty insurance policy (the "Policy"); rights under
certain hazard insurance policies covering the
Mortgaged Properties; and certain other property, as
described more fully under "Description of the
Certificates--General" herein.
The Trust Fund property will include the unpaid
principal balance of each Mortgage Loan as of the Cut-
off Date (the "Cut-off Date Principal Balance") plus
any additions thereto as a result of new advances made
pursuant to the applicable Credit Line Agreement (the
"Additional Balances") during the life of the Trust
Fund. With respect to any date, the "Pool Balance"
will be equal to the aggregate of the Principal
Balances of all Mortgage Loans as of such date. The
aggregate Cut-off Date Principal Balance of the
Mortgage Loans is $____________________ (the "Cut-off
Date Pool Balance"). The "Principal Balance" of a
Mortgage Loan (other than a Liquidated Mortgage Loan)
on any day is equal to its Cut-off Date Principal
Balance, plus (i) any Additional Balances in respect
of such Mortgage Loan, minus (ii) all collections
credited against the Principal Balance of such
Mortgage Loan in accordance with the related Credit
Line Agreement prior to such day. The Principal
Balance of a Liquidated Mortgage Loan (as defined
herein) after final recovery of related Liquidation
Proceeds (as defined herein) shall be zero.
Securities Offered Each of the Home Equity Loan Asset Backed
Certificates, Series 199_-_ offered hereby (the
"Certificates") represents an undivided interest in
the Trust Fund. Each Certificate represents the right
to receive payments of interest at the variable rate
described below (the "Certificate Rate"), payable
monthly, and payments of principal at such time and to
the extent provided herein under "Description of the
Certificates--Distributions on the Certificates". The
aggregate undivided interest in the Trust Fund
represented by the Certificates as of the Closing Date
will equal $__________________ (the "Original Invested
Amount"), which represents __% of the Cut-off Date
Pool Balance. The "Original Certificate Principal
Balance" will equal $__________________. Following
the Closing Date, the "Invested Amount" with respect
to any date will be an amount equal to the Original
Invested Amount minus (i) the amount of Investor
Principal Collections (as defined herein) previously
distributed to Certificateholders, and minus (ii) an
amount equal to the product of the Investor Floating
Allocation Percentage and the Liquidation Loss Amounts
(each as defined herein). The Transferor (as
described below) will own the remaining undivided
interest (the "Transferor Interest") in the Mortgage
Loans, which is equal to the Pool Balance minus the
Invested Amount and will initially equal approximately
__% of the Cut-off Date Pool Balance. The Transferor
(the "Transferor") as of any date is the owner of the
Transferor Interest which initially will be Provident.
The Certificates will be issued pursuant to the
Agreement. The principal amount of the outstanding
Certificates (the "Certificate Principal Balance") on
any date is equal to the Original Certificate
Principal Balance minus the aggregate of amounts
actually distributed as principal to the
Certificateholders. See "Description of the
Certificates" herein.
Removal of Certain
Mortgage Loans;
Additional Balances In order to permit the Transferor to remove Mortgage
Loans from the Trust Fund at such times, if any, as
the overcollateralization exceeds the level required
to maintain the ratings on the Certificates, on any
Distribution Date the Transferor may, but shall not be
obligated to, remove from the Trust Fund certain
Mortgage Loans without notice to the
Certificateholders. The Transferor is permitted to
designate the Mortgage Loans to be removed. Mortgage
Loans so designated will only be removed upon
satisfaction of the following conditions (i) the Rapid
Amortization Period shall not have commenced; (ii) the
Transferor Interest as of the Transfer Date (as
defined herein) (after giving effect to such removal)
exceeds the Minimum Transferor Interest (as defined
below); (iii) the transfer of any Mortgage Loans on
any Transfer Date during the Managed Amortization
Period (as defined herein) shall not, in the
reasonable belief of the Transferor, cause a Rapid
Amortization Event to occur or an event which with
notice or lapse of time or both would constitute a
Rapid Amortization Event; (iv) the Transferor shall
have delivered to the Trustee a "Mortgage Loan
Schedule" containing a list of all Mortgage Loans
remaining in the Trust Fund after such removal; (v)
the Transferor shall represent and warrant that no
selection procedures which are adverse to the
interests of the Certificateholders or the Certificate
Insurer were used by the Transferor in selecting such
Mortgage Loans; (vi) in connection with the first such
retransfer of Mortgage Loans, the Rating Agencies (as
defined herein) shall have been notified of the
proposed transfer and prior to the Transfer Date shall
not have notified the Transferor in writing that such
transfer would result in a reduction or withdrawal of
the ratings assigned to the Certificates without
regard to the Policy; and (vii) the Transferor shall
have delivered to the Trustee and the Certificate
Insurer an officer's certificate confirming the
conditions set forth in clauses (i) through (vi)
above. See "Description of the Certificates--Optional
Transfers of Mortgage Loans to the Transferor" herein.
The "Minimum Transferor Interest" as of any date is an
amount equal to the lesser of (a) __% of the Pool
Balance on such date and (b) the Transferor Interest
as of the Closing Date.
During the term of the Trust Fund, all Additional
Balances will be transferred to and become property of
the Trust Fund. The Pool Balance at any time will
generally fluctuate from day to day because the amount
of Additional Balances and the amount of principal
payments with respect to the Mortgage Loans will
usually differ from day to day. Because the
Transferor Interest is equal to the Pool Balance minus
the Invested Amount, the amount of the Transferor
Interest will fluctuate from day to day as draws are
made with respect to the Mortgage Loans and as
Principal Collections are received.
The Mortgage Loan The Mortgage Loans are secured by first and second
mortgages on Mortgaged Properties located in ___
states.
The percentage of the Cut-off Date Principal Balance
of the Mortgage Loans secured by Mortgaged Properties
located in the states of __________, ________,
__________, _______, ______ and ________ is
approximately ____%, ____%, ____%, ____%, ____% and
____%, respectively. The "Combined Loan-to-Value
Ratio" of each Mortgage Loan is the ratio of (A) the
sum of (i) the maximum amount the borrower was
permitted to draw down under the related Credit Line
Agreement (the "Credit Limit") and (ii) the amounts of
any related senior mortgage loans (computed as of the
date of origination of each such Mortgage Loans) to
(B) the lesser of (i) the appraised value of the
Mortgaged Property or (ii) in the case of a Mortgaged
Property purchased within one year of the origination
of the related Mortgage Loan, the purchase price of
such Mortgaged Property. As of the Cut-off Date the
Combined Loan-to-Value Ratios ranged from ____% to
______% and, as of the Cut-off Date, the weighted
average Combined Loan-to-Value Ratio of the Mortgage
Loans was approximately ____%.
(Interest on each Mortgage Loan is payable monthly and
computed on the related daily outstanding Principal
Balance for each day in the billing cycle at a
variable rate per annum (the "Loan Rate") equal at any
time (subject to maximum rates, as described herein
under "Description of the Mortgage Loans--Mortgage
Loan Terms," and further subject to applicable usury
limitations) to the sum of (i) the highest prime rate
published in the "Money Rates" section of The Wall
Street Journal and (ii) a Margin within the range of
____% to ____%). As of the Cut-off Date, the weighted
average Margin was approximately ____%. Loan Rates
are adjusted monthly on the first business day of the
calendar month preceding the Due Date. As to each
Mortgage Loan, the "Due Date" is the (fifteenth) day
of each month. The Cut-off Date Principal Balances
ranged from zero to $__________ and averaged
approximately $__________. Credit Limits under the
Mortgage Loans as of the Cut-off Date ranged from $-
__________ to $__________ and averaged approximately
$__________. Each Mortgage Loan was originated in the
period from _______________, 199_ to ________________,
199_. As of the Cut-off Date, the maximum Credit
<PAGE>
Limit Utilization Rate (as defined herein) was 100%
and the weighted average Credit Limit Utilization Rate
was approximately ____%. As of the Cut-off Date,
approximately ____% by Cut-off Date Principal Balance
of the Mortgage Loans represented first liens on the
related Mortgaged Properties, while approximately
____% of the Mortgage Loans represented second liens.
As of the Cut-off Date, the Mortgage Loans had
remaining terms to scheduled maturity ranging from ___
months to ___ months and had a weighted average of
approximately ___ months. See "Description of the
Mortgage Loans" herein.
Denominations The Certificates will be offered for purchase in
denominations of $1,000 and multiples of $1 in excess
thereof. The interest in the Trust Fund evidenced by
a Certificate (the "Percentage Interest") will be
equal to the percentage derived by dividing the
denomination of such Certificate by the Original
Certificate Principal Balance.
Registration of
Certificates The Certificates will initially be issued in book-
entry form. Persons acquiring beneficial ownership
interests in the Certificates ("Certificate Owners")
may elect to hold their Certificate interests through
The Depository Trust Company ("DTC"), in the United
States, or Cedel Bank, soci t anonyme, ("CEDEL") or
the Euroclear System ("Euroclear"), 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 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 depositaries (collectively, the "European
Depositaries"). Cross-market 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 The Chase Manhattan Bank ("Chase"),
the relevant depositaries of CEDEL or Euroclear,
respectively, and each a participating member of DTC.
The Certificates will initially be registered in the
name of Cede. The interests of the Certificateholders
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 (as
defined herein) are issued under the limited
circumstances described under "Description of the
Certificates--Book-Entry Certificates" herein. All
references in this Prospectus Supplement to any
Certificates reflect the rights of Certificate Owners
only as such rights may be exercised through DTC and
its participating organizations for so long as such
Certificates are held by DTC. See "Risk Factors--
Book-Entry Certificates", "Description of the
Certificates--Book-Entry Certificates" herein and
"Annex I" hereto.
Provident The Provident Bank ("Provident"), an Ohio banking
corporation in its capacity as transferor of the
Mortgage Loans to the Trust Fund (the "Transferor") or
as master servicer (the "Master Servicer"). See
"Provident" in the Prospectus.
Collections All collections on the Mortgage Loans will generally
be allocated in accordance with the Credit Line
Agreements between amounts collected in respect of
interest and amounts collected in respect of
principal. As to any Distribution Date, "Interest
Collections" will be equal to the amounts collected
during the related Collection Period, including the
portion of Net Liquidation Proceeds (as defined below)
allocated to interest pursuant to the terms of the
Credit Line Agreements less Servicing Fees for the
related Collection Period.
As to any Distribution Date, "Principal Collections"
will be equal to the sum of (i) the amounts collected
during the related Collection Period, including the
portion of Net Liquidation Proceeds allocated to
principal pursuant to the terms of the Credit Line
Agreements and (ii) any Transfer Deposit Amounts (as
defined herein).
"Net Liquidation Proceeds" with respect to a Mortgage
Loan are the proceeds (excluding amounts drawn on the
Policy) received in connection with the liquidation of
any Mortgage Loan, whether through trustee's sale,
foreclosure sale or otherwise, reduced by related
expenses, but not including the portion, if any, of
such amount that exceeds the Principal Balance of the
Mortgage Loan plus any accrued and unpaid interest
thereon to the end of the Collection Period during
which such Mortgage Loan became a Liquidated Mortgage
Loan.
With respect to any Distribution Date, the portion of
Interest Collections allocable to the Certificates
("Investor Interest Collections") will equal the
product of (a) Interest Collections for such
Distribution Date and (b) the Investor Floating
Allocation Percentage. With respect to any
Distribution Date, the "Investor Floating Allocation
Percentage" is the percentage equivalent of a fraction
determined by dividing the Invested Amount at the
close of business on the preceding Distribution Date
(or at the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the
beginning of the related Collection Period. The
remaining amount of Interest Collections will be
allocated to the Transferor Interest as more fully
described under "Description of the Certificates--
Allocations and Collections" herein.
On each Distribution Date, the Investor Interest
Collections will be applied in the following order of
priority: (i) as payment to the Trustee for its fee
for services rendered pursuant to the Agreement; (ii)
as payment for the premium for the Policy; (iii) as
payment for the accrued interest due and any overdue
accrued interest (with interest thereon) on the
Certificate Principal Balance of the Certificates;
(iv) to pay any Investor Loss Amount (as defined
herein) for such Distribution Date; (v) as payment for
any Investor Loss Amount for a previous
<PAGE>
Distribution Date that was not previously (a) funded
by Investor Interest Collections allocable to the
Certificateholders, (b) absorbed by the
Overcollateralization Amount, (c) funded by amounts on
deposit in the Spread Account or (d) funded by draws
on the Policy; (vi) to reimburse prior draws made from
the Policy (with interest thereon); (vii) to pay
principal on the Certificates until the Invested
Amount exceeds the Certificate Principal Balance by
the Required Overcollateralization Amount, each as
defined herein (such amount, if any, paid pursuant to
this clause (vii) being referred to herein as the
"Accelerated Principal Distribution Amount"); (viii)
any other amounts required to be deposited in an
account for the benefit of the Certificate Insurer and
Certificateholders pursuant to the Agreement or
amounts owed to the Certificate Insurer pursuant to
the Insurance Agreement; (ix) certain amounts that may
be required to be paid to the Master Servicer pursuant
to the Agreement; and (x) to the Transferor to the
extent permitted as described under "Description of
the Certificates--Distributions on the Certificates"
herein.
Investor Interest Collections available after the
payment of interest on the Certificates may be
insufficient to cover any Investor Loss Amount. If
such insufficiency results in the Certificate
Principal Balance exceeding the Invested Amount, a
draw in an amount equal to such difference will be
made on the Policy in accordance with the terms of the
Policy.
The "Overcollateralization Amount" on any date of
determination is the amount, if any, by which the
Invested Amount exceeds the Certificate Principal
Balance on such day. Payments to Certificateholders
pursuant to clause (iii) above will be interest
payments on the Certificates. Payments to
Certificateholders pursuant to clauses (iv), (v) and
(vii) will be principal payments on the Certificates
and will therefore reduce the Certificate Principal
Balance, however, payments pursuant to clause (vii)
will not reduce the Invested Amount. The Accelerated
Principal Distribution Amount is not guaranteed by the
Policy.
"Liquidation Loss Amount" means with respect to any
Liquidated Mortgage Loan, the unrecovered Principal
Balance thereof at the end of the related Collection
Period in which such Mortgage Loan became a Liquidated
Mortgage Loan, after giving effect to the Net
Liquidation Proceeds in connection therewith. The
"Investor Loss Amount" shall be the product of the
Investor Floating Allocation Percentage and the
Liquidation Loss Amount for such Distribution Date.
See "Description of the Certificates--Distributions on
the Certificates" herein.
Principal Collections will be allocated between the
Certificateholders and the Transferor ("Investor
Principal Collections" and "Transferor Principal
Collections", respectively) in accordance with their
percentage interests in the Mortgage Loans of __% and
__%, respectively, as of the Cut-off Date (the "Fixed
Allocation Percentage"), but a lesser amount of
Principal Collections may be distributed to
Certificateholders during the Managed Amortization
Period, as described below. The "Investor Fixed
Allocation Percentage" shall be __%.
The Master Servicer will deposit Interest Collections
and Principal Collections in respect of the Mortgage
Loans in an account established for such purpose under
the Agreement (the "Collection Account"). See
"Description of the Certificates--Payments on Mortgage
Loans; Deposits to Collection Account" herein.
Collection Period As to any Distribution Date other than the first
Distribution Date, the "Collection Period" is the
calendar month preceding the month of such
Distribution Date. As to the first Distribution Date,
the "Collection Period" is the period beginning after
the Cut-off Date and ending on the last day of
_____________, 199_.
Interest Interest on the Certificates will be distributed
monthly on the fifteenth day of each month or, if such
day is not a Business Day, then the next succeeding
Business Day (each, a "Distribution Date"), commencing
on ______________, 199_, at the Certificate Rate for
the related Interest Period (as defined below). The
"Certificate Rate" for an Interest Period will
generally equal the sum of ((a) the London Interbank
offered rate for one-month United States deposits
("LIBOR") appearing on the Telerate Screen Page 3750,
as of the second LIBOR Business Day (as defined
herein) prior to the first day of such Interest Period
(or as of two LIBOR Business Days prior to the Closing
Date, in the case of the first Interest Period) and
(b) ____%.) Notwithstanding the foregoing, in no
event will the amount of interest required to be
distributed in respect of the Certificates on any
Distribution Date exceed a rate equal to the weighted
average of the Loan Rates (net of the Servicing Fee
Rate, the fee payable to the Trustee and the rate at
which the premium payable to the Certificate Insurer
is calculated) weighted on the basis of the daily
balance of each Mortgage Loan during the related
billing cycle prior to the Collection Period relating
to such Distribution Date. Interest on the
Certificates in respect of any Distribution Date will
accrue from the preceding Distribution Date (or in the
case of the first Distribution Date, from the date of
the initial issuance of the Certificates (the "Closing
Date") through the day preceding such Distribution
Date (each such period, an "Interest Period") on the
basis of the actual number of days in the Interest
Period and a 360-day year.
Interest payments on the Certificates will be funded
from Investor Interest Collections, any funds on
deposit in the Spread Account and from draws on the
Policy. See "Description of the Certificates" herein.
Principal Payments
from Principal
Collections For the period beginning on the first Distribution
Date and, unless a Rapid Amortization Event (as
defined herein) shall have earlier occurred, ending on
the Distribution Date in _____________, 200_ (the
"Managed Amortization Period"), the amount of
Principal Collections payable to Certificateholders as
of each Distribution Date during the Managed
Amortization Period will equal, to the extent funds
are available therefor, the Scheduled Principal
Collections Distribution Amount for such Distribution
Date. On any Distribution Date during the Managed
Amortization Period, the "Scheduled Principal
Collections Distribution Amount" shall equal the
lesser of (i) the Maximum Principal Payment (as
defined herein) and (ii) the Alternative Principal
Payment (as defined herein). With respect to any
Distribution Date, the "Maximum Principal Payment"
will equal the product of the Investor Fixed
Allocation Percentage and Principal Collections for
such Distribution Date. With respect to any
Distribution Date, the "Alternative Principal Payment"
will equal the greater of (x) ____% of the Certificate
Principal Balance immediately prior to such
Distribution Date and (y) the amount, but not less
than zero, of Principal Collections for such
Distribution Date less the aggregate of Additional
Balances created during the related Collection Period.
Beginning with the first Distribution Date following
the end of the Managed Amortization Period, the amount
of Principal Collections payable to Certificateholders
on each Distribution Date will be equal to the Maximum
Principal Payment. See "Description of the
Certificates--Distributions on the Certificates"
herein.
In addition, to the extent funds are available
therefor (including funds available under the Policy),
on the Distribution Date in _____________ 20__,
Certificateholders will be entitled to receive as
payment of principal an amount equal to the
outstanding Certificate Principal Balance.
Distributions of Principal Collections based upon the
Investor Fixed Allocation Percentage may result in
distributions of principal to Certificateholders in
amounts that are greater relative to the declining
Pool Balance than would be the case if the Investor
Floating Allocation Percentage were used to determine
the percentage of Principal Collections distributed in
respect of the Invested Amount. The aggregate
distributions of principal to Certificateholders will
not exceed the Original Certificate Principal Balance.
The Certificate
Insurer (Insurer) (the "Certificate Insurer") is a
insurance company engaged exclusively in the business
of writing financial guaranty insurance, principally
in respect of securities offered in domestic and
foreign markets. The Certificate Insurer's claims-
paying ability is rated ____ by
______________________________ and _____ by
________________________________________. See "The
Certificate Insurer" in this Prospectus Supplement.
Policy On or before the Closing Date, the Policy will be
issued by the Certificate Insurer pursuant to the
provisions of the Insurance and Indemnity Agreement
(the "Insurance Agreement") to be dated as of
_____________, 199_, among Provident(, the Trustee)
and the Certificate Insurer.
The Policy will irrevocably and unconditionally
guarantee payment on each Distribution Date to the
Trustee for the benefit of the Certificateholders the
full and complete payment of (i) the Guaranteed
Principal Distribution Amount (as defined herein) with
respect to the Certificates for such Distribution Date
and (ii) accrued and unpaid interest due on the
Certificates (together, the "Guaranteed
Distributions"), with such Guaranteed Distributions
having been calculated in accordance with the original
terms of the Certificates or the Agreement except for
amendments or modifications to which the Certificate
Insurer has given its prior written consent. The
effect of the Policy is to guarantee the timely
payment of interest on, and the ultimate payment of
the principal amount of, all of the Certificates.
The "Guaranteed Principal Distribution Amount" for any
Distribution Date shall be the amount by which the
Certificate Principal Balance (after giving effect to
all other amounts distributable and allocable to
principal on the Certificates on such Distribution
Date) exceeds the Invested Amount for such
Distribution Date. In addition, the Policy will
guarantee the payment of the outstanding Certificate
Principal Balance on the Distribution Date in
____________, 20__ (after giving effect to all other
amounts distributable and allocable to principal on
such Distribution Date).
In accordance with the Agreement, the Trustee will be
required to establish and maintain an account (the
"Spread Account") for the benefit of the Certificate
Insurer and the Certificateholders. The Trustee shall
deposit the amounts into the Spread Account as
required by the Agreement.
In the absence of payments under the Policy,
Certificateholders will directly bear the credit and
other risks associated with their undivided interest
in the Trust Fund. See "Description of the
Certificates--The Policy" herein.
Overcollateralization
Amount The distribution of Accelerated Principal Distribution
Amounts, if any, to Certificateholders may result in
the Invested Amount being greater than the Certificate
Principal Balance, thereby creating the
Overcollateralization Amount. The
Overcollateralization Amount, if any, will be
available to absorb any Investor Loss Amount not
covered by Investor Interest Collections. Payments of
Accelerated Principal Distribution Amounts are not
covered by the Policy. Any Investor Loss Amounts not
covered by such overcollateralization, amounts on
deposit in the Spread Account or Investor Interest
Collections will be covered by draws on the Policy to
the extent provided therein.
Record Date The last day preceding a Distribution Date or, if the
Certificates are no longer Book-Entry Certificates,
the last day of the month preceding a Distribution
Date.
Servicing The Master Servicer will be responsible for servicing,
managing and making collections on the Mortgage Loans.
The Master Servicer will deposit all collections in
respect of the Mortgage Loans into the Collection
Account as described under "Description of the
Certificates--Payments on Mortgage Loans; Deposits to
Collection Account" herein. On the third Business Day
prior to each Distribution Date (the "Determination
Date"), the Master Servicer will calculate, and
instruct the Trustee regarding the amounts available
to be paid, as described under "Description of the
Certificates--Payments on Mortgage Loans; Deposits to
Collection Account" herein, to the Certificateholders
on such Distribution Date. See "Description of the
Certificates--Distributions on the Certificates"
herein. With respect to each Collection Period, the
Master Servicer will receive from collections in
respect of interest on the Mortgage Loans, on behalf
of itself, a portion of such collections as a monthly
servicing fee (the "Servicing Fee") in the amount of
approximately ____% per annum (the "Servicing Fee
Rate") on the aggregate Principal Balances of the
Mortgage Loans as of the first day of each such
Collection Period. See "Description of the
Certificates--Servicing Compensation and Payment of
Expenses" herein. In certain limited circumstances,
the Master Servicer may resign or be removed, in which
event either the Trustee or a third-party servicer
will be appointed as a successor Master Servicer. See
"Description of the Certificates--Certain Matters
Regarding the Master Servicer and the Transferor"
herein.
Final Payment of
Principal;
Termination The Trust Fund will terminate on the Distribution Date
following the later of (A) payment in full of all
amounts owing to the Certificate Insurer and (B) the
earliest of (i) the Distribution Date on which the
Certificate Principal Balance has been reduced to
zero, (ii) the final payment or other liquidation of
the last Mortgage Loan in the Trust Fund, (iii) the
optional retransfer to the Transferor of the
Certificates, as described below and (iv) the
Distribution Date in ______________, 20__. The
Certificates will be subject to optional retransfer to
the Transferor on any Distribution Date after the
Certificate Principal Balance is reduced to an amount
less than or equal to $________________ (__% of the
Original Certificate Principal Balance) and all
amounts due and owing to the Certificate Insurer and
unreimbursed draws on the Policy, together with
interest thereon, as provided under the Insurance
Agreement, have been paid. The retransfer price will
be equal to the sum of the outstanding Certificate
Principal Balance and accrued and unpaid interest
thereon at the Certificate Rate through the day
preceding the final Distribution Date. See
"Description of The Certificates--Termination;
Retirement of the Certificates" herein and "The
Agreements--Termination; Optional Termination" in the
Prospectus.
In addition, the Trust Fund may be liquidated as a
result of certain events of bankruptcy, insolvency or
receivership relating to the Transferor. See
"Description of the Certificates--Rapid Amortization
Events" herein.
Trustee ( ), a ____________________________
(the "Trustee") will act as Trustee on behalf of the
Certificateholders.
Mandatory Retransfer
of Certain Mortgage
Loans Provident will make certain representations and
warranties in the Agreement with respect to the
Mortgage Loans. If Provident breaches certain of its
representations and warranties with respect to any
Mortgage Loan and such breach materially and adversely
affects the interests of the Certificateholders or the
Certificate Insurer and is not cured within the
specified period, the Mortgage Loan will be removed
from the Trust Fund upon the expiration of a specified
period from the date on which Provident becomes aware
or receives notice of such breach and will be
reassigned to the Transferor. See "Description of the
Certificates--Assignment of Mortgage Loans" herein.
Federal Income Tax
Consequences Subject to the qualifications set forth in "Federal
Income Tax Consequences" herein, special tax counsel
to Provident is of the opinion that, under existing
law, a Certificate will be treated as a debt
instrument for federal income tax purposes as of the
Closing Date. Under the Agreement, the Transferor,
Provident and the Certificateholders will agree to
treat the Certificates as indebtedness for federal
income tax purposes. Furthermore, special tax counsel
to Provident is of the opinion that the Trust Fund
will not be treated as either an association or a
publicly traded partnership taxable as a corporation
or as a taxable mortgage pool. See "Federal Income
Tax Consequences" herein and in the Prospectus for
additional information concerning the application of
federal income tax laws.
ERISA
Considerations The acquisition of a Certificate by a pension or other
employee benefit plan (a "Plan") subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), could, in some instances, result in
a "prohibited transaction" or other violation of the
fiduciary responsibility provisions of ERISA and Code
Section 4975. Certain exemptions from the prohibited
transaction rules could be applicable to the
acquisition of the Certificates. Any Plan fiduciary
considering whether to purchase any Certificate on
behalf of a Plan should consult with its counsel
regarding the applicability of the provisions of ERISA
and the Code. See "ERISA Considerations" herein and
in the Prospectus.
Legal Investment
Considerations The Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), because not
all of the Mortgages securing the Mortgage Loans are
first mortgages. Accordingly, many institutions with
legal authority to invest in comparably rated
securities based solely on first mortgages may not be
legally authorized to invest in the Certificates. See
"Legal Investment Considerations" herein and "Legal
Investment" in the Prospectus.
Certificate
Rating It is a condition to the issuance of the Certificates
that they be rated "___" by _____ and "___" by
_________ (each a "Rating Agency"). In general,
ratings address credit risk and do not address the
likelihood of prepayments. See "Ratings" herein and
"Risk Factors--Rating of the Securities" in the
Prospectus.
Risk Factors For a discussion of certain risks associated with an
investment in the Certificates, see "Risk Factors" on
Page S-16 herein and on page (13) in the Prospectus.
RISK FACTORS
Investors should consider the following risks in connection with the
purchase of Certificates.
Consequences of Owning Book-Entry Certificates. 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 physical
certificates. See "Description of the Certificates--Book-Entry
Certificates" herein and "Risk Factors-Book-Entry Registration" in the
Prospectus.
Since transactions in the Certificates can be effected only through
DTC, CEDEL, Euroclear, participating organizations, indirect participants
and certain banks, the ability of a Certificate Owner to pledge a
Certificate to persons or entities that do not participate in the DTC,
CEDEL or Euroclear system may be limited due to lack of a physical
certificate representing the Certificates. See "Description of the
Certificates--Book-Entry Certificates" herein and "Risk Factors-Book-Entry
Registration" in the Prospectus.
Certificate Owners may experience some delay in their receipt of
distributions of interest and principal on the Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit
such distributions to the accounts of its Participants (as defined herein)
which will thereafter credit them to the accounts of Certificate Owners
either directly or indirectly through indirect participants. Certificate
Owners will not be recognized as Certificateholders as such term is used
in the Agreement, and Certificate Owners will be permitted to exercise the
rights of Certificateholders only indirectly through DTC and its
Participants. See "Description of the Certificates--Book-Entry
Certificates" herein and "Risk Factors-Book-Entry Registration" in the
Prospectus.
Cash Flow Considerations and Risks. Minimum monthly payments on the
Mortgage Loans will at least equal and may exceed accrued interest. Even
assuming that the Mortgaged Properties provide adequate security for the
Mortgage Loans, substantial delays could be encountered in connection with
the liquidation of Mortgage Loans that are delinquent and resulting
shortfalls in distributions to Certificateholders could occur if the
Certificate Insurer were unable to perform on its obligations under the
Policy. Further, liquidation expenses (such as legal fees, real estate
taxes, and maintenance and preservation expenses) will reduce the proceeds
payable to Certificateholders and thereby reduce the security for the
Mortgage Loans. In the event any of the Mortgaged Properties fail to
provide adequate security for the related Mortgage Loans,
Certificateholders could experience a loss if the Certificate Insurer were
unable to perform its obligations under the Policy.
Prepayment Considerations and Risks. Substantially all of the
Mortgage Loans may be prepaid in whole or in part at any time without
penalty. Home equity loans, such as the Mortgage Loans, have been
originated in significant volume only during the past few years and
Provident is not aware of any publicly available studies or statistics on
the rate of prepayment of such loans. Generally, home equity loans are
not viewed by borrowers as permanent financing. Accordingly, the Mortgage
Loans may experience a higher rate of prepayment than traditional loans.
The Trust Fund's prepayment experience may be affected by a wide variety
of factors, including general economic conditions, interest rates, the
availability of alternative financing and homeowner mobility. In
addition, substantially all of the Mortgage Loans contain due-on-sale
provisions and the Master Servicer intends to enforce such provisions
unless (i) such enforcement is not permitted by applicable law or (ii) the
Master Servicer, in a manner consistent with reasonable commercial
practice, permits the purchaser of the related Mortgaged Property to
assume the Mortgage Loan. To the extent permitted by applicable law, such
assumption will not release the original borrower from its obligation
under any such Mortgage Loan. See "Description of the Certificates"
herein and "Certain Legal Aspects of Loans--Due-on-Sale Clauses" in the
Prospectus for a description of certain provisions of the Credit Line
Agreements that may affect the prepayment experience on the Mortgage
Loans. The yield to maturity and weighted average life of the
Certificates will be affected primarily by the rate and timing of
prepayments on the Mortgage Loans. Any reinvestment risks resulting from
a faster or slower incidence of prepayment of Mortgage Loans will be borne
entirely by the Certificateholders. See "Maturity and Prepayment
Considerations" herein and "Yield and Prepayment Considerations" in the
Prospectus.
Certificate Rating. The rating of the Certificates will depend
primarily on an assessment by the Rating Agencies of the Mortgage Loans
and upon the claims-paying ability of the Certificate Insurer. Any
reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the rating initially given to the Certificates
may result in a reduction in the rating of the Certificates. The rating
by the Rating Agencies of the Certificates is not a recommendation to
purchase, hold or sell the Certificates, inasmuch as such rating does not
comment as to the market price or suitability for a particular investor.
There is no assurance that the ratings will remain in place for any given
period of time or that the ratings will not be lowered or withdrawn by the
Rating Agencies. In general, the ratings address credit risk and do not
address the likelihood of prepayments. The ratings of the Certificates do
not address the possibility of the imposition of United States withholding
tax with respect to non-U.S. persons.
Legal Considerations -- Lien Priority. The Mortgage Loans are
secured by mortgages (which generally are second mortgages). With respect
to Mortgage Loans that are secured by first mortgages, the Master Servicer
has the power under certain circumstances to consent to a new mortgage
lien on the Mortgaged Property having priority over such Mortgage Loan.
Mortgage Loans secured by second mortgages are entitled to proceeds that
remain from the sale of the related Mortgaged Property after any related
senior mortgage loan and prior statutory liens have been satisfied. In
the event that such proceeds are insufficient to satisfy such loans and
prior liens in the aggregate and the Certificate Insurer is unable to
perform its obligations under the Policy, the Certificateholders will bear
(i) the risk of delay in distributions while a deficiency judgment against
the borrower is obtained and (ii) the risk of loss if the deficiency
judgment cannot be obtained or is not realized upon. See "Certain Legal
Aspects of the Loans" in the Prospectus.
Bankruptcy and Insolvency Risks. Provident and the Trust Fund will
treat the transfer of the Mortgage Loans from Provident to the Trust Fund
as a sale for accounting purposes. However, in the event of the
insolvency of Provident, it is possible that a receiver or conservator (or
similar official) for Provident, may attempt to recharacterize the sale of
the Mortgage Loans as a borrowing by Provident, secured by a pledge of the
Mortgage Loans. Certain provisions of the Federal Deposit Insurance Act
(state law) may permit the FDIC or state regulator to avoid such security
interest. This position, if argued or accepted by a court, could prevent
timely payments of amounts due on the Certificates and result in a
reduction of payments due on the Certificates. Provident will, however,
mark its records to indicate that the Mortgage Loans have been sold to the
Trust Fund.
In the event of a bankruptcy or insolvency of the Master Servicer,
the bankruptcy trustee or receiver may have the power to prevent the
Trustee or the Certificateholders from appointing a successor Master
Servicer. In the event of the insolvency of the Master Servicer and if
cash collections are commingled with the Master Servicer's own funds for
at least ten days, the Trust Fund will likely not have a perfected
interest in such collections since such collections would not have been
deposited in a segregated account within ten days after the collection
thereof, and the inclusion thereof in the bankruptcy estate of the Master
Servicer may result in delays in payment and failure to pay amounts due on
the Certificates.
In addition, federal and state statutory provisions, including the
federal bankruptcy laws and state laws affording relief to debtors, may
interfere with or affect the ability of the secured mortgage lender to
realize upon its security. For example, in a proceeding under the federal
Bankruptcy Code, a lender may not foreclose on a mortgaged property
without the permission of the bankruptcy court. 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 and possible reductions in the
aggregate amount of such payments.
(Geographic Concentration. As of the Cut-off Date, approximately
_____% (by Cut-off Date 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, together with any primary
financing on such Mortgaged Properties, 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.)
Master Servicer's Ability to Change the Terms of the Mortgage Loans.
The Master Servicer may agree to changes in the terms of a Credit Line
Agreement, provided that such changes (i) do not adversely affect the
interest of the Certificateholders or the Certificate Insurer, and (ii)
are consistent with prudent business practice. There can be no assurance
that changes in applicable law or the marketplace for home equity loans or
prudent business practice will not result in changes in the terms of the
Mortgage Loans. In addition, the Agreement permits the Master Servicer,
within certain limitations described therein, to increase the Credit Limit
of the related Mortgage Loan or reduce the Margin for such Mortgage Loan.
Any such increase in the Credit Line of a Mortgage Loan would increase the
Loan-to-Value Ratio of such Mortgage Loan and, accordingly, would increase
the risk of the Trust Fund's investment in such Mortgage Loan. In
addition, any reduction in the Margin of a Mortgage Loan would reduce the
excess cash flow available to absorb losses.
Delinquent Mortgage Loans. The Trust Fund will include Mortgage
Loans which are 89 or fewer days delinquent as of the Cut-off Date. The
Cut-off Date Principal Balance of Mortgage Loans which are between 30 days
and 89 days delinquent as of the Cut-off Date was $_________________. If
there are not sufficient funds from the Investor Interest Collections to
cover the Investor Loss Amounts for any Distribution Date, the
Overcollateralization Amount and the amount on deposit in the Spread
Account have been reduced to zero, and the Certificate Insurer fails to
perform its obligations under the Policy, the aggregate amount of
principal returned to the Certificateholders may be less than the
Certificate Principal Balance on the day the Certificates are issued.
For a discussion of additional risks pertaining to the Certificates,
see "Risk Factors" in the Prospectus.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided
by the Certificate Insurer. Accordingly, neither Provident nor the Master
Servicer makes any representation as to the accuracy and completeness of
such information.
(Description of Certificate Insurer)
THE MASTER SERVICER
GENERAL
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
subservicers. 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 Loans.
THE MASTER SERVICER
Provident will be responsible for servicing the Mortgage Loans for
the Trust in accordance with the terms of the Agreement. Advanta Mortgage
Corp. USA (the "Subservicer") will service the Mortgage Loans for
Provident pursuant to a Subservicing Agreement, to be dated as of
(______________), between Provident and the Subservicer. The terms and
conditions of the Subservicing Agreement are consistent with and do not
violate the provisions of the Agreement. Such subservicing does not
relieve Provident from any of its obligations. to service the Mortgage
Loan in accordance with the terms and conditions of the Agreement.
Provident is the principal banking subsidiary of Provident Bancorp,
Inc., a Cincinnati-based bank holding company registered under the Bank
Holding Company Act. Provident Bancorp, Inc. operates throughout Ohio,
Northern Kentucky and Southeastern Indiana. As of June 30, 1996,
Provident Bancorp, Inc. had total assets of $6.4 billion, net loans and
leases of $4.9 billion, deposits of $4.2 billion and total shareholders'
equity of $458 million. Provident Bancorp's tier 1 and total capital
ratios were 7.73% and 11.79%, respectively. For the six months ended June
30, 1996, Provident Bancorp had net earnings of $39.9 million. As of
December 31, 1995, Provident Bancorp had total assets of $6.2 billion, net
loans and leases of $4.8 billion, deposits of $4.2 billion and total
shareholders' equity of $433 million. Provident Bancorp's tier I and
total capital ratios were 7.52% and 11.77%, respectively. For the fiscal
year ended December 31, 1995, Provident Bancorp, Inc. had net earnings of
$71.9 million. Provident represents approximately 96% of Provident
Bancorp, Inc.'s assets.
THE HOME EQUITY LOAN PROGRAM
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by Provident with respect to Mortgage Loans which it
purchases or originates. Each Mortgage Loan was underwritten according to
these guidelines. Provident believes its standards are consistent with
those utilized by home equity lenders generally. The underwriting process
is intended to assess both the prospective borrower's ability to repay and
the adequacy of the real property security as collateral for the loan
granted. In certain cases, loans may be made outside of those guidelines
with the prior approval of an underwriting manager of Provident.
Provident generally originates or purchases loans which either fully
amortize over a period not to exceed 360 months or provide for
amortization over a 360 month schedule with a "balloon" payment required
at the maturity date, which will not be less than fifteen years after
origination. The loan amounts generally range from a minimum of $10,000
to a maximum of $500,000 unless a higher amount is specifically approved
by a senior official of Provident. Provident primarily originates or
purchases non-purchase money first or second mortgage loans although
Provident also originates purchase money first mortgage loans.
The homes used for collateral to secure the loans may be either
primary residential (which includes second and vacation homes) or investor
owned one- to four-family homes, condominiums, townhouses or manufactured
housing. Generally, each home must have a minimum appraised value as
described below. Mobile housing or agricultural land are not accepted as
collateral. In some cases, the loan may be secured by the owner-occupied
residence plus additional real estate collateral.
Each property proposed as security for a loan must be appraised not
more than six months prior to the date of such loan. The combined
loan-to-value ratio of the first and second mortgages generally may not
exceed 85%. If a prior mortgage exists, Provident first reviews the first
mortgage history. If it contains open-end, advance or negative
amortization provisions, the maximum potential first mortgage balance is
used in calculating the combined loan-to-value ratio which determines the
maximum loan amount.
For Provident's full documentation process, each mortgage applicant
must provide, and Provident must verify, personal financial information.
The applicant's total monthly obligations (which includes principal and
interest on each mortgage, tax assessments, other loans, charge accounts
and all other scheduled indebtedness) generally cannot exceed 60% of the
applicant's gross monthly income. Applicants who are salaried employees
must provide current employment information in addition to two recent
years of employment history and Provident verifies this information.
Verifications are based on written confirmation from employers or a
combination of the two most recent pay stubs, the two most recent years'
W-2 tax forms and telephone confirmation from the employer. Self-employed
applicants must be self-employed in the same field for a minimum of two
years. The self-employed applicant must provide signed copies of complete
federal income tax returns (including schedules) filed for the most recent
two years.
For Provident's non-income verifier program, proof of one year
history of employment plus proof of current self-employed status is
required. The applicant's debt-to-income ratio is calculated based on
income as certified by the borrower on the application and must be
reasonable. The maximum Combined Loan-to-Value ratio may not exceed 80%
for the non-income verifier program.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. The credit report
should reflect all delinquencies of 30 days or more, repossessions,
judgments, foreclosures, garnishments, bankruptcies, divorce actions and
similar adverse credit practices that can be discovered by a search of
public records. If the report is obtained more than 60 days prior to the
loan closing, the lender must determine that the reponed information has
not changed. Written verification is obtained of any first mortgage
balance if not reported in the credit bureau.
Generally, the applicant should have an acceptable credit history
given the amount of equity available, the strength of the applicant's
employment history and the level of the applicant's income to debt
obligations. The rescission period must have expired prior to funding a
loan. The rescission period may not be waived by the applicant except as
permitted by law. Either an ALTA title insurance policy or an attorney's
opinion of title is required for all loans.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of
the outstanding first mortgage, if any, and the home equity loan exceeds
replacement value, insurance equal to replacement value may be accepted.
Provident must ensure that its name and address is properly added to the
"Mortgage Clause" of the insurance policy. In the event Provident's name
is added to a "Loss Payee Clause" and the policy does not provide for
written notice of policy changes or cancellation, an endorsement adding
such provision is required.
Provident's credit underwriting guidelines require that any major
deferred maintenance on any property must bc cured from the proceeds of
the loan.
SERVICING OF THE MORTGAGE LOANS
The Master Servicer has established standard policies for the
servicing and collection of the home equity loans. Servicing includes,
but is not limited to, (i) the collection and aggregation of payments
relating to the Mortgage Loans; (ii) the supervision of delinquent
Mortgage Loans, loss mitigation efforts, foreclosure proceedings and, if
applicable, the disposition of Mortgaged Properties; and (iii) the
preparation of tax related information in connection with the Mortgage
Loans.
Billing statements are mailed monthly by the Master Servicer. The
statement details all debits and credits and specifies the minimum payment
due and the available credit line. Notice of changes in the applicable
loan rate are provided by the Master Servicer to the Mortgagor with such
statements. All payments are due by the fifteenth day of the month.
With respect to Mortgage Loans, the general policy of the Master
Servicer is to initiate foreclosure in the underlying property (i) after
such loan is 75 days or more delinquent and satisfactory arrangements
cannot be made with the Mortgagor; or (ii) if a notice of default on a
senior lien is received by the Master Servicer. Foreclosure proceedings
may be terminated if the delinquency is cured. Mortgage Loans to borrowers
in bankruptcy proceedings may be restructured in accordance with law and
with a view to maximizing recovery of such loans, including any
deficiencies.
Once foreclosure is initiated by the Master Servicer, a foreclosure
tracking system is used to monitor the progress of the proceedings. The
system includes state specific parameters to monitor whether proceedings
are progressing within the time frame typical for the state in which the
property is located. During the foreclosure proceeding, the Master
Servicer determines the amount of the foreclosure bid and whether to
liquidate the loan.
After foreclosure, if the home equity loan is secured by a first
mortgage lien, the Master Servicer may liquidate the Mortgaged Property
and charge off the home equity loan balance which was not recovered
through liquidation proceeds. If the Mortgaged Property was subject to a
senior lien, the Master Servicer will either directly manage the
foreclosure sale of the property and satisfy such lien at the time of sale
or take other action as deemed necessary to protect the interest in the
Mortgaged Property. If in the judgment of the Master Servicer, the cost
of maintaining or purchasing the senior lien position exceeds the economic
benefit of such action, the Master Servicer will generally charge off the
entire home equity loan and may seek a money judgment against the
borrower.
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the Master Servicer's
business judgment, changes in the portfolio and applicable laws and
regulations.
DELINQUENCY EXPERIENCE
The following table sets forth Provident's delinquency experience on
its servicing portfolio of mortgage loans (including mortgage loans
serviced for others) similar to the Mortgage Loans for the periods
indicated. There can be no assurance that the delinquency experience on
the Mortgage Loans will be consistent with the historical information
provided below. Accordingly, this information should not be considered to
reflect the credit quality of the Mortgage Loans included in the Trust, or
a basis of assessing the likelihood, amount or severity of losses on the
Mortgage Loans. The statistical data in the table is based on all of the
closed-end fixed and adjustable rate mortgage loans in Provident's
servicing portfolio.
The information in the tables below has not been adjusted to
eliminate the effect of the significant growth in the size of Provident's
mortgage loan portfolio during the periods shown. Accordingly,
delinquency as a percentage of aggregate principal balance of Mortgage
Loans serviced for each period would be higher than those shown if a group
of mortgage loans were artificially isolated at a point in time and the
information showed the activity only in that isolated group. However,
since most of the mortgage loans in Provident's mortgage loan portfolio
are not fully seasoned, the delinquency information for such an isolated
group would also be distorted to some degree. As of July 31, 1996, there
have been no losses on Provident's mortgage loan servicing portfolio.
The following table sets forth information relating to the
delinquency experience of mortgage loans similar to and including the
Mortgage Loans for the three quarters ended December 31, 1995, March 31,
1996 and June 30, 1996 and the month ended July 31, 1996.
<TABLE>
<CAPTION> Quarter Ended
Month Ended
July 31, 1996 June 30, 1996 March 31, 1996 December 31, 1995
Number Number Number Number
of Dollar of Dollar of Dollar of Dollar
Loans Amount Loans Amount Loans Amount Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio . 2,175 $179,701, 1,789 $150,130, 765 $72,345,0 310 $31,214,
410 803 12 760
Delinquency
percentage(1
) . . . . .
30-59 days
1.01% 1.18% 0.89% 1.23% 0.26% 0.28% 0.00% 0.00%
60-89 days
0.14% 0.13% 0.00% 0.00% 0.39% 0.42% 0.00% 0.00%
90 days or 0.28% 0.34% 0.39% 0.51% 0.13% 0.13% 0.00% 0.00%
more(2) .
Total . . . 1.43% 1.65% 1.29% 1.74% 0.78% 0.83% 0.00% 0.00%
</TABLE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The Mortgage Loans were originated pursuant to loan agreements and
disclosure statements (the "Credit Line Agreements") and are secured by
mortgages or deeds of trust, which are either first or second mortgages or
deeds of trust, on Mortgaged Properties located in ____ states. The
Mortgaged Properties securing the Mortgage Loans consist of residential
properties that are one- to four-family properties. See "--Mortgage Loan
Terms" below.
The Cut-off Date Pool Balance is $______________, which is equal to
the aggregate Principal Balances of the Mortgage Loans as of the Cut-off
Date. As of the Cut-off Date, the Mortgage Loans were not more than 89
days delinquent. The average Cut-off Date Principal Balance was
approximately $ , the minimum Cut-off Date Principal Balance was
zero, the maximum Cut-off Date Principal Balance was $ , the
minimum Loan Rate and the maximum Loan Rate as of the Cut-off Date were
% and % per annum, respectively, and the weighted average Loan Rate
as of the Cut-off Date was approximately % per annum. As of the Cut-
off Date, the weighted average Credit Limit Utilization Rate was
approximately %, the minimum Credit Limit Utilization Rate was zero
and the maximum Credit Limit Utilization Rate was 100%. The "Credit Limit
Utilization Rate" is determined by dividing the Cut-off Date Principal
Balance of a Mortgage Loan by the Credit Limit of the related Credit Line
Agreement. The remaining term to scheduled maturity for the Mortgage
Loans as of the Cut-off Date ranged from months to months and the
weighted average remaining term to scheduled maturity was approximately
months. As of the Cut-off Date, the Combined Loan-to-Value Ratio of the
Mortgage Loans ranged from % to ______% and the weighted average
Combined Loan-to-Value Ratio was approximately %. The Combined Loan-
to-Value Ratio for a Mortgage Loan is the ratio (expressed as a
percentage) of (A) the sum of (i) the Credit Limit of the Mortgage Loan
and (ii) any outstanding principal balances of mortgage loans senior to
such Mortgage Loan (calculated at the date of origination of the Mortgage
Loan) to (B) the lesser of (i) the appraised value of the related
Mortgaged Property as set forth in the loan files at such date of
origination or (ii) in the case of a Mortgaged Property purchased within
one year of the origination of the related Mortgage Loan, the purchase
price of such Mortgaged Property. Credit Limits under the Mortgage Loans
as of the Cut-off Date ranged from $ to $ and averaged
approximately $ . The weighted average second mortgage ratio
(which is the Credit Limit for the related Mortgage Loan, provided such
Mortgage Loan was in the second lien position, divided by the sum of such
Credit Limit and the outstanding principal balance of any mortgage loan
senior to the related Mortgage Loan) was approximately %. As of the
Cut-off Date, approximately % by Cut-off Date Principal Balance of the
Mortgage Loans represented first liens on the related Mortgaged
Properties, while approximately % of the Mortgage Loans represented
second liens. As of the Cut-off Date, approximately % of the
Mortgage Loans are secured by Mortgaged Properties which are single-family
residences and ___% were owner-occupied. As of the Cut-off Date,
approximately %, %, %, %, % and % by Cut-off Date
Principal Balance are located in __________, ________, __________,
_______, ______ and ________), respectively.
MORTGAGE LOAN TERMS
(A borrower may access a Mortgage Loan by writing a check in a
minimum amount of $250. The Mortgage Loans bear interest at a variable
rate which changes monthly on the first business day of the related month
with changes in the applicable Index Rate. The Mortgage Loans are subject
to a maximum per annum interest rate (the "Maximum Rate") ranging from
(_____% to _____%) per annum and subject to applicable usury limitations.
As of the Cut-off Date, the weighted average Maximum Rate was
approximately %. See "Certain Legal Aspects of the Loans--
Applicability of Usury Laws" in the Prospectus. The daily periodic rate
on the Mortgage Loans (the "Loan Rate") is the sum of the Index Rate plus
the spread (the "Margin") which generally ranges between ____% and ____%
and had a weighted average, as of the Cut-off Date, of approximately
%, divided by 365 days. The "Index Rate" is based on the highest "prime
rate" published in the 'Money Rates' table of The Wall Street Journal as
of the first business day of each calendar month.)
Set forth below is a description of certain characteristics of the
Mortgage Loans as of the Cut-off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION> Percent of
Pool
Range of Principal Balances Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
$_______ to $_________ . . . . . . . . . . $ %
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ to $_________ . . . . . . . . . .
$_______ and over . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
GEOGRAPHIC DISTRIBUTION(1)
<TABLE>
<CAPTION> Percent of
Pool
State Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
$ %
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
(1) Geographic location is determined by the address of the Mortgaged
Property securing the related Mortgage Loan.
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION> Percent of
Range of Combined Pool
Loan-to-Value Ratios Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
_____% to ______% . . . . . . . . . . . . . $ %
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
______% to ______% . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
(1) The ratio (expressed as a percentage) of (A) the sum of (i) the
Credit Limit of the Mortgage Loans and (ii) any outstanding principal
balances of mortgage loans senior to the Mortgage Loans (calculated
at the date of origination of the Mortgage Loans) to (B) the lesser
of (i) the appraised value of the related Mortgaged Property as set
forth in loan files at such date of origination or (ii) in the case
of a Mortgaged Property purchased within one year of the origination
of the related Mortgage Loan, the purchase price of such Mortgaged
Property.
PROPERTY TYPE
<TABLE>
<CAPTION> Percent of
Pool
Property Type Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
Single Family . . . . . . . . . . . . . . . $ %
Two- to Four-Family . . . . . . . . . . . .
Condominium . . . . . . . . . . . . . . . .
PUD . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION> Percent of
Pool
Lien Priority Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
First Lien . . . . . . . . . . . . . . . . $ %
Second Lien . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION> Percent of
Range of Pool
Loan Rates Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
_____% to _____% . . . . . . . . . . . . . $ %
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
(1) Approximately % of the Mortgage Loans by Cut-Off Date Principal
Balance are subject to an introductory rate of _____% per annum.
MARGIN
<TABLE>
<CAPTION> Percent of
Range of Pool
Margins Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
_____% to _____% . . . . . . . . . . . . . $ %
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION> Percent of
Range of Credit Limit Pool
Utilization Rates Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
_____% to _____% . . . . . . . . . . . . . $ %
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
_____% to _____% . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
CREDIT LIMITS
<TABLE>
<CAPTION> Percent of
Pool
Range of Credit Limits Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
$__________to $_________ . . . . . . . . . $ %
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ to $_________ . . . . . . . . .
$_________ and over . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION> Percent of
Pool
Maximum Rates Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
_____% . . . . . . . . . . . . . . . . . . $ %
_____% . . . . . . . . . . . . . . . . . .
_____% . . . . . . . . . . . . . . . . . .
_____% . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
<TABLE>
<CAPTION> Percent of
Range of Months Pool
Remaining to Scheduled Maturity Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
___ to ___ . . . . . . . . . . . . . . . . $ %
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
___ to ___ . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
(1) Assumes that the Draw Period for Mortgage Loans with five year Draw
Periods will be extended for an additional five years.
ORIGINATION YEAR
<TABLE>
<CAPTION> Percent of
Pool
Origination Year Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
____ . . . . . . . . . . . . . . . . . . . $ %
____ . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION> Percent of
Pool
Number of Days Delinquent Number by Cut-off
of Cut-off Date Date
Mortgage Principal Principal
Loans Balance Balance
<S> <C> <C> <C>
0 to 29 . . . . . . . . . . . . . . . . . . $ %
30 to 59 . . . . . . . . . . . . . . . . .
60 to 89 . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . $ 100.00%
</TABLE>
MATURITY AND PREPAYMENT CONSIDERATIONS
The Agreement, except as otherwise described herein, provides that
the Certificateholders will be entitled to receive on each Distribution
Date distributions of principal, in the amounts described under
"Description of the Certificates--Distributions on the Certificates"
herein, until the Certificate Principal Balance is reduced to zero.
During the Managed Amortization Period, Certificateholders will receive
amounts from Principal Collections based upon their Fixed Allocation
Percentage subject to reduction as described below. During the Rapid
Amortization Period, Certificateholders will receive amounts from
Principal Collections based solely upon their Fixed Allocation Percentage.
Because prior distributions of Principal Collections to Certificateholders
serve to reduce the Investor Floating Allocation Percentage but do not
change their Fixed Allocation Percentage, allocations of Principal
Collections based on the Fixed Allocation Percentage may result in
distributions of principal to the Certificateholders in amounts that are,
in most cases, greater relative to the declining balance of the Mortgage
Loans than would be the case if the Investor Floating Allocation
Percentage were used to determine the percentage of Principal Collections
distributed to Certificateholders. This is especially true during the
Rapid Amortization Period when the Certificateholders are entitled to
receive Investor Principal Collections and not a lesser amount. In
addition, Investor Interest Collections may be distributed as principal to
Certificateholders in connection with the Accelerated Principal
Distribution Amount, if any. Moreover, to the extent of losses allocable
to the Certificateholders, Certificateholders may also receive as payment
of principal the amount of such losses either from Investor Interest
Collections or, in some instances, draws under the Policy. The level of
losses may therefore affect the rate of payment of principal on the
Certificates.
To the extent obligors make more draws than principal payments, the
Transferor Interest may grow. Because during the Rapid Amortization
Period the Certificateholders share of Principal Collections is based upon
its Fixed Allocation Percentage (without reduction), an increase in the
Transferor Interest due to additional draws may also result in
Certificateholders receiving principal at a greater rate. The Agreement
permits the Transferor, at its option, but subject to the satisfaction of
certain conditions specified in the Agreement, including the conditions
described below, to remove certain Mortgage Loans from the Trust Fund at
any time during the life of the Trust Fund, so long as the Transferor
Interest (after giving effect to such removal) is not less than the
Minimum Transferor Interest. Such removals may affect the rate at which
principal is distributed to Certificateholders by reducing the overall
Pool Balance and thus the amount of Principal Collections. See
"Description of the Certificates--Optional Retransfers of Mortgage Loans
to the Transferor" herein.
All of the Mortgage Loans may be prepaid in full or in part at any
time. The prepayment experience with respect to the Mortgage Loans will
affect the weighted average life of the Certificates.
The rate of prepayment on the Mortgage Loans cannot be predicted.
Provident is not aware of any publicly available studies or statistics on
the rate of prepayment of such Mortgage Loans. Generally, home equity
revolving credit lines are not viewed by borrowers as permanent financing.
Accordingly, the Mortgage Loans may experience a higher rate of prepayment
than traditional first mortgage loans. On the other hand, because the
Mortgage Loans amortize as described under "Description of the Mortgage
Loans--Mortgage Loan Terms" herein, rates of principal payment on the
Mortgage Loans will generally be slower than those of traditional fully-
amortizing first mortgages in the absence of prepayments on such Mortgage
Loans. The prepayment experience of the Trust Fund with respect to the
Mortgage Loans may be affected by a wide variety of factors, including
general economic conditions, prevailing interest rate levels, the
availability of alternative financing, homeowner mobility, the frequency
and amount of any future draws on the Credit Line Agreements and changes
affecting the deductibility for Federal income tax purposes of interest
payments on home equity credit lines. Substantially all of the Mortgage
Loans contain "due-on-sale" provisions, and, with respect to the Mortgage
Loans, the Master Servicer intends to enforce such provisions, unless such
enforcement is not permitted by applicable law. The enforcement of a
"due-on-sale" provision will have the same effect as a prepayment of the
related Mortgage Loan. See "Certain Legal Aspects of The Loans--Due-on-
Sale Clauses" in the Prospectus.
The yield to an investor who purchases the Certificates in the
secondary market at a price other than par will vary from the anticipated
yield if the rate of prepayment on the Mortgage Loans is actually
different than the rate anticipated by such investor at the time such
Certificates were purchased.
Collections on the Mortgage Loans may vary because, among other
things, borrowers may make payments during any month as low as the minimum
monthly payment for such month or as high as the entire outstanding
principal balance plus accrued interest and the fees and charges thereon.
It is possible that borrowers may fail to make scheduled payments.
Collections on the Mortgage Loans may vary due to seasonal purchasing and
payment habits of borrowers.
No assurance can be given as to the level of prepayments that will be
experienced by the Trust Fund and it can be expected that a portion of
borrowers will not prepay their Mortgage Loans to any significant degree.
See "Yield and Prepayment Considerations" in the Prospectus.
POOL FACTOR AND TRADING INFORMATION
The "Pool Factor" is a seven-digit decimal which the Master Servicer
will compute monthly expressing the Certificate Principal Balance of the
Certificates as of each Distribution Date (after giving effect to any
distribution of principal on such Distribution Date) as a proportion of
the Original Certificate Principal Balance. On the Closing Date, the Pool
Factor will be 1.0000000. See "Description of the Certificates--
Distributions on the Certificates" herein. Thereafter, the Pool Factor
will decline to reflect reductions in the related Certificate Principal
Balance resulting from distributions of principal to the Certificates and
the Invested Amount of any unreimbursed Liquidation Loss Amounts.
Pursuant to the Agreement, monthly reports concerning the Invested
Amount, the Pool Factor and various other items of information will be
made available to the Certificateholders. In addition, within 60 days
after the end of each calendar year, beginning with the 199_ calendar
year, information for tax reporting purposes will be made available to
each person who has been a Certificateholder of record at any time during
the preceding calendar year. See "Description of the Certificates--Book-
Entry Certificates" and "--Reports to Certificateholders" herein.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form
of the Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the Prospectus is a
part. The following is a description of the material provisions of the
Agreement. Wherever particular sections or defined terms of the Agreement
are referred to, such sections or defined terms are hereby incorporated
herein by reference.
GENERAL
The Certificates will be issued in denominations of $1,000 and
multiples of $1 in excess thereof and will evidence specified undivided
interests in the Trust Fund. The property of the Trust Fund will consist
of, to the extent provided in the Agreement: (i) each of the Mortgage
Loans that from time to time are subject to the Agreement; (ii)
collections on the Mortgage Loans received after the Cut-off Date
(exclusive of payments in respect of accrued interest due on or prior to
the Cut-off Date; (iii) Mortgaged Properties relating to the Mortgage
Loans that are acquired by foreclosure or deed in lieu of foreclosure;
(iv) the Collection Account and the Security Account for the Certificates
(excluding net earnings thereon); (v) the Policy; and (vi) the Spread
Account (for the benefit of the Certificate Insurer and the
Certificateholders). Definitive Certificates (as defined below), if
issued, will be transferable and exchangeable at the corporate trust
office of the Trustee, which will initially maintain the Security Register
for the Certificates. See "--Book-Entry Certificates" below. No service
charge will be made for any registration of exchange or transfer of
Certificates, but the Trustee may require payment of a sum sufficient to
cover any tax or other governmental charge.
The aggregate undivided interest in the Trust Fund represented by the
Certificates as of the Closing Date will equal $ (the
"Original Invested Amount"), which represents __% of the Cut-off Date Pool
Balance. The "Original Certificate Principal Balance" will equal $
. Following the Closing Date, the "Invested Amount" with respect to
any Distribution Date will be an amount equal to the Original Invested
Amount minus (i) the amount of Investor Principal Collections previously
distributed to Certificateholders, and minus (ii) an amount equal to the
product of the Investor Floating Allocation Percentage and the Liquidation
Loss Amounts (each as defined herein). The principal amount of the
outstanding Certificates (the "Certificate Principal Balance") on any
Distribution Date is equal to the Original Certificate Principal Balance
minus the aggregate of amounts actually distributed as principal to the
Certificateholders. See "--Distributions on the Certificates" below.
Each Certificate represents the right to receive payments of interest at
the Certificate Rate and payments of principal as described below.
The Transferor will own the remaining undivided interest in the
Mortgage Loans (the "Transferor Interest"), which is equal to the Pool
Balance less the Invested Amount. The Transferor Interest will initially
equal $ , which represents _% of the Cut-off Date Pool Balance. The
Transferor as of any date is the owner of the Transferor Interest which
initially will be the Transferor. In general, the Pool Balance will vary
each day as principal is paid on the Mortgage Loans, liquidation losses
are incurred, Additional Balances are drawn down by borrowers and Mortgage
Loans are transferred to the Trust Fund.
The Transferor has the right to sell or pledge the Transferor
Interest at any time, provided (i) the Rating Agencies (as defined herein)
have notified the Transferor and the Trustee in writing that such action
will not result in the reduction or withdrawal of the ratings assigned to
the Certificates, and (ii) certain other conditions specified in the
Agreement are satisfied.
BOOK-ENTRY CERTIFICATES
The Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Certificates ("Certificate Owners") may elect to hold their Certificates
through the Depository Trust Company ("DTC") in the United States, or
CEDEL or Euroclear (in Europe) if they are participants of such systems,
or indirectly through organizations which are participants in such
systems. The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of the
Certificates and will initially be registered in the name of Cede & Co.,
the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in
CEDEL's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC.
Citibank will act as depositary for CEDEL and Chase will act as depositary
for Euroclear (in such capacities, individually the "Relevant Depositary"
and collectively the "European Depositaries"). Investors may hold such
beneficial interests in the Book-Entry Certificates in minimum
denominations representing Certificate Principal Balances of $1,000 and in
multiples of $1 in excess thereof. 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"). Unless and until Definitive Certificates
are issued, it is anticipated that the only "Certificateholder" of the
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners
will not be Certificateholders as that term is used in the Agreement.
Certificate Owners are only permitted to exercise their rights indirectly
through the participating organizations that utilize the services of DTC,
including securities brokers and dealers, banks and trust companies and
clearing corporations and certain other organizations ("Participants") and
DTC.
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 in turn be
recorded on the records of DTC, if the beneficial owner's Financial
Intermediary is not a DTC participant and on the records of CEDEL or
Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of,
and interest on, the Certificates from the Trustee through DTC and DTC
participants. While the Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"),
DTC is required to make book-entry transfers among Participants on whose
behalf it acts with respect to the Certificates and is required to receive
and transmit distributions of principal of, and interest on, the
Certificates. Participants and organizations which have indirect access
to the DTC system, 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") with
whom Certificate Owners have accounts with respect to Certificates are
similarly required to make book-entry transfers and receive and transmit
such distributions on behalf of their respective Certificate Owners.
Accordingly, although Certificate Owners will not possess certificates,
the Rules provide a mechanism by which Certificate Owners will receive
distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Certificates,
except under the limited circumstances described below. Unless and until
Definitive Certificates are issued, Certificate Owners who are not
Participants may transfer ownership of Certificates only through
Participants and Indirect Participants by instructing such Participants
and Indirect Participants to transfer Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective
Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Certificates will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited. Similarly, the Participants and Indirect
Participants will make debits or credits, as the case may be, on their
records on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL, or Euroclear as a result of a transaction with a Participant will
be made during, subsequent securities settlement processing and dated the
business day following, the DTC settlement date. Such credits or any
transactions in such securities, settled during such processing will be
reported to the relevant Euroclear or, CEDEL Participants on such business
day. Cash received in CEDEL or Euroclear as, a result of sales of
securities by or through a CEDEL Participant (as defined, below) or
Euroclear Participant (as defined below) 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. For information with respect to tax
documentation procedures, relating to the Certificates, see "Federal
Income Tax Consequences--Foreign Investors" and "--Backup Withholding"
herein and "Global, Clearance, Settlement And Tax Documentation
Procedures--Certain U.S. Federal Income Tax Documentation Requirements" in
Annex I hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants
will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; 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 deadlines (European time). The relevant European
international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the Relevant Depositary
to take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC 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 DTC participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating
the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars.
CEDEL provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces
with domestic markets in several countries. As a professional depository,
CEDEL is subject to regulation by the Luxembourg Monetary Institute.
CEDEL participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
Indirect access to CEDEL is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers
of securities and cash. Transactions may now be settled in any of 32
currencies, including United States dollars. Euroclear includes various
other services, including securities lending and borrowing and interfaces
with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator,
and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative.
The Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other
firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well
as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts
of payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions on the 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
DTC participants in accordance with DTC's normal procedures. Each DTC
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.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co., as nominee
for DTC ("Cede"). Distributions with respect to Certificates held through
CEDEL or Euroclear will be credited to the cash accounts of CEDEL
Participants or Euroclear Participants in accordance with the relevant
system's rules and procedures, to the extent received by the Relevant
Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See
"Federal Income Tax Consequences--Foreign Investors" and "--Backup
Withholding" herein. Because DTC can only act 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 the
Depository 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.
Monthly and annual reports on the Trust Fund provided by the Master
Servicer to Cede, as nominee of DTC, 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 DTC accounts the Book-Entry Certificates of such
beneficial owners are credited.
DTC has advised the Transferor and the Trustee that, unless and until
Definitive Certificates are issued, DTC will take any action permitted to
be taken by the holders of the Book-Entry Certificates under the Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the 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. CEDEL or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Certificateholder under the Agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and
procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Certificates
which conflict with actions taken with respect to other Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Transferor 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 Transferor or the Trustee is unable to locate a
qualified successor, (b) the Transferor, at its sole option, elects to
terminate a book-entry system through DTC or (c) after the occurrence of
an Event of Servicing Termination (as defined herein), beneficial owners
having Percentage Interests aggregating not less than 51% of the
Certificate Principal Balance of the Book-Entry Certificates advise the
Trustee and DTC through the Financial Intermediaries and the DTC
participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
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 through DTC 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 Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, Provident will transfer
to the Trust Fund all of its right, title and interest in and to each
Mortgage Loan (including any Additional Balances arising in the future),
related Credit Line Agreements, mortgages and other related documents
(collectively, the "Related Documents"), including all collections
received on or with respect to each such Mortgage Loan after the Cut-off
Date (exclusive of payments in respect of accrued interest due on or prior
to the Cut-off Date. The Trustee, concurrently with such transfer, will
deliver the Certificates to Provident and the Transferor Certificate (as
defined in the Agreement) to the Transferor. Each Mortgage Loan
transferred to the Trust Fund will be identified on a schedule (the
"Mortgage Loan Schedule") delivered to the Trustee pursuant to the
Agreement. Such schedule will include information as to the Cut-off Date
Principal Balance of each Mortgage Loan, as well as information with
respect to the Loan Rate.
Within 90 days of the Closing Date, the Trustee will review the
Mortgage Loans and the Related Documents and if any Mortgage Loan or
Related Document is found to be defective in any material respect and such
defect is not cured within 90 days following notification thereof to
Provident by the Trustee, the Transferor will be obligated to accept the
transfer of such Mortgage Loan from the Trust Fund. Upon such transfer,
the Principal Balance of such Mortgage Loan will be deducted from the Pool
Balance, thus reducing the amount of the Transferor Interest. If the
deduction would cause the Transferor Interest to become less than the
Minimum Transferor Interest at such time (a "Transfer Deficiency"),
Provident will be obligated to either substitute an Eligible Substitute
Mortgage Loan or make a deposit into the Collection Account in the amount
(the "Transfer Deposit Amount") equal to the amount by which the
Transferor Interest would be reduced to less than the Minimum Transferor
Interest at such time. Any such deduction, substitution or deposit, will
be considered a payment in full of such Mortgage Loan. Any Transfer
Deposit Amount will be treated as a Principal Collection. Notwithstanding
the foregoing, however, prior to all required deposits to the Collection
Account being made no such transfer shall be considered to have occurred
unless such deposit is actually made. The obligation of the Transferor to
accept a transfer of a Defective Mortgage Loan is the sole remedy
regarding any defects in the Mortgage Loans and Related Documents
available to the Trustee or the Certificateholders.
An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted
by Provident for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of
a substitution of more than one Mortgage Loan for a Defective Mortgage
Loan, an aggregate Principal Balance), not __% more or less than the
Transfer Deficiency relating to such Defective Mortgage Loan; (ii) have a
Loan Rate not less than the Loan Rate of the Defective Mortgage Loan and
not more than _% in excess of the Loan Rate of such Defective Mortgage
Loan; (iii) have a Loan Rate based on the same Index with adjustments to
such Loan Rate made on the same Interest Rate Adjustment Date as that of
the Defective Mortgage Loan; (iv) have a Margin that is not less than the
Margin of the Defective Mortgage Loan and not more than ___ basis points
higher than the Margin for the Defective Mortgage Loan; (v) have a
mortgage of the same or higher level of priority as the mortgage relating
to the Defective Mortgage Loan; (vi) have a remaining term to maturity not
more than ___ months earlier and not more than __ months later than the
remaining term to maturity of the Defective Mortgage Loan; (vii) comply
with each representation and warranty as to the Mortgage Loans set forth
in the Agreement (deemed to be made as of the date of substitution);
(viii) in general, have an original Combined Loan-to-Value Ratio not
greater than that of the Defective Mortgage Loan; and (ix) satisfy certain
other conditions specified in the Agreement. To the extent the Principal
Balance of an Eligible Substitute Mortgage Loan is less than the Principal
Balance of the related Defective Mortgage Loan and to the extent that the
Transferor Interest would be reduced below the Minimum Transferor
Interest, the Transferor will be required to make a deposit to the
Collection Account equal to such difference.
Provident will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal
Balance and the Loan Rate). In addition, Provident will represent and
warrant on the Closing Date that at the time of transfer to the Trust,
Provident has transferred or assigned all of its rights, title and
interest in each Mortgage Loan and the Related Documents, free of any lien
(subject to certain exceptions). Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the
interests of the Certificateholders or the Certificate Insurer in the
related Mortgage Loan and Related Documents, Provident will have a period
of 90 days after discovery or notice of the breach to effect a cure. If
the breach cannot be cured within the 90-day period, the Transferor will
be obligated to accept a transfer of the Defective Mortgage Loan from the
Trust Fund. The same procedure and limitations that are set forth in the
second preceding paragraph for the transfer of Defective Mortgage Loans
will apply to the transfer of a Mortgage Loan that is required to be
transferred because of such breach of a representation or warranty in the
Agreement that materially and adversely affects the interests of the
Certificateholders.
Mortgage Loans required to be transferred to Provident as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Agreement, the Master Servicer will service and
administer the Mortgage Loans as more fully set forth above.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the Master Servicer may change the terms
of the Credit Line Agreements at any time provided that such changes (i)
do not adversely affect the interest of the Certificateholders or the
Certificate Insurer, and (ii) are consistent with prudent business
practice. In addition, the Agreement permits the Master Servicer, within
certain limitations described therein, to increase the Credit Limit of the
related Mortgage Loan or reduce the Margin for such Mortgage Loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
In order to permit the Transferor to remove Mortgage Loans from the
Trust Fund at such times, if any, as the overcollateralization exceeds the
level required to maintain the ratings on the Certificates, on any
Distribution Date the Transferor may, but shall not be obligated to,
remove on such Distribution Date (the "Transfer Date") from the Trust
Fund, certain Mortgage Loans without notice to the Certificateholders.
The Transferor is permitted to designate the Mortgage Loans to be removed.
Mortgage Loans so designated will only be removed upon satisfaction of the
following conditions: (i) the Rapid Amortization Period shall not have
commenced; (ii) the Transferor Interest as of such Transfer Date (after
giving effect to such removal) exceeds the Minimum Transferor Interest;
(iii) the transfer of any Mortgage Loans on any Transfer Date during the
Managed Amortization Period (as defined herein) shall not, in the
reasonable belief of the Transferor, cause a Rapid Amortization Event to
occur or an event which with notice or lapse of time or both would
constitute a Rapid Amortization Event; (iv) the Transferor shall have
delivered to the Trustee a "Mortgage Loan Schedule" containing a list of
all Mortgage Loans remaining in the Trust Fund after such removal; (v) the
Transferor shall represent and warrant that no selection procedures which
the Transferor reasonably believes are adverse to the interests of the
Certificateholders or the Certificate Insurer were used by the Transferor
in selecting such Mortgage Loans; (vi) in connection with the first such
retransfer of Mortgage Loans, the Rating Agencies shall have been notified
of the proposed transfer and prior to the Transfer Date shall not have
notified the Transferor in writing that such transfer would result in a
reduction or withdrawal of the ratings assigned to the Certificates
without regard to the Policy; and (vii) the Transferor shall have
delivered to the Trustee and the Certificate Insurer an officer's
certificate confirming the conditions set forth in clauses (i) through
(vi) above.
As of any date of determination, the "Minimum Transferor Interest" is
an amount equal to the lesser of (a) _% of the Pool Balance on such date
and (b) the Transferor Interest as of the Closing Date.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The Trustee shall establish and maintain on behalf of the Master
Servicer an account (the "Collection Account") for the benefit of the
Certificateholders and the Transferor, as their interests may appear. The
Collection Account will be an Eligible Account (as defined herein).
Subject to the investment provision described in the following paragraphs,
within two days of receipt by the Master Servicer of amounts in respect of
the Mortgage Loans (excluding amounts representing administrative charges,
annual fees, taxes, assessments, credit insurance charges, insurance
proceeds to be applied to the restoration or repair of a Mortgaged
Property or similar items), the Master Servicer will deposit such amounts
in the Collection Account. Amounts so deposited may be invested in
Eligible Investments (as described in the Agreement) maturing no later
than one Business Day prior to the date on which the amount on deposit
therein is required to be deposited in the Collection Account or on such
Distribution Date if approved by the Rating Agencies and the Certificate
Insurer. Not later than the third Business Day prior to each Distribution
Date (the "Determination Date"), the Master Servicer will notify the
Trustee of the amount of such deposit to be included in funds available
for the related Distribution Date.
An "Eligible Account" is (i) an account that is maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies,
(ii) one or more accounts with a depository institution having a minimum
long-term unsecured debt rating of "____" by _______ and "____" by ___,
which accounts are fully insured by either the Savings Association
Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation established by such fund, (iii) a segregated
trust account maintained with the Trustee or an Affiliate of the Trustee
in its fiduciary capacity or (iv) otherwise acceptable to each Rating
Agency and the Certificate Insurer as evidenced by a letter from each
Rating Agency and the Certificate Insurer to the Trustee, without
reduction or withdrawal of their then current ratings of the Certificates.
Eligible Investments are specified in the Agreement and are limited
to (i) direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency or
instrumentality thereof, provided that such obligations are backed by the
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full faith and credit of the United States; (ii) repurchase agreements on
obligations specified in clause (i) maturing not more than three months
from the date of acquisition thereof, provided that the short-term
unsecured debt
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obligations of the party agreeing to repurchase such obligations are at
the time rated by each Rating Agency in its highest short-term rating
category; (iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than 365
days) of any U.S. depository institution or trust company incorporated
under the laws of the United States or any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the unsecured short-term debt
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obligations of such depository institution or trust company at the date of
acquisition thereof have been rated by each of the Rating Agencies in its
highest unsecured short-term debt rating category; (iv) commercial paper
(having original maturities of not more than 90 days) of any corporation
incorporated under the laws of the United States or any state thereof
which on the date of acquisition has been rated by the Rating Agencies in
their highest short-term rating categories; (v) short term investment
funds ("STIFS") sponsored by any trust company or national banking
association incorporated under the laws of the United States or any state
thereof which on the date of acquisition has been rated by the Rating
Agencies in their respective highest rating category of long term
unsecured debt; (vi) interests in any money market fund which at the date
of acquisition of the interests in such fund and throughout the time as
the interest is held in such fund has the rating specified by each Rating
Agency; and (vii) other obligations or securities that are acceptable to
each Rating Agency as an Eligible Investment hereunder and will not result
in a reduction in the then current rating of the Certificates, as
evidenced by a letter to such effect from such Rating Agency and with
respect to which the Master Servicer has received confirmation that, for
tax purposes, the investment complies with the last clause of this defini-
tion; provided that
--------
no instrument described hereunder shall evidence either the right to
receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from
obligations underlying such instrument and the interest and principal
payments with respect to such instrument provided a yield to maturity at
par greater than 120% of the yield to maturity at par of the underlying
obligations; and provided, further, that no instrument described hereunder
may be purchased
-------- -------
at a price greater than par if such instrument may be prepaid or called at
a price less than its purchase price prior to its stated maturity.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to
any Distribution Date, "Interest Collections" will be equal to the amounts
collected during the related Collection Period, including such portion of
Net Liquidation Proceeds allocated to interest pursuant to the terms of
the Credit Line Agreements less Servicing Fees for the related Collection
Period.
As to any Distribution Date, "Principal Collections" will be equal to
the sum of (i) the amounts collected during the related Collection Period,
including such portion of Net Liquidation Proceeds allocated to principal
pursuant to the terms of the Credit Line Agreements and (ii) any Transfer
Deposit Amounts. "Net Liquidation Proceeds" with respect to a Mortgage
Loan are equal to the Liquidation Proceeds, reduced by related expenses,
but not including the portion, if any, of such amount that exceeds the
Principal Balance of the Mortgage Loan plus accrued and unpaid interest
thereon to the end of the Collection Period during which such Mortgage
Loan became a Liquidated Mortgage Loan. "Liquidation Proceeds" are the
proceeds (excluding any amounts drawn on the Policy) received in
connection with the liquidation of any Mortgage Loan, whether through
trustee's sale, foreclosure sale or otherwise.
With respect to any Distribution Date, the portion of Interest
Collections allocable to the Certificates ("Investor Interest
Collections") will equal the product of (a) Interest Collections for such
Distribution Date and (b) the Investor Floating Allocation Percentage.
With respect to any Distribution Date, the "Investor Floating Allocation
Percentage" is the percentage equivalent of a fraction determined by
dividing the Invested Amount at the close of business on the preceding
Distribution Date (or the Closing Date in the case of the first
Distribution Date) by the Pool Balance at the beginning of the related
Collection Period. The remaining amount of Interest Collections will be
allocated to the Transferor Interest.
Principal Collections will be allocated between the
Certificateholders and the Transferor ("Investor Principal Collections"
and "Transferor Principal Collections", respectively) as described herein.
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date.
The Principal Balance of a Mortgage Loan (other than a Liquidated Mortgage
Loan) on any day is equal to the Cut-off Date Principal Balance thereof,
plus (i) any Additional Balances in respect of such Mortgage Loan minus
(ii) all collections credited against the Principal Balance of such
Mortgage Loan in accordance with the related Credit Line Agreement prior
to such day. The Principal Balance of a Liquidated Mortgage Loan after
final recovery of related Liquidation Proceeds shall be zero.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the first Distribution Date (which will occur on
__________, 199_), distributions on the Certificates will be made by the
Trustee or the Paying Agent on each Distribution Date to the persons in
whose names such Certificates are registered at the close of business on
the day prior to each Distribution Date or, if the Certificates are no
longer Book-Entry Certificates, at the close of business on the last day
of the month preceding such Distribution Date (the "Record Date"). The
term "Distribution Date" means the (fifteenth) day of each month or, if
such day is not a Business Day, then the next succeeding Business Day.
Distributions will be made by check or money order mailed (or upon the
request of a Certificateholder owning Certificates having denominations
aggregating at least $_________, by wire transfer or otherwise) to the
address of the person entitled thereto (which, in the case of Book-Entry
Certificates, will be DTC or its nominee) as it appears on the Certificate
Register in amounts calculated as described herein on the Determination
Date. However, the final distribution in respect of the Certificates will
be made only upon presentation and surrender thereof at the office or the
agency of the Trustee specified in the notice to Certificateholders of
such final distribution. For purposes of the Agreement, a "Business Day"
is any day other than (i) a Saturday or Sunday or (ii) a day on which
banking institutions in the State of California are required or authorized
by law to be closed.
Application of Interest Collections. On each Distribution Date, the
Trustee or the Paying Agent will apply the Investor Interest Collections
in the following manner and order of priority:
(i) as payment to the Trustee for its fee for services rendered
pursuant to the Agreement;
(ii) as payment for the premium for the Policy;
(iii) as payment for the accrued interest due and any overdue
accrued interest (with interest thereon to the extent permitted by
law) on the Certificate Principal Balance of the Certificates;
(iv) to pay Certificateholders the Investor Loss Amount for
such Distribution Date;
(v) as payment for any Investor Loss Amount for a previous
Distribution Date that was not previously (a) funded by Investor
Interest Collections, (b) absorbed by the Overcollateralization
Amount, (c) funded by amounts on deposit in the Spread Account or (d)
funded by draws on the Policy;
(vi) to reimburse prior draws made from the Policy (with
interest thereon);
(vii) to pay principal on the Certificates until the Invested
Amount exceeds the Certificate Principal Balance by the Required
Overcollateralization Amount (such amount so paid, the "Accelerated
Principal Distribution Amount");
(viii) any other amounts required to be deposited in an account
for the benefit of the Certificate Insurer and the Certificateholders
or owed to the Certificate Insurer pursuant to the Insurance
Agreement;
(ix) certain amounts that may be required to be paid to the
Master Servicer pursuant to the Agreement; and
(x) to the Transferor to the extent permitted as described
herein.
Payments to Certificateholders pursuant to clause (iii) will be
interest payments on the Certificates. Payments to Certificateholders
pursuant to clauses (iv), (v) and (vii) will be principal payments on the
Certificates and will therefore reduce the Certificate Principal Balance,
however, payments pursuant to clause (vii) will not reduce the Invested
Amount. The Accelerated Principal Distribution Amount is not guaranteed
by the Policy.
To the extent that Investor Interest Collections are applied to pay
the interest on the Certificates, Investor Interest Collections may be
insufficient to cover Investor Loss Amounts. If such insufficiency
results in the Certificate Principal Balance exceeding the Invested
Amount, a draw will be made on the Policy in accordance with the terms of
the Policy.
The "Required Overcollateralization Amount" shall be an amount set
forth in the Agreement. "Liquidation Loss Amount" means with respect to
any Liquidated Mortgage Loan, the unrecovered Principal Balance thereof
during the Collection Period in which such Mortgage Loan became a
Liquidated Mortgage Loan, after giving effect to the Net Liquidation
Proceeds in connection therewith. The "Investor Loss Amount" shall be the
product of the Investor Floating Allocation Percentage and the Liquidation
Loss Amount for such Distribution Date.
A "Liquidated Mortgage Loan" means, as to any Distribution Date, any
Mortgage Loan in respect of which the Master Servicer has determined,
based on the servicing procedures specified in the Agreement, as of the
end of the preceding Collection Period that all Liquidation Proceeds which
it expects to recover with respect to the disposition of the related
Mortgaged Property have been recovered. The Investor Loss Amount will be
allocated to the Certificateholders.
As to any Distribution Date other than the first Distribution Date,
the "Collection Period" is the calendar month preceding each Distribution
Date. As to the first Distribution Date, the "Collection Period" is the
period beginning after the Cut-off Date and ending on the last day of
_______________ 199_.
Interest will be distributed on each Distribution Date at the
Certificate Rate for the related Interest Period (as defined below). The
"Certificate Rate" for a Distribution Date will generally equal the sum of
((a) LIBOR, calculated as specified below, as of the second LIBOR Business
Day prior to the immediately preceding Distribution Date (or as of two
LIBOR Business Days prior to the Closing Date, in the case of the first
Distribution Date) plus (b) ____% per annum.) Notwithstanding the
foregoing, in no event will the amount of interest required to be
distributed in respect of the Certificates on any Distribution Date exceed
a rate equal to the weighted average of the Loan Rates (net of the
Servicing Fee Rate, the fee payable to the Trustee and the rate at which
the premium payable to the Certificate Insurer is calculated) weighted on
the basis of the daily balance of each Mortgage Loan during the related
billing cycle prior to the Collection Period relating to such Distribution
Date.
Interest on the Certificates in respect of any Distribution Date will
accrue on the Certificate Principal Balance from the preceding
Distribution Date (or in the case of the first Distribution Date, from the
date of the initial issuance of the Certificates (the "Closing Date"))
through the day preceding such Distribution Date (each such period, an
"Interest Period") on the basis of the actual number of days in the
Interest Period and a 360-day year. Interest payments on the Certificates
will be funded from Investor Interest Collections and, if necessary, from
draws on the Policy.
(Calculation of the LIBOR Rate. On each Distribution Date, LIBOR
shall be established by the Trustee and as to any Interest Period, LIBOR
will equal the rate for United States dollar deposits for one month which
appears on the Telerate Screen Page 3750 as of 11:00 A.M., London time, on
the second LIBOR Business Day prior to the first day of such Interest
Period. "Telerate Screen Page 3750" means the display designated as page
3750 on the Telerate Service (or such other page as may replace page 3750
on that service for the purpose of displaying London interbank offered
rates of major banks). If such rate does not appear on such page (or such
other page as may replace that page on that service, or if such service is
no longer offered, such other service for displaying LIBOR or comparable
rates as may be selected by Provident after consultation with the
Trustee), the rate will be the Reference Bank Rate. The "Reference Bank
Rate" will be determined on the basis of the rates at which deposits in
U.S. Dollars are offered by the reference banks (which shall be three
major banks that are engaged in transactions in the London interbank
market, selected by Provident after consultation with the Trustee) as of
11:00 A.M., London time, on the day that is two LIBOR Business Days prior
to the immediately preceding Distribution Date to prime banks in the
London interbank market for a period of one month in amounts approximately
equal to the principal amount of the Certificates then outstanding. The
Trustee will request the principal London office of each of the reference
banks to provide a quotation of its rate. If at least two such quotations
are provided, the rate will be the arithmetic mean of the quotations. If
on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks
in New York City, selected by Provident after consultation with the
Trustee, as of 11:00 A.M., New York City time, on such date for loans in
U.S. Dollars to leading European banks for a period of one month in
amounts approximately equal to the principal amount of the Certificates
then outstanding. If no such quotations can be obtained, the rate will be
LIBOR for the prior Distribution Date. "LIBOR Business Day" means any day
other than (i) a Saturday or a Sunday or (ii) a day on which banking
institutions in the State of New York or in the city of London, England
are required or authorized by law to be closed.)
Transferor Collections. Collections allocable to the Transferor
Interest that are not distributed to Certificateholders will be
distributed to the Transferor only to the extent that such distribution
will not reduce the amount of the Transferor Interest as of the related
Distribution Date below the Minimum Transferor Interest. Amounts not
distributed to the Transferor because of such limitations will be retained
in the Collection Account until the Transferor Interest exceeds the
Minimum Transferor Interest, at which time such excess shall be released
to the Transferor. If any such amounts are still retained in the
Collection Account upon the commencement of the Rapid Amortization Period,
such amounts will be paid to the Certificateholders as a reduction of the
Certificate Principal Balance.
Overcollateralization. The distribution of the aggregate Accelerated
Principal Distribution Amount, if any, to Certificateholders may result in
the Invested Amount being greater than the Certificate Principal Balance,
thereby creating overcollateralization. The Overcollateralization Amount,
if any, will be available to absorb any Investor Loss Amount that is not
covered by Investor Interest Collections.
Distributions of Principal Collections. For the period beginning on
the first Distribution Date and, unless a Rapid Amortization Event shall
have earlier occurred, ending on the Distribution Date in ______________
20__ (the "Managed Amortization Period"), the amount of Principal
Collections payable to Certificateholders as of each Distribution Date
during the Managed Amortization Period will equal, to the extent funds are
available therefor, the Scheduled Principal Collections Distribution
Amount for such Distribution Date. On any Distribution Date during the
Managed Amortization Period, the "Scheduled Principal Collections
Distribution Amount" shall equal the lesser of (i) the Maximum Principal
Payment (as defined herein) and (ii) the Alternative Principal Payment (as
defined herein). With respect to any Distribution Date, the "Maximum
Principal Payment" will equal the product of the Investor Fixed Allocation
Percentage and Principal Collections for such Distribution Date. With
respect to any Distribution Date, the "Alternative Principal Payment" will
equal the greater of (x) 0___% of the Certificate Principal Balance
immediately prior to such Distribution Date and (y) the amount, but not
less than zero, of Principal Collections for such Distribution Date less
the aggregate of Additional Balances created during the related Collection
Period.
Beginning with the first Distribution Date following the end of the
Managed Amortization Period, the amount of Principal Collections payable
to Certificateholders on each Distribution Date will be equal to the
Maximum Principal Payment.
The amount of Principal Collections to be distributed to
Certificateholders on the first Distribution Date will reflect Principal
Collections and Additional Balances during the first Collection Period
which is the period beginning after the Cut-off Date through the last day
of __________ 199_.
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
Certificateholders in amounts that are greater relative to the declining
Pool Balance than would be the case if the Investor Floating Allocation
Percentage were used to determine the percentage of Principal Collections
distributed in respect of the Invested Amount. Principal Collections not
allocated to the Certificateholders will be allocated to the Transferor
Interest. The aggregate distributions of principal to the
Certificateholders will not exceed the Original Certificate Principal
Balance.
In addition, to the extent of funds available therefor (including
funds available under the Policy), on the Distribution Date in
____________ 20__, Certificateholders will be entitled to receive as a
payment of principal an amount equal to the outstanding Certificate
Principal Balance.
The Paying Agent. The Paying Agent shall initially be the Trustee,
together with any successor thereto in such capacity (the "Paying Agent").
The Paying Agent shall have the revocable power to withdraw funds from the
Collection Account for the purpose of making distributions to the
Certificateholders.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue
through the Distribution Date in 20 , unless a Rapid
Amortization
----------Event occurs prior to such
date-- in which case the Rapid Amortization Period will commence prior to
such date. "Rapid Amortization Event" refers to any of the following
events:
(a) failure on the part of the Transferor (i) to make a payment
or deposit required under the Agreement within three Business Days
after the date such payment or deposit is required to be made or (ii)
to observe or perform in any material respect any other covenants or
agreements of the Transferor set forth in the Agreement, which
failure continues unremedied for a period of 60 days after written
notice;
(b) any representation or warranty made by the Transferor in
the Agreement proves to have been incorrect in any material respect
when made and continues to be incorrect in any material respect for a
period of 60 days after written notice and as a result of which the
interests of the Certificateholders are materially and adversely
affected; provided, however, that a Rapid Amortization Event shall
not be deemed to occur if the Transferor has purchased or made a
substitution for the related Mortgage Loan or Mortgage Loans if
applicable during such period (or within an additional 60 days with
the consent of the Trustee) in accordance with the provisions of the
Agreement;
(c) the occurrence of certain events of bankruptcy, insolvency
or receivership relating to the Transferor; or
(d) the Trust Fund becomes subject to regulation by the
Securities and Exchange Commission as an investment company within
the meaning of the Investment Company Act of 1940, as amended.
In the case of any event described in clause (a) or (b), a Rapid
Amortization Event will be deemed to have occurred only if, after the
applicable grace period, if any, described in such clauses, either the
Trustee or Certificateholders holding Certificates evidencing more than
51% of the Percentage Interests or the Certificate Insurer (so long as
there is no default by the Certificate Insurer in the performance of its
obligations under the Policy), by written notice to Provident and the
Master Servicer (and to the Trustee, if given by the Certificateholders)
declare that a Rapid Amortization Event has occurred as of the date of
such notice. In the case of any event described in clause (c) or (d), a
Rapid Amortization Event will be deemed to have occurred without any
notice or other action on the part of the Trustee or the
Certificateholders immediately upon the occurrence of such event.
In addition to the consequences of a Rapid Amortization Event
discussed above, if the Transferor voluntarily files a bankruptcy petition
or goes into liquidation or any person is appointed a receiver or
bankruptcy trustee of the Transferor, on the day of any such filing or
appointment no further Additional Balances will be transferred to the
Trust Fund, the Transferor will immediately cease to transfer Additional
Balances to the Trust Fund and the Transferor will promptly give notice to
the Trustee of any such filing or appointment. Within 15 days, the
Trustee will publish a notice of the liquidation or the filing or
appointment stating that the Trustee intends to sell, dispose of or
otherwise liquidate the Mortgage Loans in a commercially reasonable manner
and to the best of its ability. Unless otherwise instructed within a
specified period by Certificateholders representing undivided interests
aggregating more than 51% of the aggregate principal amount of the
Certificates, the Trustee will sell, dispose of or otherwise liquidate the
Mortgage Loans in a commercially reasonable manner and on commercially
reasonable terms. Any proceeds will be treated as collections allocable
to the Certificateholders and the Investor Fixed Allocation Percentage of
such remaining proceeds and will be distributed to the Certificateholders
on the date such proceeds are received (the "Dissolution Distribution
Date"). (If the portion of such proceeds allocable to the
Certificateholders are not sufficient to pay in full the remaining amount
due on the Certificates, the Policy will cover such shortfall.)
Notwithstanding the foregoing, if a conservator, receiver or trustee-
in-bankruptcy is appointed for the Transferor and no Rapid Amortization
Event exists other than such conservatorship, receivership or insolvency
of the Transferor, the conservator, receiver or trustee-in-bankruptcy may
have the power to prevent the commencement of the Rapid Amortization
Period or the sale of Mortgage Loans described above.
THE POLICY
(On or before the Closing Date, the Policy will be issued by the
Certificate Insurer pursuant to the provisions of the Agreement and the
Insurance and Indemnity Agreement (the "Insurance Agreement") to be dated
as of ____________, 199_, among Provident(, the Trustee) and the
Certificate Insurer.
The Policy will irrevocably and unconditionally guarantee payment on
each Distribution Date to the Trustee for the benefit of the
Certificateholders the full and complete payment of (i) the Guaranteed
Principal Distribution Amount (as defined herein) with respect to the
Certificates for such Distribution Date and (ii) accrued and unpaid
interest due on the Certificates (together, the "Guaranteed
Distributions"), with such Guaranteed Distributions having been calculated
in accordance with the original terms of the Certificates or the Agreement
except for amendments or modifications to which the Certificate Insurer
has given its prior written consent. The effect of the Policy is to
guarantee the timely payment of interest on, and the ultimate payment of
the principal amount of, all of the Certificates.
The "Guaranteed Principal Distribution Amount" shall be the amount,
if any, by which the Certificate Principal Balance (after giving effect to
all other amounts distributable and allocable to principal on the
Certificates) exceeds the Invested Amount as of such Distribution Date
(after giving effect to all other amounts distributable and allocable to
principal on the Certificates for such Distribution Date). In addition,
the Policy will guarantee the payment of the outstanding Certificate
Principal Balance on the Distribution Date in ______________ 20__ (after
giving effect to all other amounts distributable and allocable to
principal on such Distribution Date).
In accordance with the Agreement, the Trustee will be required to
establish and maintain an account (the "Spread Account") for the benefit
of the Certificate Insurer and the Certificateholders. The Trustee shall
deposit the amounts into the Spread Account as required by the Agreement.
Payment of claims on the Policy will be made by the Certificate
Insurer following Receipt by the Certificate Insurer of the appropriate
notice for payment on the later to occur of (i) 12:00 noon, New York City
time, on the second Business Day following Receipt of such notice for
payment and (ii) 12:00 noon, New York City time, on the relevant
Distribution Date.
If payment of any amount guaranteed by the Certificate Insurer
pursuant to the Policy is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the Certificate
Insurer will pay such amount out of the funds of the Certificate Insurer
on the later of (a) the date when due to be paid pursuant to the Order
referred to below or (b) the first to occur of (i) the fourth Business Day
following Receipt by the Certificate Insurer from the Trustee of (A) a
certified copy of the order (the "Order") of the court or other
governmental body which exercised jurisdiction to the effect that the
Certificateholder is required to return the amount of any Guaranteed
Distributions distributed with respect to the Certificates during the term
of the related Policy because such distributions were avoidable preference
payments under applicable bankruptcy law, (B) a certificate of the
Certificateholder that the Order has been entered and is not subject to
any stay and (C) an assignment duly executed and delivered by the
Certificateholder, in such form as is reasonably required by the
Certificate Insurer and provided to the Certificateholder by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all
rights and claims of the Certificateholder relating to or arising under
the Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment, or (ii) the date of
Receipt by the Certificate Insurer from the Trustee of the items referred
to in clauses (A), (B) and (C) above if, at least four Business Days prior
to such date of Receipt, the Certificate Insurer shall have Received
written notice from the Trustee that such items were to be delivered on
such date and such date was specified in such notice. Such payment shall
be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Trustee or any
Certificateholder directly (unless a Certificateholder has previously paid
such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order in which case such payment shall be
disbursed to the Trustee for distribution to such Certificateholder upon
proof of such payment reasonably satisfactory to the Certificate Insurer).
The terms "Receipt" and "Received", with respect to the Policy, mean
actual delivery to the Certificate Insurer and to its fiscal agent
appointed by the Certificate Insurer at its option, if any, prior to 12:00
noon, New York City time, on a Business Day; delivery either on a day that
is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice
or certificate given under the Policy by the Trustee is not in proper form
or is not properly completed, executed or delivered it shall be deemed not
to have been Received, and the Certificate Insurer or the fiscal agent
shall promptly so advise the Trustee and the Trustee may submit an amended
notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in The City
of New York, New York are authorized or obligated by law or executive
order to be closed.
The Certificate Insurer's obligations under the Policy in respect of
Guaranteed Distributions shall be discharged to the extent funds are
transferred to the Trustee as provided in the Policy, whether or not such
funds are properly applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each
Certificateholder to receive payments of principal and interest, as
applicable, with respect to distributions on the Certificates to the
extent of any payment by the Certificate Insurer under the Policy. To the
extent the Certificate Insurer makes Guaranteed Distributions, either
directly or indirectly (as by paying through the Trustee), to the
Certificateholders, the Certificate Insurer will be subrogated to the
rights of the Certificateholders, as applicable, with respect to such
Guaranteed Distributions, shall be deemed to the extent of the payments so
made to be a registered Certificateholder for purposes of payment and
shall receive all future Guaranteed Distributions until all such
Guaranteed Distributions by the Certificate Insurer have been fully
reimbursed, provided that the Certificateholders have received the full
amount of the Guaranteed Distributions.
The terms of the Policy cannot be modified, altered or affected by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the Transferor. The Policy by its terms may not be
cancelled or revoked. The Policy is governed by the laws of the State of
________.
The Policy is not covered by the Property/Casualty Insurance Security
fund specified in Article 76 of the New York Insurance Law. The Policy is
not covered by the Florida Insurance Guaranty Association created under
Part II of Chapter 631 of the Florida Insurance Code. In the event the
Certificate Insurer were to become insolvent, any claims arising under the
Policy are excluded from coverage by the California Insurance Guaranty
Association, established pursuant to Article 14.2 of Chapter 1 of part 2
of Division 1 of the California Insurance Code.
Pursuant to the terms of the Agreement, unless a Certificate Insurer
default exists, the Certificate Insurer shall be deemed to be the Holder
of the Certificates for certain purposes (other than with respect to
payment on the Certificates), will be entitled to exercise all rights of
the Certificateholders thereunder, without the consent of such Holders and
the Holders of the Certificates may exercise such rights only with the
prior written consent of the Certificate Insurer. In addition, the
Certificate Insurer will have certain additional rights as third party
beneficiary to the Agreement.
In the absence of payments under the Policy, Certificateholders will
bear directly the credit and other risks associated with their undivided
interest in the Trust Fund.)
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the Certificateholders, the
Master Servicer will forward to the Trustee for mailing to such
Certificateholder a statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the
preceding Collection Period;
(ii) the amount being distributed to Certificateholders;
(iii) the amount of interest included in such distribution and
the related Certificate Rate;
(iv) the amount, if any, of overdue accrued interest included
in such distribution (and the amount of interest thereon);
(v) the amount, if any, of the remaining overdue accrued
interest after giving effect to such distribution;
(vi) the amount, if any, of principal included in such
distribution;
(vii) the amount, if any, of the reimbursement of previous
Liquidation Loss Amounts included in such distribution;
(viii) the amount, if any, of the aggregate unreimbursed
Liquidation Loss Amounts after giving effect to such distribution;
(ix) the Servicing Fee for such Distribution Date;
(x) the Invested Amount and the Certificate Principal Balance,
each after giving effect to such distribution;
(xi) the Pool Balance as of the end of the preceding Collection
Period;
(xii) the number and aggregate Principal Balances of the
Mortgage Loans as to which the minimum monthly payment is delinquent
for 30-59 days, 60-89 days and 90 or more days, respectively, as of
the end of the preceding Collection Period;
(xiii) the book value of any real estate which is acquired by
the Trust Fund through foreclosure or grant of deed in lieu of
foreclosure; and
(xiv) the amount of any draws on the Policy.
In the case of information furnished pursuant to clauses (iii), (iv),
(v), (vi), (vii) and (viii) above, the amounts shall be expressed as a
dollar amount per Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in
1996, the Master Servicer will be required to forward to the Trustee a
statement containing the information set forth in clauses (iii) and (vi)
above aggregated for such calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Agreement, follow such collection procedures as it follows from time to
time with respect to the home equity loans in its servicing portfolio
comparable to the Mortgage Loans. Consistent with the above, the Master
Servicer may in its discretion waive any late payment charge or any
assumption or other fee or charge that may be collected in the ordinary
course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Master Servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for
a period, provided that any such arrangement is consistent with the Master
Servicer's policies with respect to the home equity mortgage loans it owns
or services. In accordance with the terms of the Agreement, the Master
Servicer may consent under certain circumstances to the placing of a
subsequent senior lien in respect of a Mortgage Loan.
HAZARD INSURANCE
The Agreement provides that the Master Servicer maintain certain
hazard insurance on the Mortgaged Properties relating to the Mortgage
Loans. While the terms of the related Credit Line Agreements generally
require borrowers to maintain certain hazard insurance, the Master
Servicer will not monitor the maintenance of such insurance.
The Agreement requires the Master Servicer to maintain for any
Mortgaged Property relating to a Mortgage Loan acquired upon foreclosure
of a Mortgage Loan, or by deed in lieu of such foreclosure, hazard
insurance with extended coverage in an amount equal to the lesser of (a)
the maximum insurable value of such Mortgaged Property or (b) the
outstanding balance of such Mortgage Loan plus the outstanding balance on
any mortgage loan senior to such Mortgage Loan at the time of foreclosure
or deed in lieu of foreclosure, plus accrued interest and the Master
Servicer's good faith estimate of the related liquidation expenses to be
incurred in connection therewith. The Agreement provides that the Master
Servicer may satisfy its obligation to cause hazard policies to be
maintained by maintaining a blanket policy insuring against losses on such
Mortgaged Properties. If such blanket policy contains a deductible
clause, the Master Servicer will be obligated to deposit in the Collection
Account the sums which would have been deposited therein but for such
clause. The Master Servicer will satisfy these requirements by
maintaining a blanket policy. As set forth above, all amounts collected
by the Master Servicer (net of any reimbursements to the Master Servicer)
under any hazard policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property) will ultimately be
deposited in the Collection Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements on the
property by fire, lightning, explosion, smoke, windstorm and hail, and the
like, strike and civil commotion, subject to the conditions and exclusions
specified in each policy. Although the policies relating to the Mortgage
Loans will be underwritten by different insurers and therefore will not
contain identical terms and conditions, the basic terms thereof are
dictated by state laws and most of 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 mudflows), 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 or an exact description of the insurance policies relating
to the Mortgaged Properties.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably
convert to ownership Mortgaged Properties securing such of the Mortgage
Loans as come into default when, in accordance with applicable servicing
procedures under the Agreement, no satisfactory arrangements can be made
for the collection of delinquent payments. In connection with such
foreclosure or other conversion, the Master Servicer will follow such
practices as it deems necessary or advisable and as are in keeping with
its general subordinate mortgage servicing activities, provided the Master
Servicer will not be required to expend its own funds in connection with
foreclosure or other conversion, correction of default on a related senior
mortgage loan or restoration of any property unless, in its sole judgment,
such foreclosure, correction or restoration will increase Net Liquidation
Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any
Net Liquidation Proceeds are distributed to Certificateholders or the
Transferor.
OPTIONAL PURCHASE OF DEFAULTED LOAN
The Master Servicer may, at its option, purchase from the Trust Fund
any Mortgage Loan which is delinquent in payment by 91 days or more. Any
such purchase shall be at a price equal to 100% of the Principal Balance
of such Mortgage Loan plus accrued interest thereon at the applicable Loan
Rate from the date through which interest was last paid by the related
mortgagor to the first day of the month in which such amount is to be
distributed to Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the Master Servicer will
receive from interest collections in respect of the Mortgage Loans a
portion of such interest collections as a monthly Servicing Fee in the
amount equal to approximately ____% per annum ("Servicing Fee Rate") on
the aggregate Principal Balances of the Mortgage Loans as of the first day
of the related Collection Period (or at the Cut-off Date for the first
Collection Period). All assumption fees, late payment charges and other
fees and charges, to the extent collected from borrowers, will be retained
by the Master Servicer as additional servicing compensation.
The Master Servicer will pay certain ongoing expenses associated with
the Trust Fund and incurred by it in connection with its responsibilities
under the Agreement. In addition, the Master Servicer will be entitled to
reimbursement for certain expenses incurred by it in connection with
defaulted Mortgage Loans and in connection with the restoration of
Mortgaged Properties, such right of reimbursement being prior to the
rights of Certificateholders to receive any related Net Liquidation
Proceeds.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before ___________ in each
year, beginning in ___________, 199_, to the Trustee of an annual
statement signed by an officer of the Master Servicer to the effect that
the Master Servicer has fulfilled its material obligations under the
Agreement throughout the preceding fiscal year, except as specified in
such statement.
On or before _____________ of each year, beginning ___________, 199_,
the Master Servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants (who may also render other
services to the Master Servicer or the Transferor) to the Trustee, the
Certificate Insurer and the Rating Agencies to the effect that such firm
has examined certain documents and the records relating to servicing of
the Mortgage Loans under the Agreement and that, on the basis of such
examination, such firm believes that such servicing was conducted in
compliance with the Agreement except for (a) such exceptions as such firm
believes to be immaterial and (b) such other exceptions as shall be set
forth in such report.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The Agreement provides that the Master Servicer may not resign from
its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless (i) such duties and obligations
are no longer permissible under applicable law or are in material conflict
by reason of applicable law with any other activities of a type and nature
presently carried on by it or its affiliate or (ii) upon the satisfaction
of the following conditions: (a) the Master Servicer has proposed a
successor servicer to the Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Trustee; (b) the Rating Agencies
have confirmed to the Trustee that the appointment of such proposed
successor servicer as the Master Servicer will not result in the reduction
or withdrawal of the then current rating of the Certificates; and (c) such
proposed successor servicer is reasonably acceptable to the Certificate
Insurer. 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.
The Master Servicer may perform any of its duties and obligations
under the Agreement through one or more subservicers or delegates, which
may be affiliates of the Master Servicer. Notwithstanding any such
arrangement, the Master Servicer will remain liable and obligated to the
Trustee and the Certificateholders for the Master Servicer's duties and
obligations under the Agreement, without any diminution of such duties and
obligations and as if the Master Servicer itself were performing such
duties and obligations.
The Agreement provides that the Master Servicer will indemnify the
Trust Fund and the Trustee from and against any loss, liability, expense,
damage or injury suffered or sustained as a result of the Master
Servicer's actions or omissions in connection with the servicing and
administration of the Mortgage Loans which are not in accordance with the
provisions of the Agreement. Under the Agreement, the Transferor will
indemnify an injured party for the entire amount of any losses, claims,
damages or liabilities arising out of or based on the Agreement (other
than losses resulting from defaults under the Mortgage Loans). In the
event of an Event of Servicing Termination (as defined below) resulting in
the assumption of servicing obligations by a successor Master Servicer,
the successor Master Servicer will indemnify the Transferor for any
losses, claims, damages and liabilities of the Transferor as described in
this paragraph arising from the successor Master Servicer's actions or
omissions. The Agreement provides that neither Provident, the Transferor
nor the Master Servicer nor their directors, officers, employees or agents
will be under any other liability to the Trust Fund, the Trustee, the
Certificateholders or any other person for any action taken or for
refraining from taking any action pursuant to the Agreement. However,
neither Provident, the Transferor nor the Master Servicer will be
protected against any liability which would otherwise be imposed by reason
of willful misconduct, bad faith or gross negligence of Provident, the
Transferor or the Master Servicer in the performance of its duties under
the Agreement or by reason of reckless disregard of its obligations
thereunder. In addition, the Agreement provides that the Master Servicer
will not be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its servicing responsibilities
under the Agreement and which in its opinion may expose it to any expense
or liability. The Master Servicer may, in its sole discretion, undertake
any such legal action which it may deem necessary or desirable with
respect to the Agreement and the rights and duties of the parties thereto
and the interest of the Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any
corporation succeeding to the business of the Master Servicer shall be the
successor of the Master Servicer hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything in the Agreement to the contrary notwithstanding.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" will consist of: (i) any failure
by the Master Servicer to deposit in the Collection Account any deposit
required to be made under the Agreement, which failure 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 Insurer or Certificateholders
evidencing an aggregate, undivided interest in the Trust Fund of at least
25% of the Certificate Principal Balance; (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, in each case,
materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer and continues unremedied for 60 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
Insurer or Certificateholders evidencing an aggregate, undivided interest
in the Trust Fund of at least 25% of the Certificate Principal Balance; or
(iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings relating to the Master
Servicer and certain actions by the Master Servicer indicating insolvency,
reorganization or inability to pay its obligations. Under certain other
circumstances, the Certificate Insurer with the consent of holders of
Investor Certificates evidencing an aggregate, undivided interest in the
Trust Fund of at least 51% of the Certificate Principal Balance may
deliver written notice to the Master Servicer terminating all the rights
and obligations of the Master Servicer under the Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or
referred to under clause (ii) above for a period of 60 Business Days,
shall not constitute an Event of Servicing Termination if such delay or
failure could not be prevented by the exercise of reasonable diligence by
the Master Servicer and such delay or failure was caused by an act of God
or other similar occurrence. Upon the occurrence of any such event the
Master Servicer shall not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of
the Agreement and the Master Servicer shall provide the Trustee,
Provident, the Transferor, the Certificate Insurer and the
Certificateholders prompt notice of such failure or delay by it, together
with a description of its efforts to so perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an Event of Servicing Termination remains unremedied,
either the Trustee, or Certificateholders evidencing an aggregate,
undivided interest in the Trust Fund of at least 51% of the Certificate
Principal Balance or the Certificate Insurer, may 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 the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement and will be entitled to similar compensation arrangements. In
the event that the Trustee would be obligated to succeed the Master
Servicer but is unwilling or unable so to act, it may appoint, or petition
a court of competent jurisdiction for the appointment of, a housing and
home finance institution or other mortgage loan or home equity loan
servicer with all licenses and permits required to perform its obligations
under the Agreement and having a net worth of at least $__________ and
acceptable to the Certificate Insurer to act as successor to the Master
Servicer under the Agreement. Pending such appointment, the Trustee will
be obligated to act in such capacity unless prohibited by law. Such
successor will be entitled to receive the same compensation that the
Master Servicer would otherwise have received (or such lesser compensation
as the Trustee and such successor may agree). A receiver or conservator
for the Master Servicer may be empowered to prevent the termination and
replacement of the Master Servicer where the only Event of Servicing
Termination that has occurred is an Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by Provident and the
Trustee and with the consent of the Certificate Insurer, but without the
consent of the Certificateholders, to cure any ambiguity, to correct or
supplement any provisions therein which may be inconsistent with any other
provisions of the Agreement, to add to the duties of Provident or to add
or amend any provisions of the Agreement as required by the Rating
Agencies in order to maintain or improve any rating of the Certificates
(it being understood that, after obtaining the ratings in effect on the
Closing Date, neither the Transferor, the Trustee nor the Master Servicer
is obligated to obtain, maintain, or improve any such rating) or to add
any other provisions with respect to matters or questions arising under
the Agreement which shall not be inconsistent with the provisions of the
Agreement, provided that such action will not, as evidenced by an opinion
of counsel, materially and adversely affect the interests of any
Certificateholder or the Certificate Insurer; provided, that any such
amendment will not be deemed to materially and adversely affect the
Certificateholders and no such opinion will be required to be delivered if
the person requesting such amendment obtains a letter from the Rating
Agencies stating that such amendment would not result in a downgrading of
the then current rating of the Certificates. The Agreement may also be
amended from time to time by Provident and the Trustee, with the consent
of Certificateholders evidencing an aggregate, undivided interest in the
Trust Fund of at least 51% of the Certificate Principal Balance and the
Certificate 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
Certificateholders, provided that no such amendment will (i) reduce in any
manner the amount of, or delay the timing of, collections of payments on
the Certificates or distributions or payments under the Policy which are
required to be made on any Certificate without the consent of the holder
of such Certificate or (ii) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the holders of all
Certificates then outstanding.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The Trust Fund will terminate on the Distribution Date following the
later of (A) payment in full of all amounts owing to the Certificate
Insurer and (B) the earliest of (i) the Distribution Date on which the
Certificate Principal Balance has been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan in the Trust Fund,
(iii) the optional transfer to the Transferor of the Certificates, as
described below and (iv) the Distribution Date in ____________ 20__.
The Certificates will be subject to optional transfer to the
Transferor on any Distribution Date after the Certificate Principal
Balance is reduced to an amount less than or equal to __% of the Original
Certificate Principal Balance and all amounts due and owing to the
Certificate Insurer and unreimbursed draws on the Policy, together with
interest thereon, as provided under the Insurance Agreement, have been
paid. The transfer price will be equal to the sum of the outstanding
Certificate Principal Balance and accrued and unpaid interest thereon at
the Certificate Rate through the day preceding the final Distribution
Date. In no event, however, will the Trust Fund created by the Agreement
continue for more than 21 years after the death of certain individuals
named in the Agreement. Written notice of termination of the Agreement
will be given to each Certificateholder, and the final distribution will
be made only upon surrender and cancellation of the Certificates at an
office or agency appointed by the Trustee which will be specified in the
notice of termination.
In addition, the Trust Fund may be liquidated as a result of certain
events of bankruptcy, insolvency or receivership relating to the
Transferor. See "--Rapid Amortization Events" herein.
THE TRUSTEE
( ), a ____________________________ with its principal
place of business in ________, has been named Trustee pursuant to the
Agreement.
The commercial bank or trust company serving as Trustee may own
Certificates and have normal banking relationships with Provident and the
Certificate Insurer and/or their affiliates.
The Trustee may resign at any time, in which event Provident will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. Provident 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. Upon becoming aware of such circumstances, Provident
will be obligated to appoint a successor Trustee, as approved by the
Certificate Insurer. 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.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders evidencing an aggregate, undivided interest in the
Trust Fund of at least 51% of the Certificate Principal Balance have made
written requests 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. The Trustee will be under no obligation to
exercise any of the trusts or powers vested in it by the Agreement or to
make any investigation of matters arising thereunder or to institute,
conduct or defend any litigation thereunder or in relation thereto at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable security or
indemnity against the cost, expenses and liabilities which may be incurred
therein or thereby.
CERTAIN ACTIVITIES
The Trust Fund will not: (i) borrow money; (ii) make loans; (iii)
invest in securities for the purpose of exercising control; (iv)
underwrite securities; (v) except as provided in the Agreement, engage in
the purchase and sale (or turnover) of investments; (vi) offer securities
in exchange for property (except Certificates for the Mortgage Loans); or
(vii) repurchase or otherwise reacquire its securities. See "--Evidence
as to Compliance" above for information regarding reports as to the
compliance by the Master Servicer with the terms of the Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates
will be applied by Provident towards general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership and disposition of the
Certificates, is based on the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the Treasury Regulations thereunder, and
published rulings and court decisions in effect as of the date hereof, all
of which are subject to change, possibly retroactively. This discussion
does not address every aspect of the U.S. federal income tax laws which
may be relevant to Certificate Owners in light of their personal
investment circumstances or to certain types of Certificate Owners subject
to special treatment under the U.S. federal income tax laws (for example,
banks and life insurance companies). Accordingly, investors should
consult their tax advisors regarding U.S. federal, state, local, foreign
and any other tax consequences to them of investing in the Certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in
the Agreement and other relevant documents and assuming compliance with
the terms of the Agreement as in effect on the date of issuance of the
Certificates, Brown & Wood LLP, special tax counsel to Provident ("Tax
Counsel"), is of the opinion that the Certificates will be treated as debt
instruments for federal income tax purposes as of such date. Accordingly,
upon issuance, the Certificates will be treated as "Debt Securities" as
described in the Prospectus. See "Federal Income Tax Consequences" in the
Prospectus.
The Transferor and the Certificateholders express in the Agreement
their intent that, for all tax purposes, the Certificates will be
indebtedness secured by the Mortgage Loans. The Transferor, Provident and
the Certificateholders, by accepting the Certificates, and each
Certificate Owner by its acquisition of a beneficial interest in a
Certificate, have agreed to treat the Certificates as indebtedness for
U.S. federal income tax purposes. However, because different criteria are
used to determine the non-tax accounting characterization of the
transaction, the Transferor intends to treat this transaction as a sale of
an interest in the Asset Balances of the Mortgage Loans for financial
accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a
transaction constitutes a sale of property or a loan, the repayment of
which is secured by property, is a question of fact, the resolution of
which is based upon the economic substance of the transaction rather than
its form or the manner in which it is labeled. While the Internal Revenue
Service (the "IRS") and the courts have set forth several factors to be
taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or
other economic burdens relating to the property and has obtained the
benefits of ownership thereof. Tax Counsel has analyzed and relied on
several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Mortgage Loans has been retained by the
Transferor and has not been transferred to the Certificate Owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of
the transaction does not accord with its form. Tax Counsel has advised
that the rationale of those cases will not apply to this transaction,
because the form of the transaction as reflected in the operative
provisions of the documents either accords with the characterization of
the Certificates as debt or otherwise makes the rationale of those cases
inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the Certificate Owners are holders of debt obligations
for U.S. federal income tax purposes, the Certificates generally will be
taxable as Debt Securities. See "Federal Income Tax Consequences" in the
Prospectus.
While it is not anticipated that the Certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the Certificates could nevertheless be
deemed to have been issued with original issue discount ("OID") if the
interest were not treated as "unconditionally payable" under the OID
Regulations. If such regulations were to apply, all of the taxable income
to be recognized with respect to the Certificates would be includible in
income of Certificate Owners as OID, but would not be includible again
when the interest is actually received. See "Federal Income Tax
Consequences--Taxation of Debt Securities; Interest and Acquisition
Discount" in the Prospectus for a discussion of the application of the OID
rules if the Certificates are in fact issued at a greater than de minimis
discount or are treated as having been issued with OID under the OID
Regulations. For purposes of calculating OID, it is likely that the
Certificates will be treated as Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS A PARTNERSHIP OR
ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS.
It is possible that the IRS could assert that, for purposes of the Code,
the transaction contemplated by this Prospectus with respect to the
Certificates constitutes a sale of the Mortgage Loans (or an interest
therein) to the Certificate Owners and that the proper classification of
the legal relationship between the Transferor and the Certificate Owners
resulting from this transaction is that of a partnership, a publicly
traded partnership treated as a corporation, or an association taxable as
a corporation. Since Tax Counsel has advised that the Certificates will
be treated as indebtedness in the hands of the Certificateholders for U.S.
federal income tax purposes, the Transferor will not attempt to comply
with U.S. federal income tax reporting requirements applicable to
partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership
taxable as a corporation), the Trust Fund would be subject to U.S. federal
income tax at corporate income tax rates on the income it derives from the
Mortgage Loans, which would reduce the amounts available for distribution
to the Certificate Owners. Cash distributions to the Certificate Owners
generally would be treated as dividends for tax purposes to the extent of
such corporation's earnings and profits.
If the transaction were treated as creating a partnership between the
Certificate Owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax (unless it were to be characterized as
a publicly traded partnership taxable as a corporation); rather, the
Transferor and each Certificate Owner would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and
deductions of the Certificate Owner could differ if the Certificates were
held to constitute partnership interests rather than indebtedness.
Assuming that all of the provisions of the Agreement, as in effect on the
date of issuance, are complied with, it is the opinion of Tax Counsel that
the Trust Fund will not be treated as either an association or a
partnership taxable as a corporation.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any
entity (or a portion of an entity) that is a "taxable mortgage pool" will
be classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Any
entity (or a portion of any entity) will be a taxable mortgage pool if (i)
substantially all of its assets consist of debt instruments, more than 50%
of which are real estate mortgages, (ii) the entity is the obligor under
debt obligations with two or more maturities, and (iii) under the terms of
the entity's debt obligations (or an underlying arrangement), payments on
such debt obligations bear a relationship to the debt instruments held by
the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Tax Counsel is of the opinion
that the arrangement created by the Agreement will not be a taxable
mortgage pool under Section 7701(i) of the Code because only one class of
indebtedness secured by the Mortgage Loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts.
If the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the Agreement is a taxable
mortgage pool, such arrangement would be subject to U.S. federal corporate
income tax on its taxable income generated by ownership of the Mortgage
Loans. Such a tax might reduce amounts available for distributions to
Certificate Owners. The amount of such a tax would depend upon whether
distributions to Certificate Owners would be deductible as interest
expense in computing the taxable income of such an arrangement as a
taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID)
paid on a Certificate to a nonresident alien individual, foreign
corporation or other non-United States person is not subject to U.S.
federal income tax, provided that such interest is not effectively
connected with a trade or business of the recipient in the United States
and the Certificate Owner provides the required foreign person information
certification. See "Federal Income Tax Consequences--Tax Treatment of
Foreign Investors" in the Prospectus.
If the interests of the Certificate Owners were deemed to be
partnership interests, the partnership would be required, on a quarterly
basis, to pay withholding tax equal to the product, for each foreign
partner, of such foreign partner's distributive share of "effectively
connected" income of the partnership multiplied by the highest rate of tax
applicable to that foreign partner. In addition, such foreign partner
would be subject to branch profits tax. Each non-foreign partner would be
required to certify to the partnership that it is not a foreign person.
The tax withheld from each foreign partner would be credited against such
foreign partner's U.S. income tax liability.
If the Trust Fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be
subject to withholding at the rate of 30%, unless such rate were reduced
by an applicable tax treaty.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at
the rate of 31% with respect to interest paid on the Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or his
broker with his taxpayer identification number, furnish an incorrect
taxpayer identification number, fail to report interest, dividends, or
other "reportable payments" (as defined in the Code) properly, or, under
certain circumstances, fail to provide the Trustee or his broker with a
certified statement, under penalty of perjury, that he is not subject to
backup withholding.
The Trustee will be required to report annually to the IRS, and to
each Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Certificates (and the amount of interest withheld
for U.S. federal income taxes, if any) for each calendar year, except as
to exempt holders (generally, holders that are corporations, certain tax-
exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Certificateholder" of
record is Cede, as nominee for DTC, Certificate Owners and the IRS will
receive tax and other information including the amount of interest paid on
the Certificates owned from Participants and Indirect Participants rather
than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable Participants, Indirect Participants
and certain other persons to complete their reports.) Each non-exempt
Certificate Owner will be required to provide, under penalty of perjury, a
certificate on IRS Form W-9 containing his or her name, address, correct
federal taxpayer identification number and a statement that he or she is
not subject to backup withholding. Should a nonexempt Certificate Owner
fail to provide the required certification, the Participants or Indirect
Participants (or the Paying Agent) will be required to withhold 31% of the
interest (and principal) otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's federal income
tax liability.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Certificates under the tax laws
of any state. Investors considering an investment in the Certificates
should consult their own tax advisors regarding such tax consequences.
ALL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
FEDERAL, STATE, LOCAL OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Certificates should consult with its counsel with respect to the
potential consequences under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the Code, of the Plans acquisition and
ownership of such Certificates. See "ERISA Considerations" in the
Prospectus.
The U.S. Department of Labor has granted to _________________
("Underwriter") Prohibited Transaction Exemption _____ (the "Exemption")
which exempts from the application of the prohibited transaction rules
transactions relating to (1) the acquisition, sale and holding by Plans of
certain certificates representing an undivided interest in certain asset-
backed pass-through trusts, with respect to which Underwriter or any of
its affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of
such asset-backed pass-through trusts, provided that the general
conditions and certain other conditions set forth in the Exemption are
satisfied. The Exemption will apply to the acquisition, holding and
resale of the Certificates by a Plan provided that certain conditions are
met.
For a general description of the Exemption and the conditions that
must be satisfied for the Exemption to apply, see "ERISA Considerations"
in the Prospectus.
The Underwriter believes that the Exemption will apply to the
acquisition and holding of the Certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met.
Any Plan fiduciary considering whether to purchase any Certificates
on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. Among other things,
before purchasing any Certificates, a fiduciary of a Plan subject to the
fiduciary responsibility provisions of ERISA or an employee benefit plan
subject to the prohibited transaction provisions of the Code should make
its own determination as to the availability of the exemptive relief
provided in the Exemption, and also consider the availability of any other
prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Certificates will be
rated in the highest rating category of the Rating Agencies, the
Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), because not all of the Mortgages securing the Mortgage Loans
are first mortgages. Accordingly, many institutions with legal authority
to invest in comparably rated securities based on first mortgage loans may
not be legally authorized to invest in the Certificates, which because
they evidence interests in a pool that includes junior mortgage loans are
not "mortgage related securities" under SMMEA. See "Legal Investment" in
the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ___________, 199_ (the "Underwriting Agreement"), among
Provident and (Underwriter) (the "Underwriter"), Provident has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase from
Provident all the Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all the
Certificates offered hereby if any of the Certificates are purchased.
Provident has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public in Europe and the United
States at the offering price set forth on the cover page hereof and to
certain dealers at such price less a discount not in excess of ____% of
the Certificate denominations. The Underwriter may allow and such dealers
may reallow a discount not in excess of _____% of the Certificate
denominations to certain other dealers. After the initial public
offering, the public offering price, such concessions and such discounts
may be changed.
The Underwriting Agreement provides that Provident will indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Act.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed
upon for Provident by Brown & Wood LLP, New York, New York and Keating,
Muething & Klekamp, Cincinnati, Ohio and for the Underwriter by ( ).
EXPERTS
The consolidated balance sheets of (Insurer) and Subsidiaries as of
___________, 199_ and 199_ and the related consolidated statements of
income, changes in shareholder's equity, and cash flows for each of the
three years in the period ended ___________, 199_, incorporated by
reference in this Prospectus Supplement, have been incorporated herein in
reliance on the report of ________________________, independent
accountants, given on the authority of that firm as experts in accounting
and auditing.
RATINGS
It is a condition to issuance that the Certificates be rated "___" by
_____ and "___" by _________.
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the Mortgage Loans. The rating
takes into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Certificates. The
ratings on the Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the Mortgage Loans
or the possibility that Certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the Certificates will depend primarily upon
the creditworthiness of the Certificate Insurer. Any reduction in a
rating assigned to the claims-paying ability of the Certificate Insurer
below the ratings initially assigned to the Certificates may result in a
reduction of one or more of the ratings assigned to the Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
Provident has not requested a rating of the Certificates by any
rating agency other than the Rating Agencies; there can be no assurance,
however, as to whether any other rating agency will rate the 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 Certificates could
be lower than the respective ratings assigned by the Rating Agencies.
INDEX OF DEFINED TERMS
Page
----
Accelerated Principal Distribution Amount . . . . . . . . . . . S-8, S-38
Additional Balances . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Alternative Principal Payment . . . . . . . . . . . . . . . . . S-11, S-40
Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . S-31
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . S-37, S-42
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-33
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . S-6, S-31
Certificate Principal Balance . . . . . . . . . . . . . . . . . S-4, S-30
Certificate Rate . . . . . . . . . . . . . . . . . . . . S-4, S-10, S-38
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . S-31, S-51
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Closing Date . . . . . . . . . . . . . . . . . . . . . . S-1, S-10, S-39
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Collection Account . . . . . . . . . . . . . . . . . . . . . . S-9, S-36
Collection Period . . . . . . . . . . . . . . . . . . . . S-9, S-10, S-38
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . S-5
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Credit Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Credit Limit Utilization Rate . . . . . . . . . . . . . . . . . . . . S-21
Credit Line Agreements . . . . . . . . . . . . . . . . . . . . S-3, S-21
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Cut-off Date Pool Balance . . . . . . . . . . . . . . . . . . . . . . S-3
Cut-off Date Principal Balance . . . . . . . . . . . . . . . . . . . S-3
Defective Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . S-35
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . S-31
Determination Date . . . . . . . . . . . . . . . . . . . . . . S-13, S-36
Dissolution Distribution Date . . . . . . . . . . . . . . . . . . . . S-41
Distribution Date . . . . . . . . . . . . . . . . . . . . S-1, S-10, S-37
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-31
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Eligible Substitute Mortgage Loan . . . . . . . . . . . . . . . . . . S-34
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14, S-52
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . S-32
European Depositaries . . . . . . . . . . . . . . . . . . . . . S-7, S-31
Events of Servicing Termination . . . . . . . . . . . . . . . . . . . S-46
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . S-31
Fixed Allocation Percentage . . . . . . . . . . . . . . . . . . . . . S-9
Guaranteed Distributions . . . . . . . . . . . . . . . . . . . S-12, S-41
Guaranteed Principal Distribution Amount . . . . . . . . . . . S-12, S-41
Index Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . S-31
Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . S-11, S-41
Interest Collections . . . . . . . . . . . . . . . . . . . . . S-7, S-37
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-39
Invested Amount . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-30
Investor Fixed Allocation Percentage . . . . . . . . . . . . . . . . S-9
Investor Floating Allocation Percentage . . . . . . . . . . . . S-8, S-37
Investor Interest Collections . . . . . . . . . . . . . . . . . S-8, S-37
Investor Loss Amount . . . . . . . . . . . . . . . . . . . . . S-9, S-38
Investor Principal Collections . . . . . . . . . . . . . . . . S-9, S-37
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . S-38
Liquidation Loss Amount . . . . . . . . . . . . . . . . . . . . S-9, S-38
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . S-37
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-22
Managed Amortization Period . . . . . . . . . . . . . . . . . . S-10, S-39
Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-7
Maximum Principal Payment . . . . . . . . . . . . . . . . . . . S-11, S-40
Maximum Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Minimum Transferor Interest . . . . . . . . . . . . . . . . . . S-5, S-35
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . S-5, S-34, S-35
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . S-3
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . S-8, S-37
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Original Certificate Principal Balance . . . . . . . . . . . . S-4, S-30
Original Invested Amount . . . . . . . . . . . . . . . . . . . S-4, S-30
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . . S-9
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-37
Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Principal Collections . . . . . . . . . . . . . . . . . . . . . S-7, S-37
Provident . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3, S-7
Rapid Amortization Event . . . . . . . . . . . . . . . . . . . . . . S-40
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Reference Bank Rate . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Required Overcollateralization Amount . . . . . . . . . . . . . . . . S-38
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Scheduled Principal Collections Distribution Amount . . . . . . S-10, S-39
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . S-13, S-45
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-52
Spread Account . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-41
STIFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Subservicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Telerate Screen Page 3750 . . . . . . . . . . . . . . . . . . . . . . S-39
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . S-33
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Transfer Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Transfer Deposit Amount . . . . . . . . . . . . . . . . . . . . . . . S-34
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Transferor Interest . . . . . . . . . . . . . . . . . . . . S-1, S-4, S-30
Transferor Principal Collections . . . . . . . . . . . . . . . S-9, S-37
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-14
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . S-52
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Home
Equity Loan Asset Backed Certificates, Series 199_-_ (the "Global
Securities") will be available only in book-entry form. Investors in the
Global Securities may hold such Global Securities through any of The
Depository Trust Company ("DTC"), CEDEL or Euroclear. The Global
Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations and prior Home Equity Loan
Asset Backed Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear
(in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result,
CEDEL and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan Asset
Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior
Home Equity Loan Asset Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary
market trading between CEDEL Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear
Participant, the purchaser will send instructions to CEDEL or Euroclear
through a CEDEL Participant or Euroclear Participant at least one business
day prior to settlement. CEDEL or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the
settlement date, on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued
to and excluding the first day of the following month. Payment will then
be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the
cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding
day when settlement occurred in New York). If settlement is not completed
on the intended value date (i.e., the trade fails), the CEDEL or Euroclear
cash debt will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within CEDEL
or Euroclear. Under this approach, they may take on credit exposure to
CEDEL or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, CEDEL Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges
for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the DTC
Participants a cross-market transaction will settle no differently than a
trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The
seller will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases CEDEL or Euroclear will instruct the
respective Depositary, as appropriate, to deliver the Global Securities to
the DTC Participant's account against payment. Payment will include
interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist
of 360 days. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the
following month. The payment will then be reflected in the account of the
CEDEL Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the CEDEL Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of
receipt of the sale proceeds in its account, the back-valuation will
extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement
date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants
or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the CEDEL
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required
to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain
an exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If
the treaty provides only for a reduced rate, withholding tax will be
imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner
of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
his agent, files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency). Form W-8 and Form 1001 are
effective for three calendar years and Form 4224 is effective for one
calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws
of the United States or any political subdivision thereof or (iii) an
estate the income of which is includible in gross income for United States
tax purposes, regardless of its source or (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States trustees have
authority to control all substantial decisions of the trust. This summary
does not deal with all aspects of U.S. federal income tax withholding that
may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
No dealer, salesman or other
person has been authorized to give
any information or to make any
representation not contained in PROVIDENT HOME
this Prospectus Supplement or the EQUITY LOAN TRUST 199__-__
Prospectus and, if given or made,
such information or representation
must not be relied upon as having
been authorized by the Company or $___________
(Underwriter). This Prospectus (Approximate)
Supplement and the Prospectus do
not constitute an offer of any
securities other than those to
which they relate or an offer to
sell, or a solicitation of an Home Equity Loan
offer to buy, to any person in any Asset Backed Certificates
jurisdiction where such an offer Series 199_-_
or solicitation would be unlawful.
Neither the delivery of this
Prospectus Supplement and the
Prospectus nor any sale made
hereunder shall, under any THE PROVIDENT BANK
circumstances, create any Transferor and Master Servicer
implication that the information
contained herein is correct as of
any time subsequent to their
respective dates.
__________________________________
TABLE OF CONTENTS
Page
---
PROSPECTUS SUPPLEMENT
___________, 199_
PROSPECTUS SUPPLEMENT
__________________________________
Summary . . . . . . . . . . . S-3
Risk Factors . . . . . . . . S-16
The Certificate Insurer . . . S-18
The Master Servicer . . . . . S-18
The Home Equity Loan Program S-19
(UNDERWRITER)
Description of the Mortgage Loans
S-21
Maturity and Prepayment
Considerations . . . . . . . S-28
Pool Factor and Trading
Information . . . . . . . . . S-30
Description of the Certificates
S-30
Use of Proceeds . . . . . . . S-48
Federal Income Tax Consequences
S-49
State Taxes . . . . . . . . . S-51
ERISA Considerations . . . . S-52
Legal Investment Considerations
S-52
Underwriting . . . . . . . . S-52
Legal Matters . . . . . . . . S-53
Experts . . . . . . . . . . . S-53
Ratings . . . . . . . . . . . S-53
Index of Defined Terms . . . S-54
Annex I . . . . . . . . . . . S-57
PROSPECTUS
Prospectus Supplement or Current
Report on Form 8K . . . . . . . 2
Available Information . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . 2
Reports to Securityholders . . 3
Summary of Terms . . . . . . . 4
Risk Factors . . . . . . . . . 11
The Trust Fund . . . . . . . . 17
Use of Proceeds . . . . . . . . 21
Loan Program . . . . . . . . . 22
Description of the Securities . 24
Credit Enhancement . . . . . . 38
Yield and Prepayment
Considerations . . . . . . . . 43
The Agreements . . . . . . . . 45
Certain Legal Aspects of the Loans
57
Federal Income Tax Consequences 71
State Tax Considerations . . . 90
ERISA Considerations . . . . . 90
Legal Investment . . . . . . . 93
Method of Distribution . . . . 94
Legal Matters . . . . . . . . . 95
Financial Information . . . . . 95
Ratings . . . . . . . . . . . . 95
Index of Defined Terms . . . . 97
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED (_____________)
$
(PROVIDENT HOME EQUITY LOAN TRUST 199___)
($ CLASS A-1 % CERTIFICATES
$ CLASS A-2 % CERTIFICATES
$ CLASS A-3 % CERTIFICATES
$ CLASS A-4 % CERTIFICATES
$ CLASS A-5 % CERTIFICATES)
$ CLASS A-6 VARIABLE RATE CERTIFICATES
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES,
SERIES 199___
------------------
THE PROVIDENT BANK,
AS SELLER AND MASTER SERVICER
------------------
The Home Equity Loan Asset-Backed Certificates, Series 1996-3 (the
"Certificates"), will consist of six Classes (each, a "Class") of senior
Certificates: the Class A-1 Certificates, the Class A-2 Certificates, the
Class A-3 Certificates, the Class A-4 Certificates, the Class A-5
Certificates and Class A-6 Certificates (collectively, the "Class A
Certificates") and one Class of subordinated Certificates (the "Class R
Certificates"). Only the Class A Certificates (the "Offered
Certificates") are being offered hereby.
The Certificates will evidence in the aggregate the entire beneficial
interest in a pool (the "Mortgage Pool") of closed-end fixed- and
adjustable-rate home equity loans (the "Mortgage Loans") consisting of two
groups ("Loan Group 1" and "Loan Group 2", respectively, and each a "Loan
Group") held by (Provident Home Equity Loan Trust 199___) (the "Trust") to
be formed pursuant to a Pooling and Servicing Agreement among The
Provident Bank ("Provident"), as seller (the "Seller") and as master
s e r v i c e r ( t h e " M a s t e r S e r v i c e r " ) , a n d
________________________________________, as trustee (the "Trustee"). The
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates
(collectively, the "Group 1 Certificates") will represent undivided
ownership interests in Loan Group 1 which consists of Mortgage Loans with
fixed interest rates. The Class A-6 Certificates (the "Group 2
Certificates") will represent undivided ownership interests in Loan Group
2 which consists of Mortgage Loans with adjustable interest rates. The
assets of the Trust will also include certain other property. The
Mortgage Loans are secured by first and second deeds of trust or mortgages
primarily on one- to four-family residential properties.
(Cover continued on next page)
------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH
UNDER "RISK FACTORS" ON PAGE S-13 HEREIN AND ON PAGE 11
IN THE ACCOMPANYING PROSPECTUS.
------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT
INTERESTS IN OR OBLIGATIONS OF PROVIDENT, THE TRUSTEE OR ANY
AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED HEREIN.
NEITHER THE CERTIFICATES NOR THE MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
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 COM-
MISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Offered Certificates are being offered by the Underwriter from
time to time in negotiated transactions or otherwise at varying prices to
be determined, in each case, at the time of sale.
The aggregate proceeds to Provident from the sale of the Offered
Certificates will be approximately $ , plus accrued interest, before
deducting expenses payable by Provident, estimated to be $ in the
aggregate.
------------------
The Offered Certificates are offered subject to prior sale and
subject to the Underwriter's 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, CEDEL Soci t Anonyne and the Euroclear System on or about
(__________) (the "Closing Date"). The Offered Certificates will be
offered in Europe and the United States of America.
------------------
(Underwriter)
(Date)
(Cover continued from previous page)
Distributions on the Class A Certificates will be made on the 25th
day of each month or, if such date is not a Business Day, then on the next
succeeding Business Day (each, a "Distribution Date"), commencing in
_____________. On each Distribution Date, holders of the Class A
Certificates will be entitled to receive, from and to the limited extent
of funds available in the Distribution Account (as defined herein),
distributions with respect to interest and principal calculated as set
forth herein. The Certificates are not guaranteed by Provident, the
Trustee or any affiliate of any thereof. However, the Class A
Certificates will have the benefit of an irrevocable and unconditional
certificate guaranty insurance policy (the "Policy") issued by (the
"Certificate Insurer") pursuant to which the Certificate Insurer will
guarantee payments to the related Certificateholders as described herein.
See "DESCRIPTION OF THE CERTIFICATES--The Policy" herein.
There is currently no 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. See "RISK FACTORS" herein.
An election will be made to treat the assets of the Trust as a "real
estate mortgage investment conduit" (a "REMIC") for federal income tax
purposes. As described more fully herein and in the Prospectus, the
Offered Certificates will constitute "regular interests" in the REMIC.
See "Certain Federal Income Tax Consequences" 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 Prospectus. This is in addition to the
obligation of dealers acting as underwriters to deliver a Prospectus
Supplement and Prospectus with respect to their unsold allotments or
subscriptions.
------------------------------------
The Offered Certificates constitute part of a separate series of Home
Equity Loan Asset-Backed Certificates being offered by The Provident Bank
from time to time pursuant to its Prospectus dated ____________. This
Prospectus Supplement does not contain complete information about the
offering of the Offered Certificates. Additional information is contained
in the Prospectus and investors 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by
Provident with the Commission pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act, on or subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Certificates made
by this Prospectus Supplement. Provident will provide without charge to
each person to whom this Prospectus Supplement and Prospectus are
delivered, on request of such person, a copy of any or all of the
documents incorporated herein by reference other than the exhibits to such
documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests should be directed to
______________________________________________________.
SUMMARY
The following summary of certain pertinent information is qualified
in its entirety by reference to the detailed information appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus.
Certain capitalized terms used in the Summary are defined elsewhere in
this Prospectus Supplement or in the Prospectus. Reference is made to the
Index of Defined Terms herein and the Glossary of Terms in the Prospectus
for the definitions of certain capitalized terms.
Trust (Provident Home Equity Loan Trust 199___) (the
"Trust") will be formed pursuant to a pooling and
servicing agreement (the "Agreement") to be dated as
of _________________ (the "Cut-Off Date") among The
Provident Bank, ("Provident"), as seller (the
"Seller") and as master servicer (together with any
successor in such capacity, the "Master Servicer"),
and ________________________ ________________, as
trustee (the "Trustee"). The property of the Trust
will include: a pool of closed- end fixed- and
adjustable-rate home equity loans (the "Mortgage
Loans"), secured by first and second deeds of trust or
mortgages on residential properties that are primarily
one- to four-family properties (the "Mortgaged
Properties"); payments in respect of the Mortgage
Loans received on and after the Cut-Off Date
(exclusive of payments in respect of interest on the
Mortgage Loans due prior to the Cut-Off Date and
received thereafter); property that secured a Mortgage
Loan which has been acquired by foreclosure or deed in
lieu of foreclosure; rights under certain hazard
insurance policies covering the Mortgaged Properties;
and certain other property, as described more fully
herein. In addition, Provident has caused the
Certificate Insurer to issue an irrevocable and
unconditional financial guaranty insurance policy (the
"Policy") for the benefit of the holders of the Class
A Certificates, pursuant to which the Certificate
Insurer will guarantee payments to such
Certificateholders as described herein.
The Trust property initially will include the unpaid
principal balance of each Mortgage Loan as of the
Cut-Off Date. With respect to any date, the "Pool
Principal Balance" will be equal to the aggregate of
the Principal Balances of all Mortgage Loans as of
such date. The "Cut-Off Date Principal Balance" with
respect to each Mortgage Loan is the unpaid principal
balance thereof as of the Cut-Off Date. With respect
to any date, the "Loan Group 1 Principal Balance" and
the "Loan Group 2 Principal Balance" will be equal to
the aggregate of the Principal Balances of all
Mortgage Loans in Loan Group 1 and Loan Group 2,
respectively, as of such date. The Loan Group 1
Principal Balance and the Loan Group 2 Principal
Balance are each sometimes referred to herein as a
"Loan Group Principal Balance." The "Principal
Balance" of a Mortgage Loan (other than a Liquidated
Mortgage Loan) on any day is equal to its Cut-Off Date
Principal Balance minus all collections applied in
reduction of the Cut-Off Date Principal Balance of
such Mortgage Loan. The Principal Balance of a
Liquidated Mortgage Loan (as defined herein) after the
Due Period in which such Mortgage Loan becomes a
Liquidated Mortgage Loan shall be zero.
Securities The Home Equity Loan Asset-Backed Certificates, Series
199___ (the "Certificates") will consist of six
Classes of senior certificates: the Class A-1
Certificates, the Class A-2 Certificates, the Class
A-3 Certificates, the Class A-4 Certificates, the
Class A-5 Certificates and the Class A-6 Certificates
(collectively, the "Class A Certificates") and one
Class of subordinated certificates (the "Class R
Certificates"). Only the Class A Certificates (the
"Offered Certificates") are offered hereby. Each
Class of Offered Certificates represents the right to
receive payments of interest at the rates set forth on
the cover hereof (with respect to each such Class, the
"Certificate Rate"), payable monthly, and payments of
principal to the extent provided below. The Class
A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates (collectively, the "Group 1
Certificates") will represent undivided ownership
interests in Loan Group 1 which consists of Mortgage
Loans with fixed interest rates. The Class A-6
Certificates (the "Group 2 Certificates") will
represent undivided ownership interests in Loan Group
2 which consists of Mortgage Loans with adjustable
interest rates. The aggregate undivided interest in
the Trust represented by the Class A Certificates as
of the Cut-Off Date will equal $ of
principal (the "Original Aggregate Class A Principal
Balance"). The aggregate undivided interest in Loan
Group 1 represented by the Group 1 Certificates as of
the Cut-Off Date will equal $ of principal.
The aggregate undivided interest in Loan Group 2
represented by the Class A-3 Certificates as of the
Cut-Off Date will equal $ of principal. The
principal amount of a Class of Class A Certificates
(each, a "Class A Principal Balance") on any date is
equal to the applicable Class A Principal Balance on
the Closing Date minus the aggregate of amounts
actually distributed as principal to the holders of
such Class of Class A Certificates. On any date, the
"Aggregate Class A Principal Balance" is, with respect
to the Group 1 Certificates, the aggregate of the
Class A Principal Balances of the Group 1 Certificates
and with respect to the Group 2 Certificates, the
Class A-6 Principal Balance on such date.
The Mortgage Loans The Mortgage Loans are expected to consist of $
in principal amount of closed-end fixed- and
adjustable-rate home equity loans secured by first and
second deeds of trust or mortgages on Mortgaged
Properties located in states and the District of
Columbia. The Combined Loan-to-Value Ratio of each
Mortgage Loan, computed on the date such loan was
originated, taking into account the amounts of any
related senior mortgage loans (the "Combined
Loan-to-Value Ratio") did not exceed % as of the
Cut-Off Date. The weighted average original Combined
Loan-to-Value Ratio of the Mortgage Loans was %
as of the Cut-Off Date. See "DESCRIPTION OF THE
MORTGAGE LOANS" herein. Interest on each Mortgage
Loan is payable monthly on the outstanding Principal
Balance thereof at a rate per annum (the "Loan Rate")
specified in the related Mortgage Note. As of the
Cut-Off Date, the Loan Rates ranged from % to
% per annum and the weighted average Loan Rate was
% per annum. The Cut-Off Date Principal Balances of
the Mortgage Loans ranged from $ to $
and averaged $ . Each Mortgage Loan was
originated in the period from to
.
Loan Group 1. All of the Mortgage Loans in Loan Group
1 have Loan Rates which are fixed for the life of such
Mortgage Loans. As of the Cut-Off Date, there are ___
Mortgage Loans in Loan Group 1. The aggregate
Principal Balance of the Mortgage Loans in Loan Group
1 was $_____________ (the "Cut-Off Date Loan Group 1
Principal Balance"). As of the Cut-Off Date with
respect to the Mortgage Loans in Loan Group 1, the
average Principal Balance was $_________; the Loan
Rates ranged from ____% to _____%; the weighted
average Loan Rate was ______%; the weighted average
Combined Loan-to-Value Ratio was %; and the
weighted average remaining term to stated maturity was
___ months. The remaining terms to stated maturity of
the Mortgage Loans in Loan Group 1 ranged from ___
months to ___ months. The original term to stated
maturity of each Mortgage Loan in Loan Group 1 was ___
months. The maximum Principal Balance of the Mortgage
Loans in Loan Group 1 was $__________ and the minimum
Principal Balance of the Mortgage Loans in Loan Group
1 was $________. Approximately % of the Mortgage
Loans in Loan Group 1 are Balloon Loans. All of the
Balloon Loans amortize over ___ months. No Mortgage
Loan in Loan Group 1 will mature later than
.
Loan Group 2. All of the Mortgage Loans in Loan Group
1 have Loan Rates which are subject to adjustment
based on changes in (LIBOR), as further discussed
under "DESCRIPTION OF THE MORTGAGE LOANS" herein. As
of the Cut-Off Date, there are _____ Mortgage Loans in
Loan Group 2. The aggregate Principal Balance of the
Mortgage Loans in Loan Group 2 was $______________
(the "Cut-Off Date Loan Group 2 Principal Balance").
As of the Cut-Off Date with respect to the Mortgage
Loans in Loan Group 2, the average Principal Balance
was $_________; the Loan Rates ranged from ____% to
_____%; the weighted average Loan Rate was _____%; the
weighted average Combined Loan-to-Value Ratio was
%; and the weighted average remaining term to stated
maturity was ___ months. The remaining terms to
stated maturity of the Mortgage Loans in Loan Group 2
ranged from ___ months to ___ months. The original
term to stated maturity each Mortgage Loan in Loan
Group 2 was ___ months. The maximum Principal Balance
of the Mortgage Loans in Loan Group 2 was $__________
and the minimum Principal Balance of the Mortgage
Loans in Loan Group 2 was $________. None of the
Mortgage Loans in Loan Group 2 are Balloon Loans. No
Mortgage Loan in Loan Group 2 will mature later than
.
As of the Cut-off Date, approximately % of the
Mortgage Loans in Loan Group 2 are secured by first
liens and approximately % of the Mortgage Loans in
Loan Group 2 are secured by second liens. All of the
Mortgage Loans in Loan Group 2 have minimum and
maximum Loan Rates. The weighted average minimum Loan
Rate of the Mortgage Loans in Loan Group 2 is
approximately % per annum, with minimum Loan
Rates that range from approximately % per annum to
% per annum. The weighted average maximum Loan Rate
of the Mortgage Loans in Loan Group 2 is approximately
% per annum, with maximum Loan Rates that range
from approximately % per annum to % per
annum. The Mortgage Loans in Loan Group 2 have a
weighted average gross margin of approximately %
per annum, with gross margins that range from
approximately % per annum to % per annum. The
Mortgage Loans in Loan Group 2 have a weighted average
periodic cap of approximately % per annum, with
periodic caps that range from approximately % per
annum to % per annum.
See "DESCRIPTION OF THE MORTGAGE LOANS" herein.
Denominations The Class A Certificates will be offered for purchase
in denominations of $1,000 and multiples of $1 in
excess thereof.
Registration of
Class A
Certificates The Class A Certificates will initially be issued in
book-entry form. Persons acquiring beneficial
ownership interests in the Class A Certificates
("Certificate Owners") will hold their Class A
Certificate interests through The Depository Trust
Company ("DTC"), in the United States, or Cedel Bank
societe anonyme ("CEDEL") or the Euroclear System
("Euroclear"), 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
Class A 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 depositaries (collectively, the "European
Depositaries"). Cross-market 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 Chemical Bank ("Chemical"), the
relevant depositaries of CEDEL and Euroclear,
respectively, and each a participating member of DTC.
The interests of such Certificateholders 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 (as defined herein)
are issued under the limited circumstances described
herein. All references in this Prospectus Supplement
to any Class A Certificates reflect the rights of
Certificate Owners only as such rights may be
exercised through DTC and its participating
organizations for so long as such Class A Certificates
are held by DTC. See "RISK FACTORS--Book-Entry
Certificates", "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Certificates" herein and
"ANNEX I" hereto.
Provident The Provident Bank, an Ohio banking corporation (the
"Seller" or the "Master Servicer" as applicable). The
principal executive offices of the Seller and Master
Servicer are located at One East Fourth Street,
Cincinnati, Ohio 45202 (Telephone: (513) 579-2000).
See "THE PROVIDENT BANK" herein.
Certificate Rate The "Certificate Rate" on any Distribution Date with
respect to the Class A-1 Certificates is % per
annum; the Class A-2 Certificates is % per annum;
the Class A-3 Certificates is % per annum; the
Class A-4 Certificates is % per annum; and the
Class A-5 Certificates is % per annum. The
"Certificate Rate" on any Distribution Date with
respect to the Class A-6 Certificates will equal the
least of (A) the sum of the LIBOR Rate (as defined
herein) plus ____% (or ____% for each Distribution
Date occurring after the date on which the Master
Servicer has the right to terminate the Trust), (B)
the Net Funds Cap for such Distribution Date and (C)
____% per annum. The "Net Funds Cap" for any
Distribution Date shall equal the difference between
(A) the average of the Loan Rates of the Mortgage
Loans in Loan Group 2 as of the first day of the month
preceding the month of such Distribution Date,
weighted on the basis of the related Principal
Balances as of such date and (B) the sum of (i) the
Master Servicing Fee Rate and the rate at which the
Trustee Fee and the premium payable to the Certificate
Insurer are calculated and (ii) commencing with the
thirteenth Distribution Date, 0.50%. Interest on the
Group 1 Certificates in respect of any Distribution
Date will accrue during each Interest Period on the
basis of a 360-day year consisting of twelve 30-day
months. Interest on the Group 2 Certificates in
respect of any Distribution Date will accrue during
each Interest Period on the basis of a 360-day year
and the actual number of days elapsed.
"Interest Period" means, with respect to each
Distribution Date and the Group 1 Certificates, the
period from the first day of the calendar month
preceding the month of such Distribution Date through
the last day of such calendar month. "Interest
Period" means, with respect to each Distribution Date
and the Group 2 Certificates, the period from the
Distribution Date in the month preceding the month of
such Distribution Date (or, in the case of the first
Distribution Date, from the Closing Date) through the
day before such Distribution Date.
Distributions: On the 25th day of each month, or if such a day is not
a Business Day, then the next succeeding Business Day,
commencing in ____________ (each such day, a
"Distribution Date"), the Trustee will be required to
distribute from funds available therefor in the
Distribution Account (as described herein) to the
holders of the Offered Certificates of record as of
the applicable Record Date, in the priorities
described below, an aggregate amount equal to the sum
of (a) the Class Interest Distribution for each Class
of Offered Certificates, and (b) the Class A Principal
Distribution for each Certificate Group. So long as
an Insurer Default has not occurred and is continuing,
the Class A Principal Distribution relating to the
Group 1 Certificates will be distributed,
sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates, in that order,
such that no Class of Group 1 Certificates having a
higher numerical designation is entitled to
distributions of principal until the Class A Principal
Balance of each such Class of Certificates having a
lower numerical designation has been reduced to zero.
On any Distribution Date during the continuance of an
Insurer Default, the Class A Principal Distribution
relating to the Group 1 Certificates will be
distributed to the Group 1 Certificates outstanding on
a pro rata basis in accordance with the Class A
Principal Balance of each such Class. The Class A
Principal Distribution relating to the Group 2
Certificates will be distributed to the Class A-6
Certificates. See "DESCRIPTION OF THE
CERTIFICATES--Distributions" herein.
Interest
On each Distribution Date, to the extent of funds
available therefor as described herein, interest will
be distributed with respect to each Class of Class A
Certificates in an amount (each, a "Class Interest
Distribution") equal to the sum of (a) one month's
interest at the related Certificate Rate on the
related Class A Principal Balance immediately prior to
such Distribution Date (the "Class Monthly Interest
Distributable Amount") and (b) any Class Interest
Carryover Shortfall for such Class of Class A
Certificates for such Distribution Date. As to any
Distribution Date and Class of Class A Certificates,
Class Interest Carryover Shortfall is the sum of (i)
the excess of the related Class Monthly Interest
Distributable Amount for the preceding Distribution
Rate and any outstanding Class Interest Carryover
Shortfall with respect to such Class on such preceding
Distribution Date, over the amount in respect of
interest that is actually distributed to such Class on
such preceding Distribution Date plus (ii) one month's
interest on such excess, to the extent permitted by
law, at the related Certificate Rate.
On each Distribution Date, the Class Interest
Distribution for each Class of Class A Certificates in
a particular Certificate Group will be distributed on
an equal priority and any shortfall in the amount
required to be distributed as interest thereon to each
such Class will be allocated between such Classes pro
rata based on the amount each such Class would have
been distributed in the absence of such shortfall.
Principal
On each Distribution Date, to the extent of funds
available therefor as described herein, principal will
be distributed to the holders of the Class A
Certificates of a Certificate Group then entitled to
distributions of principal in an amount equal to the
lesser of (A) the related Aggregate Class A Principal
Balance and (B) the related Class A Principal
Distribution for such Distribution Date. "Class A
Principal Distribution" means, with respect to any
Distribution Date and Certificate Group, the sum of
the related Class A Monthly Principal Distributable
Amount for such Distribution Date and any outstanding
Class A Principal Carryover Shortfall as of the close
of the preceding Distribution Date.
"Class A Monthly Principal Distributable Amount"
means, with respect to any Distribution Date and
Certificate Group, to the extent of funds available
therefor as described herein, the amount equal to the
sum of the following amounts (without duplication)
with respect to the immediately preceding Due Period
(as defined below): (i) each payment of principal on a
Mortgage Loan in the related Loan Group received by
the Master Servicer during such Due Period, including
all full and partial principal prepayments, (ii) the
Principal Balance as of the end of the immediately
preceding Due Period of each Mortgage Loan in the
related Loan Group that became a Liquidated Mortgage
Loan for the first time during the related Due Period,
(iii) the portion of the Purchase Price allocable to
principal of all repurchased Defective Mortgage Loans
in the related Loan Group with respect to such Due
Period, (iv) any Substitution Adjustment Amounts
received on or prior to the previous Determination
Date and not yet distributed with respect to the
related Loan Group and (v) such portion (not greater
than 100%) of Excess Spread (as defined below), if
any, required to be distributed on such Distribution
Date to satisfy the required level of
overcollateralization for the related Loan Group for
such Distribution Date (the "Distributable Excess
Spread").
If the required level of overcollateralization for a
Certificate Group is reduced below the then existing
amount of overcollateralization (described below) or
if the required level of overcollateralization for
such Certificate Group is satisfied, the amount of the
related Class A Monthly Principal Distributable Amount
on the following Distribution Date will be
correspondingly reduced by the amount of such
reduction or by the amount necessary such that the
overcollateralization will not exceed the required
level of overcollateralization for a Certificate Group
after giving effect to the distribution in respect of
principal with respect to such Certificate Group to be
made on such Distribution Date.
"Due Period" means, with respect to any Determination
Date or Distribution Date, the calendar month
immediately preceding such Determination Date or
Distribution Date, as the case may be.
For a description of a "Liquidated Mortgage Loan" see
"DESCRIPTION OF THE CERTIFICATES--Principal" herein.
"Excess Spread" means, with respect to any
Distribution Date and Loan Group, the positive excess,
if any, of (x) Available Funds (as defined herein) for
the related Certificate Group for such Distribution
Date over (y) the amount required to be distributed
pursuant to subclause A items (i) through (iv), with
respect to the Group 1 Certificates and subclause B
items (i) through (iv), with respect to the Group 2
Certificates, in each case set forth under the heading
"DESCRIPTION OF CERTIFICATES--Priority of
Distributions" on such Distribution Date.
Distributions of Excess Spread relating to a Loan
Group to the holders of Class A Certificates of the
related Certificate Group will result in acceleration
of principal payments to the holders of such Class A
Certificates creating overcollateralization to the
extent required by the Agreement. This feature will
have the effect of reducing the weighted average lives
of the Class A Certificates. See "DESCRIPTION OF
CERTIFICATES--Overcollateralization Provisions" and
"PREPAYMENT AND YIELD CONSIDERATIONS" herein.
The last scheduled Distribution Date for each Class of
Offered Certificates is as follows: Class A-1
Certificates, ; Class A-2 Certificates,
; Class A-3 Certificates, ;
Class A-4 Certificates, ; Class A-5
Certificates, ; and Class A-6
Certificates, . It is expected that the
actual last Distribution Date for each Class of
Offered Certificates will occur significantly earlier
than such scheduled Distribution Dates. See
"PREPAYMENT AND YIELD CONSIDERATIONS."
Overcollaterali-
zation The credit enhancement provisions of the Trust result
in a limited acceleration of the Class A Certificates
of a Certificate Group relative to the amortization of
the Mortgage Loans in the related Loan Group in the
early months of the transaction. The accelerated
amortization is achieved by the application of Excess
Spread relating to a Loan Group to principal
distributions on the Class A Certificates of the
related Certificate Group. This acceleration feature
creates, with respect to each Certificate Group,
overcollateralization (i.e., the excess of the
aggregate outstanding Principal Balance of the
Mortgage Loans in the related Loan Group over the
related Aggregate Class A Principal Balance). Once
the required level of overcollateralization is reached
for a Certificate Group, and subject to the provisions
described in the next paragraph, the acceleration
feature for such Certificate Group will cease, until
necessary to maintain the required level of
overcollateralization for such Certificate Group.
The Agreement will provide that, subject to certain
floors, caps and triggers, the required level of
overcollateralization with respect to a Certificate
Group may increase or decrease over time. An increase
in the required level of overcollateralization for a
Certificate Group will result if the delinquency or
default experience on the Mortgage Loans in the
related Loan Group exceeds certain levels set forth in
the Agreement. In that event, amortization of the
related Class A Certificates would be accelerated
relative to the Mortgage Loans until the level of
overcollateralization reaches its required level. The
required level of overcollateralization may be
decreased under certain circumstances, which will slow
the amortization of the Class A Certificates of the
related Certificate Group relative to the Mortgage
Loans.
See "PREPAYMENT AND YIELD CONSIDERATIONS" and
" D E S C R I P T I O N O F T H E
CERTIFICATES--Overcollateralization Provisions."
Crosscollaterali-
zation In addition to the foregoing, the Agreement provides
for crosscollateralization through the application of
Excess Spread generated by one Loan Group to fund
shortfalls in Available Funds in the other Loan Group,
subject to certain prior requirements of such
Available Funds. See "DESCRIPTION OF THE
CERTIFICATES--Priority of Distributions" and
"PREPAYMENT AND YIELD CONSIDERATIONS."
The Policy The Policy will unconditionally and irrevocably
guarantee principal payments (as described in the next
sentence) on the Class A Certificates plus accrued and
unpaid interest due on the Class A Certificates. On
each Distribution Date, a draw will be made on the
Policy equal to the sum of (a) the amount by which
interest accrued during the applicable Interest Period
at the applicable Certificate Rate for each Class of
Class A Certificates on the related outstanding Class
A Principal Balance exceeds the amount on deposit in
the Distribution Account available to be distributed
therefor on such Distribution Date and (b) with
respect to each Certificate Group, the amount (each, a
"Guaranteed Principal Amount"), if any, by which the
Aggregate Class A Principal Balance exceeds the
related Loan Group Principal Balance at the end of the
previous month (after giving effect to all amounts
distributable and allocable to principal on the
related Class A Certificates on such Distribution
Date). In addition, the Policy will guarantee the
payment in full of the applicable Aggregate Class A
Principal Balance to the Group 1 Certificates and the
Group 2 Certificates on the Distribution Date in
and , respectively (after giving
effect to all other amounts distributable and
allocable to principal on such Classes on such
Distribution Date).
In the absence of payments under the Policy, Class A
Certificateholders will directly bear the credit and
other risks associated with their undivided interest
in the Trust. See "DESCRIPTION OF THE
CERTIFICATES--The Policy," herein.
The Certificate
Insurer (_____________________________________________________
___)(the "Certificate Insurer"). See "DESCRIPTION OF
THE CERTIFICATES--The Policy" and "THE CERTIFICATE
INSURER" herein.
Servicing The Master Servicer will be responsible for servicing,
managing and making collections on the Mortgage Loans.
The Master Servicer will deposit all collections in
respect of the Mortgage Loans into the Collection
Account as described herein. On the eighteenth day of
the month (each, a "Determination Date"), the Trustee
will calculate the amounts to be paid, as described
herein, to the Certificateholders on the next
Distribution Date. See "DESCRIPTION OF THE
CERTIFICATES--Priority of Distributions." With
respect to each Due Period, the Master Servicer will
receive from payments in respect of interest on the
Mortgage Loans, on behalf of itself, a portion of such
payments as a monthly servicing fee (the "Master
Servicing Fee") in the amount of % per annum (the
"Master Servicing Fee Rate") on the Principal Balance
of each Mortgage Loan as of the first day of each such
Due Period. See "DESCRIPTION OF THE
CERTIFICATES--Servicing Compensation and Payment of
Expenses." In certain limited circumstances, the
Master Servicer may resign or be removed, in which
event either the Trustee or a third-party servicer
will be appointed as successor master servicer. See
"DESCRIPTION OF THE CERTIFICATES--Certain Matters
Regarding the Master Servicer" herein.
Trustee (______________________________________), a
_________________ (the "Trustee").
Monthly Advances (The Master Servicer is required to remit to the
Trustee no later than two Business Days prior to each
Distribution Date, for deposit in the Distribution
Account, an amount equal to the scheduled installment
of interest and principal due on each Mortgage Loan
but not received by the Master Servicer during the
related Due Period (a "Monthly Advance"). Such
obligation of the Master Servicer continues with
respect to each Mortgage Loan until such Mortgage Loan
becomes a Liquidated Mortgage Loan. The Master
Servicer is not required to make any Monthly Advances
which it determines would be nonrecoverable. Monthly
Advances are reimbursable to the Master Servicer
subject to certain conditions and restrictions, and
are intended to provide sufficient funds for the
payment of interest on the Class A Certificates.) See
"DESCRIPTION OF THE CERTIFICATES--ADVANCES" herein.
Prepayment Interest
Shortfalls Not later than the Determination Date, the Master
Servicer is required to remit to the Trustee, without
any right of reimbursement, an amount equal to, with
respect to each Mortgage Loan as to which a principal
prepayment in full was received during the related Due
Period, the lesser of (a) the excess, if any, of 30
days' interest on the Principal Balance of such
Mortgage Loan at the Loan Rate (or at such lower rate
as may be in effect for such Mortgage Loan because of
application of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Civil Relief Act")),
minus the Master Servicing Fee for such Mortgage Loan
over the amount of interest actually paid by the
related Mortgagor in connection with such principal
prepayment (with respect to all such Mortgage Loans,
the "Prepayment Interest Shortfall") and (b) the sum
of the aggregate Master Servicing Fee received by the
Master Servicer in the most recently ended Due Period.
Civil Relief Act Interest Shortfalls will not be
covered by the Policy, although Prepayment Interest
Shortfalls, after application of the Master Servicing
Fee will be so covered. The Master Servicer is not
obligated to offset any of the Master Servicing Fee
against, or to provide any other funds to cover, any
shortfalls in interest collections on the Mortgage
Loans that are attributable to the application of the
Civil Relief Act ("Civil Relief Act Interest
Shortfalls"). See "RISK FACTORS--Payments on the
Mortgage Loans" herein.
Optional Termination
by the
Master Servicer The Master Servicer may, at its option, terminate the
Agreement on any date on which the aggregate Principal
Balance of the Mortgage Loans is less than 5% of the
Cut-Off Date Pool Principal Balance at the price
described herein under "DESCRIPTION OF THE
CERTIFICATES--Termination; Retirement of the
Certificates."
Optional Purchase
of Defaulted
Mortgage Loans The Master Servicer has the option, but is not
obligated, to purchase from the Trust any Mortgage
Loan 90 days or more delinquent at a purchase price
equal to the outstanding Principal Balance as of the
date of purchase, plus all accrued and unpaid interest
on such Principal Balance through the date of
purchase, computed at the Loan Rate net of the Master
Servicing Fee Rate. See "DESCRIPTION OF THE
CERTIFICATES--Optional Purchase of Defaulted Mortgage
Loans" herein.
Certain Federal Tax
Considerations For federal income tax purposes, the Trust created by
the Agreement will be treated as a "real estate
mortgage investment conduit" ("REMIC"). The Class A
Certificates will constitute "regular interests" in
the REMIC and will be treated as debt instruments of
the REMIC for federal income tax purposes with payment
terms equivalent to the terms of such Certificates.
The Class R Certificates (the "Residual Certificates")
will constitute the sole class of "residual interests"
in the REMIC and will be the Class of Residual
Certificates, as described in the Prospectus.
The holders of the Offered Certificates will be
required to include in income interest on such
Certificates in accordance with the accrual method of
accounting.
The Offered Certificates may, depending on their issue
price, be treated as having been issued with original
issue discount for federal income tax purposes. For
further information regarding the federal income tax
consequences of investing in the Offered Certificates,
see "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" herein
and "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the
Prospectus.
ERISA
Considerations The acquisition of an Offered Certificate by a pension
or other employee benefit plan (a "Plan") subject to
the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), could, in some instances, result
in a "prohibited transaction" or other violation of
the fiduciary responsibility provisions of ERISA and
Code Section 4975. Certain exemptions from the
prohibited transaction rules could be applicable to
the acquisition of such Offered Certificates. Any
Plan fiduciary considering whether to purchase any
Offered Certificate on behalf of a Plan should consult
with its counsel regarding the applicability of the
provisions of ERISA and the Code.
Subject to the considerations and conditions described
under "ERISA CONSIDERATIONS" herein, it is expected
that the Offered Certificates may be purchased by a
Plan.
Legal Investment
Considerations The Offered Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"),
because some of the Mortgages securing the Mortgage
Loans are not first mortgages. Accordingly, many
institutions with legal authority to invest in
comparably rated securities based solely on first
mortgages may not be legally authorized to invest in
the Offered Certificates. See "LEGAL INVESTMENT
CONSIDERATIONS" herein and "LEGAL INVESTMENT" in the
Prospectus.
Certificate Rating It is a condition to the issuance of the Offered
Certificates that they receive ratings of "AAA" by
__________________________ and _____ by ____
_________________________________________________. In
general, ratings address credit risk and do not
address the likelihood of prepayments. See "RATINGS"
herein and "RISK FACTORS--Rating of the Securities" in
the Prospectus.
RISK FACTORS
Book-Entry Certificates. Issuance of the Offered Certificates in
book-entry form may reduce the liquidity of such Certificates in the
secondary trading market since investors may be unwilling to purchase
Offered Certificates for which they cannot obtain physical certificates.
Since transactions in the Offered Certificates can be effected only
through DTC, CEDEL, Euroclear, participating organizations, indirect
participants and certain banks, the ability of a Certificate Owner to
pledge an Offered Certificate to persons or entities that do not
participate in the DTC, CEDEL or Euroclear system or otherwise to take
actions in respect of such Certificates, may be limited due to lack of a
physical certificate representing the Offered Certificates. Certificate
Owners may experience some delay in their receipt of distributions of
interest and principal on the Offered Certificates since such
distributions will be forwarded by the Trustee to DTC and DTC will credit
such distributions to the accounts of its Participants (as defined herein)
which will thereafter credit them to the accounts of Certificate Owners
either directly or indirectly through indirect participants. See
"DESCRIPTION OF THE CERTIFICATES-- Book-Entry Certificates" herein.
Cash Flow Considerations. With respect to % of the Mortgage
Loans in Loan Group 1 (by Cut-Off Date Loan Group 1 Principal Balance),
collections on such Mortgage Loans may vary because, among other things,
borrowers are not required to make monthly payments of principal that will
be sufficient to amortize such Mortgage Loans by their maturity
(collectively, "Balloon Loans"). The ability of a borrower to make such a
payment may depend on the ability of the borrower to obtain refinancing of
the balance due on a Balloon Loan. An increase in interest rates over the
Loan Rate applicable at the time a Balloon Loan was originated may have an
adverse effect on the borrower's ability to obtain refinancing or to pay
the required monthly payment. Collections on the Mortgage Loans may also
vary due to seasonal purchasing and payment habits of borrowers.
With respect to certain Balloon Loans, general credit risk may also
be greater to holders of Group 1 Certificates than to holders of
instruments representing interests in level payment fully amortizing first
mortgage loans. Even assuming that the Mortgaged Properties provide
adequate security for the Mortgage Loans, substantial delays could be
encountered in connection with the liquidation of Mortgage Loans that are
delinquent and resulting shortfalls in distributions to Certificateholders
could occur if the Certificate Insurer were unable to perform its
obligations under the Policy. Further, liquidation expenses (such as
legal fees, real estate taxes, and maintenance and preservation expenses)
will reduce the proceeds payable to Certificateholders and thereby reduce
the security for the Mortgage Loans. In the event any of the Mortgaged
Properties fail to provide adequate security for the related Mortgage
Loans, Certificateholders could experience a loss if the Certificate
Insurer were unable to perform its obligations under the Policy.
Risk of Early Defaults. All of the Mortgage Loans were originated
within 12 months prior to the Cut-Off Date. The weighted average
remaining term to stated maturity of the Mortgage Loans in Loan Group 1
and Loan Group 2 as of the Cut-Off Date is approximately months and
months, respectively. Although little data is available, defaults on
mortgage loans, including home equity loans similar to the Mortgage Loans,
are generally expected to occur with greater frequency in the early years
of the terms of mortgage loans.
Prepayment Considerations. All of the Mortgage Loans may be prepaid
in whole or in part at any time. However, approximately __% of the
Mortgage Loans are subject to prepayment penalties which vary from
jurisdiction to jurisdiction. Home equity loans, such as the Mortgage
Loans, have been originated in significant volume only during the past few
years and Provident is not aware of any publicly available studies or
statistics on the rate of prepayment of such loans. Generally, home
equity loans are not viewed by borrowers as permanent financing.
Accordingly, the Mortgage Loans may experience a higher rate of prepayment
than traditional loans. The Trust's prepayment experience may be affected
by a wide variety of factors, including general economic conditions,
interest rates, the availability of alternative financing and homeowner
mobility. In addition, all of the Mortgage Loans contain due-on-sale
provisions and the Master Servicer will be required by the Agreement to
enforce such provisions unless (i) such enforcement is not permitted by
applicable law or (ii) the Master Servicer, in a manner consistent with
reasonable commercial practice, permits the purchaser of the related
Mortgaged Property to assume the Mortgage Loan. To the extent permitted
by applicable law, such assumption will not release the original borrower
from its obligation under any such Mortgage Loan. See "CERTAIN LEGAL
ASPECTS OF LOANS--Due-on-Sale Clauses in Mortgage Loans" in the
Prospectus.
Certificate Rating. The rating of the Offered Certificates will
depend primarily on an assessment by the Rating Agencies of the Mortgage
Loans and upon the claims-paying ability of the Certificate Insurer. Any
reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the rating initially given to the Offered
Certificates may result in a reduction in the rating of the Offered
Certificates. The rating by the Rating Agencies of the Offered
Certificates is not a recommendation to purchase, hold or sell the Offered
Certificates, inasmuch as such rating does not comment as to the market
price or suitability for a particular investor. There is no assurance
that the ratings will remain in place for any given period of time or that
the ratings will not be lowered or withdrawn by the Rating Agencies. In
general, the ratings address credit risk and do not address the likelihood
of prepayments. The ratings of the Offered Certificates do not address
the possibility of the imposition of United States withholding tax with
respect to non-U.S. persons.
Nature of Collateral. Even assuming that the Mortgaged Properties
provide adequate security for the Mortgage Loans, substantial delays could
be encountered in connection with the liquidation of Mortgage Loans that
are delinquent and resulting shortfalls in distributions to Class A
Certificateholders could occur if the Certificate Insurer were unable to
perform its obligations under the Policy. Further, liquidation expenses
(such as legal fees, real estate taxes, and maintenance and preservation
expenses) will reduce the proceeds payable to Certificateholders and
thereby reduce the security for the Mortgage Loans. In the event any of
the Mortgaged Properties fail to provide adequate security for the related
Mortgage Loans, Class A Certificateholders could experience a loss if the
Certificate Insurer were unable to perform its obligations under the
Policy.
The Mortgage Loans are secured by first and second mortgages or deeds
of trust (representing approximately % and % of the Cut-Off Date
Pool Principal Balance of the Mortgage Loans, respectively). With respect
to Mortgage Loans that are junior in priority to liens having a first
priority with respect to the related Mortgaged Property ("First Liens"),
the Master Servicer has the power under certain circumstances to consent
to a new mortgage lien on such Mortgaged Property having priority over
such Mortgage Loan in connection with the refinancing of such First Lien.
Mortgage Loans secured by second mortgages are entitled to proceeds that
remain from the sale of the related Mortgaged Property after any related
senior mortgage loan and prior statutory liens have been satisfied. In
the event that such proceeds are insufficient to satisfy such loans and
prior liens in the aggregate and the Certificate Insurer is unable to
perform its obligations under the Policy, the Trust and, accordingly, the
Certificateholders, bear (i) the risk of delay in distributions while a
deficiency judgment against the borrower is sought and (ii) the risk of
loss if the deficiency judgment cannot be obtained or is not realized
upon. See "CERTAIN LEGAL ASPECTS OF LOANS" in the Prospectus.
Legal Considerations. The sale of the Mortgage Loans from the Seller
to the Trust will be treated by the Seller and the Trust as a sale of the
Mortgage Loans. The Seller will warrant that such transfer is a sale of
its interest in the Mortgage Loans. In the event of an insolvency of the
Seller, it is possible that a receiver or conservator for, or a creditor
of, the Seller, may argue that the transaction between the Seller and the
Trust, with respect to the Mortgage Loans was a pledge of such Mortgage
Loans in connection with a borrowing by the Seller rather than a true
sale. Such an attempt, even if unsuccessful, could result in delays in
distributions on the Offered Certificates.
(The terms of the Agreement provide that the Seller will maintain
possession of the documentation relating to each Mortgage Loan (the
"Mortgage File"), and no assignment of any Mortgage is required to be
recorded in the name of the Trustee, unless an Assignment Event occurs.
Within 30 days of any such occurrence, the Seller, at its expense, is
required to deliver the Mortgage File to the Trustee and to either cause
proper assignments of each Mortgage to be recorded, at its expense, or to
deliver assignments of each Mortgage, in recordable form, to the Trustee,
together with an opinion of counsel to the effect that recordation of such
assignments in not necessary in order to perfect the interests of the
Trust in such Mortgages. Prior to delivery and recording, the interest of
the Trustee in the Mortgages, the Mortgage Notes and the proceeds thereof
may be subject to the claims of creditors or to sale to a third party, as
well as to a receiver or conservator appointed in the event of the
insolvency of the Seller.
An "Assignment Event" will occur on the 30th day following either (i)
the occurrence and continuance of an Event of Default, (ii) the reduction
of the Seller's long-term unsecured debt rating below "Baa2" by Moody's or
"BBB" by S&P or (iii) the suspension, termination or withdrawal of the
Seller's long-term unsecured debt rating by Moody's or S&P.
In an insolvency proceeding of the Seller, if the Mortgage Notes have
not been delivered to the Trustee and the Mortgages have not been assigned
of record in the real property recording office, the Trust may be a
general unsecured creditor of the Seller. If the Trust were determined to
be a general unsecured creditor of the Seller, the Mortgages, the Mortgage
Notes and the proceeds thereof would not be available to make payments on
the Offered Certificates.)
Payments on the Mortgage Loans. When a principal prepayment in full
is made on a Mortgage Loan, the Mortgagor is charged interest only up to
the date of such prepayment, instead of for a full month which may result
in a Prepayment Interest Shortfall. The Master Servicer is obligated to
pay, without any right of reimbursement, those shortfalls in interest
collections payable on the Class A Certificates that are attributable to
Prepayment Interest Shortfalls, but only to the extent of the Master
Servicing Fee for the related Due Period (any such payment, "Compensating
Interest"). The Master Servicing Fee will not be available to cover any
shortfalls in interest collections on the Mortgage Loans that are
attributable to Civil Relief Act Interest Shortfalls. Civil Relief Act
Interest Shortfalls will not be covered by payments under the Policy,
although Prepayment Interest Shortfalls, after application of the Master
Servicing Fee as described above, will be so covered.
Underwriting Standards. As described herein, the Seller's
underwriting standards generally are less stringent than those of FNMA or
FHLMC with respect to a borrower's credit history and in certain other
respects. A borrower's past credit history may not preclude the Seller
from making a loan; however, it will reduce the size (and consequently the
Combined Loan-to-Value Ratio) of the loan that the Seller is willing to
make. As a result of this approach to underwriting, the Mortgage Loans in
the Mortgage Pool may experience higher rates of delinquencies, defaults
and foreclosures than mortgage loans underwritten in a more traditional
manner.
(Geographic Concentration. The Mortgaged Properties relating to the
Mortgage Loans are located in __ states and the District of Columbia.
However, most of the Mortgaged Properties are located in (state or
region). Certain regions of the country, including (state or region),
recently have experienced a severe decline in real estate values.
Approximately % and % (by aggregate principal balance as of the
Cut-Off Date) of the Mortgaged Properties relating to the Mortgage Loans
are located in and , respectively. To the extent that
(state or region) has experienced or may experience in the future weaker
economic conditions or greater rates of decline in real estate values than
the United States generally, such a concentration of the Mortgage Loans
may be expected to exacerbate the foregoing risks. The Seller can neither
quantify the impact of any recent property value declines on the Mortgage
Loans nor predict whether, to what extent or for how long such declines
may continue.)
Effect of Mortgage Loan Yield on Class A-6 Pass-Through Rate. The
Certificate Rate on the Class A-6 Certificates is based upon the value of
an index (one-month LIBOR) which is different from the value of the index
applicable to the Mortgage Loans in Loan Group 2, as described under "The
Mortgage Pool--Loan Group 2" (either as a result of the use of a different
index, rate determination date, rate adjustment date or rate cap or
floor). The Mortgage Loans in Loan Group 2 adjust semi-annually based
upon a six-month LIBOR index, whereas the Certificate Rate on the Class A-
6 Certificates adjusts monthly based on a one-month LIBOR index and is
limited by the Net Funds Cap (unless the Class A-6 Interest Carryover (the
payment of which is not insured by the Certificate Insurer and the payment
of which is not rated) are funded in full). Consequently the actual
Certificate Rate on the Class A-6 Certificates for such Distribution Date
may not equal the rate based on one-month LIBOR for such Distribution
Date. In particular, the interest rates on the Mortgage Loans in Loan
Group 2 adjust less frequently, with the result that the actual
Certificate Rate on the Class A-6 Certificates may be lower in a rising
interest rate environment. In addition, one-month LIBOR and the index
applicable to the Mortgage Loans in Loan Group 2 may respond to different
economic and market factors, and there is not necessarily any correlation
between them. Thus, it is possible, for example, that one-month LIBOR may
rise during periods in which the index applicable to the Mortgage Loans in
Loan Group 2 are falling or that, even if both one-month LIBOR and the
index applicable to the Mortgage Loans in Loan Group 2 rise during the
same period, one-month LIBOR may rise much more rapidly than the index
applicable to the Mortgage Loans in Loan Group 2.
THE CERTIFICATE INSURER
The information set forth in this section and in the financial
statements of the Certificate Insurer set forth in Appendix A and Appendix
B hereto have been provided by the Certificate Insurer. No representation
is made by the Underwriter, the Seller, the Master Servicer or any of
their affiliates as to the accuracy or completeness of any such
information.
MBIA Inc. is not obligated to pay the debts of or claims against the
Certificate Insurer. The Certificate Insurer is domiciled in the State of
New York and licensed to do business in all 50 states, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam.
The tables below present selected financial information of the
Certificate Insurer determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities
("SAP") and generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(in millions)
<S> <C> <C>
GAAP
December 31, 1995 June 30, 1996
(Audited) (Unaudited)
(in millions)
</TABLE>
Audited financial statements of the Certificate Insurer as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 are included herein as Appendix A. Unaudited
financial statements of the Certificate Insurer for the six-month period
ended June 30, 1996 are included herein as Appendix B. Such financial
statements have been prepared on the basis of generally accepted
accounting principles. Copies of the Certificate Insurer's 1995 year-end
audited financial statements prepared in accordance with statutory
accounting practices are available from the Certificate Insurer.
A copy of the Annual Report on Form 10-K is available from the
Certificate Insurer or the Securities and Exchange Commission. The
a d d r e s s o f t h e C e r t i f i c a t e I n s u r e r i s
_______________________________________.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus or any information or
disclosure contained herein, or omitted herefrom, other than with respect
to the accuracy of the information regarding the Policy and the
Certificate Insurer set forth under the headings "DESCRIPTION OF THE
CERTIFICATES--The Policy" and in Appendices A and B.
Moody's Investors Service, Inc. rates the claims paying ability of
the Certificate Insurer "Aaa".
Standard & Poor's Rating Services rates the claims paying ability of
the Certificate Insurer "AAA".
Fitch Investors Service L.P. rates the claims paying ability of the
Certificate Insurer "AAA".
Each rating of the Certificate Insurer should be evaluated
independently. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of the Certificate Insurer and its
ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained
only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Certificates, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of
any of the above ratings may have an adverse effect on the market price of
the Certificates. The Certificate Insurer does not guaranty the market
price of the Certificates nor does it guaranty that the ratings on the
Certificates will not be revised or withdrawn.
THE PROVIDENT BANK
Provident will be responsible for servicing the Mortgage Loans for
the Trust in accordance with the terms of the Agreement. Beginning on
_______________, __________________________ (the "Subservicer") will
service the Mortgage Loans for Provident pursuant to a Subservicing
Agreement, dated as of _____________, 199__, between Provident and the
Subservicer. The terms and conditions of the Subservicing Agreement are
consistent with and do not violate the provisions of the Agreement. Such
subservicing does not relieve Provident from any of its obligations to
service the Mortgage Loan in accordance with the terms and conditions of
the Agreement. See "--Servicing and Collection Procedures."
Provident is the principal banking subsidiary of Provident Bancorp,
Inc., a Cincinnati based bank holding company registered under the Bank
Holding Company Act. Provident Bancorp, Inc. operates throughout Ohio,
Northern Kentucky and Southeastern Indiana. As of June 30, 1996,
Provident Bancorp, Inc. had total assets of $6.4 billion, net loans of
$_____ billion, deposits of $_____ billion and total shareholders' equity
of $458 million. For the fiscal year ended December 31, 1995, Provident
Bancorp, Inc. had net earnings of $____ million. At December 31, 1995,
Provident Bancorp, Inc.'s tier 1 and total capital ratios were _____% and
_____%, respectively. Provident represents approximately 96% of Provident
Bancorp, Inc.'s assets.
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines
customarily employed by Provident with respect to Mortgage Loans which it
purchases or originates. Each Mortgage Loan was underwritten according to
these guidelines. Provident believes its standards are consistent with
those utilized by home equity lenders generally. The underwriting process
is intended to assess both the prospective borrower's ability to repay and
the adequacy of the real property security as collateral for the loan
granted. In certain cases, loans may be made outside of those guidelines
with the prior approval of an underwriting manager of Provident.
Provident generally originates or purchases loans which either fully
amortize over a period not to exceed 360 months or provide for
amortization over a 360 month schedule with a "balloon" payment required
at the maturity date, which will not be less than fifteen (15) years after
origination. The loan amounts generally range from a minimum of $10,000
to a maximum of $500,000 unless a higher amount is specifically approved
by a senior official of Provident. Provident primarily originates or
purchases non-purchase money first or second mortgage loans although
Provident also originates certain purchase money first mortgages.
The homes used for collateral to secure the loans may be either
primary residential (which includes second and vacation homes) or investor
owned one- for four-family homes, condominiums, townhouses or manufactured
housing. Generally, each home must have a minimum appraised value as
described below. Mobile housing or agricultural land are not accepted as
collateral. In some cases, the loan may be secured by the owner-occupied
residence plus additional collateral.
Each property proposed as security for a loan must be appraised not
more than six months prior to the date of such loan. The combined loan-
to-value ratio of the first and second mortgages generally may not exceed
85%. If a prior mortgage exists, Provident first reviews the first
mortgage history. If it contains open-end, advance or negative
amortization provisions, the maximum potential first mortgage balance is
used in calculating the combined loan-to-value ratio which determines the
maximum loan amount.
For Provident's full documentation process, each mortgage applicant
must provide, and Provident must verify, personal financial information.
The applicant's total monthly obligations (which includes principal and
interest on each mortgage, tax assessments, other loans, charge accounts
and all other scheduled indebtedness) generally cannot exceed 60% of the
applicant's gross monthly income. Applicants who are salaried employees
must provide current employment information in addition to two recent
years of employment history and Provident verifies this information.
Verifications are based on written confirmation from employers or a
combination of the two most recent pay stubs, the two most recent years'
W-2 tax forms and telephone confirmation from the employer. Self-employed
applicants must be self-employed in the same field for a minimum of two
years. The self-employed applicant must provide signed copies of complete
federal income tax returns (including schedules) filed for the most recent
two years.
For Provident's non-income verifier program, proof of one year
history of employment plus proof of current self-employed status is
required. The applicant's debt-to-income ratio is calculated based on
income as certified by the borrower on the application and must be
reasonable. The maximum combined loan-to-value ratio may not exceed 80%
for the non-income verifier program.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. The credit report
should reflect all delinquencies of 30 days or more, repossessions,
judgments, foreclosures, garnishments, bankruptcies, divorce actions and
similar adverse credit practices that can be discovered by a search of
public records. If the report is obtained more than 60 days prior to the
loan closing, the lender must determine that the reported information has
not changed. Written verification is obtained of any first mortgage
balance if not reported in the credit bureau.
Generally, the applicant should have an acceptable credit history
given the amount of equity available, the strength of the applicant's
employment history and the level of the applicant's income to debt
obligations. The rescission period must have expired prior to funding a
loan. The rescission period may not be waived by the applicant except as
permitted by law. Either an ALTA title insurance policy or an attorney's
opinion of title is required for all loans.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of
the outstanding first mortgage, if any, and the home equity loan exceeds
replacement value, insurance equal to replacement value may be accepted.
Provident must ensure that its name and address is properly added to the
"Mortgage Clause" of the insurance policy. In the event Provident's name
is added to a "Loss Payee Clause" and the policy does not provide for
written notice of policy changes or cancellation, an endorsement adding
such provision is required.
Provident's credit underwriting guidelines require that any major
deferred maintenance on any property must be cured from the proceeds of
the loan.
SERVICING AND COLLECTION PROCEDURES
The following is a description of the servicing and collection
policies and procedures customarily and currently employed by the Master
Servicer with respect to its mortgage loan and servicing portfolio. The
Master Servicer revises such policies and procedures from time to time in
connection with changing economic and market conditions and changing legal
requirements.
Centralized controls and standards have been established by the
Master Servicer for the servicing and collection of mortgage loans in its
portfolio. Servicing of the Master Servicer's portfolio is conducted
through its primary office in San Diego, California. Servicing includes,
but is not limited to, post-origination loan processing, customer
servicer, collections and liquidations.
The Master Servicer's collection policy emphasizes working with
borrowers in default in an effort to bring payments current and avoid
foreclosures. Under the Master Servicer's current collection procedures
(which may change from time to time), collectors contact borrowers
according to the following schedule:
DAYS OF
DELINQUENCY
-----------
7 An initial contact is made to attempt to arrange
a definite payment arrangement.
10-20 On the tenth day of delinquency, if no promise to
pay has been established, a letter is sent, and
at least three calls are made within this period,
after which a late charge is assessed and a late
charge notice is mailed.
20-30 If the mortgagor has not been reached, skip
tracing begins. The credit application is
consulted for points of contact. A credit report
is ordered and other creditors are called.
31 A two month letter is mailed. Follow up calls
are made on all accounts lacking a promise to
pay. Property inspections are ordered on all
loans lacking a promise to pay.
45-50 Demand letters are mailed.
65-70 Foreclosure review is performed. A document file
is assembled for the attorney to prepare for
foreclosure. Brokers' price opinions are
requested in order to determine property value.
If the delinquent loan is a second lien, the
first lienholder is notified that the file is
being prepared for foreclosure.
75-80 The file is referred to an attorney to begin
foreclosure. All subsequent calls regarding the
loan are referred to the attorney. Foreclosure
proceedings are completed within the time limits
designated by the state.
DELINQUENCY AND LOSS EXPERIENCE
The following table sets forth Provident's delinquency and loss
experience on its total home equity loan portfolio of mortgage loans
similar to the Mortgage Loans at the dates indicated. There can be no
assurance that the delinquency and loss experience on the Mortgage Loans
will be consistent with the historical information provided below.
Accordingly, this information should not be considered to reflect the
credit quality of the Mortgage Loans included in the Trust, or a basis of
assessing the likelihood, amount or severity of losses on the Mortgage
Loans. The statistical data in the table is based on all of the loans in
Provident;s servicing portfolio. The Mortgage Loans may, in general, be
more recently originated than, and are likely to have other
characteristics which distinguish them from, the majority of the loans in
Provident's servicing portfolio.
The information in the tables below has not been adjusted to
eliminate the effect of the significant growth in the size of Provident's
mortgage loan portfolio during the periods shown. Accordingly, loss and
delinquency as shown if a group of mortgage loans were artificially
isolated at a point in time and the information showed the activity only
in that isolated group. However, since most of the mortgage loans in
Provident's mortgage loan portfolio are not fully seasoned, the
delinquency and loss information for such an isolated group would also be
distorted to some degree.
The following table sets forth information relating to the
delinquency and loss experience of mortgage loans similar to and including
the Mortgage Loans for the three quarters ended December 31, 1995, March
31, 1996 and June 30, 1996 and the month ended July 31, 1996.
<TABLE>
<CAPTION>
Quarter Ended
July 31, 1996 June 30, 1996 March 31, 1996 December 31, 1995
NUMBER OF DOLLAR Number of Dollar Number of Dollar Number Dollar
LOANS AMOUNT Loans Amount Loans Amount of Loans Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio . . . . . . . . 2,175 $179,701,410 1,789 $150,130,803 765 $72,345,012 310 $31,214,760
Delinquency percentage(1)
30-59 days . . . . . . 1.01% 1.18% 0.89% 1.23% 0.26% 0.28% 0.00% 0.00%
60-89 days . . . . . . 0.14% 0.13% 0.00% 0.00% 0.39% 0.42% 0.00% 0.00%
90 days or more . . . . 0.28% 0.34% 0.39% 0.51% 0.13% 0.13% 0.00% 0.00%
Total . . . . . . . . . . 1.43% 1.65% 1.29% 1.74% 0.83% 0.83% 0.00% 0.00%
Percentage of Net Gains/
(Losses) on liquidated
loans . . . . . . . . . _____% _____% _____% _____% _____% _____%
</TABLE>
(1) The period of delinquency is based on the number of days the payment
is contractually past due.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this Prospectus Supplement
is only with respect to the Mortgage Loans and describes the Mortgage
Loans in Loan Group 1 and the Mortgage Loans in Loan Group 2 and is based
on the characteristics of such Loan Group as of the Cut-Off Date.
The Mortgage Loans are divided into two Loan Groups. Loan Group 1
consists of Mortgage Loans with fixed interest rates. Loan Group 2
consists of Mortgage Loans with adjustable interest rates.
The Mortgage Loans to be purchased by the Trust will be originated or
purchased by Provident and sold by Provident to the Trust.
The Mortgage Pool consists of Mortgage Loans with an aggregate
Principal Balance as of the Cut-Off Date of $ (the "Cut-Off
Date Pool Principal Balance"). The Mortgage Pool consists of closed-end,
fixed and adjustable rate home equity loans with remaining terms to stated
maturity of not more than months (including both fully amortizing and
Balloon Loans). Approximately % of the Mortgage Loans (by Cut-Off
Date Pool Principal Balance) are secured by first lien mortgages on the
Mortgaged Properties and % (by Cut-Off Date Pool Principal Balance)
are secured by second liens on the Mortgaged Properties. Approximately
% of the Mortgage Loans (by Cut-Off Date Pool Principal Balance) were 30
to 59 days delinquent. No Mortgage Loan was more than 59 days delinquent
as of the Cut-Off Date. With respect to the Mortgage Loans, the average
Cut-Off Date Principal Balance was $ , the minimum Cut-Off Date
Principal Balance was $ , the maximum Cut-Off Date Principal
Balance was $ , the minimum Loan Rate and the maximum Loan Rate
on the Cut-Off Date were % and % per annum, respectively, and the
weighted average Loan Rate as of the Cut-Off Date was % per annum.
The weighted average Combined Loan-to-Value Ratio of the Mortgage Loans
was % as of the Cut-Off Date. Approximately % of the Mortgage
Loans (by Cut-Off Date Pool Principal Balance) are Balloon Loans. Each
Mortgage Loan was originated on or after . The remaining terms
to stated maturity as of the Cut-Off Date of the Mortgage Loans range from
months to months; the weighted average remaining term to stated
maturity of the Mortgage Loans as of the Cut-Off Date is months.
The Mortgage Loans provide that interest is charged to the borrowers
thereunder, and payments are due from such borrowers, as of a scheduled
day of each month which is fixed at the time of origination. Scheduled
monthly payments made by the borrowers on the Mortgage 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.
LOAN GROUP 1 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages
set forth herein with respect to the Mortgage Loans in Loan Group 1 are
percentages of the Cut-Off Date Loan Group 1 Principal Balance.
The Mortgage Loans in Loan Group 1 consist of ___ loans, and the
related Mortgaged Properties are located in __ states and the District of
Columbia. As of the Cut-Off Date, the Mortgage Loans in Loan Group 1 had
an aggregate Principal Balance of $__________ (the "Cut-Off Date Loan
Group 1 Principal Balance"), the maximum Principal Balance of any of the
Mortgage Loans in Loan Group 1 was $__________, the minimum Principal
Balance thereof was $________, and the Principal Balance of such Mortgage
Loans averaged $_________. As of the Cut-Off Date, the Loan Rates on the
Mortgage Loans in Loan Group 1 ranged from ____% to _____% per annum, and
the weighted average Loan Rate for Mortgage Loans in Loan Group 1 was
______% per annum. As of the Cut-Off Date, the original term to stated
maturity of each Mortgage Loans in Loan Group 1 was ___ months, the
remaining term to stated maturity ranged from ___ months to ___ months,
the weighted average remaining term to stated maturity was ___ months and
the CLTV (as defined herein) ranged from % to % with a weighted
average CLTV of %. All of the Mortgage Loans in Loan Group 1 are
secured by first liens. % of the Mortgage Loans in Loan Group 1
require monthly payments of principal that will fully amortize such
Mortgage Loans by their respective maturity dates, and % of the
Mortgage Loans in Loan Group 1 are Balloon Loans.
CUT-OFF DATE LOAN GROUP 1 PRINCIPAL BALANCES
Cut-Off Date % of Cut-Off
Date
Range of Cut-Off Number of Loan Group 1 Loan Group 1
Date Principal Balances Mortgage Loans Principal Balance Principal
Balance
----------------------- --------------- ----------------- -----
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
State Mortgage Loans Principal Balance Principal Balance
------- --------------- ----------------- -----------
COMBINED LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Combined Number of Loan Group 1 Loan Group 1
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal
Balance
------------------- -------------- ------------------ --------------
------------------
(1) The Combined Loan-to-Value Ratios ("CLTV") shown above are equal,
with respect to each Mortgage Loan, to (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of
origination plus (b) the remaining balance of the senior lien(s), if
any, at the date of origination of such Mortgage Loan divided by (ii)
the lesser of (a) the value of the related Mortgaged Property, based
upon the appraisal made at the time of origination of such Mortgage
Loan or (b) the purchase price of such Mortgaged Property if the
Mortgage Loan proceeds from such Mortgage Loan are used to purchase
such Mortgaged Property.
LOAN RATES
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan Rates Mortgage Loans Principal Balance Principal Balance
---------- ---------------- ----------------- -------------
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 1 Loan Group 1
Stated Maturity Mortgage Loans Principal Balance Principal Balance
--------------- -------------- ---------------- -------
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 1 Loan Group 1
Stated Maturity Mortgage Loans Principal Balance Principal Balance
----------------- --------------- ----------------- -------
MONTHS SINCE ORIGINATION
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Months Number of Loan Group 1 Loan Group 1
Since Origination Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -------
--
PROPERTY TYPE
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -------
OCCUPANCY TYPE
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Occupancy Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -------------
LOAN GROUP 2 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise set forth herein, all percentages
set forth herein with respect to the Mortgage Loans in Loan Group 2 are
percentages of the Cut-Off Date Loan Group 2 Principal Balance.
The Mortgage Loans in Loan Group 2 bear interest rates that adjust
based on the London interbank offered rate for six-month United States
dollar deposits.
The Mortgage Loans in Loan Group 2 consist of _____ loans, and the
related Mortgaged Properties are located in 22 states and the District of
Columbia. As of the Cut-Off Date, the Mortgage Loans in Loan Group 2 had
an aggregate Principal Balance of $______________ (the "Cut-Off Date Loan
Group 2 Principal Balance"), the maximum Principal Balance of any of the
Mortgage Loans in Loan Group 2 was $__________, the minimum Principal
Balance thereof was $________ and the Principal Balance of such Mortgage
Loans averaged $_________. As of the Cut-Off Date, the Loan Rates on the
Mortgage Loans in Loan Group 2 ranged from ____% to _____% per annum, and
the weighted average Loan Rate for Mortgage Loans in Loan Group 2 was
_____% per annum. As of the Cut-Off Date, the original term to stated
maturity of the Mortgage Loans in Loan Group 2 was ___ months, the
remaining term to stated maturity ranged from ___ months to ___ months,
the weighted average remaining term to stated maturity was ___ months and
the CLTV (as defined herein) ranged from % to % with a weighted
average CLTV of %. The Mortgage Loans in Loan Group 2 had stated
maturities ranging from to . % of the
Mortgage Loans in Loan Group 2 are secured by first liens, and % by
second liens. (All) of the Mortgage Loans in Loan Group 2 require monthly
payments of principal that will fully amortize such Mortgage Loans by
their respective maturity dates. All of the Mortgage Loans in Loan Group
2 have Loan Rates which adjust semi-annually. All of the Mortgage Loans
in Loan Group 2 have minimum and maximum Loan Rates. The weighted average
minimum Loan Rate of the Mortgage Loans in Loan Group 2 is approximately
% per annum, with minimum Loan Rates that range from approximately %
per annum to % per annum. The weighted average maximum Loan Rate of
the Mortgage Loans in Loan Group 2 is approximately % per annum, with
maximum Loan Rates that range from approximately % per annum to
% per annum. The Mortgage Loans in Loan Group 2 have a weighted average
gross margin of approximately % per annum, with gross margins that
range from approximately % per annum to % per annum. The Mortgage
Loans in Loan Group 2 have a weighted average periodic cap of
approximately % per annum, with periodic caps that range from
approximately % per annum to % per annum. % of the Mortgage
Loans in Loan Group 2 adjust after (one) year; % of the Mortgage
Loans in Loan Group 2 adjust after (three) years; % of the Mortgage
Loans in Loan Group 2 adjust after (five) years. The weighted average
number of months to the next reset date of the Mortgage Loans in Loan
Group 2 is approximately , with a maximum number of months of
and a minimum number of months of .
CUT-OFF DATE LOAN GROUP 2 PRINCIPAL BALANCES
Cut-Off Date % of Cut-Off
Date
Range of Cut-Off Number of Loan Group 2 Loan Group 2
Date Principal Balances Mortgage Loans Principal Balance Principal
Balance
----------------------- --------------- ----------------- -----
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
State Mortgage Loans Principal Balance Principal Balance
------- --------------- ----------------- -----------
COMBINED LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Combined Number of Loan Group 2 Loan Group 2
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal
Balance
------------------- -------------- ------------------ --------------
---
------------------
(1) The Combined Loan-to-Value Ratios ("CLTV") shown above are equal,
with respect to each Mortgage Loan, to (i) the sum of (a) the
original principal balance of such Mortgage Loan at the date of
origination plus (b) the remaining balance of the senior lien(s), if
any, at the date of origination of such Mortgage Loan divided by (ii)
the lesser of (a) the value of the related Mortgaged Property, based
upon the appraisal made at the time of origination of such Mortgage
Loan or (b) the purchase price of such Mortgaged Property if the
Mortgage Loan proceeds from such Mortgage Loan are used to purchase
such Mortgaged Property.
LOAN RATES
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan Rates Mortgage Loans Principal Balance Principal Balance
---------- ---------------- ----------------- -------------
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 2 Loan Group 2
Stated Maturity Mortgage Loans Principal Balance Principal Balance
--------------- -------------- ---------------- -------
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 2 Loan Group 2
Stated Maturity Mortgage Loans Principal Balance Principal Balance
----------------- --------------- ----------------- -------
-
MONTHS SINCE ORIGINATION
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Months Number of Loan Group 2 Loan Group 2
Since Origination Mortgage Loans Principal Balance Principal Balance
----------------- -------------- ----------------- -------
--
PROPERTY TYPE
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Property Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -------
OCCUPANCY TYPE
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Occupancy Type Mortgage Loans Principal Balance Principal Balance
------------- -------------- ----------------- -------------
--
MARGIN
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Margin Mortgage Loans Principal Balance Principal Balance
------- ------------- ---------------- --------------
--
LIFETIME CAP
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Lifetime Cap Mortgage Loans Principal Balance Principal Balance
----------- --------------- ---------------- ------------
FLOOR
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Floor Mortgage Loans Principal Balance Principal Balance
------- -------------- ---------------- ----------------
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the Offered Certificates of each
Class, 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 in the
related Loan Group. The rate of principal payments on the Mortgage Loans
will in turn be affected by the amortization schedules of the Mortgage
Loans and by the rate of principal prepayments (including for this purpose
prepayments resulting from refinancing, liquidations of the Mortgage Loans
due to defaults, casualties, condemnations and repurchases by the Seller).
The Mortgage Loans may be prepaid by the Mortgagors at any time. However,
approximately __% of the Mortgage Loans are subject to prepayment
penalties which vary from jurisdiction to jurisdiction.
Prepayments, liquidations and purchases of the Mortgage Loans in a
Loan Group (including any optional purchase by the Master Servicer of the
remaining Mortgage Loans in connection with the termination of the Trust)
will result in distributions on the related Offered Certificates of
principal amounts which would otherwise be distributed over the remaining
terms of such Mortgage Loans. Since the rate of payment of principal of
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 an Offered
Certificate may vary from the anticipated yield will depend upon the
degree to which a Certificate 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 such Mortgage Loans.
The rate of prepayment on the Mortgage Loans cannot be predicted.
Home equity loans such as the Mortgage Loans have been originated in
significant volume only during the past few years and Provident is not
aware of any publicly available studies or statistics on the rate of
prepayment of such Mortgage Loans. Generally, home equity loans are not
viewed by borrowers as permanent financing. Accordingly, the Mortgage
Loans may experience a higher rate of prepayment than traditional first
mortgage loans. The prepayment experience of the Trust with respect to
the Mortgage Loans may be affected by a wide variety of factors, including
economic conditions, prevailing interest rate levels, the availability of
alternative financing and homeowner mobility and changes affecting the
deductibility for Federal income tax purposes of interest payments on home
equity loans. All of the Mortgage Loans contain "due-on-sale" provisions,
and, with respect to the Mortgage Loans, the Master Servicer is required
by the Agreement to enforce such provisions, unless such enforcement is
not permitted by applicable law. The enforcement of a "due-on-sale"
provision will have the same effect as a prepayment of the related
Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF LOANS--Due-on-Sale Clauses
in Mortgage Loans" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the Mortgage Loans in the
Loan Group 1 is affected by prevailing market rates for mortgage loans of
a comparable term and risk level. When the market interest rate is below
the interest rate on a mortgage, mortgagors may have an increased
incentive to refinance their mortgage loans. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some mortgagors may sell or refinance mortgaged properties in
order to realize their equity in the mortgaged properties, to meet cash
flow needs or to make other investments.
All of the Mortgage Loans in the Loan Group 2 are adjustable-rate
mortgage loans. As is the case with conventional fixed-rate mortgage
loans, adjustable-rate mortgage loans may be subject to a greater rate of
principal prepayments in a declining interest rate environment. For
example, if prevailing interest rates fall significantly, adjustable-rate
mortgage loans could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of
fixed-rate mortgage loans at competitive interest rates may encourage
mortgagors to refinance their adjustable-rate mortgage loans at
competitive interest rates may encourage mortgagors to refinance their
adjustable-rate mortgage loans to "lock in" a lower fixed interest rate.
However, no assurance can be given as to the level of prepayments that the
Mortgage Loans will experience.
In addition to the foregoing factors affecting the weighted average
life of the Offered Certificates, the use of Distributable Excess Spread
to pay principal of the Offered Certificates of the related Certificate
Group to the extent required by the Agreement will result in the
acceleration of the Class A-1 and Class A-6 Certificates, as applicable,
relative to the amortization of the Mortgage Loans in the related Loan
Group in early months of the transaction as well as, with respect to Group
1 Certificates, accelerating the first date on which each other Class of
Group 1 Certificates will begin to receive distributions of principal than
would otherwise be the case. This acceleration feature creates
overcollateralization which results from the excess of the aggregate
Principal Balance of Mortgage Loans in a Loan Group over the Aggregate
Class A Principal Balance of the related Certificate Group. Once the
required level of overcollateralization for a Certificate Group is
reached, the acceleration feature for such Certificate Group will cease,
unless necessary to maintain the required level of overcollateralization
for such Certificate Group. See "Description of the
Certificates--Overcollateralization Provisions."
PAYMENT DELAY FEATURE OF GROUP 1 CERTIFICATES
The effective yield to the Certificateholders of each Class of Group
1 Certificates will be lower than the yield otherwise produced by the
Certificate Rate for each such Class and the purchase price of such
Certificates because distributions will not be payable to the
Certificateholders until the 25th day of the month following the month of
accrual (without any additional distribution of interest or earnings
thereon in respect of such delay).
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on Offered Certificates purchased at a price less than
par and will decrease the yield on Offered Certificates purchased at a
price greater than par. The effect on an investor's yield due to
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 Certificates will not be
entirely offset by a subsequent like reduction (or increase) in the rate
of principal payments. The weighted average life of the Offered
Certificates will also be affected by the amount and timing of
delinquencies and defaults on the Mortgage Loans and the recoveries, if
any, on defaulted Mortgage Loans and foreclosed properties.
The "weighted average life" of a Certificate refers to the average
amount of time that will elapse from the date of issuance to the date each
dollar in respect of principal of such Certificate is repaid. The
weighted average life of any Class of the Class A Certificates will be
influenced by, among other factors, the rate at which principal payments
are made on the Mortgage Loans, including, with respect to the Group 1
Certificates, final payments made upon the maturity of Balloon Loans.
Prepayments on Mortgage Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus
Supplement is the prepayment assumption (the "Prepayment Assumption"),
which represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of the pool of mortgage loans for the
life of such mortgage loans. A 100% Prepayment Assumption assumes a
conditional prepayment rate ("CPR") of 4% per annum of the outstanding
principal balance of such mortgage loans in the first month of the life of
the mortgage loans and an additional 1.45% (precisely 16/11) (expressed as
a percentage per annum) in each month thereafter until the twelfth month;
beginning in the twelfth month and in each month thereafter during the
life of the mortgage loans, a conditional prepayment rate of 20% per annum
each month is assumed. As used in the table below, 0% Prepayment
Assumption assumes a conditional prepayment rate equal to 0% of the
Prepayment Assumption, i.e., no prepayments. Correspondingly, (200)%
Prepayment Assumption assumes prepayment rates equal to (200)% of the
Prepayment Assumption, and so forth. The Prepayment Assumption does not
purport to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage
loans, including the Mortgage Loans. Provident believes that no existing
statistics of which it is aware provide a reliable basis for holders of
Offered Certificates to predict the amount or the timing of receipt of
prepayments on the Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of
the actual Mortgage Loans and the characteristics of the Mortgage Loans
assumed in preparing the tables. Any such discrepancy may have an effect
upon the percentages of the Principal Balances outstanding and weighted
average lives of the Offered Certificates set forth in the tables. In
addition, since the actual Mortgage Loans in the Trust have
characteristics which differ from those assumed in preparing the tables
set forth below, the distributions of principal on the Offered
Certificates may be made earlier or later than as indicated in the tables.
For the purpose of the tables below, it is assumed that: (i) the
Mortgage Loans consist of pools of loans with the level-pay and balloon
amortization characteristics set forth below, (ii) the Closing Date for
the Class A Certificates is ________________, (iii) distributions on the
Class A Certificates are made on the 25th day of each month regardless of
the day on which the Distribution Date actually occurs, commencing in
_____________ and are made in accordance with the priorities described
herein, (iv) the scheduled monthly payments of principal and interest on
the Mortgage Loans will be timely delivered on the first day of each month
(with no defaults), commencing in _______________, (v) the Mortgage Loans'
prepayment rates are a multiple of the Prepayment Assumption, (vi) all
prepayments are prepayments in full received on the last day of each month
(commencing ______________) and include 30 days' interest thereon, (vii)
no optional termination is exercised, (viii) the Class A Certificates of
each Class have the respective Certificate Rates and initial Class A
Principal Balances as set forth herein, (ix) the overcollateralization
levels are set initially as specified in the Agreement, and thereafter
decrease in accordance with the provisions of the Agreement, ((x) with
respect to pools of loans with an assumed Cut-Off Date of
_________________, interest will be calculated at a rate of % per annum
for one month), (xi) six-month LIBOR for each Interest Period will be
% and (xii) one-month LIBOR for each Interest Period will be %.
Original Original Remaining
Amortization Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
------------- --------- ---------- ------------ --------
GROUP 1
Balloon............ $
Level Pay.......... $
Level Pay.......... $
Subject to the foregoing discussion and assumptions, the following
table indicates the weighted average life of each Class of Class A
Certificates, and sets forth the percentages of the initial Class A
Principal Balance of each such Class of Class A Certificates that would be
outstanding after each of the dates shown at various percentages of
Prepayment Assumption.
Original Original Remaining
Amortization Term to Term to
Amortization Principal Term Maturity Maturity
Methodology Balance Loan Rate (months) (months) (months)
------------- --------- ---------- ------------ --------
GROUP 2
Balloon...... $
Level Pay.... $
Level Pay.... $
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CLASS A-2
-----------------------------------------------------------
DISTRIBUTION DATE % % % % % % % %
------------------------------------------------------------------
Initial
Percentage........ 100 100 100 100 100 100 100 100
Weighted Average
Life (years)*.....
------------------
* The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each distribution in reduction of
the related Class A Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the highest
related Principal Balance of the Certificate.
CLASS A-3 CLASS A-4
-----------------------------------------------------------
DISTRIBUTION DATE % % % % % % % %
------------------------------------------------------------------
Initial
Percentage........ 100 100 100 100 100 100 100 100
Weighted Average
Life (years)*.....
------------------
* The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each distribution in reduction of
the related Class A Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the highest
related Principal Balance of the Certificate.
CLASS A-5 CLASS A-6
-----------------------------------------------------------
DISTRIBUTION DATE % % % % % % % %
------------------------------------------------------------------
Initial
Percentage........ 100 100 100 100 100 100 100 100
Weighted Average
Life (years)*.....
------------------
* The weighted average life of a Certificate of any class is determined
by (i) multiplying the amount of each distribution in reduction of
the related Class A Principal Balance by the number of years from the
date of issuance of the Certificate to the related Distribution Date,
(ii) adding the results, and (iii) dividing the sum by the highest
related Principal Balance of the Certificate.
These tables have been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and
performance of the Mortgage Loans, which differ from the actual
characteristics and performance thereof) and should be read in conjunction
therewith.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. The form
of the Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement and the Prospectus is a
part. The following summaries describe certain provisions of the
Agreement. The summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all of the
provisions of the Agreement. Wherever particular sections or defined
terms of the Agreement are referred to, such sections or defined terms are
hereby incorporated herein by reference.
GENERAL
The Offered Certificates will be issued in denominations of $1,000
and multiples of $1 in excess thereof and will evidence specified
undivided interests in the Trust. The property of the Trust will consist
of, to the extent provided in the Agreement: (i) the Mortgage Loans; (ii)
payments on the Mortgage Loans received on and after the Cut-Off Date
(exclusive of payments in respect of interest on the Mortgage Loans due
prior to the Cut-Off Date and received thereafter); (iii) Mortgaged
Properties relating to the Mortgage Loans that are acquired by foreclosure
or deed in lieu of foreclosure; (iv) the Collection Account and the
Distribution Account and funds on deposit therein (excluding net earnings
thereon); and (v) rights under certain hazard insurance policies covering
the Mortgaged Properties. In addition, Provident has caused the
Certificate Insurer to issue an irrevocable and unconditional certificate
guaranty insurance policy (the "Policy") for the benefit of the holders of
the Class A Certificates, pursuant to which the Certificate Insurer will
guarantee payments to such Certificateholders as described herein.
Definitive Certificates (as defined below) will be transferable and
exchangeable at the corporate trust office of the Trustee, which will
initially act as Certificate Registrar. See "--Book-Entry Certificates"
below. No service charge will be made for any registration of exchange or
transfer of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
Each Mortgage Loan in the Trust will be assigned to one of two
mortgage loan groups ("Loan Group 1" and "Loan Group 2", respectively, and
each a "Loan Group"). The Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates (collectively, the "Group 1 Certificates") will
represent undivided ownership interests in the Mortgage Loans assigned to
Loan Group 1, all collections thereon (exclusive of payments in respect of
interest on such Mortgage Loan due prior to the Cut-Off Date and received
thereafter) and the proceeds thereof. The Class A-6 Certificates (the
"Group 2 Certificates") will represent undivided ownership interests in
the Mortgage Loans assigned to Loan Group 2, all collections thereon
(exclusive of payments in respect of interest on such Mortgage Loans due
prior to the Cut-Off Date and received thereafter) and the proceeds
thereof. The principal amount of a Class of Class A Certificates (each, a
"Class A Principal Balance") on any Distribution Date is equal to the
applicable Class A Principal Balance on the Closing Date minus the
aggregate of amounts actually distributed as principal to the holders of
such Class of Class A Certificates. On any date, the "Aggregate Class A
Principal Balance" is, with respect to the Group 1 Certificates, the
aggregate of the Class A Principal Balances of the Class A-1, Class A-2,
Class A-3, Class A-4 and Class A-5 Certificates and with respect to the
Group 2 Certificates, the Class A Principal Balance of the Class A-6
Certificates.
The Class A Certificates will be issued in six Classes, Class A-1
(the "Class A-1 Certificates"), Class A-2 (the "Class A-2 Certificates"),
Class A-3 (the "Class A-3 Certificates"), Class A-4 (the "Class A-4
Certificates"), Class A-5 (the "Class A-5 Certificates") and Class A-6
(the "Class A-6 Certificates"). Only the Class A Certificates (the
"Offered Certificates") are being offered hereby. Each Class of Offered
Certificates represents the right to receive payments of interest at the
Certificate Rate for such Class and payments of principal as described
below.
The Person in whose name a Certificate is registered as such in the
Certificate Register is referred to herein as a "Certificateholder."
The "Percentage Interest" of a Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the
denomination of such Certificate by the Class A Principal Balance for the
related Class as of the Cut-Off Date.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership
interests in the Offered Certificates ("Certificate Owners") will hold
their Offered Certificates through the Depository Trust Company ("DTC") in
the United States, or CEDEL or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which
are participants in such systems. The Book-Entry Certificates will be
issued in one or more certificates which equal the aggregate principal
balance of the Offered Certificates and will initially be registered in
the name of Cede, the nominee of DTC. CEDEL and Euroclear will hold
omnibus positions on behalf of their participants through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of
DTC. Citibank will act as depositary for CEDEL and Chemical will act as
depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries"). Investors may
hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing Certificate Principal Balances of $1,000 and in
multiples of $1 in excess thereof. 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"). Unless and until Definitive Certificates
are issued, it is anticipated that the only "Certificateholder" of the
Offered Certificates will be Cede, as nominee of DTC. Certificate Owners
will not be Certificateholders as that term is used in the Agreement.
Certificate Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
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 in turn be
recorded on the records of DTC, if the beneficial owner's Financial
Intermediary is not a DTC participant and on the records of CEDEL or
Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of,
and interest on, the Offered Certificates from the Trustee through DTC and
DTC participants. While the Offered Certificates are outstanding (except
under the circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"),
DTC is required to make book-entry transfers among Participants on whose
behalf it acts with respect to the Offered Certificates and is required to
receive and transmit distributions of principal of, and interest on, the
Offered Certificates. Participants and indirect participants with whom
Certificate Owners have accounts with respect to Offered Certificates are
similarly required to make book-entry transfers and receive and transmit
such distributions on behalf of their respective Certificate Owners.
Accordingly, although Certificate Owners will not possess certificates,
the Rules provide a mechanism by which Certificate Owners will receive
distributions and will be able to transfer their interest.
Certificate Owners will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below.
Unless and until Definitive Certificates are issued, Certificate Owners
who are not Participants may transfer ownership of Offered Certificates
only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer Offered Certificates,
by book-entry transfer, through DTC for the account of the purchasers of
such Offered Certificates, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Offered Certificates will be
executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Similarly, the Participants and
indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or CEDEL Participants on such business
day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant (as defined below) or
Euroclear Participant (as defined below) 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. For information with respect to tax
documentation procedures relating to the Certificates, see "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES--Foreign Investors" and "Backup
Withholding" herein and "GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants
will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; 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 deadlines (European time). The relevant European
international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the Relevant Depositary
to take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC
is expected to record the positions held by each DTC 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 DTC participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating
the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars.
CEDEL provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces
with domestic markets in several countries. As a professional depository,
CEDEL is subject to regulation by the Luxembourg Monetary Institute.
CEDEL participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
Indirect access to CEDEL is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may be settled in any of 32 currencies,
including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York (the "Euroclear Operator"), under contract with
Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator,
and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative.
The Cooperative establishes policy for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other
firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the
Federal Reserve System and the New York State Banking Department, as well
as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
applicable Belgian law (collectively, the "Terms and Conditions"). The
Terms and Conditions govern transfers of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear, and receipts
of payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions on the 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
DTC participants in accordance with DTC's normal procedures. Each DTC
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.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. Distributions
with respect to Certificates held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Foreign Investors" and "Backup Withholding" herein. Because
DTC can only act 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 the Depository 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.
Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede 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 DTC accounts the Book-Entry Certificates of such beneficial
owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by
the holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts
the 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. CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a
Certificateholder under the Agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and
procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Class A
Certificates which conflict with actions taken with respect to other Class
A Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or Provident 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
Provident or the Trustee is unable to locate a qualified successor, (b)
Provident, at its sole option, with the consent of the Trustee, elects to
terminate a book-entry system through DTC or (c) after the occurrence of
an Event of Servicing Termination (as defined herein), beneficial owners
having Percentage Interests aggregating not less than 51% of the aggregate
Class A Principal Balance of the Book-Entry Certificates advise the
Trustee and DTC through the Financial Intermediaries and the DTC
participants in writing that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the best interests of
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 through DTC 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 Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A Certificates among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither the Seller, the Master Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made
on account of beneficial ownership interests of the Book-Entry
Certificates held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
ASSIGNMENT OF MORTGAGE LOANS
On the Closing Date Provident will transfer to the Trust all of its
right, title and interest in and to each Mortgage Loan, the related
Mortgage Notes, Mortgages and other related documents (collectively, the
"Related Documents"), including all payments received on or with respect
to each such Mortgage Loan on or after the applicable Cut-Off Date
(exclusive of payments in respect of interest on the Mortgage Loans due
prior to the Cut-Off Date and received thereafter). The Trustee,
concurrently with such transfer, will deliver the Certificates to
Provident. Each Mortgage Loan transferred to the Trust will be identified
on a schedule (the "Mortgage Loan Schedule") delivered to the Trustee
pursuant to the Agreement. The Mortgage Loan Schedule will include
information as to the Principal Balance of each Mortgage Loan as of the
Cut-Off Date, its Loan Rate as well as other information.
(Under the terms of the Agreement, Provident will maintain possession
of the documentation relating to each Mortgage Loan (the "Mortgage File")
for so long as an Assignment Event has not occurred. Within 60 days of an
Assignment Event, the Seller will cause as soon as practicable the
Mortgage Files pertaining to each Mortgage Loan to be delivered to the
Trustee. In the Agreement, the Trustee will acknowledge the assignment of
the Mortgage Loans to the Trust and Provident will agree to hold the
Mortgage Files for and on behalf of the Trustee.)
Within 60 days of an Assignment Event, the Trustee will review the
Mortgage Loans and the Related Documents pursuant to the Agreement and if
any Mortgage Loan or Related Document is found to be defective in any
material respect and such defect is not cured within 90 days following
notification thereof to the Seller, the Seller will be obligated to either
(i) substitute for such Mortgage Loan an Eligible 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 will not disqualify the Trust as a
REMIC or result in a prohibited transaction tax under the Code or (ii)
purchase such Mortgage Loan at a price (the "Purchase Price") equal to the
outstanding Principal Balance of such Mortgage Loan as of the date of
purchase, plus all accrued and unpaid interest thereon, computed at the
Loan Rate, net of the Master Servicing Fee (if Provident is the Master
Servicer), plus the amount of any unreimbursed Servicing Advances made by
the Master Servicer. The Purchase Price will be deposited in the
Collection Account on or prior to the next succeeding Determination Date
after such obligation arises. The obligation of the Seller to repurchase
or substitute for a Defective Mortgage Loan is the sole remedy regarding
any defects in the Mortgage Loans and Related Documents available to the
Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute
Mortgage Loan, the Seller will be required to deposit in the Collection
Account on or prior to the next succeeding Determination Date after such
obligation arises an amount (the "Substitution Adjustment") equal to the
excess of the Principal Balance of the related Defective Mortgage Loan
over the Principal Balance of such Eligible Substitute Mortgage Loan.
An "Eligible Substitute Mortgage Loan" is a Mortgage Loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of
such substitution, (i) have an outstanding Principal Balance (or in the
case of a substitution of more than one Mortgage Loan for a Defective
Mortgage Loan, an aggregate Principal Balance), not in excess of and not
more than 5% less than the Principal Balance of the Defective Mortgage
Loan; (ii) have a Loan Rate not less than the Loan Rate of the Defective
Mortgage Loan and not more than 1% in excess of the Loan Rate of such
Defective Mortgage Loan; (iii) if such Defective Mortgage Loan is in Loan
Group 2, have a Loan Rate based on the same Index with adjustments to such
Loan Rate made on the same Interest Rate Adjustment Date as that of the
Defective Mortgage Loan and have a Margin that is not less than the Margin
of the Defective Mortgage Loan and not more than 100 base points higher
than the Margin for the Defective Mortgage Loan; or (iv) have a Mortgage
of the same or higher level of priority as the Mortgage relating to the
Defective Mortgage Loan at the time such Mortgage was transferred to the
Trust; (v) have a remaining term to maturity not more than six months
earlier and not later than the remaining term to maturity of the Defective
Mortgage Loan; (vi) comply with each representation and warranty set forth
in Section 2.04 (deemed to be made as of the date of substitution); (vii)
have an original Combined Loan-to-Value Ratio not greater than that of the
Defective Mortgage Loan; (viii) if such Defective Mortgage Loan is in Loan
Group 2, have a Lifetime Rate Cap and a Periodic Rate Cap no lower than
the Lifetime Rate Cap and Periodic Rate Cap, respectively, applicable to
such Defective Mortgage Loan; and (ix) be of the same type of Mortgaged
Property as the Defective Mortgage Loan or a detached single family
residence. More than one Eligible Substitute Mortgage Loan may be
substituted for a Defective Mortgage Loan if such Eligible Substitute
Mortgage Loans meet the foregoing attributes in the aggregate and such
substitution is approved in writing in advance by the Certificate Insurer.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-Off Date Principal
Balance and the Loan Rate). In addition, the Seller will represent and
warrant, on the Closing Date, that, among other things: (i) at the time of
transfer to the Trust, the Seller has transferred or assigned all of its
right, title and interest in each Mortgage Loan and the Related Documents,
free of any lien; and (ii) each Mortgage Loan complied, at the time of
origination, in all material respects with applicable state and federal
laws. Upon discovery of a breach of any such representation and warranty
which materially and adversely affects the interests of the Trust, the
Certificateholders or the Certificate Insurer in the related Mortgage Loan
and Related Documents, the Seller will have a period of 60 days after
discovery or notice of the breach to effect a cure. If the breach cannot
be cured within the 60-day period, the Seller will be obligated to (i)
substitute for such Defective Mortgage Loan an Eligible Substitute
Mortgage Loan or (ii) purchase such Defective Mortgage Loan from the
Trust. The same procedure and limitations that are set forth above for
the substitution or purchase of Defective Mortgage Loans as a result of
deficient documentation relating thereto will apply to the substitution or
purchase of a Defective Mortgage Loan as a result of a breach of a
representation or warranty in the Agreement that materially and adversely
affects the interests of the Certificateholders or the Certificate
Insurer.
Mortgage Loans required to be transferred to the Seller as described
in the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Agreement, the Master Servicer will service and
administer the Mortgage Loans as more fully set forth above.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND
DISTRIBUTION ACCOUNT
The Master Servicer shall establish and maintain in the name of the
Trustee a separate trust account (the "Collection Account") for the
benefit of the holders of the Certificates. The Collection Account will
be an Eligible Account (as defined herein). Subject to the investment
provision described in the following paragraphs, upon receipt by the
Master Servicer of amounts in respect of the Mortgage Loans (excluding
amounts representing the Master Servicing Fee), the Master Servicer will
deposit such amounts in the Collection Account. Amounts so deposited may
be invested in Eligible Investments (as described in the Agreement)
maturing no later than two Business Days prior to the next succeeding date
on which amounts on deposit therein are required to be deposited in the
Distribution Account.
The Trustee will establish an account (the "Distribution Account")
into which will be deposited amounts withdrawn from the Collection Account
for distribution to Certificateholders on a Distribution Date. The
Distribution Account will be an Eligible Account. Amounts on deposit
therein may be invested in Eligible Investments maturing on or before the
Business Day prior to the related Distribution Date.
An "Eligible Account" is an account that is (i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the highest short-term debt rating by the Rating Agencies,
and whose accounts are fully insured by either the Savings Association
Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") of the Federal
Deposit Insurance Corporation established by such fund with a minimum
long-term unsecured debt rating of "A2" by Moody's and "A" by S&P,
otherwise acceptable to each Rating Agency and the Certificate Insurer as
evidenced by a letter from each Rating Agency and the Certificate Insurer
to the Trustee, without reduction or withdrawal of their then current
ratings of the Certificates.
Eligible Investments are specified in the Agreement and are limited
to investments which meet the criteria of the Rating Agencies from time to
time as being consistent with their then current ratings of the
Certificates.
ADVANCES
Not later than two Business Days prior to each Distribution Date, the
Master Servicer will remit to the Trustee for deposit in the Distribution
Account an amount, to be distributed on the related Distribution Date,
equal to the sum of the interest accrued and principal due on each
Mortgage Loan through the related Due Date but not received by the Master
Servicer as of the close of business on the last day of the related Due
Period (net of the Master Servicing Fee) (the "Monthly Advance"). Such
obligation of the Master Servicer continues with respect to each Mortgage
Loan until such Mortgage Loan becomes a Liquidated Mortgage Loan.
In the course of performing its servicing obligations, the Master
Servicer will pay all reasonable and customary "out-of-pocket" costs and
expenses incurred in the performance of its servicing obligations,
including, but not limited to, the cost of (i) the preservation,
restoration and protection of the Mortgaged Properties, (ii) any
enforcement or judicial proceedings, including foreclosures, and (iii) the
management and liquidation of Mortgaged Properties acquired in
satisfaction of the related Mortgage. Each such expenditure will
constitute a "Servicing Advance".
The Master Servicer's right to reimbursement for Servicing Advances
is limited to late collections on the related Mortgage Loan, including
Liquidation Proceeds, Insurance Proceeds and such other amounts as may be
collected by the Master Servicer from the related Mortgagor or otherwise
relating to the Mortgage Loan in respect of which such unreimbursed
amounts are owed. The Master Servicer's right to reimbursement for
Monthly Advances shall be limited to late collections of interest on any
Mortgage Loan and to Liquidation Proceeds and Insurance Proceeds on the
related Mortgage Loan. The Master Servicer's right to such reimbursements
is prior to the rights of Certificateholders.
Notwithstanding the foregoing, the Master Servicer is not required to
make any Monthly Advance or Servicing Advance if in the good faith
judgment and sole discretion of the Master Servicer, the Master Servicer
determines that such advance will not be ultimately recoverable from
collections received from the Mortgagor in respect of the related Mortgage
Loan or other recoveries in respect of such Mortgage Loan (a
"Nonrecoverable Advance"). However, if any Servicing Advance or Monthly
Advance is determined by the Master Servicer to be nonrecoverable from
such sources, the amount of such Nonrecoverable Advance may be reimbursed
to the Master Servicer from other amounts on deposit in the Collection
Account.
DISTRIBUTION DATES
On each Distribution Date, the Offered Certificateholders will
be entitled to receive, from amounts then on deposit in the Distribution
Account, to the extent of funds available therefor in accordance with the
priorities and in the amounts described below under "Priority of
Distributions," an aggregate amount equal to the sum of (a) the Class
Interest Distribution for each Class of Offered Certificates and (b) the
Class A Principal Distribution for each Certificate Group. Distributions
will be made (i) in immediately available funds to holders of Offered
Certificates holding Certificates, the aggregate principal balance of
which is at least $1,000,000, by wire transfer or otherwise, to the
account of such Certificateholder at a domestic bank or other entity
having appropriate facilities therefor, if such Certificateholder has so
notified the Trustee in accordance with the Agreement, or (ii) by check
mailed to the address of the person entitled thereto as it appears on the
register (the "Certificate Register") maintained by the Trustee as
registrar (the "Certificate Registrar").
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than one Business Day prior to each Distribution Date, the
following amounts in respect of a Loan Group and the previous Due Period
shall be deposited into the Distribution Account and shall constitute the
"Available Funds" for the related Certificate Group for such Distribution
Date: (i) payments of principal and interest on the Mortgage Loans in such
Loan Group (net of amounts representing the Master Servicing Fee with
respect to each Mortgage Loan in the related Loan Group and reimbursement
for related Monthly Advances and Servicing Advances); (ii) Net Liquidation
Proceeds and Insurance Proceeds with respect to the Mortgage Loans in such
Loan Group (net of amounts applied to the restoration or repair of a
Mortgaged Property); (iii) the Purchase Price for repurchased Defective
Mortgage Loans with respect to the Mortgage Loans in such Loan Group and
any related Substitution Adjustment Amounts; (iv) payments from the Master
Servicer in connection with (a) Monthly Advances, (b) Prepayment Interest
Shortfalls and (c) the termination of the Trust with respect to the
Mortgage Loans in such Loan Group as provided in the Agreement; and (v)
any amounts paid under the Policy in respect of the related Certificate
Group.
PRIORITY OF DISTRIBUTIONS
On each Distribution Date the Trustee shall withdraw from the
Distribution Account the sum of (a) the Available Funds with respect to
the Group 1 Certificates and (b) the Available Funds with respect to the
Group 2 Certificates (such sum, the "Amount Available"), and make
distributions thereof as described below and to the extent of the Amount
Available:
A. With respect to the Group 1 Certificates, the Available
Funds with respect to such Certificate Group in the following order
of priority:
(i) to the Trustee, the Trustee fee for such Loan Group
for such Distribution Date;
(ii) to holders of each Class of Group 1 Certificates, an
amount equal to the related Class Interest Distribution for such
Distribution Date;
(iii) sequentially, to the Class A-1, Class A-2, Class
A-3, Class A-4 and Class A-5 Certificateholders, in that order,
until the respective Class A Principal Balance of each such
Class is reduced to zero, the related Class A Principal
Distribution (other than the portion constituting the
Distributable Excess Spread) for such Distribution Date;
provided, however, that after the occurrence and continuance of
an Insurer Default, such portion of the Class A Principal
Distribution for the Group 1 Certificates will be distributed
pro rata to the holders thereof based on the respective Class A
Principal Balances;
(iv) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for the
premium payable in respect of the Group 1 Certificates; and
(v) sequentially, to the Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificateholders, in that order, until
the respective Class A Principal Balance of each such Class is
reduced to zero, the related Distributable Excess Spread for
such Distribution Date; provided, however, that after the
occurrence and continuance of an Insurer Default, such
Distributable Excess Spread for the Group 1 Certificates will be
distributed pro rata to the holders thereof based on the
respective Class A Principal Balances.
B. With respect to the Group 2 Certificates, the Available
Funds with respect to such Certificate Group in the following order
of priority:
(i) to the Trustee, the Trustee fee for such Loan Group
for such Distribution Date;
(ii) to the holders of the Class A-6 Certificates, an
amount equal to the Class Interest Distribution for the Class A-
6 Certificates for such Distribution Date;
(iii) to the holders of the Class A-6 Certificates, the
Class A Principal Distribution for the Class A-6 Certificates
(other than the portion constituting the Distributable Excess
Spread);
(iv) to the Certificate Insurer, the amount owing to the
Certificate Insurer under the Insurance Agreement for the
premium payable in respect of the Group 2 Certificates; and
(v) to the holders of the Class A-6 Certificates until the
Class A-6 Principal Balance is reduced to zero, the related
Distributable Excess Spread for such Distribution Date.
C. On any Distribution Date, to the extent Available Funds for
a Certificate Group are insufficient to make the distributions
specified above pursuant to the applicable subclause, Available Funds
for the other Certificate Group remaining after making the
distributions required to be made pursuant to the applicable
subclause for such other Certificate Group shall be distributed to
the extent of such insufficiency in accordance with the priorities
for distribution set forth in the subclause above with respect to the
Certificate Group experiencing such insufficiency.
D. After making the distributions referred to in subclauses A,
B and C above, the Trustee shall make distributions in the following
order of priority, to the extent of the balance of the Amount
Available:
(i) to the Master Servicer, the amount of any accrued and
unpaid Master Servicing Fee;
(ii) to the Certificate Insurer, amounts owing to the
Certificate Insurer for reimbursement for prior draws made on
the Policy;
(iii) to the Master Servicer, the amount of
Nonrecoverable Advances not previously reimbursed;
(iv) to the Certificate Insurer, any other amounts owing to
the Certificate Insurer under the Insurance Agreement;
(v) to the Class A-6 Certificateholders, the Class A-6
Interest Carryover; and
(vi) to the Class R Certificateholders, the balance.
"Class A-6 Interest Carryover" means, with respect to any
Distribution Date on which the Certificate Rate for the Class A-6
Certificates is based upon the Net Funds Cap, the excess of (i) the amount
of interest the Class A-6 Certificates would be entitled to receive on
such Distribution Date had such rate been calculated pursuant to the
lesser of clause (A) and clause (C) of the definition of Certificate Rate
over (ii) the amount of interest the Class A-6 Certificates actually
receives on such Distribution Date, plus accrued interest thereon at the
rate determined pursuant to clause (i) above for such Distribution Date.
THE CERTIFICATE RATE
The "Certificate Rate" for any Interest Period with respect to: the
Class A-1 Certificates will be % per annum, the Class A-2 Certificates
will be % per annum, the Class A-3 Certificates will be % per
annum, the Class A-4 Certificates will be % per annum and the Class
A-5 Certificates will be % per annum. Interest in respect of any
Distribution Date will accrue on the Group 1 Certificates during each
Interest Period on the basis of a 360-day year consisting of twelve 30-day
months.
The "Certificate Rate" with respect to the Class A-6 Certificates for
an Interest Period will equal the least of (A) the sum of the LIBOR Rate
plus ____% (or ____% for each Distribution Date occurring after the date
on which the Master Servicer has the right to terminate the Trust), (B)
the Net Funds Cap for such Distribution Date and (C) ____% per annum.
With respect to the Class A-6 Certificates, interest in respect of any
Distribution Date will accrue during each Interest Period on the basis of
a 360-day year and the actual number of days elapsed.
The "LIBOR Rate" is the rate for United States dollar deposits for
one month which appear on the Telerate Screen LIBO Page 3750 as of 11:00
A.M., London time, on the second LIBOR Business Day prior to the first day
of any Interest Period relating to the Class A-6 Certificates (or the
second LIBOR Business Day prior to the Closing Date, in the case of the
first Distribution Date). If such rate does not appear on such page (or
such other page as may replace that page on that service, or if such
service is no longer offered, such other service for displaying the LIBOR
Rate or comparable rates as may be reasonably selected by Provident, after
consultation with the Trustee), the rate will be the Reference Bank Rate.
If no such quotations can be obtained and no Reference Bank Rate is avail-
able, the LIBOR Rate will be the LIBOR Rate applicable to the preceding
Distribution Date. On the second LIBOR Business Day immediately preceding
each Distribution Date, the Trustee shall determine the LIBOR Rate for the
Interest Period commencing on such Distribution Date and inform the Master
Servicer of such rate.
INTEREST
On each Distribution Date, to the extent of funds available therefor
as described herein, interest will be distributed with respect to each
Class of Class A Certificates in an amount (each, a "Class Interest
Distribution") equal to the sum of (a) one month's interest at the related
Certificate Rate on the related Class A Principal Balance immediately
prior to such Distribution Date (the "Class Monthly Interest Distributable
Amount") and (b) any Class Interest Carryover Shortfall for such Class of
Class A Certificates for such Distribution Date. As to any Distribution
Date and Class of Class A Certificates, Class Interest Carryover Shortfall
is the sum of (i) the excess of the related Class Monthly Interest
Distributable Amount for the preceding Distribution Rate and any
outstanding Class Interest Carryover Shortfall with respect to such Class
on such preceding Distribution Date, over the amount in respect of
interest that is actually distributed to such Class on such preceding
Distribution Date plus (ii) one month's interest on such excess, to the
extent permitted by law, at the related Certificate Rate. The interest
entitlement described in (a) above will be reduced by such Class' pro rata
share of Civil Relief Act Interest Shortfalls, if any, for such
Distribution Date. Civil Relief Act Interest Shortfalls will not be
covered by payments under the Policy.
On each Distribution Date, the Class Interest Distribution for each
Class of Class A Certificates in a particular Certificate Group will be
distributed on an equal priority and any shortfall in the amount required
to be distributed as interest thereon to each such Class will be allocated
between such Classes pro rata based on the amount each such Class would
have been distributed in the absence of such shortfall. See
"--Crosscollateralization" below.
PRINCIPAL
On each Distribution Date, to the extent of funds available thereof,
in accordance with the priorities described above under "--Priorities of
Distributions," principal will be distributed to the holders of Class A
Certificates of each Certificate Group then entitled to distributions of
principal in an amount equal to the lesser of (A) the related Aggregate
Class A Principal Balance and (B) the related Class A Principal
Distribution for such Distribution Date. "Class A Principal Distribution"
means, with respect to any Distribution Date and Certificate Group, the
sum of the related Class A Monthly Principal Distributable Amount for such
Distribution Date and any outstanding Class A Principal Carryover
Shortfall as of the close of business on the preceding Distribution Date.
"Class A Monthly Principal Distributable Amount" means, with respect
to any Distribution Date and Certificate Group, to the extent of funds
available therefor as described herein the amount equal to the sum of the
following amounts (without duplication) with respect to the immediately
preceding Due Period (as defined below): (i) each payment of principal on
a Mortgage Loan in the related Loan Group received by the Master Servicer
during such Due Period, including all full and partial principal
prepayments, (ii) the Principal Balance as of the end of the immediately
preceding Due Period of each Mortgage Loan in the related Loan Group that
became a Liquidated Mortgage Loan for the first time during the related
Due Period, (iii) the portion of the Purchase Price allocable to principal
of all repurchased Defective Mortgage Loans in the related Loan Group with
respect to such Due Period, (iv) any Substitution Adjustment Amounts
received on or prior to the previous Determination Date and not yet
distributed with respect to the related Loan Group and (v) such portion
(not greater than 100%) of Excess Spread, if any, required to be
distributed on such Distribution Date to satisfy the required level of
overcollateralization for the related Loan Group for such Distribution
Date (the "Distributable Excess Spread").
"Class A Principal Carryover Shortfall" means, with respect to any
Distribution Date and Certificate Group, the excess of the sum of the
related Class A Monthly Principal Distributable Amount for the preceding
Distribution Date and any outstanding Class A Principal Carryover
Shortfall with respect to such Certificate Group on such preceding
Distribution Date over the amount in respect of principal that is actually
distributed to the Class A Certificateholders of such Certificate Group on
such preceding Distribution Date.
If the required level of overcollateralization for a Certificate
Group is reduced below the then existing amount of overcollateralization
(described below) or if the required level of overcollateralization for
such Certificate Group is satisfied, the amount of the related Class A
Monthly Principal Distributable Amount on the following Distribution Date
will be correspondingly reduced by the amount of such reduction or by the
amount necessary such that the overcollateralization will not exceed the
required level of overcollateralization for a Certificate Group after
giving effect to the distribution in respect of principal with respect to
such Certificate Group to be made on such Distribution Date.
The application of Distributable Excess Spread in respect of a
Certificate Group is intended to create overcollateralization to provide a
source of additional cashflow to cover losses on the Mortgage Loans in the
related Loan Group. If the amount of losses in a particular Due Period
for such Loan Group exceeds the amount of the related Excess Spread for
the related Distribution Date, subject to the provisions described below
under "--Crosscollateralization," the amount distributed in respect of
principal will be reduced. A draw on the Policy in respect of principal
will not be made until the Class A Principal Balance of a Certificates
Group exceeds the aggregate Principal Balance of the Mortgage Loans in the
related Loan Group. See "--The Policy" herein. Accordingly, there may be
Distribution Dates on which Class A Certificateholders receive little or
no distributions in respect of principal.
So long as an Insurer Default has not occurred and is continuing,
distributions of the Class A Principal Distribution with respect to the
Group 1 Certificates will be applied, sequentially, to the distribution of
principal to the Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5
Certificates, in that order, such that no Class of Group 1 Certificates
having a higher numerical designation is entitled to distributions of
principal until the Class A Principal Balance of each such Class of
Certificates having a lower numerical designation has been reduced to
zero. On any Distribution Date if an Insurer Default has occurred and is
continuing, the Class A Principal Distribution with respect to the Group 1
Certificates will be applied to the distribution of principal of each such
Class outstanding on a pro rata basis in accordance with the Class A
Principal Balance of each such Class.
On each Distribution Date following an Insurer Default, net losses
realized in respect of Liquidated Mortgage Loans in a Loan Group (to the
extent such amount is not covered by Available Funds from the related Loan
Group or the crosscollateralization mechanics described herein) will
reduce the amount of overcollateralization, if any, with respect to the
related Certificate Group.
"Due Period" means, with respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such
Determination Date or Distribution Date, as the case may be.
A "Liquidated Mortgage Loan", as to any Distribution Date, is a
Mortgage Loan with respect to which the Master Servicer has determined, in
accordance with the servicing procedures specified in the Agreement, as of
the end of the preceding Due Period, that all Liquidation Proceeds which
it expects to recover with respect to such Mortgage Loan (including
disposition of the related REO Property) have been recovered.
"Excess Spread" means, with respect to any Distribution Date and Loan
Group, the positive excess, if any, of (x) Available Funds for the related
Certificate Group for such Distribution Date over (y) the amount required
to be distributed pursuant to subclause A items (i) through (iv), with
respect to the Group 1 Certificates and subclause B items (i) through
(iv), with respect to the Group 2 Certificates, in each case set forth
under the heading "DESCRIPTION OF CERTIFICATES--Priority of Distributions"
on such Distribution Date.
An "Insurer Default" will occur in the event the Certificate Insurer
fails to make a payment required under the Policy or if certain events of
bankruptcy or insolvency occur with respect to the Certificate Insurer.
THE POLICY
The following information has been supplied by the Certificate
Insurer for inclusion in this Prospectus Supplement. Accordingly, neither
the Seller nor the Master Servicer makes any representation as to the
accuracy and completeness of such information.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Policy, thereby unconditionally
and irrevocably guarantees to any Owner that an amount equal to each full
and complete Insured Payment will be received by
__________________________, or its successor, as trustee for the Owners
(the "Trustee"), on behalf of the Owners from the Certificate Insurer, for
distribution by the Trustee to each Owner of each Owner's proportionate
share of the Insured Payment. The Certificate Insurer's obligations under
the 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 Policy and no accelerated Insured Payments shall be made regardless of
any acceleration of the Class A Certificates, unless such acceleration is
at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, the REMIC
or the Trustee for withholding taxes, if any (including interest and
penalties in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a
Preference Amount on the Business Day following receipt on a Business Day
by the Fiscal Agent (as described below) of (i) a certified copy of the
order requiring the return of a preference payment, (ii) an opinion of
counsel satisfactory to the Certificate Insurer that such order is final
and not subject to appeal, (iii) an assignment in such form as is
reasonably required by the Certificate Insurer, irrevocably assigning to
the Certificate Insurer all rights and claims of the Owner relating to or
arising under the Class A Certificates against the debtor that made such
preference payment or otherwise with respect to such Preference Amount and
(iv) appropriate instruments to effect the appointment of the Certificate
Insurer as agent for such Owner in any legal proceeding related to such
Preference Amount, such instruments being in a form satisfactory to the
Certificate 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 Owners and not
any Owner directly unless such Owner has returned principal or interest
paid on the Class A Certificates to such receiver or trustee in
bankruptcy, in which case such payment shall be disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Policy no later than 12:00 noon New York City time on the later of the
Distribution Date on which the Deficiency Amount is due or the Business
Day following receipt in New York, New York on a Business Day by State
Street Bank and Trust Company, N.A., as Fiscal Agent for the Certificate
Insurer or any successor fiscal agent appointed by the Certificate 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 claim under
the Policy it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Certificate 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 Policy unless otherwise stated therein
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 Insurer only and the
Fiscal Agent shall in no event be liable to the Owners for any acts of the
Fiscal Agent or any failure of the Certificate Insurer to deposit or cause
to be deposited, sufficient funds to make payments due under the Policy.
As used in the Policy, the following terms shall have the following
meanings:
"Agreement" means the Pooling and Servicing Agreement, dated as
of September 1, 1996, between The Provident Bank, as Seller and
Master Servicer and the Trustee, as trustee, without regard to any
amendment or supplement thereto unless such amendment or modification
has been approved in writing by the Certificate Insurer.
"Business Day" means any day other than a Saturday, a Sunday or
a day on which banking institutions in New York City or the city in
which the corporate trust office of the Trustee under the Agreement
is located are authorized or obligated by law or executive order to
close.
"Deficiency Amount" means for any Distribution Date (A) the
excess, if any, of (i) Class Monthly Interest Distributable Amount
(net of any Civil Relief Act Interest Shortfalls) plus any Class
Interest Carryover Shortfall over (ii) funds on deposit in the
Distribution Account (net of the Trustee's Fee and the Insurance
Premium for such Distribution Date) and (B) the Guaranteed Principal
Amount.
"Guaranteed Principal Amount" means for any Distribution Date
(a) the amount which is required to reduce the then outstanding Class
A Principal Balance after giving effect to the distributions, if any,
to the Holders in respect of principal on such Distribution Date to
an amount equal to the Aggregate Principal Balance of the Mortgage
Loans as of the last day of the immediately preceding Due Period and
(b) on __________, ____ after all distributions have been made
including distributions pursuant to clause (a) of this definition of
"Guaranteed Principal Amount," an amount equal to the then
outstanding Class A Principal Balance.
"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 (in the case of a telephonic notice) by
telecopy, substantially in the form of Exhibit A attached to the
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 Holder (as defined in the Agreement) who, on
the applicable Distribution Date, is entitled under the terms of the
applicable Class A Certificates to payment under the Policy.
"Preference Amount" means any amount previously distributed to
an Owner on the Class A 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
from time to time in accordance with a final nonappealable order of a
court having competent jurisdiction.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Agreement as of
the date of execution of the Policy, without giving effect to any
subsequent amendment or modification to the Agreement unless such
amendment or modification has been approved in writing by the Certificate
Insurer.
Any notice under the Policy or service of process on the Fiscal Agent
may be made at the address listed below for the Fiscal Agent or such other
address as the Certificate Insurer shall specify to the Trustee in
writing.
The notice address of the Fiscal Agent is _______________ Attention:
________________, or such other address as the Fiscal Agent shall specify
to the Trustee in writing.
The Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New York, without giving effect
to the conflict of laws principles thereof.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.
The Policy is not cancelable for any reason. The premium on the
Policy is not refundable for any reason including payment, or provision
being made for payment, prior to the maturity of the Class A Certificates.
OVERCOLLATERALIZATION
The credit enhancement provisions of the Trust result in a limited
acceleration of the Class A Certificates of a Certificate Group relative
to the amortization of the Mortgage Loans in the related Loan Group in the
early months of the transaction. The accelerated amortization is achieved
by the application of Distributable Excess Spread relating to a Loan Group
to principal distributions on the Class A Certificates of the related
Certificate Group. This acceleration feature creates, with respect to
each Certificate Group, overcollateralization (i.e., the excess of the
aggregate outstanding Principal Balance of the Mortgage Loans in the
related Loan Group over the related Aggregate Class A Principal Balance).
Once the required level of overcollateralization is reached for a
Certificate Group, and subject to the provisions described in the next
paragraph, the acceleration feature for such Certificate Group will cease,
until necessary to maintain the required level of overcollateralization
for such Certificate Group.
The Agreement provides that, subject to certain floors, caps and
triggers, the required level of overcollateralization with respect to a
Certificate Group may increase or decrease over time. Any decrease in the
required level of overcollateralization for a Loan Group will occur only
at the sole discretion of the Certificate Insurer. Any such decrease will
have the effect of reducing the amortization of the Class A Certificates
of the related Certificate Group below what it otherwise would have been.
CROSSCOLLATERALIZATION
Excess Spread with respect to a Loan Group will be available to cover
certain shortfalls with respect to the Offered Certificates relating to
the other Loan Group as described above under the caption "--Priority of
Distributions".
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the Certificateholders, the
Trustee will forward to each Certificateholder a statement (based solely
on information received from the Master Servicer) setting forth among
other items with respect to each Distribution Date:
(i) the aggregate amount of the distribution to each Class of
Certificateholders on such Distribution Date;
(ii) the amount of distribution set forth in paragraph (i) above
in respect of interest and the amount thereof in respect of any Class
Interest Carryover Shortfall, and the amount of any Class Interest
Carryover Shortfall remaining;
(iii) the amount of distribution set forth in paragraph (i)
above in respect of principal and the amount thereof in respect of
the Class A Principal Carryover Shortfall, and any remaining Class A
Principal Carryover Shortfall;
(iv) the amount of Excess Spread for each Loan Group and the
amount applied as to a distribution on the Certificates;
(v) the Guaranteed Principal Amount with respect to each
Certificate Group, if any, for such Distribution Date;
(vi) the amount paid under the Policy for such Distribution Date
in respect of the Class Interest Distribution to each Class of
Certificates;
(vii) the Master Servicing Fee;
(viii) the Pool Principal Balance, the Loan Group 1 Principal
Balance and the Loan Group 2 Principal Balance, in each case as of
the close of business on the last day of the preceding Due Period;
(ix) the Aggregate Class A Principal Balance of each Certificate
Group after giving effect to payments allocated to principal above;
(x) the amount of overcollateralization relating to each Loan
Group as of the close of business on the Distribution Date, after
giving effect to distributions of principal on such Distribution
Date;
(xi) the number and aggregate Principal Balances of the Mortgage
Loans as to which the minimum monthly payment is delinquent for 30-59
days, 60-89 days and 90 or more days, respectively, as of the end of
the preceding Due Period;
(xii) the book value of any real estate which is acquired by
the Trust through foreclosure or grant of deed in lieu of
foreclosure;
(xiii) the aggregate amount of prepayments received on the
Mortgage Loans during the previous Due Period and specifying such
amount for each Loan Group; and
(xiv) the weighted average Loan Rate on the Mortgage Loans
and specifying such weighted average Loan Rate for each Loan Group as
of the first day of the month prior to the Distribution Date.
In the case of information furnished pursuant to clauses (ii) and
(iii) above, the amounts shall be expressed as a dollar amount per
Certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year, the Trustee will
forward to each Person, if requested in writing by such Person, who was a
Certificateholder during the prior calendar year a statement containing
the information set forth in clauses (ii) and (iii) above aggregated for
such calendar year.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled Distribution Date for each Class of Offered
Certificates is as follows: Class A-1 Certificates, ; Class
A-2 Certificates, ; Class A-3 Certificates, ;
Class A-4 Certificates, ; Class A-5 Certificates,
; and Class A-6 Certificates, . It is expected that the
actual last Distribution Date for each Class of Offered Certificates will
occur significantly earlier than such scheduled Distribution Dates. See
"PREPAYMENT AND YIELD CONSIDERATIONS".
Such last scheduled Distribution Dates are based on a 0% Prepayment
Assumption with no Distributable Excess Spread used to make accelerated
payments of principal to the holders of the related Offered Certificates
and the assumptions set forth above under "PREPAYMENT AND YIELD
CONSIDERATIONS--Weighted Average Lives"; provided that the last scheduled
Distribution Dates for the Class A-5 Certificates and the Class A-6
Certificates have been calculated assuming that the Mortgage Loan in the
related Loan Group having the latest maturity date allowed by the
Agreement amortizes according to its terms, plus one year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The Master Servicer will make reasonable efforts to collect all
payments called for under the Mortgage Loans and will, consistent with the
Agreement, follow such collection procedures as it follows from time to
time with respect to the home equity loans in its servicing portfolio
comparable to the Mortgage Loans. Consistent with the above, the Master
Servicer may in its discretion waive any late payment charge or any
assumption or other fee or charge that may be collected in the ordinary
course of servicing the Mortgage Loans.
With respect to the Mortgage Loans, the Maser Servicer may arrange
with a borrower a schedule for the payment of interest due and unpaid for
a period, provided that any such arrangement is consistent with the Master
Servicer's policies with respect to the home equity mortgage loans it owns
or services.
HAZARD INSURANCE
The Master Servicer will cause to be maintained fire and hazard
insurance with extended coverage customary in the area where the Mortgaged
Property is located, in an amount which is at least equal to the least of
(i) the outstanding Principal Balance on the Mortgage Loan and any related
senior lien(s), (ii) the full insurable value of the premises securing the
Mortgage Loan and (iii) the minimum amount required to compensate for
damage or loss on a replacement cost basis in each case in an amount not
less than such amount as is necessary to avoid the application of any
co-insurance clause contained in the related hazard insurance policy.
Generally, if the Mortgaged Property is in an area identified in the
Federal Register by the Flood Emergency Management Agency as FLOOD ZONE
"A", such flood insurance has been made available and the Master Servicer
determines that such insurance is necessary in accordance with accepted
mortgage servicing practices of prudent lending institutions, the Master
Servicer will cause to be purchased a flood insurance policy with a
generally acceptable insurance carrier, in an amount representing coverage
not less than the least of (a) the outstanding Principal Balance of the
Mortgage Loan and the First Lien, if any, (b) the full insurable value of
the Mortgaged Property, or (c) the maximum amount of insurance available
under the National Flood Insurance Act of 1968, as amended. The Master
Servicer will also maintain on REO Property, to the extent such insurance
is available, 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, and
the Master Servicer determines that such insurance is necessary in
accordance with accepted mortgage servicing practices of prudent lending
institutions, flood insurance in an amount equal to that required above.
Any amounts collected by the Master Servicer under any such policies
(other than amounts to be applied to the restoration or repair of the
Mortgaged Property, or to be released to the Mortgagor in accordance with
customary mortgage servicing procedures) will be deposited in the
Collection Account, subject to retention by the Master Servicer to the
extent such amounts constitute servicing compensation or to withdrawal
pursuant to the Agreement.
In the event that the Master Servicer obtains and maintains a blanket
policy as provided in the Agreement insuring against fire and hazards of
extended coverage on all of the Mortgage Loans, then, to the extent such
policy names the Master Servicer as loss payee and provides coverage in an
amount equal to the aggregate unpaid principal balance of the Mortgage
Loans without coinsurance, and otherwise complies with the requirements of
the first paragraph of this subsection, the Master Servicer will be deemed
conclusively to have satisfied its obligations with respect to fire and
hazard insurance coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Master Servicer will foreclose upon or otherwise comparably
convert to ownership Mortgaged Properties securing such of the Mortgage
Loans as come into default when, in accordance with applicable servicing
procedures under the Agreement, no satisfactory arrangements can be made
for the collection of delinquent payments. In connection with such
foreclosure or other conversion, the Master Servicer will follow such
practices as it deems necessary or advisable and as are in keeping with
its general mortgage servicing activities, provided that the Master
Servicer will not be required to expend its own funds in connection with
foreclosure or other conversion, correction of default on a related senior
mortgage loan or restoration of any property unless, in its sole judgment,
such foreclosure, correction or restoration will increase Net Liquidation
Proceeds. The Master Servicer will be reimbursed out of Liquidation
Proceeds for advances of its own funds as liquidation expenses before any
Net Liquidation Proceeds are distributed to Certificateholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Due Period, the Master Servicer will receive
from interest payments in respect of the Mortgage Loans a portion of such
interest payments as a monthly Master Servicing Fee in the amount equal to
0.50% per annum (the "Master Servicing Fee Rate") on the Principal Balance
of each Mortgage Loan as of the first day of each such Due Period. All
assumption fees, late payment charges and other fees and charges, to the
extent collected from borrowers, will be retained by the Master Servicer
as additional servicing compensation.
The Master Servicer's right to reimbursement for unreimbursed
Servicing Advances is limited to late collections on the related Mortgage
Loan, including Liquidation Proceeds, Insurance Proceeds and such other
amounts as may be collected by the Master Servicer from the related
Mortgagor or otherwise relating to the Mortgage Loan in respect of which
such unreimbursed amounts are owed. The Master Servicer's right to
reimbursement for unreimbursed Monthly Advances shall be limited to late
collections of interest on any Mortgage Loan and to liquidation proceeds
and insurance proceeds on the related Mortgage Loan. The Master
Servicer's right to such reimbursements is prior to the rights of
Certificateholders. However, if any Servicing Advance or Monthly Advance
is determined by the Master Servicer to be nonrecoverable from such
sources, the amount of such nonrecoverable advances may be reimbursed to
the Master Servicer from other amounts on deposit in the Collection
Account.
Civil Relief Act Interest Shortfalls will not be covered by the
Policy, although Prepayment Interest Shortfalls, after application of the
Master Servicing Fee, will be so covered. The Master Servicer is not
obligated to offset any of the Master Servicing Fee against, or to provide
any other funds to cover, any shortfalls in interest collections on the
Mortgage Loans that are attributable to the application of the Civil
Relief Act ("Civil Relief Act Interest Shortfalls"). See "RISK
FACTORS--Payments on the Mortgage Loans" in this Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
The Agreement provides for delivery on or before the last day of the
fifth month following the end of the Master Servicer's fiscal year,
beginning in 1997, to the Trustee, the Certificate Insurer and the Rating
Agencies of an annual statement signed by an officer of the Master
Servicer to the effect that the Master Servicer has fulfilled its material
obligations under the Agreement throughout the preceding fiscal year,
except as specified in such statement.
On or before the last day of the fifth month following the end of the
Master Servicer's fiscal year, beginning in ____, the Master Servicer will
furnish a report prepared by a firm of nationally recognized independent
public accountants (who may also render other services to the Master
Servicer or Provident) to the Trustee, Provident, the Certificate Insurer
and the Rating Agencies to the effect that such firm has examined certain
documents and the records relating to servicing of the Mortgage Loans
under the Uniform Single Attestation Program for Mortgage Bankers and such
firm's conclusion with respect thereto.
The Master Servicer's fiscal year is the calendar year.
CERTAIN MATTERS REGARDING THE MASTER SERVICER
The Agreement provides that the Master Servicer may not resign from
its obligations and duties thereunder, except in connection with a
permitted transfer of servicing, unless (i) such duties and obligations
are no longer permissible under applicable law as evidenced by an opinion
of counsel delivered to the Certificate Insurer or (ii) upon the
satisfaction of the following conditions: (a) the Master Servicer has
proposed a successor master servicer to the Trustee in writing and such
proposed successor master servicer is reasonably acceptable to the
Trustee; (b) the Rating Agencies have confirmed to the Trustee that the
appointment of such proposed successor master servicer as the Master
Servicer will not result in the reduction or withdrawal of the then
current rating of the Certificates; and (c) such proposed successor master
servicer is reasonably acceptable to the Certificate Insurer. No such
resignation will become effective until the Trustee or a successor master
servicer has assumed the Master Servicer's obligations and duties under
the Agreement.
The Master Servicer may perform any of its duties and obligations
under the Agreement through one or more subservicers or delegates, which
may be affiliates of the Master Servicer. Notwithstanding any such
arrangement, the Master Servicer will remain liable and obligated to the
Trustee and the Certificateholders for the Master Servicer's duties and
obligations under the Agreement, without any diminution of such duties and
obligations and as if the Master Servicer itself were performing such
duties and obligations.
The Master Servicer may permit the placement of a subsequent senior
mortgage on any Mortgaged Property, provided that (a) the related Mortgage
succeeded to a first lien position after the Closing Date for such
Mortgage Loan and, immediately following the placement of such senior
lien, such Mortgage is in a second lien position and the outstanding
principal amount of the mortgage loan secured by such senior lien is no
greater than the outstanding principal amount of the first mortgage loan
existing as of the Closing Date and the recalculated combined
loan-to-value ratio of the Mortgage Loan is not greater than the Combined
Loan-to-Value Ratio of such Mortgage Loan as of the Closing Date; or (b)
the Mortgage relating to the Mortgage Loan was in a second lien position
as of the Closing Date, the new senior lien secures a mortgage loan that
refinances an existing first mortgage loan and the outstanding principal
amount of such refinanced mortgage loan is no greater than the outstanding
principal amount of the first mortgage loan existing as of the Closing
Date and the recalculated combined loan-to-value ratio of such Mortgage
Loan is not greater than the Combined Loan-to-Value Ratio of such Mortgage
Loan as of the Closing Date.
In addition, the Master Servicer may agree to changes in the terms of
a Mortgage Loan, provided, however, that such changes (i) will not cause
the Trust to fail to qualify as a REMIC and do not adversely affect the
interests of the Certificateholders or the Certificate Insurer, (ii) are
consistent with prudent business practices and (iii) do not change the
Loan Rate of such Mortgage Loan or extend the maturity date of such
Mortgage Loan in excess of one year. Any changes to the terms of a
Mortgage Loan that would cause the Trust to fail to qualify as a REMIC,
however, may be agreed to by the Master Servicer, provided that the Master
Servicer has determined such changes are necessary to avoid a prepayment
of such Mortgage Loan, such changes are in accordance with prudent
business practices and the Master Servicer purchases such Mortgage Loan in
accordance with the terms of the Agreement.
The Agreement provides that the Master Servicer will indemnify the
Trust and the Trustee from and against any loss, liability, expense,
damage or injury suffered or sustained as a result of the Master
Servicer's actions or omissions in connection with the servicing and
administration of the Mortgage Loans which are not in accordance with the
provisions of the Agreement. The Agreement provides that neither
Provident nor its directors, officers, employees or agents will be under
any other liability to the Trust, the Trustee, the Certificateholders or
any other person for any action taken or for refraining from taking any
action pursuant to the Agreement. However, Provident will not be
protected against any liability which would otherwise be imposed by reason
of willful misconduct, bad faith or gross negligence of Provident in the
performance of its duties under the Agreement or by reason of reckless
disregard of its obligations thereunder. In addition, the Agreement
provides that the Master Servicer will not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to
its servicing responsibilities under the Agreement. The Master Servicer
may, in its sole discretion, undertake any such legal action which it may
deem necessary or desirable with respect to the Agreement and the rights
and duties of the parties thereto and the interest of the
Certificateholders thereunder.
Any corporation into which the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Master Servicer shall be a party, or any
corporation succeeding to the business of the Master Servicer shall be the
successor of the Master Servicer under the Agreement, without the
execution or filing of any paper or any further act on the part of any of
the parties to the Agreement, anything in the Agreement to the contrary
notwithstanding.
EVENTS OF DEFAULT
"Events of Default" will consist of: (i) (A) any failure of the
Master Servicer to make any required Monthly Advance or (B) any other
failure of the Master Servicer to deposit in the Collection Account or
Distribution Account any deposit required to be made under the Agreement,
which failure continues unremedied for two 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 Insurer or
any Certificateholder; (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, in each case, materially and adversely
affects the interests of the Certificateholders or the Certificate Insurer
and continues unremedied for 60 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 Insurer or any
Certificateholder; (iii) any failure by the Master Servicer to make any
required Servicing Advance, which failure continues unremedied for a
period of 30 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 Insurer or any Certificateholder; or (iv)
certain events of insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings relating to the Master Servicer and
certain actions by the Master Servicer indicating insolvency,
reorganization or inability to pay its obligations (an "Insolvency
Event").
Upon the occurrence and continuation beyond the applicable grace
period of the event described in clause (i) (A) above, if any Monthly
Advance is not made by 4:00 P.M., New York City time, on the second
Business Day following written notice to the Master Servicer of such
event, the Trustee will make such Monthly Advance and either the Trustee
or a successor master servicer will immediately assume the duties of the
Master Servicer.
Upon removal or resignation of the Master Servicer, the Trustee will
be the successor master servicer (the "Successor Master Servicer"). The
Trustee, as Successor Master Servicer, will be obligated to make Monthly
Advances and Servicing Advances and certain other advances unless it
determines reasonably and in good faith that such advances would not be
recoverable.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (i) above for a period of ten Business Days or
referred to under clause (ii) above for a period of 30 Business Days,
shall not constitute an Event of Default if such delay or failure could
not be prevented by the exercise of reasonable diligence by the Master
Servicer and such delay or failure was caused by an act of God or other
similar occurrence. Upon the occurrence of any such event the Master
Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the
Agreement and the Master Servicer shall provide the Trustee, the
Certificate Insurer and the Certificateholders prompt notice of such
failure or delay by it, together with a description of its efforts to so
perform its obligations.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an Event of Default remains unremedied, either the
Trustee, Certificateholders holding Certificates evidencing at least 51%
of the Percentage Interests in the Trust, with the consent of the
Certificate Insurer, or the Certificate Insurer may 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 the
responsibilities, duties and liabilities of the Master Servicer under the
Agreement and will be entitled to similar compensation arrangements. In
the event that the Trustee would be obligated to succeed to all the
responsibilities, duties and liabilities of the Master Servicer but is
unwilling or unable so to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a housing and home finance
institution or other mortgage loan or home equity loan servicer with all
licenses and permits required to perform its obligations under the
Agreement and having a net worth of at least $50,000,000 and acceptable to
the Certificate Insurer to act as successor to the Master Servicer under
the Agreement. Pending such appointment, the Trustee will be obligated to
act in such capacity unless prohibited by law. Such successor will be
entitled to receive the same compensation that the Master Servicer would
otherwise have received (or such lesser compensation as the Trustee and
such successor may agree). A receiver or conservator for the Master
Servicer may be empowered to prevent the termination and replacement of
the Master Servicer if the only Event of Default that has occurred is an
Insolvency Event.
AMENDMENT
The Agreement may be amended from time to time by the Seller, the
Master Servicer, and the Trustee and with the consent of the Certificate
Insurer, but without the consent of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions therein which may be
inconsistent with any other provisions of the Agreement, to add to the
duties of the Seller or the Master Servicer to comply with any
requirements imposed by the Internal Revenue Code or any regulation
thereunder, or to add or amend any provisions of the Agreement as required
by the Rating Agencies in order to maintain or improve any rating of the
Offered Certificates (it being understood that, after obtaining the
ratings in effect on the Closing Date, neither the Seller, the Trustee,
the Certificate Insurer nor the Master Servicer is obligated to obtain,
maintain, or improve any such rating) or to add any other provisions with
respect to matters or questions arising under the Agreement which shall
not be inconsistent with the provisions of the Agreement; provided that
such action will not, as evidenced by an opinion of counsel, materially
and adversely affect the interests of any Certificateholder or the
Certificate Insurer; provided, further, that any such amendment will not
be deemed to materially and adversely affect the Certificateholders and no
such opinion will be required to be delivered if the person requesting
such amendment obtains a letter from the Rating Agencies stating that such
amendment would not result in a downgrading of the then current rating of
the Offered Certificates. The Agreement may also be amended from time to
time by the Seller, the Master Servicer, and the Trustee, with the consent
of Certificateholders evidencing at least 51% of the Percentage Interests
of each Class affected thereby and the Certificate 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 Certificateholders, provided that no such amendment will (i)
reduce in any manner the amount of, or delay the timing of, collections of
payments on the Certificates or distributions or payments under the Policy
which are required to be made on any Certificate without the consent of
the Certificateholder or (ii) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the holders of all
Offered Certificates then outstanding.
TERMINATION; PURCHASE OF MORTGAGE LOANS
The Trust will terminate on the Distribution Date following the later
of (A) payment in full of all amounts owing to the Certificate Insurer
unless the Certificate Insurer shall otherwise consent and (B) the
earliest of (i) the Distribution Date on which the Aggregate Class A
Principal Balance has been reduced to zero, (ii) the final payment or
other liquidation of the last Mortgage Loan in the Trust, (iii) the
optional purchase by the Master Servicer of the Mortgage Loans, as
described below and (iv) the Distribution Date in ( ) on which date
the Policy will be available to pay the outstanding Aggregate Class A
Principal Balance of the Class A Certificates.
Subject to provisions in the Agreement concerning adopting a plan of
complete liquidation, the Master Servicer may, at its option, terminate
the Agreement on any date on which the Pool Principal Balance is less than
5% of the sum of the Cut-Off Date Pool Principal Balance by purchasing, on
the next succeeding Distribution Date, all of the outstanding Mortgage
Loans at a price equal to the sum of the outstanding Pool Principal
Balance (subject to reduction as provided in the Agreement if the purchase
price is based in part on the appraised value of any REO Property included
in the Trust and such appraised value is less than the Principal Balance
of the related Mortgage Loan) and accrued and unpaid interest thereon at
the weighted average of the Loan Rates through the end of the Due Period
preceding the final Distribution Date together with all amounts due and
owing to the Certificate Insurer.
Any such purchase shall be accomplished by deposit into the
Distribution Account of the purchase price specified above.
THE TRUSTEE
________________________________________, has been named Trustee
pursuant to the Agreement.
The Trustee may have normal banking relationships with the Master
Servicer.
The Trustee may resign at any time, in which event Provident will be
obligated to appoint a successor Trustee, as approved by the Certificate
Insurer. Provident 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. Upon becoming aware of such circumstances, Provident
will be obligated to appoint a successor Trustee, as approved by the
Certificate Insurer. 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.
No holder of a Certificate will have any right under the Agreement to
institute any proceeding with respect to the Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders holding Certificates evidencing at least 51% of the
Percentage Interests in the Trust have made written requests 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. The
Trustee will be under no obligation to exercise any of the trusts or
powers vested in it by the Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any
litigation thereunder or in relation thereto at the request, order or
direction of any of the Certificateholders, unless such Certificateholders
have offered to the Trustee reasonable security or indemnity against the
cost, expenses and liabilities which may be incurred therein or thereby.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates
will be applied by Provident for general corporate purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust as a "real estate
mortgage investment conduit" for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). The Class A
Certificates will be designated as "regular interests" in the REMIC and
the Class R Certificates will be designated as the sole class of residual
interests in the REMIC. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Taxation of the REMIC and its Holders" in the Prospectus.
The Offered Certificates generally will be treated as debt
instruments issued by the REMIC for Federal income tax purposes. Income
on such Certificates must be reported under an accrual method of
accounting.
The Offered Certificates may, depending on their issue price, be
issued with original issue discount ("OID") for federal income tax
purposes. Holders of such Certificates issued with OID will be required
to include OID in income as it accrues under a constant yield method, in
advance of the receipt of cash attributable to such income. The OID
Regulations do not contain provisions specifically interpreting Code
Section 1272(a)(6) which applies to prepayable securities such as the
Offered Certificates. Until the Treasury issues guidance to the contrary,
the Trustee intends to base its OID computation on Code Section 1272(a)(6)
and the OID Regulations as described in the Prospectus. However, because
no regulatory guidance currently exists under Code Section 1272(a)(6),
there can be no assurance that such methodology represents the correct
manner of calculating OID.
The yield used to calculate accruals of OID with respect to the
Offered Certificates with OID will be the original yield to maturity of
such Certificates, determined by assuming that the Mortgage Loans in Loan
Group 1 will prepay in accordance with % of the Prepayment Assumption
and that the Mortgage Loans in Loan Group 2 will prepay in accordance with
% of the Prepayment Assumption. No representation is made as to the
actual rate at which the Mortgage Loans will prepay.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Assumption model used in
this Prospectus is based on a Constant Prepayment Rate ("CPR"). CPR
represents a constant rate of prepayment on the Mortgage Loans each month
relative to the aggregate outstanding principal balance of the Mortgage
Loans. 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 pool of mortgage loans, including
the Mortgage Loans, and there is no assurance that the Mortgage Loans will
prepay at the specified CPR. Provident does not make any representation
about the appropriateness of the CPR model.
The Offered Certificates will be treated as regular interests in a
REMIC under section 860G of the Code. Accordingly, the Offered
Certificates will be treated as (i) qualifying real property loans within
the meaning of section 593(d)(1) of the Code, (ii) assets described in
section 7701(a)(19)(C) of the Code, and (iii) "real estate assets" within
the meaning of section 856(c)(5) of the Code, in each case to the extent
described in the Prospectus. Interest on the Offered 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 to the same extent
that the Offered Certificates are treated as real estate assets. See
"Certain Federal Income Tax Consequences" in the Prospectus.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at
the rate of 31% with respect to interest paid on the Offered Certificates
if the Certificate Owners, upon issuance, fail to supply the Trustee or
their broker with their taxpayer identification number, furnish an
incorrect taxpayer identification number, fails to report interest,
dividends, or other "reportable payments" (as defined in the Code)
properly, or, under certain circumstances, fails to provide the Trustee or
their broker with a certified statement, under penalty of perjury, that
they are not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to
each Offered Certificateholder of record, the amount of interest paid (and
OID accrued, if any) on the Offered Certificates (and the amount of
interest withheld for Federal income taxes, if any) for each calendar
year, except as to exempt holders (generally, holders that are
corporations, certain tax-exempt organizations or nonresident aliens who
provide certification as to their status as nonresidents). As long as the
only "Class A Certificateholder" of record is Cede, as nominee for DTC,
Certificate Owners and the IRS will receive tax and other information
including the amount of interest paid on such Certificates owned from
Participants and Indirect Participants rather than from the Trustee. (The
Trustee, however, will respond to requests for necessary information to
enable Participants, Indirect Participants and certain other persons to
complete their reports.) Each non-exempt Certificate Owner will be
required to provide, under penalty of perjury, a certificate on IRS Form
W-9 containing his or her name, address, correct Federal taxpayer
identification number and a statement that he or she is not subject to
backup withholding. Should a nonexempt Certificate Owner fail to provide
the required certification, the Participants or Indirect Participants (or
the Paying Agent) will be required to withhold 31% of the interest (and
principal) otherwise payable to the holder, and remit the withheld amount
to the IRS as a credit against the holder's Federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate
owner for all purposes of the Certificates, the Agreement and the Policy.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investor" means any person other than (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 any state or political subdivision thereof of (iii) an estate or
trust the income of which is includible in gross income for United States
federal income tax purposes, regardless of its source.
The Code and Treasury regulations generally subject interest paid to
a Foreign Investor to a withholding tax at a rate of 30% (unless such rate
were changed by an applicable treaty). The withholding tax, however, is
eliminated with respect to certain "portfolio debt investments" issued to
Foreign Investors. Portfolio debt investments include debt instruments
issued in registered form for which the United States payor receives a
statement that the beneficial owner of the instrument is a Foreign
Investor. The Offered Certificates will be issued in registered form,
therefore if the information required by the Code is furnished (as
described below) and no other exceptions to the withholding tax exemption
are applicable, no withholding tax will apply to the Offered Certificates.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under
penalty of perjury by the Certificate Owner stating that the Certificate
Owner is a Foreign Investor and providing such Certificate Owner's name
and address. The statement must be received by the withholding agent in
the calendar year in which the interest payment is made, or in either of
the two preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign
corporation will not be subject to United States federal income tax on
gain realized on the sale, exchange, or redemption of such Offered
Certificate, provided that (i) such gain is not effectively connected with
a trade or business carried on by the Certificate Owner in the United
States, (ii) in the case of a Certificate Owner that is an individual,
such Certificate Owner is not present in the United States for 183 days or
more during the taxable year in which such sale, exchange or redemption
occurs and (iii) in the case of gain representing accrued interest, the
conditions described in the immediately preceding paragraph are satisfied.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the
tax laws of any state. Investors considering an investment in the
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary which proposes to cause a Plan to acquire any of
the Offered Certificates should consult with its counsel with respect to
the potential consequences under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and the Code, of the Plans acquisition
and ownership of such Certificates. See "ERISA CONSIDERATIONS" in the
Prospectus.
The U.S. Department of Labor has granted to _________________________
(____________) Prohibited Transaction Exemption _____ (the "Exemption")
which exempts from the application of the prohibited transaction rules
transactions relating to (1) the acquisition, sale and holding by Plans of
certain certificates representing an undivided interest in certain
asset-backed pass-through trusts, with respect to which _____________ or
any of its affiliates is the sole underwriter or the manager or co-manager
of the underwriting syndicate; and (2) the servicing, operation and
management of such asset-backed pass-through trusts, provided that the
general conditions and certain other conditions set forth in the Exemption
are satisfied. The Exemption will apply to the acquisition, holding and
resale of the Class A Certificates by a Plan, provided that certain
conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to
apply are the following:
(1) The acquisition of the Class A Certificates by a Plan is on
terms (including the price for such Certificates) that are at least
as favorable to the investing Plan as they would be in an
arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A
Certificates acquired by the Plan are not subordinated to the rights
and interests evidenced by other certificates of the Trust;
(3) The Class A Certificates acquired by the Plan have received
a rating at the time of such acquisition that is in one of the three
highest generic rating categories from either S&P, Moody's, or Duff &
Phelps Credit Rating Co.;
(4) The sum of all payments made to and retained by the
Underwriter in connection with the distribution of the Class A
Certificates represents not more than reasonable compensation for
underwriting such Certificates; the sum of all payments made to and
retained by the Seller pursuant to the sale of the Mortgage Loans to
the Trust represents not more than the fair market value of such
Mortgage Loans; the sum of all payments made to and retained by the
Master Servicer represent not more than reasonable compensation for
the Master Servicer's services under the Agreement and reimbursement
of the Master Servicer's reasonable expenses in connection therewith;
(5) The Trustee is not an affiliate of any Underwriter, the
Seller, the Master Servicer, the Certificate Insurer, any borrower
whose obligations under one or more Mortgage Loans constitute more
than 5% of the aggregate unamortized principal balance of the assets
in the Trust, or any of their respective affiliates (the "Restricted
Group"); and
(6) The Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of
1933, as amended.
The Underwriter believes that the Exemption will apply to the
acquisition and holding of the Class A Certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met. Any Plan fiduciary considering whether to purchase
any Class A Certificates on behalf of a Plan should consult with its
counsel regarding the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and the Code to such
investment. Among other things, before purchasing any Class A
Certificates, a fiduciary of a Plan subject to the fiduciary
responsibility provisions of ERISA or an employee benefit plan subject to
the prohibited transaction provisions of the Code should make its own
determination as to the availability of the exemptive relief provided in
the Exemption, and also consider the availability of any other prohibited
transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Offered Certificates
will be rated in the highest rating category of the Rating Agencies, the
Offered Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"), because not all of the Mortgages securing the Mortgage Loans
are first mortgages. Accordingly, many institutions with legal authority
to invest in comparably rated securities based on first mortgage loans may
not be legally authorized to invest in the Offered Certificates, which
because they evidence interests in a pool that includes junior mortgage
loans are not "mortgage related securities" under SMMEA. See "LEGAL
INVESTMENT" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, dated ____________________ (the "Underwriting Agreement"),
between Provident and ______________________ (the "Underwriter"),
Provident has agreed to sell to the Underwriter and the Underwriter has
agreed to purchase from Provident the Class A Certificates.
Distributions of the Offered Certificates will be made from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to Provident from the sale of
the Offered Certificates will be approximately $ , plus accrued
interest, before deducting expenses payable by Provident, estimated to be
$ in the aggregate. In connection with the purchase and sale of
the Offered Certificates, the Underwriter may be deemed to have received
compensation from Provident in the form of underwriting discounts.
Provident has been advised by the Underwriter that it presently
intends to make a market in the Offered Certificates; however, it is not
obligated to do so, any market-making may be discontinued at any time, and
there can be no assurance that an active public market for the Offered
Certificates will develop.
The Underwriting Agreement provides that Provident will indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Act.
EXPERTS
(__________)
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will
be passed upon for Provident by Brown & Wood LLP, New York, New York, and
Keating, Muething & Klekamp, P.L.L. Cincinnati, Ohio, York and for the
Underwriter by ____________________.
RATINGS
It is a condition to the issuance of the Class A Certificates that
they receive ratings of "AAA" by _______ and "Aaa" by ______.
A securities rating addresses the likelihood of the receipt by Class
A Certificateholders of distributions on the Mortgage Loans. The rating
takes into consideration the characteristics of the Mortgage Loans and the
structural, legal and tax aspects associated with the Class A
Certificates. The ratings on the Class A Certificates do not, however,
constitute statements regarding the likelihood or frequency of prepayments
on the Mortgage Loans or the possibility that Class A Certificateholders
might realize a lower than anticipated yield.
The ratings assigned to the Class A Certificates will depend
primarily upon the creditworthiness of the Certificate Insurer. Any
reduction in a rating assigned to the claims-paying ability of the
Certificate Insurer below the ratings initially assigned to the Class A
Certificates may result in a reduction of one or more of the ratings
assigned to the Class A Certificates.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
INDEX OF DEFINED TERMS
TERMS PAGE
----- ---
1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Aggregate Class A Principal Balance . . . . . . . . . . . . . . S-4, S-36
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Amount Available . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Assignment Event . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Balloon Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . S-37
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Certificate Group . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Certificate Register . . . . . . . . . . . . . . . . . . . . . . . . S-43
Certificate Registrar . . . . . . . . . . . . . . . . . . . . . . . . S-43
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . S-6, S-37
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-6
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-3
Chemical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Class A Certificates . . . . . . . . . . . . . . . . . . . . . Cover, S-3
Class A Monthly Principal Distributable Amount . . . . . . . . S-8, S-45
Class A Principal Balance . . . . . . . . . . . . . . . . . . . S-4, S-36
Class A Principal Carryover Shortfall . . . . . . . . . . . . . . . . S-45
Class A Principal Distribution . . . . . . . . . . . . . . . . S-8, S-45
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A-2 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A-3 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A-4 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A-5 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class A-6 Certificates . . . . . . . . . . . . . . . . . . . . . . . S-36
Class Interest Distribution . . . . . . . . . . . . . . . . . . S-7, S-44
Class Monthly Interest Distributable Amount . . . . . . . . . . S-7, S-44
Class R Certificates . . . . . . . . . . . . . . . . . . . . . Cover, S-4
CLTV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24, S-29
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . S-4
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33, S-56
Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-3
Cut-Off Date Loan Group 1 Principal Balance . . . . . . . . . . S-5, S-20
Cut-Off Date Loan Group 2 Principal Balance . . . . . . . . . . S-5, S-26
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . S-3
Defective Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . S-41
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . S-36
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Distributable Excess Spread . . . . . . . . . . . . . . . . . . S-8, S-45
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . S-42
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-7
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-37
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-45
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Eligible Substitute Mortgage Loan . . . . . . . . . . . . . . . . . . S-41
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-57
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . S-38
European Depositaries . . . . . . . . . . . . . . . . . . . . . S-6, S-36
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Excess Spread . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-46
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-57
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . S-37
First Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Group 1 Certificates . . . . . . . . . . . . . . . . . . . . Cover, S-36
Group 2 Certificates . . . . . . . . . . . . . . . . . . . . Cover, S-36
Guaranteed Principal Amount . . . . . . . . . . . . . . . . . . S-9, S-46
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Insurer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . S-45
Loan Group . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-36
Loan Group 1 . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-36
Loan Group 2 . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-36
Loan Group 1 Principal Balance . . . . . . . . . . . . . . . . . . . S-3
Loan Group 2 Principal Balance . . . . . . . . . . . . . . . . . . . S-3
Loan Group Principal Balance . . . . . . . . . . . . . . . . . . . . S-3
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-6
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . S-10
Master Servicing Fee Rate . . . . . . . . . . . . . . . . . . . S-10, S-50
Monthly Advance . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-42
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Mortgage Files . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . S-40
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . Cover, S-2, S-3
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . S-3
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . S-42
Offered Certificates . . . . . . . . . . . . . . . . . . Cover, S-4, S-36
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
Original Aggregate Class A Principal Balance . . . . . . . . . . . . S-4
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-3, S-36
Pool Principal Balance . . . . . . . . . . . . . . . . . . . . . . . S-3
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . S-32
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Provident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . S-36
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-11
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-6, S-54
Servicing Advance . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-57
Substitution Adjustment . . . . . . . . . . . . . . . . . . . . . . . S-41
Successor Master Servicer . . . . . . . . . . . . . . . . . . . . . . S-52
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . S-39
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-10
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . S-58
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-66
weighted average life . . . . . . . . . . . . . . . . . . . . . . . . S-32
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Provident Home Equity Loan Asset-Backed Certificates, Series 199___ (the
"Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold such Global Securities through any of
DTC, CEDEL or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures
applicable to U.S. corporate debt obligations and prior Home Equity Loan
Asset-Backed Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of
CEDEL and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result,
CEDEL and Euroclear will hold positions on behalf of their participants
through their respective Depositaries, which in turn will hold such
positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan
Asset-Backed Certificates issues. Investor securities custody accounts
will be credited with their holdings against payment in same-day funds on
the settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and
seller's accounts are located to ensure that settlement can be made on the
desired value date.
Trading between DTC Participants. Secondary market trading between
DTC Participants will be settled using the procedures applicable to prior
Home Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary
market trading between CEDEL Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC
Participant to the account of a CEDEL Participant or a Euroclear
Participant, the purchaser will send instructions to CEDEL or Euroclear
through a CEDEL Participant or Euroclear Participant at least one business
day prior to settlement. CEDEL or Euroclear will instruct the respective
Depositary, as the case may be, to receive the Global Securities against
payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the
settlement date, on the basis of either the actual number of days in such
accrual period and a year assumed to consist of 360 days or a 360-day year
of 12 30-day months as applicable to the related class of Global
Securities. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the respective Depositary
of the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing
system, in accordance with its usual procedures, to the CEDEL
Participant's or Euroclear Participant's account. The securities credit
will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended
value date (i.e., the trade fails), the CEDEL or Euroclear cash debt will
be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is
to preposition funds for settlement, either from cash on hand or existing
lines of credit, as they would for any settlement occurring within CEDEL
or Euroclear. Under this approach, they may take on credit exposure to
CEDEL or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of
credit to them, CEDEL Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, CEDEL Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges
for one day, assuming they cleared the overdraft when the Global
Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many
cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global
Securities to the respective European Depositary for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be
available to the DTC seller on the settlement date. Thus, to the DTC
Participants a cross-market transaction will settle no differently than a
trade between two DTC Participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in
which Global Securities are to be transferred by the respective clearing
system, through the respective Depositary, to a DTC Participant. The
seller will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases CEDEL or Euroclear will instruct the
respective Depositary, as appropriate, to deliver the Global Securities to
the DTC Participant's account against payment. Payment will include
interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of either
the actual number of days in such accrual period and a year assumed to
consist of 360 days or a 360-day year of 12 30-day months as applicable to
the related class of Global Securities. For transactions settling on the
31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected
in the account of the CEDEL Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the CEDEL Participant's
or Euroclear Participant's account would be back-valued to the value date
(which would be the preceding day, when settlement occurred in New York).
Should the CEDEL Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e.,
the trade fails), receipt of the cash proceeds in the CEDEL Participant's
or Euroclear Participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants
or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant is
at least one day prior to the value date for the sale to the CEDEL
Participant or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. Persons, unless (i) each clearing system,
bank or other financial institution that holds customers' securities in
the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required
to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8
changes, a new Form W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income
(Form 4224). A non-U.S. Person, including a non-U.S. corporation or bank
with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain
an exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If
the treaty provides only for a reduced rate, withholding tax will be
imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner
of a Global Security or, in the case of a Form 1001 or a Form 4224 filer,
his agent, files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding
directly on the books of the clearing agency). Form W-8 and Form 1001 are
effective for three calendar years and Form 4224 is effective for one
calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws
of the United States or any political subdivision thereof or (iii) an
estate or trust the income of which is includible in gross income for
United States tax purposes, regardless of its source. This summary does
not deal with all aspects of U.S. Federal income tax withholding that may
be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
Underwriting . . . . . . . . S-55
No dealer, salesman or other Experts . . . . . . . . . . . S-56
person has been authorized to give Legal Matters . . . . . . . . S-56
any information or to make any Ratings . . . . . . . . . . . S-56
representation not contained in Index of Defined Terms . . . S-57
this Prospectus Supplement or the Annex I . . . . . . . . . . . S-60
Prospectus and, if given or made,
such information or representation PROSPECTUS
must not be relied upon as having Prospectus Supplement . . . . . 2
been authorized by Provident or Available Information . . . . . 2
the Underwriter. This Prospectus Reports to Holders . . . . . . 2
Supplement and the Prospectus do Summary of Terms . . . . . . . 3
not constitute an offer of any Risk Factors . . . . . . . . . 11
securities other than those to Description of the Securities . 14
which they relate or an offer to The Trust Funds . . . . . . . . 17
sell, or a solicitation of an Enhancement . . . . . . . . . . 22
offer to buy, to any person in any Servicing of Loans . . . . . . 24
jurisdiction where such an offer The Agreements . . . . . . . . 30
or solicitation would be unlawful. Certain Legal Aspects of Loans 38
Neither the delivery of this Provident . . . . . . . . . . . 46
Prospectus Supplement and the Use of Proceeds . . . . . . . . 46
Prospectus nor any sale made Certain Federal Income Tax
hereunder shall, under any Considerations . . . . . . . . 47
circumstances, create any State Tax Considerations . . . 64
implication that the information ERISA Considerations . . . . . 65
contained herein is correct as of Legal Investment . . . . . . . 67
any time subsequent to their Plan of Distribution . . . . . 67
respective dates. Legal Matters . . . . . . . . . 67
-------------------- Experts . . . . . . . . . . . . 67
Additional Information . . . . 67
TABLE OF CONTENTS Glossary of Terms . . . . . . . 68
PAGE
---
-
PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents
by
Reference . . . . . . . . . S-2
Summary . . . . . . . . . . . S-3
Risk Factors . . . . . . . . S-15
The Certificate Insurer . . . S-18
The Provident Bank. . . . . . S-18
Description of the Mortgage Loans
S-21
Prepayment and Yield
Considerations . . . . . . . S-28
Description of the Certificates
S-32
Description of the Purchase
Agreement . . . . . . . . . . S-50
Use of Proceeds . . . . . . . S-51
Certain Federal Income Tax
Consequences . . . . . . . . S-52
State Taxes . . . . . . . . . S-54
ERISA Considerations . . . . S-54
Legal Investment Considerations
S-55
(PROVIDENT HOME EQUITY
LOAN TRUST 199___)
$
$ CLASS A-1 %
CERTIFICATES
$ CLASS A-2 %
CERTIFICATES
$ CLASS A-3 %
CERTIFICATES
$ CLASS A-4 %
CERTIFICATES
$ CLASS A-5 %
CERTIFICATES
$ CLASS A-6 VARIABLE
RATE CERTIFICATES
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 199___
THE PROVIDENT BANK
AS SELLER AND
MASTER SERVICER
----------------------------------
--
PROSPECTUS SUPPLEMENT
_________________________
--------------------------------
(UNDERWRITER)
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 DECEMBER 27, 1996
PROSPECTUS
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
This Prospectus relates to the issuance of Asset Backed Certificates
(the "Certificates") and Asset Backed Notes (the "Notes" and, together
with the Certificates, the "Securities"), which may be sold from time to
time in one or more series (each, a "Series") by The Provident Bank
("Provident") or by a Trust Fund created by Provident (as defined below)
on terms determined at the time of sale and described in this Prospectus
and the related Prospectus Supplement. The Securities of a Series will
consist of Certificates which evidence beneficial ownership of a trust
established by Provident (each, a "Trust Fund"), and Notes secured by the
assets of a Trust Fund. As specified in the related Prospectus
Supplement, the Trust Fund for a Series of Securities will include certain
assets (the "Trust Fund Assets") which will consist of the following types
of single family mortgage loans (the "Loans"): (i) mortgage loans secured
by first and/or subordinate liens on one- to four-family residential
properties (the "Mortgage Loans"), (ii) closed-end loans (the "Closed-End
Loans") and/or revolving home equity loans or certain balances thereof
(the "Revolving Credit Line Loans", together with the Closed-End Loans,
the "Home Equity Loans") secured by first or subordinate liens on one- to
four-family residential properties and (iii) home improvement installment
sale contracts and installment loan agreements (the "Home Improvement
Contracts") that are either unsecuredor secured by subordinate liens onone-
to four-family residential properties, or by purchase money security
interests in the home improvements financed thereby (the "Home
Improvements"). The Trust Fund Assets will be originated by Provident or
acquired by Provident and conveyed by Provident to the related Trust Fund.
A Trust Fund also may include insurance policies, surety bonds, cash
accounts, reinvestment income, guaranties or letters of credit to the
extent described in the related Prospectus Supplement. See "Index of
Defined Terms" on Page 92 of this Prospectus for the location of the
definitions of certain capitalized terms.
Each Series of Securities 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 related Trust Fund Assets. Each class of Notes
of a Series will be secured by the related Trust Fund Assets or, if so
specified in the related Prospectus Supplement, a portion thereof. A
Series of Securities may include one or more classes that are senior in
right of payment to one or more other classes of Securities of such
Series. One or more classes of Securities of a Series may be entitled to
receive distributions of principal, interest or any combination thereof
prior to one or more other classes of Securities of such Series on or
after the occurrence of specified events, in each case as specified in the
related Prospectus Supplement.
Distributions to Securityholders will be made monthly, quarterly,
semi-annually or at such other intervals and on the dates specified in the
related Prospectus Supplement. Distributions on the Securities of a
Series will be made from the related Trust Fund Assets or proceeds thereof
pledged for the benefit of the Securityholders as specified in the related
Prospectus Supplement.
The related Prospectus Supplement will describe any insurance or
guarantee provided with respect to the related Series of Securities
including, without limitation, any insurance or guarantee provided by the
Department of Housing and Urban Development, the United States Department
of Veterans' Affairs or any private insurer or guarantor. The only
obligations of Provident with respect to a Series of Securities will be to
make certain representations and warranties to the Trustee for the related
Series of Securities. The principal obligations of the Master Servicer
named in the related Prospectus Supplement with respect to the related
Series of Securities 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 related Trust Fund Assets.
The yield on each class of Securities of a Series will be affected
by, among other things, the rate of payments of principal (including
prepayments) on the related Trust Fund Assets and the timing of receipt of
such payments as described under "Risk Factors--Prepayment and Yield
Considerations" and "Yield and Prepayment Considerations" herein and in
the related Prospectus Supplement. A Trust Fund may be subject to early
termination under the circumstances described under "The Agreements--
Termination; Optional Termination" herein and in the related Prospectus
Supplement.
If specified in the related Prospectus Supplement, one or more
elections may be made to treat a Trust Fund or specified portions thereof
as a "real estate mortgage investment conduit" ("REMIC") for federal
income tax purposes. See "Federal Income Tax Consequences."
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 13.
THE CERTIFICATES OF A GIVEN SERIES WILL REPRESENT BENEFICIAL INTERESTS IN,
AND THE NOTES OF A GIVEN SERIES WILL REPRESENT OBLIGATIONS OF, THE
RELATED TRUST FUND ONLY AND WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF PROVIDENT, THE MASTER SERVICER OR ANY AFFILIATES THEREOF, EXCEPT TO THE
EXTENT DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT. THE SECURITIES AND
THE LOANS WILL NOT BE INSURED OR GUARANTEED BY THE FEDERAL INSURANCE
DEPOSIT CORPORATION OR ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY
PROVIDENT OR ANY OTHER PERSON OR ENTITY, EXCEPT IN EACH CASE TO THE EXTENT
DESCRIBED IN THE RELATED PROSPECTUS SUPPLEMENT.
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 Securities
of any Series and there can be no assurance that a secondary market for
any Securities will develop, or if it does develop, that it will continue
or provide Securityholders with a sufficient level of liquidity of
investment. This Prospectus may not be used to consummate sales of
Securities of any Series unless accompanied by a Prospectus Supplement.
Offers of the Securities 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.
________________, 1996
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.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to
the Securities of each Series to be offered hereunder will, among other
things, set forth with respect to such Securities, as appropriate: (i) the
aggregate principal amount, interest rate and authorized denominations of
each class of such Series of Securities; (ii) information as to the assets
comprising the Trust Fund, including the general characteristics of the
related Trust Fund Assets included therein and, if applicable, the
insurance policies, surety bonds, guaranties, letters of credit or other
instruments or agreements included in the Trust Fund or otherwise, and the
amount and source of any reserve account or other cash account; (iii) the
circumstances, if any, under which the Trust Fund may be subject to early
termination; (iv) the circumstances, if any, under which the Notes of such
Series are subject to redemption; (v) the method used to calculate the
amount of principal to be distributed or paid with respect to each class
of Securities; (vi) the order of application of distributions or payments
to each of the classes within such Series, whether sequential, pro rata,
or otherwise; (vii) the Distribution Dates with respect to such Series;
(viii) additional information with respect to the method of distribution
of such Securities; (ix) whether one or more REMIC elections will be made
with respect to the Trust Fund and, if so, the designation of the regular
interests and the residual interests; (x) the aggregate original
percentage ownership interest in the Trust Fund to be evidenced by each
class of Certificates; (xi) the stated maturity of each class of Notes of
such Series; (xii) information as to the nature and extent of
subordination with respect to any class of Securities that is subordinate
in right of payment to any other class; and (xiii) information as to the
Master Servicer and the Trustee.
AVAILABLE INFORMATION
Provident has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933,
as amended, with respect to the Securities. This Prospectus, which forms
a part of the Registration Statement, and the Prospectus Supplement
relating to each Series of Securities contain descriptions of the material
terms of the documents referred to herein and therein, but do not contain
all of the information set forth in the Registration Statement pursuant to
the Rules and Regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto.
Such Registration Statement and exhibits can be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at its Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located as follows:
Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Northeast Regional Office, Seven World Trade Center,
Suite 1300, New York, New York 10048. The Commission also maintains a Web
site at http://www.sec.gov from which such Registration Statement and
exhibits may be obtained.
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 Securities offered hereby and thereby nor an offer of the
Securities to any person in any state or other jurisdiction in which such
offer would be unlawful. The delivery of this Prospectus at any time does
not imply that information herein is correct as of any time subsequent to
its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
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 Securities Exchange
Act of 1934, as amended (the "Exchange Act"), after the date of this
Prospectus and prior to the termination of any offering of the Securities
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. Neither Provident nor the Master Servicer for any Series
intends to file with the Commission periodic reports with respect to the
related Trust Fund following completion of the reporting period required
by Rule 15d-1 or Regulation 15D under the Exchange Act.
The Trustee or such other entity specified in the related Prospectus
Supplement 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
or the address of such other entity specified in the accompanying
Prospectus Supplement. Included in the accompanying Prospectus Supplement
is the name, address, telephone number, and, if available, facsimile
number of the office or contact person at the Corporate Trust Office of
the Trustee or such other entity.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities will be forwarded to Securityholders. However, such
reports will neither be examined nor reported on by an independent public
accountant. See "Description of the Securities--Reports to
Securityholders".
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 of Securities
offered thereby and to the related Agreement (as such term is defined
below) which will be prepared in connection with each Series of
Securities. Unless otherwise specified, capitalized terms used and not
defined in this Summary of Terms have the meanings given to them in this
Prospectus and in the related Prospectus Supplement. See "Index of
Defined Terms" on Page 92 of this Prospectus for the location of the
definitions of certain capitalized terms.
Title of Securities Asset Backed Certificates (the "Certificates") and
Asset Backed Notes (the "Notes" and, together with the
Certificates, the "Securities"), which are issuable in
Series.
Provident The Provident Bank ("Provident"), an Ohio banking
corporation in its capacity as transferor of the Loans
to the Trust Fund.
Trustee The trustee(s) (the "Trustee") for each Series of
Securities will be specified in the related Prospectus
Supplement. See "The Agreements" herein for a
description of the Trustee's rights and obligations.
Master Servicer The entity or entities named as Master Servicer (the
"Master Servicer") in the related Prospectus
Supplement, which may be Provident or an affiliate
thereof. See "The Agreements--Certain Matters
Regarding the Master Servicer and Provident".
Trust Fund Assets Assets of the Trust Fund for a Series of Securities
will include certain assets (the "Trust Fund Assets")
which will consist of the Loans, together with
payments in respect of such Trust Fund Assets, as
specified in the related Prospectus Supplement. At
the time of issuance of the Securities of the Series,
Provident will assign the Loans comprising the related
Trust Fund to the Trustee, without recourse. The
Loans will be collected in a pool (each, a "Pool") as
of the first day of the month of the issuance of the
related Series of Securities or such other date
specified in the related Prospectus Supplement (the
"Cut-off Date"). Trust Fund Assets also may include
insurance policies, surety bonds, cash accounts,
reinvestment income, guaranties or letters of credit
to the extent described in the related Prospectus
Supplement. See "Credit Enhancement". In addition,
if the related Prospectus Supplement so provides, the
related Trust Fund Assets will include the funds on
deposit in an account (a "Pre-Funding Account") which
will be used to purchase additional Loans during the
period specified in such Prospectus Supplement. See
"The Agreements--Pre-Funding Account".
Loans The Loans will consist of (i) mortgage loans secured
by first and/or subordinate liens on one- to four-
family residential properties (each, a "Mortgage
Loan"), (ii) closed-end loans (the "Closed-End Loans")
and/or revolving home equity loans or certain balances
thereof (the "Revolving Credit Line Loans", together
with the Closed-End Loans, the "Home Equity Loans"),
and (iii) home improvement installment sales contracts
and installment loan agreements (the "Home Improvement
Contracts"). All Loans will have been originated by
Provident or purchased by Provident, either directly
or through an affiliate.
As specified in the related Prospectus Supplement, the
Home Equity Loans will, and the Home Improvement
Contracts may, be secured by mortgages or deeds of
trust or other similar security instruments creating a
lien on a Mortgaged Property, which may be
subordinated to one or more senior liens on the
Mortgaged Property, as described in the related
Prospectus Supplement. As specified in the related
Prospectus Supplement, Home Improvement Contracts may
be unsecured or secured by purchase money security
interests in the Home Improvements financed thereby.
The Mortgaged Properties and the Home Improvements are
collectively referred to herein as the "Properties".
Description of
the Securities Each Security will represent a beneficial ownership
interest in, or be secured by the assets of, a Trust
Fund created by Provident pursuant to an Agreement
among Provident, the Master Servicer and the Trustee
for the related Series. The Securities of any Series
may be issued in one or more classes as specified in
the related Prospectus Supplement. A Series of
Securities may include one or more classes of senior
Securities (collectively, the "Senior Securities") and
one or more classes of subordinate Securities
(collectively, the "Subordinated Securities").
Certain Series or classes of Securities may be covered
by insurance policies or other forms of credit
enhancement, in each case as described under "Credit
Enhancement" herein and in the related Prospectus
Supplement.
One or more classes of Securities of each Series (i)
may be entitled to receive distributions allocable
only to principal, only to interest or to any
combination thereof; (ii) may be entitled to receive
distributions only of prepayments of principal
throughout the lives of the Securities or during
specified periods; (iii) may 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 Securities of such Series throughout the lives of
the Securities or during specified periods; (iv) may
be entitled to receive such distributions only after
the occurrence of events specified in the related
Prospectus Supplement; (v) may be entitled to receive
distributions in accordance with a schedule or formula
or on the basis of collections from designated
portions of the related Trust Fund Assets; (vi) as to
Securities entitled to distributions allocable to
interest, may be entitled to receive interest at a
fixed rate or a rate that is subject to change from
time to time; and (vii) as to Securities entitled to
distributions allocable to interest, may be entitled
to distributions allocable to interest only after the
occurrence of events specified in the related
Prospectus Supplement and may accrue interest until
such events occur, 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 on
the Securities Distributions on the Securities 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 Fund or other assets
pledged for the benefit of the Securities as described
under "Credit Enhancement" herein to the extent
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
Prospectus Supplement for a Series of Securities will
describe the method for allocating distributions among
Securities of different classes as well as the method
for allocating distributions among Securities for any
particular class.
Unless otherwise specified in the related Prospectus
Supplement, the aggregate original principal balance
of the Securities will not exceed the aggregate
distributions allocable to principal that such
Securities will be entitled to receive. If specified
in the related Prospectus Supplement, the Securities
will have an aggregate original principal balance
equal to the aggregate unpaid principal balance of the
Trust Fund Assets as of the related Cut-off Date and
will bear interest in the aggregate at a rate equal to
the interest rate borne by the underlying Loans (the
"Loan Rate") net of the aggregate servicing fees and
any other amounts specified in the related Prospectus
Supplement or at such other interest rate as may be
specified in such Prospectus Supplement.
The rate at which interest will be passed through or
paid to Securityholders (each, a "Pass-Through Rate")
entitled thereto may be a fixed rate or a rate that is
subject to change from time to time from the time and
for the periods, in each case, as specified in the
related Prospectus Supplement. Any such rate may be
calculated on a loan-by-loan or weighted average basis
or a notional amount in each case as described in the
related Prospectus Supplement.
Credit Enhancement The Trust Fund Assets or the Securities of one or more
classes in the related Series may have the benefit of
one or more types of credit enhancement as described
in the related Prospectus Supplement. The protection
against losses afforded by any such credit support may
be limited. The type, characteristics and amount of
credit enhancement will be determined based on the
characteristics of the Loans comprising the Trust Fund
Assets and other factors and will be established on
the basis of requirements of each Rating Agency rating
the Securities of such Series. See "Credit
Enhancement."
If specified in the related Prospectus Supplement, the
coverage provided by one or more of the forms of
credit enhancement described in this Prospectus may
apply concurrently to two or more separate Trust
Funds. If applicable, the related Prospectus
Supplement will identify the Trust Funds to which such
credit enhancement relates and the manner of
determining the amount of coverage provided to such
Trust Funds thereby and of the application of such
coverage to the identified Trust Funds.
A. Subordination A Series of Securities may consist of one or more
classes of Senior Securities and one or more classes
of Subordinated Securities. The rights of the holders
of the Subordinated Securities of a Series to receive
distributions with respect to the related Trust Fund
Assets will be subordinated to such rights of the
holders of the Senior Securities of the same Series to
the extent described in the related Prospectus
Supplement. This subordination is intended to enhance
the likelihood of regular receipt by holders of Senior
Securities of such Series of the full amount of
monthly payments of principal and interest due them.
The protection afforded to the holders of Senior
Securities 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 Securities, the amounts of interest
and/or principal due them on each Distribution Date
out of the funds available for distribution on such
date in the related Security Account and, to the
extent described in the related Prospectus Supplement,
by the right of such holders to receive future
distributions on the related Trust Fund Assets that
would otherwise have been payable to the holders of
Subordinated Securities; (ii) reducing the ownership
interest (if applicable) of the related Subordinated
Securities; or (iii) a combination of clauses (i) and
(ii) above. If so 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 borrower. The related
Prospectus Supplement will set forth information
concerning, among other things, the amount of
subordination of a class or classes of Subordinated
Securities 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.
B. Reserve Account One or more reserve accounts or other cash accounts
(each, a "Reserve Account") may be established and
maintained for each Series of Securities. The related
Prospectus Supplement will specify whether or not such
Reserve Accounts will be included in the corpus of the
Trust Fund for such Series and will also specify the
manner of funding such Reserve Accounts and the
conditions under which the amounts in any such Reserve
Accounts will be used to make distributions to holders
of Securities of a particular class or released from
such Reserve Accounts.
C. Letter of Credit If so specified in the related Prospectus Supplement,
credit support for a Series may be provided by one or
more letters of credit. A letter of credit may
provide limited protection against certain losses in
addition to or in lieu of other credit support, such
as losses resulting from delinquent payments on the
Loans in the related Trust Fund, losses from risks not
covered by standard hazard insurance policies, losses
due to bankruptcy of a borrower and application of
certain provisions of the federal Bankruptcy Code, and
losses due to denial of insurance coverage due to
misrepresentations made in connection with the
origination or sale of a Loan. The issuer of the
letter of credit (the "L/C Bank") will be obligated to
honor demands with respect to such letter of credit,
to the extent of the amount available thereunder to
provide funds under the circumstances and subject to
such conditions as are specified in the related
Prospectus Supplement. The liability of the L/C Bank
under its letter of credit will be reduced by the
amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter
of credit will be an amount equal to a percentage
specified in the related Prospectus Supplement of the
initial aggregate outstanding principal balance of the
Loans in the related Trust Fund or one or more Classes
of Securities of the related Series. The maximum
amount available at any time to be paid under a letter
of credit will be determined in the manner specified
therein and in the related Prospectus Supplement.
D. Insurance Policies;
Surety Bonds and
Guarantees If so specified in the related Prospectus Supplement,
credit support for a Series may be provided by an
insurance policy and/or a surety bond issued by one or
more insurance companies or sureties. Such
certificate guarantee insurance or surety bond will
guarantee timely distributions of interest and/or full
distributions of principal on the basis of a schedule
of principal distributions set forth in or determined
in the manner specified in the related Prospectus
Supplement. If specified in the related Prospectus
Supplement, one or more bankruptcy bonds, special
hazard insurance policies, other insurance or
third-party guarantees may be used to provide coverage
for the risks of default or types of losses set forth
in such Prospectus Supplement.
E. Over-Collater-
alization If so provided in the Prospectus Supplement for a
Series of Securities, a portion of the interest
payment on each Loan may be applied as an additional
distribution in respect of principal to reduce the
principal balance of a certain class or classes of
such Series of Securities and, thus, accelerate the
rate of payment of principal on such class or classes
of such Series of Securities.
F. Mortgage Pool
Insurance Policy mortgage pool insurance policy or policies may be
obtained and maintained for Loans relating to any
Series of Securities, which shall be limited in scope
and shall cover defaults on the related Loans in an
initial amount equal to a specified percentage of the
aggregate principal balance of all Loans included in
the Pool as of the related Cut-off Date.
G. Cross-Collater-
alization If specified in the related Prospectus Supplement,
separate classes of a Series of Securities may
evidence the beneficial ownership of, or be secured
by, separate groups of assets included in a Trust
Fund. In such case, credit support may be provided by
a cross-collateralization feature which requires that
distributions be made to Securities evidencing a
beneficial ownership interest in, or secured by, one
or more asset groups prior to distributions to
Subordinated Securities evidencing a beneficial
ownership interest in, or secured by, other asset
groups within the same Trust Fund. See "Credit
Enhancement--Cross-Collateralization."
Advances The Master Servicer and, if applicable, each mortgage
servicing institution that services a Loan in a Pool
on behalf of the Master Servicer (each, a
"Sub-Servicer") may be obligated to advance amounts
(each, an "Advance") corresponding to delinquent
interest and/or principal payments on such Loan until
the date, as specified in the related Prospectus
Supplement, on which the related Property is sold at a
foreclosure sale or the related Loan is otherwise
liquidated. Any obligation to make Advances may be
subject to limitations as specified in the related
Prospectus Supplement. If so specified in the related
Prospectus Supplement, Advances may be drawn from a
cash account available for such purpose as described
in such Prospectus Supplement. Advances will be
reimbursable to the extent described under
"Description of the Securities--Advances" herein and
in the related Prospectus Supplement.
In the event the Master Servicer or Sub-Servicer fails
to make a required Advance, the Trustee may be
obligated to advance such amounts otherwise required
to be advanced by the Master Servicer or Sub-Servicer.
See "Description of the Securities--Advances."
Optional
Termination The Master Servicer or the party specified in the
related Prospectus Supplement, including the holder of
the residual interest in a REMIC, may have the option
to effect early retirement of a Series of Securities
through the purchase of the Trust Fund Assets. The
Master Servicer will deposit the proceeds of any such
purchase in the Security Account for each Trust Fund
as described under "The Agreements--Payments on Loans;
Deposit to Security Account." Any such purchase of
Trust Fund Assets and property acquired in respect of
Trust Fund Assets evidenced by a Series of Securities
will be made at the option of the Master Servicer,
such other person or, if applicable, such holder of
the REMIC residual interest, at a price specified in
the related Prospectus Supplement. The exercise of
such right will effect early retirement of the
Securities of that Series, but the right of the Master
Servicer, such other person or, if applicable, such
holder of the REMIC residual interest, to so purchase
is subject to the principal balance of the related
Trust Fund Assets being less than the percentage
specified in the related Prospectus Supplement of the
aggregate principal balance of the Trust Fund Assets
at the Cut-off Date for the Series. The foregoing is
subject to the provision that if a REMIC election is
made with respect to a Trust Fund, any such purchase
will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of
Section 860F(g)(4) of the Internal Revenue Code of
1986, as amended (the "Code").
Legal Investment The Prospectus Supplement for each Series of
Securities will specify which, if any, of the classes
of Securities offered thereby constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA").
Classes of Securities 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 which may govern investments by such
institutional investors. Institutions whose
investment activities are subject to review by federal
or state authorities should consult with their counsel
or the applicable authorities to determine whether an
investment in a particular class of Securities
(whether or not such class constitutes a "mortgage
related security") complies with applicable
guidelines, policy statements or restrictions. See
"Legal Investment."
Federal Income Tax
Consequences The federal income tax consequences to Securityholders
will vary depending on whether one or more elections
are made to treat the Trust Fund or specified portions
thereof as a REMIC under the provisions of the Code.
The Prospectus Supplement for each Series of
Securities will specify whether such an election will
be made.
If a REMIC election is made, Securities representing
regular interests in a REMIC will generally be taxable
to holders in the same manner as evidences of
indebtedness issued by the REMIC. Stated interest on
such regular interests will be taxable as ordinary
income and taken into account using the accrual method
of accounting, regardless of the holder's normal
accounting method. If no REMIC election is made,
interest (other than original issue discount ("OID"))
on Securities that are characterized as indebtedness
for federal income tax purposes will be includible in
income by holders thereof in accordance with their
usual method of accounting.
Certain classes of Securities may be issued with OID.
A Securityholder should be aware that the Code and the
Treasury regulations promulgated thereunder do not
adequately address certain issues relevant to prepay-
able securities, such as the Securities.
Securityholders that will be required to report income
with respect to the related Securities under the
accrual method of accounting will do so without giving
effect to delays and reductions in distributions
attributable to a default or delinquency on the Loans,
except possibly to the extent that it can be
established that such amounts are uncollectible. As a
result, the amount of income (including OID) reported
by a Securityholder in any period could significantly
exceed the amount of cash distributed to such
Securityholder in that period.
In the opinion of Brown & Wood LLP, if a REMIC
election is made with respect to a Series of
Securities, then the arrangement by which such
Securities are issued will be treated as a REMIC as
long as all of the provisions of the applicable
Agreement are complied with and the statutory and
regulatory requirements are satisfied. Securities
will be designated as "regular interests" or "residual
interests" in a REMIC. A REMIC will not be subject to
entity-level tax. Rather, the taxable income or net
loss of a REMIC will be taken into account by the
holders of residual interests. Such holders will
report their proportionate share of the taxable income
of the REMIC whether or not they receive cash
distributions from the REMIC attributable to such
income. The portion of the REMIC taxable income
consisting of "excess inclusions" may not be offset
against other deductions or losses of the holder,
including the net operating losses.
In the opinion of Brown & Wood LLP, if a REMIC or a
partnership election is not made with respect to a
Series of Securities, then the arrangement by which
such Securities are issued will be classified as a
grantor trust under Subpart E, Part I of Subchapter J
of the Code and not as an association taxable as a
corporation. If so provided in the Prospectus
Supplement for a Series, there will be no separation
of the principal and interest payments on the Loans.
In such circumstances, the Securityholder will be
considered to have purchased a pro rata undivided
interest in each of the Loans. In other cases, sale
of the Securities will produce a separation in the
ownership of all or a portion of the principal
payments from all or a portion of the interest
payments on the Loans.
In the opinion of Brown & Wood LLP, if a partnership
election is made, the Trust Fund will not be treated
as an association or a publicly traded partnership
taxable as a corporation as long as all of the
provisions of the applicable Agreement are complied
with and the statutory and regulatory requirements are
satisfied. If Notes are issued by such Trust Fund,
such Notes will be treated as indebtedness for federal
income tax purposes. The holders of the Certificates
issued by such Trust Fund, if any, will agree to treat
the Certificates as equity interests in a partnership.
The Securities will be treated as assets described in
Section 7701(a)(19)(C) of the Code and as real estate
assets described in Section 856(c) of the Code.
Generally, gain or loss will be recognized on a sale
of Securities in the amount equal to the difference
between the amount realized and the seller's tax basis
in the Securities sold.
The material federal income tax consequences for
investors associated with the purchase, ownership and
disposition of the Securities are set forth herein
under "Federal Income Tax Consequences". The material
federal income tax consequences for investors
associated with the purchase, ownership and
disposition of Securities of any particular Series
will be set forth under the heading "Federal Income
Tax Consequences" in the related Prospectus
Supplement. See "Federal Income Tax Consequences".
ERISA
Considerations A fiduciary of any employee benefit plan or other
retirement plan or arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or the Code should carefully review with
its legal advisors whether the purchase or holding of
Securities could give rise to a transaction prohibited
or not otherwise permissible under ERISA or the Code.
See "ERISA Considerations". Certain classes of
Securities may not be transferred unless the Trustee
is 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, Provident or the Master
Servicer to additional obligations. See "Description
of the Securities--General" and "ERISA
Considerations".
Risk Factors For a discussion of certain risks associated with an
investment in the Securities, see "Risk Factors" on
Page 13 herein and in the related Prospectus
Supplement.
RISK FACTORS
Investors should consider the following factors in connection with
the purchase of the Securities.
LIMITED LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market
will develop or, if it does develop, that it will provide Securityholders
with liquidity of investment or will continue for the life of the
Securities of such Series.
LIMITED SOURCE OF PAYMENTS--NO RECOURSE TO PROVIDENT OR MASTER SERVICER
Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Series and will not have any claim against or security interest in the
Trust Fund for any other Series. There will be no recourse to Provident
or any other person for any failure to receive distributions on the
Securities. Further, at the times set forth in the related Prospectus
Supplement, certain Trust Fund Assets and/or any balance remaining in the
Security Account immediately after making all payments due on the
Securities of such Series, after making adequate provision for future
payments on certain classes of Securities and after making any other
payments specified in the related Prospectus Supplement, may be promptly
released or remitted to Provident, the Master Servicer, any credit
enhancement provider or any other person entitled thereto and will no
longer be available for making payments to Securityholders. Consequently,
holders of Securities of each Series must rely solely upon payments with
respect to the Trust Fund Assets and the other assets constituting the
Trust Fund for a Series of Securities, including, if applicable, any
amounts available pursuant to any credit enhancement for such Series, for
the payment of principal of and interest on the Securities of such Series.
The Securities will not represent an interest in or obligation of
Provident, the Master Servicer or any of their respective affiliates. The
only obligation, if any, of Provident with respect to the Trust Fund
Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The only obligations of Provident with
respect to Trust Fund Assets or the Securities of any Series will be
pursuant to certain representations and warranties and certain document
delivery requirements. Provident may be required to repurchase or
substitute for any Loan with respect to which such representations and
warranties or document delivery requirements are breached. There is no
assurance, however, that Provident will have the financial ability to
effect such repurchase or substitution.
CREDIT ENHANCEMENT
Although credit enhancement is intended to reduce the risk of
delinquent payments or losses to holders of Securities entitled to the
benefit thereof, the amount of such credit enhancement will be limited, as
set forth in the related Prospectus Supplement, and may be subject to
periodic reduction in accordance with a schedule or formula or otherwise
decline, and could be depleted under certain circumstances prior to the
payment in full of the related Series of Securities, and as a result
Securityholders of the related Series may suffer losses. Moreover, such
credit enhancement may not cover all potential losses or risks. For
example, credit enhancement may or may not cover fraud or negligence by a
loan originator or other parties. In addition, the Trustee will generally
be permitted to reduce, terminate or substitute all or a portion of the
credit enhancement for any Series of Securities, provided the applicable
Rating Agency indicates that the then-current rating of the Securities of
such Series will not be adversely affected. See "Credit Enhancement".
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Securities of a Series will
be affected by a number of factors, including the following: (i) the
extent of prepayments (including for this purpose prepayments resulting
from refinancing or liquidations of the Loans due to defaults, casualties,
condemnations and repurchases by Provident) of the Loans comprising the
Trust Fund, which prepayments may be influenced by a variety of factors
including general economic conditions, prevailing interest rate levels,
the availability of alternative financing and homeowner mobility, (ii) the
manner of allocating principal and/or payments among the classes of
Securities of a Series as specified in the related Prospectus Supplement,
(iii) the exercise by the party entitled thereto of any right of optional
termination and (iv) the rate and timing of payment defaults and losses
incurred with respect to the Trust Fund Assets. The repurchase of Loans
by Provident may result from repurchases of Trust Fund Assets due to
material breaches of Provident's representations and warranties, as
applicable. The yields to maturity and weighted average lives of the
Securities will be affected primarily by the rate and timing of prepayment
of the Loans comprising the Trust Fund Assets. In addition, the yields to
maturity and weighted average lives of the Securities will be affected by
the distribution of amounts remaining in any Pre-Funding Account following
the end of the related Funding Period. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Loans held by a Trust
Fund will be borne entirely by the holders of one or more classes of the
related Series of Securities. See "Yield and Prepayment Considerations"
and "The Agreements--Pre-Funding Account."
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the
related Prospectus Supplement. In the event interest accrues over a
period ending two or more days prior to a Distribution Date, the effective
yield to Securityholders will be reduced from the yield that would
otherwise be obtainable if interest payable on the Securities were to
accrue through the day immediately preceding each Distribution Date, and
the effective yield (at par) to Securityholders will be less than the
indicated coupon rate. See "Description of the Securities--Distributions
on Securities--Distributions of Interest".
BALLOON PAYMENTS
Certain of the Loans as of the related Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require
substantial principal payments (i.e., balloon payments) at their stated
maturity. Loans with balloon payments involve a greater degree of risk
because the ability of a borrower to make a balloon payment typically will
depend upon its ability either to timely refinance the loan or to timely
sell the related Property. The ability of a borrower to accomplish either
of these goals will be affected by a number of factors, including the
level of available mortgage rates at the time of sale or refinancing, the
borrower's equity in the related Property, the financial condition of the
borrower and tax laws. Losses on such Loans that are not otherwise
covered by the credit enhancement described in the applicable Prospectus
Supplement will be borne by the holders of one or more classes of
Securities of the related Series.
NATURE OF MORTGAGES
Property Values. There are several factors that could adversely
affect the value of Properties such that the outstanding balance of the
related Loans, together with any senior financing on the Properties, if
applicable, would equal or exceed the value of the Properties. Among the
factors that could adversely affect the value of the Properties are an
overall decline in the residential real estate market in the areas in
which the Properties are located or a decline in the general condition of
the Properties as a result of failure of borrowers to maintain adequately
the Properties or of natural disasters that are not necessarily covered by
insurance, such as earthquakes and floods. In the case of Home Equity
Loans, such decline could extinguish the value of the interest of a junior
mortgagee in the Property before having any effect on the interest of the
related senior mortgagee. If such a decline occurs, the actual rates of
delinquencies, foreclosures and losses on all Loans could be higher than
those currently experienced in the mortgage lending industry in general.
Losses on such Loans that are not otherwise covered by the credit
enhancement described in the applicable Prospectus Supplement will be
borne by the holder of one or more classes of Securities of the related
Series.
Delays Due to Liquidation. Even assuming that the Properties provide
adequate security for the Loans, substantial delays could be encountered
in connection with the liquidation of defaulted Loans and corresponding
delays in the receipt of related proceeds by Securityholders could occur.
An action to foreclose on a Property securing a Loan is regulated by state
statutes and rules 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 is not permitted following a
nonjudicial sale of a Property. In the event of a default by a borrower,
these restrictions, among other things, may impede the ability of the
Master Servicer to foreclose on or sell the Property or to obtain
liquidation proceeds sufficient to repay all amounts due on the related
Loan. In addition, the Master Servicer will be entitled to deduct from
related liquidation proceeds all expenses reasonably incurred in
attempting to recover amounts due on defaulted Loans and not yet repaid,
including payments to senior lienholders, legal fees and costs of legal
action, real estate taxes and maintenance and preservation expenses.
Disproportionate Effect of Liquidation Expenses. Liquidation
expenses with respect to defaulted Loans do not vary directly with the
outstanding principal balance of the Loan at the time of default.
Therefore, assuming that a servicer took the same steps in realizing upon
a defaulted Loan having a small remaining principal balance as it would in
the case of a defaulted Loan having a large remaining principal balance,
the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small Loan than
would be the case with the defaulted Loan having a large remaining
principal balance.
Home Equity Loans; Junior Liens. Since the mortgages and deeds of
trust securing the Home Equity Loans will be primarily junior liens
subordinate to the rights of the mortgagee under the related senior
mortgage(s) or deed(s) of trust, the proceeds from any liquidation,
insurance or condemnation proceeds will be available to satisfy the
outstanding balance of such junior lien only to the extent that the claims
of such senior mortgagees have been satisfied in full, including any
related foreclosure costs. In addition, a junior mortgagee may not
foreclose on the property securing a junior mortgage unless it forecloses
subject to any senior mortgage, in which case it must either pay the
entire amount due on any senior mortgage to the related senior mortgagee
at or prior to the foreclosure sale or undertake the obligation to make
payments on any such senior mortgage in the event the mortgagor is in
default thereunder. The Trust Fund will not have any source of funds to
satisfy any senior mortgages or make payments due to any senior mortgagees
and may therefore be prevented from foreclosing on the related property.
Consumer Protection Laws. Applicable state laws generally regulate
interest rates and other charges, require certain disclosures, and require
licensing of certain originators and servicers of Loans. 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 which may apply to the origination, servicing and
collection of the 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 the Master Servicer
to collect all or part of the principal of or interest on the Loans, may
entitle the borrower to a refund of amounts previously paid and, in
addition, could subject the Master Servicer to damages and administrative
sanctions. See "Certain Legal Aspects of the Loans".
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
certain environmental risks. Under the laws of certain states,
contamination of a property may give rise to a lien on the property to
assure the costs of cleanup. In several states, such a lien has priority
over the lien of an existing mortgage against such property. In addition,
under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"),
a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances that
require remedy at a property, if agents or employees of the lender have
become sufficiently involved in the operations of the borrower, regardless
of whether the environmental damage or threat was caused by a prior owner.
Such costs could result in a loss to the holders of one or more classes of
Securities of the related Series. A lender also risks such liability on
foreclosure of the related property. See "Certain Legal Aspects of the
Loans--Environmental Risks".
CERTAIN OTHER LEGAL ASPECTS OF THE LOANS
Consumer Protection Laws. The Loans may also be subject to federal
laws, including:
(i) the Federal Truth in Lending Act and Regulation Z
promulgated thereunder, which require certain disclosures to the
borrowers regarding the terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use
and reporting of information related to the borrower's credit
experience; and
(iv) for Loans that were originated or closed after November 7,
1989, the Home Equity Loan Consumer Protection Act of 1988, which
requires additional application disclosures, limits changes that may
be made to the Loan documents without the borrower's consent and
restricts a lender's ability to declare a default or to suspend or
reduce a borrower's credit limit to certain enumerated events.
The Riegle Act. Certain Mortgage Loans may be subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of
1994. These provisions impose additional disclosure and other
requirements on creditors with respect to non-purchase money mortgage
loans with high interest rates or high up-front fees and charges. The
provisions of the Riegle Act apply on a mandatory basis to all Mortgage
Loans originated on or after October 1, 1995. These provisions can impose
specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the related Loans.
In addition, any assignee of the creditor would generally be subject to
all claims and defenses that the consumer could assert against the
creditor, including, without limitation, the right to rescind the Mortgage
Loan.
Holder in Due Course Rules. The Home Improvement Contracts are also
subject to the Preservation of Consumers' Claims and Defenses regulations
of the Federal Trade Commission and other similar federal and state
statutes and regulations (collectively, the "Holder in Due Course Rules"),
which protect the homeowner from defective craftsmanship or incomplete
work by a contractor. These laws permit the obligor to withhold payment
if the work does not meet the quality and durability standards agreed to
by the homeowner and the contractor. The Holder in Due Course Rules have
the effect of subjecting any assignee of the seller in a consumer credit
transaction to all claims and defenses which the obligor in the credit
sale transaction could assert against the seller of the goods.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of
or interest on the Loans and in addition could subject the Trust Fund to
damages and administrative enforcement. Losses on such Loans that are not
otherwise covered by the credit enhancement described in the applicable
Prospectus Supplement will be borne by the holders of one or more classes
of Securities of the related Series. See "Certain Legal Aspects of the
Loans".
RATING OF THE SECURITIES
It will be a condition to the issuance of a class of Securities
offered hereby that they be rated in one of the four highest rating
categories by the Rating Agency identified in the related Prospectus
Supplement. Any such rating would be based on, among other things, the
adequacy of the value of the related Trust Fund Assets and any credit
enhancement with respect to such class and will represent such Rating
Agency's assessment solely of the likelihood that holders of such class of
Securities will receive payments to which such Securityholders are
entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related
Loans will be made, the degree to which the rate of such prepayments might
differ from that originally anticipated or the likelihood of early
optional termination of the Series of Securities. Such rating shall not
be deemed a recommendation to purchase, hold or sell Securities, inasmuch
as it does not address market price or suitability for a particular
investor. Such rating will not address the possibility that prepayment at
higher or lower rates than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor
purchasing a Security at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn
entirely by the Rating Agency in the future 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 Trust
Fund Assets or any credit enhancement with respect to a Series of
Securities, such rating might also be lowered or withdrawn because of,
among other reasons, an adverse change in the financial or other condition
of a credit enhancement provider or a change in the rating of such credit
enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any,
established with respect to a class of Securities will be determined on
the basis of criteria established by each Rating Agency rating classes of
such Series. Such criteria are sometimes based upon an actuarial analysis
of the behavior of similar loans in a larger group. Such analysis is
often the basis upon which each Rating Agency determines the amount of
credit enhancement required with respect to each such class. There can be
no assurance that the historical data supporting any such actuarial
analysis will accurately reflect future experience nor any assurance that
the data derived from a large pool of similar loans accurately predicts
the delinquency, foreclosure or loss experience of any particular pool of
Loans. No assurance can be given that the values of any Properties have
remained or will remain at their levels on the respective dates of
origination of the related Loans. If the residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Loans in a particular Trust Fund and
any other financing on the related Properties become equal to or greater
than the value of the Properties, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced in the
mortgage lending industry. In addition, adverse economic conditions
(which may or may not affect real property values) may affect the timely
payment by mortgagors of scheduled payments of principal and interest on
the Loans and, accordingly, the rates of delinquencies, foreclosures and
losses with respect to any Trust Fund. To the extent that such losses are
not covered by credit enhancement, such losses will be borne, at least in
part, by the holders of one or more classes of Securities of the related
Series. See "Rating".
BOOK-ENTRY REGISTRATION
If issued in book-entry form, such registration may reduce the
liquidity of the Securities in the secondary trading market since
investors may be unwilling to purchase Securities for which they cannot
obtain physical certificates. Since transactions in Book-Entry Securities
can be effected only through the Depository Trust Company ("DTC"),
participating organizations, Financial Intermediaries and certain banks,
the ability of a Securityholder to pledge a Book-Entry Security to persons
or entities that do not participate in the DTC system may be limited due
to lack of a physical certificate representing such Securities. Security
Owners will not be recognized as Securityholders as such term is used in
the related Agreement, and Security Owners will be permitted to exercise
the rights of Securityholders only indirectly through DTC and its
Participants.
In addition, Securityholders may experience some delay in their
receipt of distributions of interest and principal on Book-Entry
Securities since distributions are required to be forwarded by the Trustee
to DTC and DTC will then be required to credit such distributions to the
accounts of Depository participants which thereafter will be required to
credit them to the accounts of Securityholders either directly or
indirectly through Financial Intermediaries. See "Description of the
Securities--Book-Entry Registration of Securities".
PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the related
Closing Date Provident will deposit cash in an amount (the "Pre-Funded
Amount") specified in such Prospectus Supplement into an account (the
"Pre-Funding Account"). In no event shall the Pre-Funded Amount exceed
50% of the initial aggregate principal amount of the Certificates and/or
Notes of the related Series of Securities. The Pre-Funded Amount will be
used to purchase Loans ("Subsequent Loans") in a period from the related
Closing Date to a date not more than one year after such Closing Date
(such period, the "Funding Period") from Provident. The Pre-Funding
Account will be maintained with the Trustee for the related Series of
Securities and is designed solely to hold funds to be applied by such
Trustee during the Funding Period to pay to Provident the purchase price
for Subsequent Loans. Monies on deposit in the Pre-Funding Account will
not be available to cover losses on or in respect of the related Loans.
To the extent that the entire Pre-Funded Amount has not been applied to
the purchase of Subsequent Loans by the end of the related Funding Period,
any amounts remaining in the Pre-Funding Account will be distributed as a
prepayment of principal to the holders of the related Securities on the
Distribution Date immediately following the end of the Funding Period, in
the amounts and pursuant to the priorities set forth in the related
Prospectus Supplement. Any reinvestment risk resulting from such
prepayment will be borne entirely by the holders of one or more classes of
the related Series of Securities.
BANKRUPTCY AND INSOLVENCY RISKS
Provident and the Trust Fund will treat the transfer of Loans from
Provident to the Trust Fund as a sale for accounting purposes. However,
in the event of the insolvency of Provident, it is possible that a
receiver or conservator (or similar official) for Provident, may attempt
to recharacterize the sale of the Loans as a borrowing by Provident,
secured by a pledge of the Loans. Certain provisions of the Federal
Deposit Insurance Act may permit the FDIC to avoid such security interest.
This position, if argued before and/or accepted by a court, could prevent
timely payments of amounts due on the Securities and result in a reduction
of payments due on the Securities. Provident will, however, mark its
records to indicate that the Trust Fund Assets relating to each Series
have been sold to a Trust Fund.
In the event of a bankruptcy or insolvency of the Master Servicer,
the bankruptcy trustee or receiver may have the power to prevent the
Trustee or the Securityholders from appointing a successor Master
Servicer. The time period during which cash collections may be commingled
with the Master Servicer's own funds prior to each Distribution Date will
be specified in the related Prospectus Supplement. In the event of the
insolvency of the Master Servicer and if such cash collections are
commingled with the Master Servicer's own funds for at least ten days, the
Trust Fund will likely not have a perfected interest in such collections
since such collections would not have been deposited in a segregated
account within ten days after the collection thereof, and the inclusion
thereof in the bankruptcy estate of the Master Servicer may result in
delays in payment and failure to pay amounts due on the Securities of the
related Series.
In addition, federal and state statutory provisions, including the
federal bankruptcy laws and state laws affording relief to debtors, may
interfere with or affect the ability of the secured mortgage lender to
realize upon its security. For example, in a proceeding under the federal
Bankruptcy Code, a lender may not foreclose on a mortgaged property
without the permission of the bankruptcy court. 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 Loans underlying a Series of Securities and
possible reductions in the aggregate amount of such payments.
CONSEQUENCES OF OWNING ORIGINAL ISSUE DISCOUNT SECURITIES
Debt Securities that are Compound Interest Securities will be, and
certain of the other Debt Securities may be, issued with original issue
discount for federal income tax purposes. A holder of Debt Securities
issued with original issue discount will be required to include original
issue discount in ordinary gross income for federal income tax purposes as
it accrues, in advance of receipt of the cash attributable to such income.
Accrued but unpaid interest on the Debt Securities that are Compound
Interest Securities generally will be treated as original issue discount
for this purpose. See "Federal Income Tax Consequences--Taxation of Debt
Securities--Interest and Acquisition Discount" and "--Market Discount"
herein.
VALUE OF TRUST FUND ASSETS
There is no assurance that the market value of the Trust Fund Assets
or any other assets relating to a Series of Securities described under
"Credit Enhancement" herein will at any time be equal to or greater than
the principal amount of the Securities of such Series then outstanding,
plus accrued interest thereon. Moreover, upon an event of default under
the Agreement for a Series of Securities and a sale of the related Trust
Fund Assets or upon a sale of the assets of a Trust Fund for a Series of
Securities, the Trustee, the Master Servicer, the credit enhancer, if any,
and any other service provider specified in the related Prospectus
Supplement generally will be entitled to receive the proceeds of any such
sale to the extent of unpaid fees and other amounts owing to such persons
under the related Agreement prior to distributions to Securityholders.
Upon any such sale, the proceeds thereof may be insufficient to pay in
full the principal of and interest on the Securities of such Series.
THE TRUST FUND
GENERAL
The Securities of each Series will represent interests in the assets
of the related Trust Fund, and the Notes of each Series will be secured by
the pledge of the assets of the related Trust Fund. The Trust Fund for
each Series will be held by the Trustee for the benefit of the related
Securityholders. Each Trust Fund will consist of certain assets (the
"Trust Fund Assets") consisting of a pool (each, a "Pool") comprised of
Loans as specified in the related Prospectus Supplement, together with
payments in respect of such Loans, as specified in the related Prospectus
Supplement. The Pool will be created on the first day of the month of the
issuance of the related Series of Securities or such other date specified
in the related Prospectus Supplement (the "Cut-off Date"). The Securities
will be entitled to payment from the assets of the related Trust Fund or
other assets pledged for the benefit of the Securityholders as specified
in the related Prospectus Supplement and will not be entitled to payments
in respect of the assets of any other Trust Fund.
Each Loan will have been originated or acquired by Provident in
accordance with the underwriting criteria specified below under "Loan
Program--Underwriting Standards" or as otherwise described in the related
Prospectus Supplement. See "Loan Program--Underwriting Standards". The
Trust Fund Assets will be conveyed without recourse by Provident to the
related Trust Fund.
Provident will assign the Trust Fund Assets to the Trustee named in
the related Prospectus Supplement for the benefit of the holders of the
Securities of the related Series. The Master Servicer named in the
related Prospectus Supplement will service the Trust Fund Assets, either
directly or through Sub-Servicers, pursuant to a Pooling and Servicing
Agreement among Provident, the Master Servicer and the Trustee with
respect to a Series consisting of Certificates, or a master servicing
agreement (each, a "Master Servicing Agreement") between the Trustee and
the Master Servicer with respect to a Series consisting of Certificates
and Notes, and will receive a fee for such services. See "Loan Program"
and "The Agreements". With respect to 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 Loans.
As used herein, "Agreement" means, with respect to a Series
consisting of Certificates, the Pooling and Servicing Agreement, and with
respect to a Series consisting of Certificates and Notes, the Trust
Agreement, the Indenture and the Master Servicing Agreement, as the
context requires.
If so specified in the related Prospectus Supplement, a Trust Fund
relating to a Series of Securities may be a business trust formed under
the laws of the state specified in the related Prospectus Supplement
pursuant to a trust agreement (each, a "Trust Agreement") between
Provident and the trustee of such Trust Fund.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or
liabilities. No Trust Fund is expected to engage in any activities other
than acquiring, managing and holding the related Trust Fund Assets and
other assets contemplated herein specified and in the related Prospectus
Supplement and the proceeds thereof, issuing Securities and making
payments and distributions thereon and certain related activities. No
Trust Fund is expected to have any source of capital other than its assets
and any related credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the
only obligations of Provident with respect to a Series of Securities will
be to make certain representations and warranties to the Trustee for such
Series of Securities. With respect to any breach of a representation or
warranty which materially and adversely affects the interests of a
Securityholder, Provident will be obligated to cure such breach or
repurchase or substitute for the affected Loan or Loans. See "The
Agreements--Assignment of the Trust Fund Assets". The obligations of the
Master Servicer with respect to the 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
Provident, or both, as more fully described herein under "Loan Program--
Representations by Provident; Repurchases" and "The Agreements--Sub-
Servicing" and "--Assignment of the Trust Fund Assets") and its
obligation, if any, to make certain cash advances in the event of
delinquencies in payments on or with respect to the Loans in the amounts
described herein under "Description of the Securities--Advances". 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.
The following is a brief description of the assets expected to be
included in the Trust Funds. If specific information respecting Trust
Fund Assets is not known at the time the related Series of Securities
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 Form 8-K to be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Securities (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Securities will be attached to
the 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 Loans relating to such Series will be attached to the
Agreement delivered to the Trustee upon delivery of the Securities.
THE LOANS
General. Loans will consist of Mortgage Loans, Home Equity Loans and
Home Improvement Contracts. As more fully described in the related
Prospectus Supplement, the Loans will be "conventional" loans.
Unless otherwise specified in the related Prospectus Supplement, all
of the Loans in a Pool will have monthly payments due on the first day of
each month. The payment terms of the Loans to be included in a Trust Fund
will be described in the related Prospectus Supplement and may include any
of the following features (or combination thereof), all as described below
or in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, 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.
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. Loans may provide for the payment
of interest at a rate lower than the specified interest rate borne by
such Loan (the "Loan Rate") for a period of time or for the life of
the Loan, and the amount of any difference may be contributed from
funds supplied by the seller of the Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the 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 Loan 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 may be due on maturity ("balloon payment").
Principal may include interest that has been deferred and added to
the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the Loan, may increase over a specified period of time or
may change from period to period. Loans 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) Prepayments of principal may be subject to a prepayment
fee, which may be fixed for the life of the Loan or may decline over
time, and may be prohibited for the life of the Loan or for certain
periods ("Lockout Periods"). Certain Loans may permit prepayments
after expiration of the applicable Lockout Period and may require the
payment of a prepayment fee in connection with any such subsequent
prepayment. Other Loans may permit prepayments without payment of a
fee unless the prepayment occurs during specified time periods. The
Loans may include "due on sale" clauses which permit the mortgagee to
demand payment of the entire Loan in connection with the sale or
certain transfers of the related Property. Other Loans may be
assumable by persons meeting the then applicable standards set forth
in the Agreement.
A Trust Fund may contain certain Loans ("Buydown Loans") that include
provisions whereby a third party partially subsidizes the monthly payments
of the borrowers on such Loans during the early years of such 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 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 borrower will increase during
the buydown period as a result of normal increases in compensation and
inflation, so that the borrower will be able to meet the full loan
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 borrower initially, on annual
increases in the interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to
as the "Mortgaged Properties". Home Improvement Contracts may, and the
other Loans will, be secured by mortgages or deeds of trust or other
similar security instruments creating a lien on a Mortgaged Property. In
the case of Home Equity Loans, such liens generally will be subordinated
to one or more senior liens on the related Mortgaged Properties as
described in the related Prospectus Supplement. As specified in the
related Prospectus Supplement, Home Improvement Contracts may be unsecured
or secured by purchase money security interests in the Home Improvements
financed thereby. The Mortgaged Properties and the Home Improvements are
collectively referred to herein as the "Properties". The Properties
relating to Loans will consist of detached or semi-detached one- to
four-family dwelling units, townhouses, rowhouses, individual condominium
units, individual units in planned unit developments, manufactured homes
and certain other dwelling units ("Single Family Properties"). Such
Properties may include vacation and second homes, investment properties,
and dwellings situated on leasehold estates. In the case of leasehold
interests, the term of the leasehold will exceed the scheduled maturity of
the Loan by at least five years, unless otherwise specified in the related
Prospectus Supplement. The Properties may be located in any one of the
fifty states, the District of Columbia, Guam, Puerto Rico or any other
territory of the United States.
Loans with certain 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"). The
existence, extent and duration of any such coverage will be described in
the applicable Prospectus Supplement.
The aggregate principal balance of Loans secured by Properties that
are owner-occupied may be disclosed in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the sole
basis for a representation that a given percentage of the Loans is secured
by Single Family Properties that are owner-occupied will be either (i) the
making of a representation by the borrower at origination of the Loan
either that the underlying Property will be used by the borrower for a
period of at least six months every year or that the borrower intends to
use the Property as a primary residence or (ii) a finding that the address
of the underlying Property is the borrower's mailing address.
Home Equity Loans. As more fully described in the related Prospectus
Supplement, interest on each Revolving Credit Line Loan, excluding
introduction rates offered from time to time during promotional periods,
is computed and payable monthly on the average daily outstanding principal
balance of such Loan. Principal amounts on a Revolving Credit Line Loan
may be drawn down (up to a maximum amount as set forth in the related
Prospectus Supplement) or repaid under each Revolving Credit Line Loan
from time to time, but may be subject to a minimum periodic payment. As
specified in the related Prospectus Supplement, the Trust Fund may include
any amounts borrowed under a Revolving Credit Line Loan after the Cut-off
Date. The full amount of a Closed-End Loan is advanced at the inception
of the Loan and generally is repayable in equal (or substantially equal)
installments of an amount to fully amortize such Loan at its stated
maturity or is a Balloon Loan. As more fully described in the related
Prospectus Supplement, interest on each Closed-End Loan is calculated on
the basis of the outstanding principal balance of such Loan multiplied by
the Loan Rate thereon and further multiplied by either a fraction, the
numerator of which is the number of days in the period elapsed since the
preceding payment of interest was made and the denominator of which is the
number of days in the annual period for which interest accrues on such
Loan, or a fraction which is 30 over 360. Except to the extent provided
in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans generally will not exceed 360 months. Under
certain circumstances, under either a Revolving Credit Line Loan or a
Closed-End Loan, a borrower may choose an interest only payment option and
is obligated to pay only the amount of interest which accrues on the Loan
during the billing cycle. An interest only payment option may be
available for a specified period before the borrower must begin paying at
least the minimum monthly payment of a specified percentage of the average
outstanding balance of the Loan.
Home Improvement Contracts. The Trust Fund Assets for a Series of
Securities may consist, in whole or in part, of Home Improvement Contracts
originated by Provident or by a home improvement contractor and
subsequently sold to Provident. The Home Improvements securing the Home
Improvement Contracts may include, but are not limited to, replacement
windows, house siding, new roofs, swimming pools, satellite dishes,
kitchen and bathroom remodeling goods and solar heating panels. As
specified in the related Prospectus Supplement, the Home Improvement
Contracts will either be unsecured or secured by mortgages on Single
Family Properties which are generally subordinate to other mortgages on
the same Property, or secured by purchase money security interests in the
Home Improvements financed thereby. Except as otherwise specified in the
related Prospectus Supplement, the Home Improvement Contracts will be
fully amortizing and may have fixed interest rates or adjustable interest
rates and may provide for other payment characteristics as described below
and in the related Prospectus Supplement. The initial Loan-to-Value Ratio
of a Home Improvement Contract is computed in the manner described in the
related Prospectus Supplement.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the
extent then specifically known to Provident, with respect to the Loans
contained in the related Pool, including (i) the aggregate outstanding
principal balance and the average outstanding principal balance of the
Loans as of the applicable Cut-off Date, (ii) the type of property
securing the Loan (e.g., single family residences, individual units in
condominium apartment buildings, two- to four-family dwelling units, other
real property or Home Improvements), (iii) the original terms to maturity
of the Loans, (iv) the largest principal balance and the smallest
principal balance of any of the Loans, (v) the earliest origination date
and latest maturity date of any of the Loans, (vi) the Loan-to-Value
Ratios or Combined Loan-to-Value Ratios, as applicable, of the Loans,
(vii) the Loan Rates or annual percentage rates ("APR") or range of Loan
Rates or APR's borne by the Loans, (viii) the maximum and minimum per
annum Loan Rates, and (ix) the geographical location of the Loans. If
specific information respecting the Loans is not known to Provident at the
time the related Securities are initially offered, more general
information of the nature described above will be provided in the related
Prospectus Supplement, and specific information will be set forth in the
Detailed Description.
Unless otherwise specified in the related Prospectus Supplement, the
"Loan-to-Value Ratio" of a Loan at any given time is the fraction,
expressed as a percentage, the numerator of which is the original
principal balance of the related Loan and the denominator of which is the
Collateral Value of the related Property. Unless otherwise specified in
the related Prospectus Supplement, the "Combined Loan-to-Value Ratio" of a
Loan at any given time is the ratio, expressed as a percentage, of (i) the
sum of (a) the original principal balance of the Loan (or, in the case of
a Revolving Credit Line Loan, the maximum amount thereof available) and
(b) the outstanding principal balance at the date of origination of the
Loan of any senior mortgage loan(s) or, in the case of any open-ended
senior mortgage loan, the maximum available line of credit with respect to
such mortgage loan, regardless of any lesser amount actually outstanding
at the date of origination of the Loan, to (ii) the Collateral Value of
the related Property. The "Collateral Value" of the Property, other than
with respect to certain Loans the proceeds of which were used to refinance
an existing mortgage loan (each, a "Refinance Loan"), is the lesser of (a)
the appraised value determined in an appraisal obtained at origination of
such Loan and (b) the sales price for such Property. In the case of
Refinance Loans, the "Collateral Value" of the related Property is the
appraised value thereof determined in an appraisal obtained at the time of
refinancing.
No assurance can be given that values of the Properties have remained
or will remain at their levels on the dates of origination of the related
Loans. If the residential real estate market should experience an overall
decline in property values such that the sum of the outstanding principal
balances of the Loans and any primary or secondary financing on the
Properties, as applicable, in a particular Pool become equal to or greater
than the value of the Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than 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 borrowers of scheduled
payments of principal and interest on the Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any
Pool. To the extent that such losses are not covered by subordination
provisions or alternative arrangements, such losses will be borne, at
least in part, by the holders of the Securities of the related Series.
SUBSTITUTION OF TRUST FUND ASSETS
Substitution of Trust Fund Assets will be permitted in the event of
breaches of representations and warranties with respect to any original
Trust Fund Asset or in the event the documentation with respect to any
Trust Fund Asset is determined by the Trustee to be incomplete. The
period during which such substitution will be permitted generally will be
indicated in the related Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will
be applied by Provident to the purchase of Trust Fund Assets or will be
used by Provident for general corporate purposes. Provident expects to
sell Securities in Series from time to time, but the timing and amount of
offerings of Securities will depend on a number of factors, including the
volume of Trust Fund Assets originated or acquired by Provident,
prevailing interest rates, availability of funds and general market
conditions.
PROVIDENT
Provident, an Ohio banking corporation, is the principal banking
subsidiary of Provident Bancorp, Inc., a Cincinnati-based bank holding
company registered under the Bank Holding Company Act. Provident Bancorp,
Inc. operates throughout Ohio, Northern Kentucky, Southeastern Indiana and
_________, Florida. The principal executive offices of Provident are
located at One East Fourth Street, Cincinnati, Ohio 45202 (Telephone:
(513) 579-2000).
Neither Provident nor any of Provident's affiliates will insure or
guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been originated or purchased by Provident.
Unless otherwise specified in the related Prospectus Supplement, the Loans
so originated or acquired by Provident will have been originated in
accordance with the underwriting criteria specified below under
"Underwriting Standards".
UNDERWRITING STANDARDS
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the
value and adequacy of the related Property as collateral. In general, a
prospective borrower applying for a Loan is required to fill out a
detailed application designed to provide to the underwriting officer
pertinent credit information, including the principal balance and payment
history with respect to any senior mortgage, if any, which, unless
otherwise specified in the related Prospectus Supplement, will be verified
by Provident. As part of the description of the borrower's financial
condition, the borrower generally is required to provide a current list of
assets and liabilities and a statement of income and expenses, as well as
an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any record
of bankruptcy. In most cases, an employment verification is obtained from
an independent source (typically the borrower's employer) which
verification reports, among other things, the length of employment with
that organization and the borrower's current salary. If a prospective
borrower is self-employed, the borrower may be required to submit copies
of 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.
In determining the adequacy of the property to be used as collateral,
an appraisal will generally be made of each property considered for
financing. The appraiser is generally required to inspect the property,
issue a report on its condition and, if applicable, verify construction
has been completed. The appraisal is based on the market value of
comparable homes, the estimated rental income (if considered applicable by
the appraiser) and the cost of replacing the property. The value of the
property being financed, as indicated by the appraisal, must be such that
it currently supports, and is anticipated to support in the future, the
outstanding loan balance.
The maximum loan amount will vary depending upon a borrower's credit
grade and loan program but will not generally exceed $750,000. Variations
in maximum loan amount limits will be permitted based on compensating
factors. Compensating factors may generally include, to the extent
specified in the related Prospectus Supplement, low loan-to-value ratio,
low debt-to-income ratio, stable employment, favorable credit history and
the nature of the underlying first mortgage loan, if applicable.
Provident's underwriting standards generally permit loans with loan-
to-value ratios at origination of up to 100% depending on the loan
program, type and use of the property, creditworthiness of the borrower
and debt-to-income ratio.
After obtaining all applicable employment, credit and property
information, Provident will use a debt-to-income ratio to assist in
determining whether the prospective borrower has sufficient monthly income
available to support the payments of principal and interest on the
Mortgage Loan in addition to other monthly credit obligations. The "debt-
to-income ratio" is the ratio of the borrower's total monthly obligations
(which includes principal and interest on each mortgage, tax assessments,
other loans, charge accounts and all other scheduled indebtedness) to the
borrower's gross monthly income. The maximum monthly debt-to-income ratio
will vary depending upon a borrower's credit grade and loan program but
will not generally exceed 60%. Variations in the monthly debt-to-income
ratio limit will be permitted based on compensating factors to the extent
specified in the related Prospectus Supplement.
If specified in the related Prospectus Supplement, a portion of the
Loans in a Trust Fund may have been originated under a limited
documentation program. Under a limited documentation program, more
emphasis is placed on the value and adequacy on the property as collateral
and other assets of the borrower than on credit underwriting. Under a
limited documentation program, certain credit underwriting documentation
concerning income or income verification and/or employment verification is
waived.
In the case of a Loan secured by a leasehold interest in real
property, the title to which is held by a third party lessor, Provident
will, unless otherwise specified in the related Prospectus Supplement,
represent and warrant, among other things, that the remaining term of the
lease and any sublease is at least five years longer than the remaining
term on the Loan.
Certain of the types of Loans that may be included in a Trust Fund
are recently developed and may involve additional uncertainties not
present in traditional types of loans. For example, certain of such Loans
may provide for escalating or variable payments by the borrower. These
types of Loans are underwritten on the basis of a judgment that the
borrowers have the ability to make the monthly payments required
initially. In some instances, a borrower's income may not be sufficient
to permit continued Loan payments as such payments increase. These types
of Loans may also be underwritten primarily upon the basis of Loan-to-
Value Ratios or other favorable credit factors.
QUALIFICATIONS OF PROVIDENT
Provident will be required to satisfy the following qualifications.
Provident, and each entity from which it acquires Loans, is an institution
experienced in originating and servicing loans of the type contained in
the related Pool in accordance with accepted practices and prudent
guidelines, and must maintain satisfactory facilities to originate and
service those loans. Provident is a seller/servicer approved by the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"). Provident is a mortgagee approved by the
Federal Housing Authority or an institution the deposit accounts in which
are insured by the Federal Deposit Insurance Corporation ("FDIC").
REPRESENTATIONS BY PROVIDENT; REPURCHASES
Provident will have made representations and warranties in respect of
the Loans sold to the Trust Fund evidenced by all, or a part, of a Series
of Securities. Such representations and warranties may include, among
other things: (i) that title insurance (or in the case of 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 origination of each Loan and that each policy (or
certificate of title as applicable) remained in effect on the date of
purchase of the Loan from Provident; (ii) that Provident had good title to
each such Loan and such Loan was subject to no offsets, defenses,
counterclaims or rights of rescission except to the extent that any
buydown agreement may forgive certain indebtedness of a borrower; (iii)
that each Loan constituted a valid lien on, or a perfected security
interest with respect to, the Property (subject only to permissible liens
disclosed, if applicable, title insurance exceptions, if applicable, and
certain other exceptions described in the Agreement), (iv) the Property is
undamaged by waste, fire, earthquake, earth movement, windstorm, flood,
tornado or other casualty, so as to affect adversely the value of the
Property; (v) that there were no delinquent tax or assessment liens
against the Property; (vi) that no required payment on a Loan was
delinquent more than the number of days specified in the related
Prospectus Supplement; and (vii) that each Loan was made in compliance
with, and is enforceable under, all applicable state and federal laws and
regulations in all material respects.
The Master Servicer or the Trustee will promptly notify Provident of
any breach of any representation or warranty made by it in respect of a
Loan which materially and adversely affects the interests of the
Securityholders in such Loan. Unless otherwise specified in the related
Prospectus Supplement, if Provident cannot cure such breach within the
number of days specified in the related Prospectus Supplement following
notice from the Master Servicer or the Trustee, as the case may be, then
Provident will be obligated either (i) to repurchase such Loan from the
Trust Fund at a price (the "Purchase Price") equal to 100% of the unpaid
principal balance thereof as of the date of the repurchase plus accrued
interest thereon at the Loan Rate plus certain unreimbursed advances made
in respect of such Loan or (ii) substitute for such Loan a replacement
loan that satisfies the criteria specified in the related Prospectus
Supplement. If a REMIC election is to be made with respect to a Trust
Fund, unless otherwise specified in the related Prospectus Supplement, the
Trustee must have received a satisfactory opinion of counsel that any such
substitution will not cause the Trust Fund to lose its status as a REMIC
or otherwise subject the Trust Fund to a prohibited transaction tax. This
repurchase or substitution obligation will constitute the sole remedy
available to Securityholders or the Trustee for a breach of representation
by Provident.
Neither the Trustee nor the Master Servicer (unless the Master
Servicer is Provident) will be obligated to purchase or substitute a Loan
if Provident defaults on its obligation to do so, and no assurance can be
given that Provident will carry out its respective repurchase or
substitution obligations with respect to Loans.
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate
agreements (each, a "Pooling and Servicing Agreement" or a "Trust
Agreement") among Provident, the Master Servicer and the Trustee. A form
of Pooling and Servicing Agreement and Trust Agreement has been filed as
an exhibit to the Registration Statement of which this Prospectus forms a
part. Each Series of Notes will be issued pursuant to an indenture (the
"Indenture") between the related Trust Fund and the entity named in the
related Prospectus Supplement as trustee (the "Trustee") with respect to
such Series, and the related Loans will be serviced by the Master Servicer
pursuant to a Master Servicing Agreement. A form of Indenture and Master
Servicing Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
A Series of Securities may consist of both Notes and Certificates.
Each Agreement, dated as of the related Cut-off Date, will be among
Provident, the Master Servicer and the Trustee for the benefit of the
holders of the Securities of such Series. The provisions of each
Agreement will vary depending upon the nature of the Securities to be
issued thereunder and the nature of the related Trust Fund. The following
are descriptions of the material provisions which may appear in each
Agreement. The descriptions are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Agreement for each
Series of Securities and the applicable Prospectus Supplement. Provident
will provide a copy of the Agreement (without exhibits) relating to any
Series of Securities without charge upon written request of a holder of
record of a Security of such Series addressed to The Provident Bank, One
East Fourth Street, Cincinnati, Ohio 45202, Attention: Secretary.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Securities of each Series will be issued in book-entry or fully registered
form, in the authorized denominations specified in the related Prospectus
Supplement, will, in the case of Certificates, evidence specified
beneficial ownership interests in, and in the case of Notes, be secured
by, the assets of the related Trust Fund created pursuant to each
Agreement and will not be entitled to payments in respect of the assets
included in any other Trust Fund established by Provident. Unless
otherwise specified in the related Prospectus Supplement, the Securities
will not represent obligations of Provident or any affiliate of Provident.
Certain of the Loans may be guaranteed or insured as set forth in the
related Prospectus Supplement. Each Trust Fund will consist of, to the
extent provided in the related Agreement, (i) the Trust Fund Assets, as
from time to time are subject to the related Agreement (exclusive of any
amounts specified in the related Prospectus Supplement ("Retained
Interest")), including all payments of interest and principal received
with respect to the Loans after the Cut-off Date (to the extent not
applied in computing the principal balance of such Loans as of the Cut-off
Date (the "Cut-off Date Principal Balance")); (ii) such assets as from
time to time are required to be deposited in the related Security Account,
as described below under "The Agreements--Payments on Loans; Deposits to
Security Account"; (iii) property which secured a Loan and which is
acquired on behalf of the Securityholders by foreclosure or deed in lieu
of foreclosure and (iv) any insurance policies or other forms of credit
enhancement required to be maintained pursuant to the related Agreement.
If so specified in the related Prospectus Supplement, a Trust Fund may
also include one or more of the following: reinvestment income on
payments received on the Trust Fund Assets, a Reserve Account, a mortgage
pool insurance policy, a special hazard insurance policy, a bankruptcy
bond, one or more letters of credit, a surety bond, guaranties or similar
instruments.
Each Series of Securities 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, and each class of Notes of a Series will be secured
by, the related Trust Fund Assets. A Series of Securities may include one
or more classes that are senior in right to payment to one or more other
classes of Securities of such Series. Certain Series or classes of
Securities may be covered by insurance policies, surety bonds or other
forms of credit enhancement, in each case as described under "Credit
Enhancement" herein and in the related Prospectus Supplement. One or more
classes of Securities 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 Securities may be made prior to one or more
other classes, after the occurrence of specified events, in accordance
with a schedule or formula or on the basis of collections from designated
portions of the related Trust Fund Assets, 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 of principal and interest (or, where applicable, of
principal only or interest only) on the related Securities will be made by
the Trustee on each Distribution Date (i.e., monthly, quarterly, semi-
annually or at such other intervals and on the dates as are specified in
the related Prospectus Supplement) in proportion to the percentages
specified in the related Prospectus Supplement. Distributions will be
made to the persons in whose names the Securities are registered at the
close of business on the dates specified in the related Prospectus
Supplement (each, a "Record Date"). Distributions will be made in the
manner specified in the related Prospectus Supplement to the persons
entitled thereto at the address appearing in the register maintained for
Securityholders (the "Security Register"); provided,
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-
however, that the final distribution in retirement of the Securities will
be
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made only upon presentation and surrender of the Securities at the office
or agency of the Trustee or other person specified in the notice to
Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related
Prospectus Supplement. No service charge will be made for any
registration of exchange or transfer of Securities of any Series, but the
Trustee may require payment of a sum sufficient to cover any related tax
or other governmental charge.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" or "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 of Securities may provide that a
REMIC election may be made at the discretion of Provident or the Master
Servicer and may only be made if certain conditions are satisfied. As to
any such Series, the terms and provisions applicable to the making of a
REMIC election will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a Series of Securities, 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 Securities in such a Series will constitute "regular interests"
in the related REMIC, as defined in the Code. As to each Series of
Securities with respect to which a REMIC election is to be made, the
Master Servicer, the Trustee or a holder of the related residual
certificate will be obligated to take all actions required in order to
comply with applicable laws and regulations.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of
distributions on a particular Series of Securities will depend on the type
of credit support, if any, that is used with respect to such Series. See
"Credit Enhancement". Set forth below are descriptions of various methods
that may be used to determine the amount of distributions on the
Securities of a particular Series. The Prospectus Supplement for each
Series of Securities will describe the method to be used in determining
the amount of distributions on the Securities of such Series.
Distributions allocable to principal and interest on the Securities
will be made by the Trustee out of, and only to the extent of, funds in
the related Security Account, including any funds transferred from any
Reserve Account. As between Securities of different classes and as
between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any
Distribution Date will be applied as specified in the related Prospectus
Supplement. The Prospectus Supplement will also describe the method for
allocating distributions among Securities of a particular class.
Available Funds. All distributions on the Securities of each Series
on each Distribution Date will be made from the Available Funds described
below, in accordance with the terms described in the related Prospectus
Supplement and specified in the Agreement. "Available Funds" for each
Distribution Date will generally equal the amount on deposit in the
related Security Account on such Distribution Date (net of related fees
and expenses payable by the related Trust Fund) other than amounts to be
held therein for distribution on future Distribution Dates.
Distributions of Interest. Interest will accrue on the aggregate
principal balance of the Securities (or, in the case of Securities
entitled only to distributions allocable to interest, the aggregate
notional amount) of each class of Securities (the "Class Security
Balance") entitled to interest from the date, at the Pass-Through Rate or
interest rate, as applicable (which in either case may be a fixed rate or
rate adjustable as specified in such Prospectus Supplement), 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 Securities entitled to interest (other than a class of
Securities that provides for interest that accrues, but is not currently
payable, referred to hereafter as "Accrual Securities") will be
distributable on the Distribution Dates specified in the related
Prospectus Supplement until the aggregate Class Security Balance of the
Securities of such class has been distributed in full or, in the case of
Securities entitled only to distributions allocable to interest, until the
aggregate notional amount of such Securities is reduced to zero or for the
period of time designated in the related Prospectus Supplement. The
original Class Security Balance of each Security will equal the aggregate
distributions allocable to principal to which such Security is entitled.
Distributions allocable to interest on each Security that is not entitled
to distributions allocable to principal will be calculated based on the
notional amount of such Security. The notional amount of a Security 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.
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the
related Prospectus Supplement. In the event interest accrues over a
period ending two or more days prior to a Distribution Date, the effective
yield to Securityholders will be reduced from the yield that would
otherwise be obtainable if interest payable on the Security were to accrue
through the day immediately preceding such Distribution Date, and the
effective yield (at par) to Securityholders will be less than the
indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not
paid on a given Distribution Date will be added to the aggregate Class
Security Balance of such class of Securities on that Distribution Date.
Distributions of interest on any class of Accrual Securities will commence
only after the occurrence of the events specified in such Prospectus
Supplement. Prior to such time, the beneficial ownership interest in the
Trust Fund or the principal balance, as applicable, of such class of
Accrued Securities, as reflected in the aggregate Class Security Balance
of such class of Accrual Securities, will increase on each Distribution
Date by the amount of interest that accrued on such class of Accrual
Securities 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 Securities will thereafter accrue interest on its
outstanding Class Security Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will
specify the method by which the amount of principal to be distributed on
the Securities on each Distribution Date will be calculated and the manner
in which such amount will be allocated among the classes of Securities
entitled to distributions of principal. The aggregate Class Security
Balance of any class of Securities entitled to distributions of principal
generally will be the aggregate original Class Security Balance of such
class of Securities specified in such Prospectus Supplement, reduced by
all distributions reported to the holders of such Securities as allocable
to principal and, (i) in the case of Accrual Securities, unless otherwise
specified in the related Prospectus Supplement, increased by all interest
accrued but not then distributable on such Accrual Securities and (ii) in
the case of adjustable rate Securities, subject to the effect of negative
amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more
classes of Securities will be entitled to receive all or a
disproportionate percentage of the payments of principal which are
received from borrowers 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 Securities will have the effect of accelerating the
amortization of such Securities while increasing the interests evidenced
by one or more other classes of Securities in the Trust Fund. Increasing
the interests of the other classes of Securities relative to that of
certain Securities is intended to preserve the availability of the
subordination provided by such other Securities. See "Credit Enhancement-
-Subordination".
Unscheduled Distributions. If specified in the related Prospectus
Supplement, the Securities 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 Trust Fund Assets, the Trustee or
the Master Servicer determines that the funds available or anticipated to
be available from the Security Account and, if applicable, any Reserve
Account, may be insufficient to make required distributions on the
Securities 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 Securities on the next Distribution Date. Unless otherwise specified
in the related Prospectus Supplement, the unscheduled distributions will
include interest at the applicable Pass-Through Rate (if any) or interest
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.
ADVANCES
To the extent provided in the related Prospectus Supplement, the
Master Servicer will be required to advance on or before each Distribution
Date (from its own funds, funds advanced by Sub-Servicers or funds held in
the Security Account for future distributions to the holders of Securities
of the related Series) an amount equal to the aggregate of payments of
interest and/or principal that were delinquent on the related
Determination Date (as such term is defined in the related Prospectus
Supplement) and were not advanced by any Sub-Servicer, subject to the
Master Servicer's determination that such advances may be recoverable out
of late payments by borrowers, Liquidation Proceeds, Insurance Proceeds or
otherwise.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to
Securityholders, rather than to guarantee or insure against losses. If
Advances are made by the Master Servicer from cash being held for future
distribution to Securityholders, the Master Servicer will replace such
funds on or before any future Distribution Date to the extent that funds
in the applicable Security Account on such Distribution Date would be less
than the amount required to be available for distributions to
Securityholders on such date. Any Master Servicer funds advanced will be
reimbursable to the Master Servicer out of recoveries on the specific
Loans with respect to which such Advances were made (e.g., late payments
made by the related borrower, any related Insurance Proceeds, Liquidation
Proceeds or proceeds of any Loan purchased by Provident or a Sub-Servicer
pursuant to the related Agreement). Advances by the Master Servicer (and
any advances by a Sub-Servicer) also will be reimbursable to the Master
Servicer (or Sub-Servicer) from cash otherwise distributable to
Securityholders (including the holders of Senior Securities) to the extent
that the Master Servicer determines that any such Advances previously made
are not ultimately recoverable as described above. To the extent provided
in the related 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 borrowers on a timely basis. Funds so
advanced are reimbursable to the Master Servicer to the extent permitted
by the related Agreement. The obligations of the Master Servicer to make
advances may be supported by a cash advance reserve fund, a surety bond or
other arrangement of the type described herein under "Credit Enhancement",
in each case as described in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, in
the event the Master Servicer or a Sub-Servicer fails to make a required
Advance, the Trustee will be obligated to make such Advance in its
capacity as successor servicer. If the Trustee makes such an Advance, it
will be entitled to be reimbursed for such Advance to the same extent and
degree as the Master Servicer or a Sub-Servicer is entitled to be
reimbursed for Advances. See "Description of the Securities--
Distributions on Securities".
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution
Date, the Master Servicer or the Trustee will furnish to each
Securityholder of record of the related Series a statement setting forth,
to the extent applicable to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal
Prepayments and, if so specified in the related Prospectus
Supplement, any applicable prepayment penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Securityholders on such Distribution Date, and (b)
withdrawn from the Reserve Account, if any, that is included in the
amounts distributed to the Senior Securityholders;
(v) the outstanding principal balance or notional amount of
each class of the related Series of Securities after giving effect to
the distribution of principal on such Distribution Date;
(vi) the percentage of principal payments on the Loans
(excluding prepayments), if any, which each such class will be
entitled to receive on the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans,
if any, which each such class will be entitled to receive on the
following Distribution Date;
(viii) the related amount of the servicing compensation
retained or withdrawn from the Security 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;
(ix) the number and aggregate principal balances of Loans as to
which the minimum monthly payment is delinquent 30-59 days, 60-89
days and 90 or more days, respectively, as of the close of business
on the last day of the calendar month preceding such Distribution
Date;
(x) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(xi) the Pass-Through Rate or interest rate, as applicable, if
adjusted from the date of the last statement, of any such class
expected to be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve
Account at the close of business on the Distribution Date;
(xiii) the Pass-Through Rate or interest rate, as applicable,
as of the day prior to the immediately preceding Distribution Date;
and
(xiv) any amounts remaining under letters of credit, Pool
policies or other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Security of the relevant class having the
Percentage Interest specified in the related Prospectus Supplement. The
report to Securityholders for any Series of Securities 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
Securityholder of record at any time during such calendar year a report
(a) as to the aggregate of amounts reported pursuant to (i) and (ii) above
for such calendar year or, in the event such person was a Securityholder
of record only 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 Securityholders to prepare their tax
returns.
CATEGORIES OF CLASSES OF SECURITIES
The Securities of any Series may be comprised of one or more classes.
Such classes, in general, fall into different categories. The following
chart identifies and generally defines certain of the more typical
categories. The Prospectus Supplement for a Series of Securities may
identify the classes which comprise such Series by reference to the
following categories:
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
Accretion Directed A class that receives principal payments from the
accreted interest from specified classes of Accrual
Securities. An Accretion Directed class also may
receive principal payments from principal paid on the
underlying Trust Fund Assets for the related Series.
Component
Securities A class consisting of "Components." The Components of
a class of Component Securities may have different
principal and/or interest payment characteristics but
together constitute a single class. Each Component of
a class of Component Securities may be identified as
falling into one or more of the categories in this
chart.
Notional Amount
Securities A class having no principal balance and bearing
interest on the related notional amount. The notional
amount is used for purposes of the determination of
interest distributions.
Planned Principal
Class(also sometimes
referred to as
"PACs") A class that is designed to receive principal payments
using a predetermined principal balance schedule
derived by assuming two constant prepayment rates for
the underlying Trust Fund Assets. These two rates are
the endpoints for the "structuring range" for the
Planned Principal Class. The Planned Principal
Classes in any Series of Securities may be subdivided
into different categories (e.g., Primary Planned
Principal Classes, Secondary Planned Principal Classes
and so forth) having different effective structuring
ranges and different principal payment priorities.
The structuring range for the Secondary Planned
Principal Class of a Series of Securities will be
narrower than that for the Primary Planned Principal
Class of such Series.
Scheduled Principal
Class A class that is designed to receive principal payments
using a predetermined principal balance schedule but
is not designated as a Planned Principal Class or
Targeted Principal Class. In many cases, the schedule
is derived by assuming two constant prepayment rates
for the underlying Trust Fund Assets. These two rates
are the endpoints for the "structuring range" for the
Scheduled Principal Class.
Sequential Pay Classes that receive principal payments in a
prescribed sequence, that do not have predetermined
principal balance schedules and that under all
circumstances receive payments of principal
continuously from the first Distribution Date on which
they receive principal until they are retired. A
single class that receives principal payments before
or after all other classes in the same Series of
Securities may be identified as a Sequential Pay
class.
Strip A class that receives a constant proportion, or
"strip," of the principal payments on the underlying
Trust Fund Assets.
Support Class (also
sometimes referred
to as "Companion
Classes") A class that receives principal payments on any
Distribution Date only if scheduled payments have been
made on specified Planned Principal Classes, Targeted
Principal Classes and/or Scheduled Principal Classes.
Targeted Principal
Class
(also sometimes
referred to
as "TACs") A class that is designed to receive principal payments
using a predetermined principal balance schedule
derived by assuming a single constant prepayment rate
for the underlying Trust Fund Assets.
INTEREST TYPES
Fixed Rate A class with an interest rate that is fixed throughout
the life of the class.
Floating Rate A class with an interest rate that resets periodically
based upon a designated index and that varies directly
with changes in such index.
Inverse Floating
Rate A class with an interest rate that resets periodically
based upon a designated index and that varies
inversely with changes in such index.
Variable Rate A class with an interest rate that resets periodically
and is calculated by reference to the rate or rates of
interest applicable to specified assets or instruments
(e.g., the Loan Rates borne by the underlying Loans).
Interest Only A class that receives some or all of the interest
payments made on the underlying Trust Fund Assets and
little or no principal. Interest Only Classes have
either a nominal principal balance or a notional
amount. A nominal principal balance represents actual
principal that will be paid on the class. It is
referred to as nominal since it is extremely small
compared to other classes. A notional amount is the
amount used as a reference to calculate the amount of
interest due on an Interest Only Class that is not
entitled to any distributions in respect of principal.
Principal Only A class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Partial Accrual A class that accretes a portion of the amount of
accrued interest thereon, which amount will be added
to the principal balance of such class on each
applicable Distribution Date, with the remainder of
such accrued interest to be distributed currently as
interest on such class. Such accretion may continue
until a specified event has occurred or until such
Partial Accrual Class is retired.
Accrual A class that accretes the amount of accrued interest
otherwise distributable on such class, which amount
will be added as principal to the principal balance of
such class on each applicable Distribution Date. Such
accretion may continue until some specified event has
occurred or until such Accrual Class is retired.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related Prospectus Supplement, if not issued in
fully registered form, each class of Securities will be registered as
book-entry certificates (the "Book-Entry Securities"). Persons acquiring
beneficial ownership interests in the Securities ("Security Owners") will
hold their Securities through DTC in the United States, or Cedel Bank,
soci t anonyme ("CEDEL"), or the Euroclear System ("Euroclear") in
Europe, if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry
Securities will be issued in one or more certificates which equal the
aggregate principal balance of the Securities and will initially be
registered in the name of Cede & Co., the nominee of DTC. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in CEDEL's and Euroclear's names on
the books of their respective depositaries which in turn will hold such
positions in customers' securities accounts in the depositaries' names on
the books of DTC. Citibank, N.A., will act as depositary for CEDEL and
The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no person acquiring
a Book-Entry Security (each, a "beneficial owner") will be entitled to
receive a physical certificate representing such Security (a "Definitive
Security"). Unless and until Definitive Securities are issued, it is
anticipated that the only "Securityholder" of the Securities will be Cede
& Co., as nominee of DTC. Security Owners are only permitted to exercise
their rights indirectly through Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security 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 Security will be
recorded on the records of DTC (or of a participating firm that acts as
agent for the Financial Intermediary, whose interest will in turn be
recorded on the records of DTC, if the beneficial owner's Financial
Intermediary is not a DTC participant, and on the records of CEDEL or
Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and DTC
participants. While the Securities are outstanding (except under the
circumstances described below), under the rules, regulations and
procedures creating and affecting DTC and its operations (the "Rules"),
DTC is required to make book-entry transfers among Participants on whose
behalf it acts with respect to the Securities and is required to receive
and transmit distributions of principal of, and interest on, the
Securities. Participants and indirect participants with whom Security
Owners have accounts with respect to Securities are similarly required to
make book-entry transfers and receive and transmit such distributions on
behalf of their respective Security Owners. Accordingly, although
Security Owners will not possess certificates, the Rules provide a
mechanism by which Security Owners will receive distributions and will be
able to transfer their interest.
Security Owners will not receive or be entitled to receive
certificates representing their respective interests in the Securities,
except under the limited circumstances described below. Unless and until
Definitive Securities are issued, Security Owners who are not Participants
may transfer ownership of Securities only through Participants and
indirect participants by instructing such Participants and indirect
participants to transfer Securities, by book-entry transfer, through DTC
for the account of the purchasers of such Securities, which account is
maintained with their respective Participants. Under the Rules and in
accordance with DTC's normal procedures, transfers of ownership of
Securities will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the
Participants and indirect participants will make debits or credits, as the
case may be, on their records on behalf of the selling and purchasing
Security Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or CEDEL Participants on such business
day. Cash received in CEDEL or Euroclear as a result of sales of
securities by or through a CEDEL Participant (as defined herein) or
Euroclear Participant (as defined herein) 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 with DTC.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants
will occur in accordance with their respective rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the Relevant Depositary; 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 deadlines (European time). The relevant European
international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the Relevant Depositary
to take action to effect final settlement on its behalf by delivering or
receiving securities in DTC, and making or receiving payment in accordance
with normal procedures for same day funds settlement applicable to DTC.
CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating
the need for physical movement of certificates. Transactions may be
settled in CEDEL in any of 28 currencies, including United States dollars.
CEDEL provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces
with domestic markets in several countries. As a professional depository,
CEDEL is subject to regulation by the Luxembourg Monetary Institute.
CEDEL participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
Indirect access to CEDEL is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or
indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may be settled in any of 32 currencies,
including United States dollars. Euroclear includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above.
Euroclear is operated by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York ("Morgan" and in such capacity, the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a
Belgian cooperative corporation (the "Belgian Cooperative"). All
operations are conducted by Morgan, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not the Belgian Cooperative. The Belgian Cooperative
establishes policy for Euroclear on behalf of Euroclear Participants.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which
is a member bank of the Federal Reserve System. As such, it is regulated
and examined by the Board of Governors of the Federal Reserve System and
the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with Morgan are
governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of
payments with respect to securities in Euroclear. All securities in
Euroclear are held on a fungible basis without attribution of specific
certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants, and has no record of or relationship with persons holding
through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry
Securities may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co., as nominee
of DTC. Distributions with respect to Securities held through CEDEL or
Euroclear will be credited to the cash accounts of CEDEL Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Federal Income Tax
Consequences -Tax Treatment of Foreign Investors" and "--Tax Consequences
to Holders of the Notes--Backup Withholding" herein. Because DTC can only
act on behalf of Financial Intermediaries, the ability of a beneficial
owner to pledge Book-Entry Securities to persons or entities that do not
participate in the Depository system may be limited due to the lack of
physical certificates for such Book-Entry Securities. In addition,
issuance of the Book-Entry Securities in book-entry form may reduce the
liquidity of such Securities in the secondary market since certain
potential investors may be unwilling to purchase Securities for which they
cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. 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 DTC accounts the Book-Entry Securities of such
beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Securities are issued, DTC will take any action permitted to be taken by
the holders of the Book-Entry Securities under the applicable Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Securities are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings
include such Book-Entry Securities. CEDEL or the Euroclear Operator, as
the case may be, will take any other action permitted to be taken by a
Securityholder under the Agreement on behalf of a CEDEL Participant or
Euroclear Participant only in accordance with its relevant rules and
procedures and subject to the ability of the Relevant Depositary to effect
such actions on its behalf through DTC. DTC may take actions, at the
direction of the related Participants, with respect to some Securities
which conflict with actions taken with respect to other Securities.
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 through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and
thereafter the Trustee will recognize the holders of such Definitive
Securities as Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among
participants of DTC, CEDEL and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of the Master Servicer, Provident or the Trustee will have any
responsibility for any aspect of the records relating to or payments made
on account of beneficial ownership interests of the Book-Entry Securities
held by Cede & Co., as nominee of DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more
classes of a Series of Securities or with respect to the related Trust
Fund Assets. Credit enhancement may be in the form of a limited financial
guaranty policy issued by an entity named in the related Prospectus
Supplement, the subordination of one or more classes of the Securities of
such Series, the establishment of one or more Reserve Accounts, the use of
a cross-collateralization feature, use of a mortgage pool insurance
policy, bankruptcy bond, special hazard insurance policy, surety bond,
letter of credit, guaranteed investment contract, overcollateralization,
or another method of credit enhancement contemplated herein and described
in the related Prospectus Supplement, or any combination of the foregoing.
Unless otherwise specified in the related Prospectus Supplement, credit
enhancement will not provide protection against all risks of loss and will
not guarantee repayment of the entire principal balance of the Securities
and interest thereon. If losses occur which exceed the amount covered by
credit enhancement or which are not covered by the credit enhancement,
Securityholders will bear their allocable share of any deficiencies.
If specified in the related Prospectus Supplement, the coverage
provided by one or more of the forms of credit enhancement described in
this Prospectus may apply concurrently to two or more separate Trust
Funds. If applicable, the related Prospectus Supplement will identify the
Trust Funds to which such credit enhancement relates and the manner of
determining the amount of coverage provided to such Trust Funds thereby
and of the application of such coverage to the identified Trust Funds.
SUBORDINATION
If so specified in the related Prospectus Supplement, protection
afforded to holders of one or more classes of Securities of a Series by
means of the subordination feature may be accomplished by the preferential
right of holders of one or more other classes of such Series (the "Senior
Securities") to distributions in respect of scheduled principal, Principal
Prepayments, interest or any combination thereof that otherwise would have
been payable to holders of Subordinated Securities under the circumstances
and to the extent specified in the related Prospectus Supplement.
Protection may also be afforded to the holders of Senior Securities of a
Series by: (i) reducing the ownership interest (if applicable) of the
related Subordinated Securities; (ii) a combination of the immediately
preceding sentence and clause (i) above; or (iii) as otherwise described
in the related Prospectus Supplement. If so specified in the related
Prospectus Supplement, delays in receipt of scheduled payments on the
Loans and losses on defaulted Loans may be borne first by the various
classes of Subordinated Securities and thereafter by the various classes
of Senior Securities, 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 Loans over the
lives of the Securities or at any time, the aggregate losses in respect of
defaulted Loans which must be borne by the Subordinated Securities by
virtue of subordination and the amount of the distributions otherwise
distributable to the Subordinated Securityholders that will be
distributable to Senior Securityholders on any Distribution Date may be
limited as specified in the related Prospectus Supplement. If aggregate
distributions in respect of delinquent payments on the Loans or aggregate
losses in respect of such Loans were to exceed an amount specified in the
related Prospectus Supplement, Senior Securityholders would experience
losses on their Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions
otherwise payable to Subordinated Securityholders on any Distribution Date
may instead be deposited into one or more Reserve Accounts established
with the Trustee or distributed to Senior Securityholders. Such deposits
may be made on each Distribution Date, for specified periods or until the
balance in the Reserve Account has reached a specified amount and,
following payments from the Reserve Account to Senior Securityholders or
otherwise, thereafter to the extent necessary to restore the balance in
the Reserve Account to required levels, in each case as specified in the
related Prospectus Supplement. Amounts on deposit in the Reserve Account
may be released to the holders of certain classes of Securities at the
times and under the circumstances specified in such Prospectus Supplement.
If specified in the related Prospectus Supplement, various classes of
Senior Securities and Subordinated Securities may themselves be
subordinate in their right to receive certain distributions to other
classes of Senior and Subordinated Securities, respectively, through a
cross-collateralization mechanism or otherwise. As between classes of
Senior Securities and as between classes of Subordinated Securities,
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. As between classes of Subordinated Securities, payments to
holders of Senior Securities on account of delinquencies or losses and
payments to any Reserve Account will be allocated as specified in the
related Prospectus Supplement.
LETTER OF CREDIT
The letter of credit, if any, with respect to a Series of Securities
will be issued by the bank or financial institution specified in the
related Prospectus Supplement (the "L/C Bank"). Under the letter of
credit, the L/C Bank will be obligated to honor drawings thereunder in an
aggregate fixed dollar amount, net of unreimbursed payments thereunder,
equal to the percentage specified in the related Prospectus Supplement (i)
of the aggregate principal balance of the Loans on the related Cut-off
Date or (ii) of one or more Classes of Securities. If so specified in the
related Prospectus Supplement, the letter of credit may permit drawings in
the event of losses not covered by insurance policies or other credit
support, such as losses arising from damage not covered by standard hazard
insurance policies, losses resulting from the bankruptcy of a borrower and
the application of certain provisions of the federal Bankruptcy Code, or
losses resulting from denial of insurance coverage due to
misrepresentations in connection with the origination of a Loan. The
amount available under the letter of credit will, in all cases, be reduced
to the extent of the unreimbursed payments thereunder. The obligations of
the L/C Bank under the letter of credit for each Series of Securities will
expire at the earlier of the date specified in the related Prospectus
Supplement or the termination of the Trust Fund. See "The Agreements--
Termination: Optional Termination." A copy of the letter of credit for a
Series, if any, will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed within 15 days of issuance of the
Securities of the related Series.
INSURANCE POLICIES, SURETY BONDS AND GUARANTIES
If so provided in the Prospectus Supplement for a Series of
Securities, deficiencies in amounts otherwise payable on such Securities
or certain classes thereof will be covered by insurance policies and/or
surety bonds provided by one or more insurance companies or sureties.
Such instruments may cover, with respect to one or more classes of
Securities of the related Series, timely distributions of interest and/or
full distributions of principal on the basis of a schedule of principal
distributions set forth in or determined in the manner specified in the
related Prospectus Supplement. In addition, if specified in the related
Prospectus Supplement, a Trust Fund may also include bankruptcy bonds,
special hazard insurance policies, other insurance or guaranties for the
purpose of (i) maintaining timely payments or providing additional
protection against losses on the assets included in such Trust Fund, (ii)
paying administrative expenses or (iii) establishing a minimum
reinvestment rate on the payments made in respect of such assets or
principal payment rate on such assets. Such arrangements may include
agreements under which Securityholders are entitled to receive amounts
deposited in various accounts held by the Trustee upon the terms specified
in such Prospectus Supplement. A copy of any such instrument for a Series
will be filed with the Commission as an exhibit to a Current Report on
Form 8-K to be filed with the Commission within 15 days of issuance of the
Securities of the related Series.
OVER-COLLATERALIZATION
If so provided in the Prospectus Supplement for a Series of
Securities, a portion of the interest payment on each Loan may be applied
as an additional distribution in respect of principal to reduce the
principal balance of a certain class or classes of Securities and, thus,
accelerate the rate of payment of principal on such class or classes of
Securities relative to the principal balance of the Loans in the related
Trust Fund.
RESERVE ACCOUNTS
If specified in the related Prospectus Supplement, credit support
with respect to a Series of Securities will be provided by the
establishment and maintenance with the Trustee for such Series of
Securities, in trust, of one or more Reserve Accounts for such Series.
The related Prospectus Supplement will specify whether or not any such
Reserve Accounts will be included in the Trust Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, United States Treasury securities, 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 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
Securityholders, 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 Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
"Permitted Investments" which may include (i) direct obligations of, or
obligations fully guaranteed as to timely payment of principal and
interest by, the United States or any agency or instrumentality thereof,
provided that
--------
such obligations are backed by the full faith and credit of the United
States; (ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
provided that the short-term unsecured debt obligations of the party
agreeing
--------
to repurchase such obligations are at the time rated by each Rating Agency
in its highest short-term rating category; (iii) certificates of deposit,
time deposits and bankers' acceptances (which, if Moody's is a Rating
Agency, shall each have an original maturity of not more than 90 days and,
in the case of bankers' acceptances, shall in no event have an original
maturity of more than 365 days) of any U.S. depository institution or
trust company incorporated under the laws of the United States or any
state thereof and subject to supervision and examination by federal and/or
state banking authorities, provided that the unsecured short-term debt
obligations of such
--------
depository institution or trust company at the date of acquisition thereof
have been rated by each Rating Agency in its highest unsecured short-
term debt rating category; (iv) commercial paper (having original
maturities of not more than 90 days) of any corporation incorporated under
the laws of the United States or any state thereof which on the date of
acquisition has been rated by the Rating Agencies in their highest
short-term rating categories; (v) short-term investment funds ("STIFS")
sponsored by any trust company or national banking association incor-
porated under the laws of the United States or any state thereof which on
the date of acquisition has been rated by the Rating Agencies in their
respective highest rating category of long-term unsecured debt; (vi)
interests in any money market fund which at the date of acquisition of the
interests in such fund and throughout the time as the interest is held in
such fund has the rating specified in the related Prospectus Supplement by
each Rating Agency; and (vii) other obligations or securities that are
acceptable to each Rating Agency as a Permitted Investment hereunder and
will not result in a reduction in the then current rating of the
Securities, as evidenced by a letter to such effect from such Rating
Agency and with respect to which the Master Servicer has received
confirmation that, for tax purposes, the investment complies with the last
clause of this definition; provided that no instrument described hereunder
--------
shall evidence either the right to receive (a) only interest with respect
to the obligations underlying such instrument or (b) both principal and
interest payments derived from obligations underlying such instrument and
the interest and principal payments with respect to such instrument
provided a yield to maturity at par greater than 120% of the yield to
maturity at par of the
underlying obligations; and provided, further, that no instrument
described
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hereunder may be purchased at a price greater than par if such instrument
may be prepaid or called at a price less than its purchase price prior to
its stated maturity. Unless otherwise specified in the related Prospectus
Supplement, any instrument deposited therein will name the Trustee, in its
capacity as trustee for the holders of the Securities, as beneficiary and
will be issued by an entity acceptable to each Rating Agency that rates
the Securities of the related Series. Additional information with respect
to such instruments deposited in the Reserve Accounts 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 Account for distribution
to the holders of Securities of the related Series for the purposes, in
the manner and at the times specified in the related Prospectus
Supplement.
POOL INSURANCE POLICIES
If specified in the related Prospectus Supplement, a separate pool
insurance policy ("Pool Insurance Policy") will be obtained for the Pool
and issued by the insurer (the "Pool Insurer") named in such Prospectus
Supplement. Each Pool Insurance Policy will, subject to the limitations
described below, cover loss by reason of default in payment on Loans in
the Pool in an amount equal to a percentage specified in such Prospectus
Supplement of the aggregate principal balance of such Loans on the Cut-off
Date 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 holders of the Securities
of the related Series. The Pool Insurance Policies, however, are not
blanket policies against loss, since claims thereunder may only be made
respecting particular defaulted Loans and only upon satisfaction of
certain conditions precedent described below. Unless otherwise specified
in the related Prospectus Supplement, the 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, the
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 Loan and a claim thereunder has been submitted and settled;
(ii) hazard insurance on the related 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 Property, it
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 merchantable title to the Property free and clear of
liens except certain permitted encumbrances. Upon satisfaction of these
conditions, the Pool Insurer will have the option either (a) to purchase
the property securing the defaulted Loan at a price equal to the principal
balance thereof plus accrued and unpaid interest at the Loan Rate to the
date of such purchase and certain expenses incurred by the Master Servicer
on behalf of the Trustee and Securityholders, or (b) to pay the amount by
which the sum of the principal balance of the defaulted Loan plus accrued
and unpaid interest at the Loan Rate to the date of payment of the claim
and the aforementioned expenses exceeds the proceeds received from an
approved sale of the Property, in either case net of certain amounts paid
or assumed to have been paid under the related Primary Mortgage Insurance
Policy. If any Property securing a defaulted Loan 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
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 Securityholders on
liquidation of the 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 Property or proceeds of the related Pool Insurance
Policy or any related Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will not 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 Loan, including misrepresentation by the
borrower, the originator or persons involved in the origination thereof,
or (ii) failure to construct a Property in accordance with plans and
specifications. A failure of coverage attributable to one of the
foregoing events might result in a breach of Provident's representations
described above, and, in such events might give rise to an obligation on
the part of Provident to repurchase the defaulted Loan if the breach
cannot be cured by Provident. No Pool Insurance Policy will cover (and
many Primary Mortgage Insurance Policies do not cover) a claim in respect
of a defaulted Loan occurring when the servicer of such 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 Pool Insurance Policy will be
reduced over the life of the related Securities 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 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 Pool
Insurance Policy reach the original policy limit, coverage under that Pool
Insurance Policy will be exhausted and any further losses will be borne by
the related Securityholders.
CROSS-COLLATERALIZATION
If specified in the related Prospectus Supplement, the beneficial
ownership of separate groups of assets included in a Trust Fund may be
evidenced by separate classes of the related Series of Securities. In
such case, credit support may be provided by a cross-collateralization
feature which requires that distributions be made to Securities evidencing
a beneficial ownership interest in, or secured by, one or more asset
groups within the same Trust Fund prior to distributions to Subordinated
Securities evidencing a beneficial ownership interest in, or secured by,
one or more other asset groups within such Trust Fund. Cross-
collateralization may be provided by (i) the allocation of certain excess
amounts generated by one or more asset groups to one or more other asset
groups within the same Trust Fund or (ii) the allocation of losses with
respect to one or more asset groups to one or more other asset groups
within the same Trust Fund. The Prospectus Supplement for a Series of
Securities which includes a cross-collateralization feature will describe
the manner and conditions for applying such cross-collateralization
feature.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities
will be affected primarily by the amount and timing of principal payments
received on or in respect of the Trust Fund Assets included in the related
Trust Fund. The original terms to maturity of the Loans in a given Pool
will vary depending upon the type of Loans included therein. Each
Prospectus Supplement will contain information with respect to the type
and maturities of the Loans in the related Pool. The related Prospectus
Supplement will specify the circumstances, if any, under which the related
Loans will be subject to prepayment penalties. The prepayment experience
on the Loans in a Pool will affect the weighted average life of the
related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity
loans and home improvement contracts have been originated in significant
volume only during the past few years and Provident is not aware of any
publicly available studies or statistics on the rate of prepayment of such
loans. Generally, home equity loans and home improvement contracts are
not viewed by borrowers as permanent financing. Accordingly, such Loans
may experience a higher rate of prepayment than traditional first mortgage
loans. On the other hand, because home equity loans such as the Revolving
Credit Line Loans generally are not fully amortizing, the absence of
voluntary borrower prepayments could cause rates of principal payments
lower than, or similar to, those of traditional fully-amortizing first
mortgage loans. The prepayment experience of the related Trust Fund may
be affected by a wide variety of factors, including general economic
conditions, prevailing interest rate levels, the availability of
alternative financing, homeowner mobility and the frequency and amount of
any future draws on any Revolving Credit Line Loans. Other factors that
might be expected to affect the prepayment rate of a pool of home equity
mortgage loans or home improvement contracts include the amounts of, and
interest rates on, the underlying senior mortgage loans, and the use of
first mortgage loans as long-term financing for home purchase and
subordinate mortgage loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, such 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 loans for federal
income tax purposes may further increase the rate of prepayments of the
Loans. The enforcement of a "due-on-sale" provision (as described below)
will have the same effect as a prepayment of the related Loan. See
"Certain Legal Aspects of the Loans--Due-on-Sale Clauses".
The yield to an investor who purchases Securities in the secondary
market at a price other than par will vary from the anticipated yield if
the rate of prepayment on the Loans is actually different than the rate
anticipated by such investor at the time such Securities were purchased.
Collections on Home Equity Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the
minimum monthly payment for such month or, during the interest-only period
for certain Revolving Credit Line Loans and, in more limited
circumstances, Closed-End Loans, with respect to which an interest-only
payment option has been selected, the interest and the fees and charges
for such month or (ii) make payments as high as the entire outstanding
principal balance plus accrued interest and the fees and charges thereon.
In addition, collections on the Loans may vary due to seasonal purchasing
and the payment habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement, all
conventional Loans will contain "due-on-sale" provisions permitting the
mortgagee to accelerate the maturity of the Loan upon sale or certain
transfers by the borrower of the related Property. Thus, the rate of
prepayments on such Loans may be lower than that of conventional Loans
bearing comparable interest rates. 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 Property and reasonably
believes that it is entitled to do so under applicable law. See "The
Agreements--Collection Procedures" and "Certain Legal Aspects of the
Loans" for a description of certain provisions of each Agreement and
certain legal developments that may affect the prepayment experience on
the 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 Loan Rates borne by the Loans, such
Loans are more likely to be subject to higher prepayment rates than if
prevailing interest rates remain at or above such Loan Rates. Conversely,
if prevailing interest rates rise appreciably above the Loan Rates borne
by the Loans, such Loans are more likely to experience a lower prepayment
rate than if prevailing rates remain at or below such Loan Rates.
However, there can be no assurance that such will be the case.
When a full prepayment is made on a Loan, the borrower is charged
interest on the principal amount of the Loan so prepaid only for the
number of days in the month actually elapsed up to the date of the
prepayment, rather than for a full month. The effect of prepayments in
full will be to reduce the amount of interest passed through or paid in
the following month to holders of Securities because interest on the
principal amount of any Loan so prepaid will generally be paid only to the
date of prepayment. Partial prepayments in a given month may be applied
to the outstanding principal balances of the Loans so prepaid on the first
day of the month of receipt or the month following receipt. In the latter
case, partial prepayments will not reduce the amount of interest passed
through or paid in such month. Unless otherwise specified in the related
Prospectus Supplement, neither full nor partial prepayments will be passed
through or paid until the month following receipt.
Even assuming that the Properties provide adequate security for the
Loans, substantial delays could be encountered in connection with the
liquidation of defaulted Loans and corresponding delays in the receipt of
related proceeds by Securityholders could occur. An action to foreclose
on a Property securing a Loan is regulated by state statutes and rules 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 is not permitted following a nonjudicial sale of a
property. In the event of a default by a borrower, these restrictions,
among other things, may impede the ability of the Master Servicer to
foreclose on or sell the Property or to obtain liquidation proceeds
sufficient to repay all amounts due on the related Loan. In addition, the
Master Servicer will be entitled to deduct from related liquidation
proceeds all expenses reasonably incurred in attempting to recover amounts
due on defaulted Loans and not yet repaid, including payments to senior
lienholders, legal fees and costs of legal action, real estate taxes and
maintenance and preservation expenses.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the
time of default. Therefore, assuming that a servicer took 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 large remaining principal balance, the amount realized after
expenses of liquidation would be smaller as a percentage of the remaining
principal balance of the small mortgage loan than would be the case with
the defaulted mortgage loan having a large remaining principal balance.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Loans. In addition, most have other laws,
public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and practices which may apply
to originating, servicing and collecting 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 the Master Servicer to collect all or part of the principal of
or interest on the Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Master Servicer to
damages and administrative sanctions.
If the rate at which interest is passed through or paid to the
holders of Securities of a Series is calculated on a Loan-by-Loan basis,
disproportionate principal prepayments among Loans with different Loan
Rates will affect the yield on such Securities. In most cases, the
effective yield to Securityholders will be lower than the yield otherwise
produced by the applicable Pass-Through Rate or interest rate and purchase
price, because while interest will accrue on each Loan from the first day
of the month (unless otherwise specified in the related Prospectus
Supplement), the distribution of such interest will not be made earlier
than the month following the month of accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related
Prospectus Supplement may have the option to purchase the assets of a
Trust Fund and thereby affect earlier retirement of the related Series of
Securities. See "The Agreements--Termination; Optional Termination".
The relative contribution of the various factors affecting prepayment
may vary from time to time. There can be no assurance as to the rate of
payment of principal of the Trust Fund Assets at any time or over the
lives of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a description of the material provisions of each
Agreement which are not described elsewhere in this Prospectus. The
description is subject to, and qualified in its entirety by reference to,
the provisions of each Agreement. Where particular provisions or terms
used in the Agreements are referred to, such provisions or terms are as
specified in the Agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the Securities
of a Series, Provident will assign the Loans comprising the related Trust
Fund to the Trustee, without recourse, together with all principal and
interest received by or on behalf of Provident on or with respect to such
Loans after the Cut-off Date, other than principal and interest due on or
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 such Securities to Provident in exchange for the
Loans. Each 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 Loan after application of
payments due on or before the Cut-off Date, as well as information
regarding the Loan Rate or APR, the maturity of the Loan, the Loan-to-
Value Ratios or Combined Loan-to-Value Ratios, as applicable, at
origination and certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, within the time period specified therein,
Provident will also deliver or cause to be delivered to the Trustee (or to
the custodian hereinafter referred to) as to each Mortgage Loan or Home
Equity Loan, among other things, (i) the mortgage note or contract
endorsed without recourse in blank or to the order of the Trustee, (ii)
the mortgage, deed of trust or similar instrument (a "Mortgage") with
evidence of recording indicated thereon (except for any Mortgage not
returned from the public recording office, in which case Provident will
deliver or cause to be delivered a copy of such Mortgage together with a
certificate that the original of such Mortgage was delivered to such
recording office), (iii) an assignment of the Mortgage to the Trustee,
which assignment will be in recordable form in the case of a Mortgage
assignment, and (iv) such other security documents, including those
relating to any senior interests in the Property, as may be specified in
the related Prospectus Supplement or the related Agreement. Unless
otherwise specified in the related Prospectus Supplement, Provident will
not promptly cause the assignments of the Mortgages to be recorded in the
appropriate public office for real property records. If specified in the
related Prospectus Supplement, some or all of the Loan documents may not
be delivered to the Trustee until after the occurrence of certain events
specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement and
as to each Home Improvement Contract, Provident will deliver or cause to
be delivered to the Trustee the original Home Improvement Contract and
copies of documents and instruments related to each Home Improvement
Contract and, other than in the case of unsecured Home Improvement
Contracts, the security interest in the Property securing such Home
Improvement Contract. In order to give notice of the right, title and
interest of Securityholders to the Home Improvement Contracts, Provident
will cause a UCC-1 financing statement to be executed by Provident
identifying the Trustee as the secured party and identifying all Home
Improvement Contracts as collateral. Unless otherwise specified in the
related Prospectus Supplement, the Home Improvement Contracts will not be
stamped or otherwise marked to reflect their assignment to the Trustee.
Therefore, if, through negligence, fraud or otherwise, a subsequent
purchaser were able to take physical possession of the Home Improvement
Contracts without notice of such assignment, the interest of
Securityholders in the Home Improvement Contracts could be defeated. See
"Certain Legal Aspects of the Loans--The Home Improvement Contracts."
The Trustee (or the custodian hereinafter referred to) will review
such Loan documents within the time period specified in the related
Prospectus Supplement after receipt thereof, and the Trustee will hold
such documents in trust for the benefit of the related Securityholders.
Unless otherwise specified in the related Prospectus Supplement, if any
such document is found to be missing or defective in any material respect,
the Trustee (or such custodian) will notify the Master Servicer and
Provident. If Provident cannot cure the omission or defect within the
time period specified in the related Prospectus Supplement after receipt
of such notice, Provident will be obligated to either (i) purchase the
related Loan from the Trust Fund at the Purchase Price or (ii) if so
specified in the related Prospectus Supplement, remove such Loan from the
Trust Fund and substitute in its place one or more other Loans that meets
certain requirements set forth therein. There can be no assurance that
Provident will fulfill this purchase or substitution obligation. Unless
otherwise specified in the related Prospectus Supplement, this obligation
to cure, purchase or substitute constitutes the sole remedy available to
the Securityholders or the Trustee for omission of, or a material defect
in, a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to
review the documents relating to the Loans as agent of the Trustee.
Notwithstanding the foregoing provisions, with respect to a Trust
Fund for which a REMIC election is to be made, no purchase or substitution
of a Loan will be made if such purchase or substitution would result in a
prohibited transaction tax under the Code.
No Recourse to Provident or Master Servicer. As described above
under "--Assignment of the Loans," Provident will cause the Loans
comprising the related Trust Fund to be assigned to the Trustee, without
recourse. Provident will be obligated to repurchase or substitute for any
Loan as to which certain representations and warranties are breached or
for failure to deliver certain documents relating to the Loans as
described herein under "Assignment of the Loans" and "Loan Program--
Representations by Provident; Repurchases." These obligations to purchase
or substitute constitute the sole remedy available to the Securityholders
or the Trustee for a breach of any such representation or failure to
deliver a constituent document.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a
separate account or accounts for the collection of payments on the related
Trust Fund Assets in the Trust Fund (the "Security Account") which, unless
otherwise specified in the related Prospectus Supplement, must be either
(i) maintained with a depository institution whose short-term debt
obligations and long-term debt obligations at the time of any deposit
therein and throughout the time the interest is maintained are rated as
specified in the related Prospectus Supplement by the Rating Agencies, and
the deposits in such account or accounts are fully insured by either the
Bank Insurance Fund (the "BIF") or the Savings Association Insurance Fund
("SAIF") (as successor to the Federal Savings and Loan Insurance
Corporation) and which is any of (a) a federal savings and loan
association duly organized, validly existing and in good standing under
the applicable banking laws of any state, (b) an institution duly
organized, validly existing and in good standing under the applicable
banking laws of any state, (c) a national banking association duly
organized, validly existing and in good standing under the federal banking
laws or (d) a principal subsidiary of a bank holding company, (ii) a
segregated trust account maintained with the corporate trust department of
a federal or state chartered depository or trust company, having capital
and surplus of not less than $50,000,000, acting in its fiduciary
capacity, or (iii) an account otherwise acceptable to each Rating Agency
as evidenced by a letter from each Rating Agency to the Trustee, without
reduction or withdrawal of the then current ratings of the Securities.
The collateral eligible to secure amounts in the Security Account is
limited to Permitted Investments. A Security 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 Security Account as
additional compensation and will be obligated to deposit in the Security
Account the amount of any loss immediately as realized. The Security
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.
The Master Servicer will deposit or cause to be deposited in the
Security Account for each Trust Fund, to the extent applicable and unless
otherwise specified in the related Prospectus Supplement, the following
payments and collections received or advances made by or on behalf of it
subsequent to the Cut-off Date (other than certain payments due on or
before the Cut-off Date and exclusive of any amounts representing Retained
Interest):
(i) all payments on account of principal, including Principal
Prepayments and, if specified in the related Prospectus Supplement,
any applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the 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, to the extent such proceeds are not applied to
the restoration of the 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 incurred in connection with liquidation or
foreclosure ("Liquidation Expenses") and unreimbursed Advances made,
by the Master Servicer, if any) received and retained in connection
with the liquidation of defaulted Loans, by foreclosure or otherwise
("Liquidation Proceeds"), together with any net proceeds received on
a monthly basis with respect to any properties acquired on behalf of
the Securityholders by foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof
purchased by Provident as described under "Loan Program--
Representations by Provident; Repurchases" or "--Assignment of Trust
Fund Assets" above and all proceeds of any Loan repurchased as
described under "--Termination; Optional Termination" below;
(v) all payments required to be deposited in the Security
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 Security 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; and
(vii) all other amounts required to be deposited in the
Security Account pursuant to the Agreement.
The Master Servicer may from time to time direct the institution that
maintains the Security Account to withdraw funds from the Security 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
Security Account credited thereto;
(ii) to reimburse the Master Servicer for Advances, such right
of reimbursement with respect to any Loan being limited to amounts
received that represent late recoveries of payments of principal
and/or interest on such Loan (or Insurance Proceeds or Liquidation
Proceeds with respect thereto) with respect to which such Advance was
made;
(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, such right of reimbursement being limited to amounts
received representing late recoveries of the payments for which such
advances were made;
(vi) to pay to the Master Servicer, with respect to each Loan or
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 Loan;
(vii) to reimburse the Master Servicer or Provident for
expenses incurred and reimbursable pursuant to the Agreement;
(viii) to withdraw any amount deposited in the Security
Account and not required to be deposited therein; and
(ix) to clear and terminate the Security Account upon
termination of the Agreement.
In addition, 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 Security
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
Securities.
The applicable Agreement may require the Master Servicer to establish
and maintain one or more escrow accounts into which Mortgagors deposit
amounts sufficient to pay taxes, assessments, hazard insurance premiums or
comparable items. Withdrawals from the escrow accounts maintained for
Mortgagors may be made to effect timely payment of taxes, assessments and
hazard insurance premiums or comparable items, to reimburse the Master
Servicer out of related assessments for maintaining hazard insurance, to
refund to Mortgagors amounts determined to be overages, to remit to
Mortgagors, if required, interest earned, if any, on balances in any of
the escrow accounts, to repair or otherwise protect the Property and to
clear and terminate any of the escrow accounts. The Master Servicer will
be solely responsible for administration of the escrow accounts and will
be expected to make advances to such account when a deficiency exists
therein.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master
Servicer will establish and maintain a Pre-Funding Account, in the name of
the related Trustee on behalf of the related Securityholders, into which
Provident will deposit cash in an amount equal to the Pre-Funded Amount on
the related Closing Date. The Pre-Funding Account will be maintained with
the Trustee for the related Series of Securities and is designed solely to
hold funds to be applied by such Trustee during the Funding Period to pay
to Provident the purchase price for Subsequent Loans. Monies on deposit
in the Pre-Funding Account will not be available to cover losses on or in
respect of the related Loans. The Pre-Funded Amount will not exceed 50%
of the initial aggregate principal amount of the Securities of the related
Series. The Pre-Funded Amount will be used by the related Trustee to
purchase Subsequent Loans from Provident from time to time during the
Funding Period. The Funding Period, if any, for a Trust Fund will begin
on the related Closing Date and will end on the date specified in the
related Prospectus Supplement, which in no event will be later than the
date that is one year after the related Closing Date. Monies on deposit
in the Pre-Funding Account may be invested in Permitted Investments under
the circumstances and in the manner described in the related Agreement.
Earnings on investment of funds in the Pre-Funding Account will be
deposited into the related Security Account or such other trust account as
is specified in the related Prospectus Supplement and losses will be
charged against the funds on deposit in the Pre-Funding Account. Any
amounts remaining in the Pre-Funding Account at the end of the Funding
Period will be distributed to the related Securityholders in the manner
and priority specified in the related Prospectus Supplement, as a
prepayment of principal of the related Securities.
In addition, if so provided in the related Prospectus Supplement, on
the related Closing Date Provident will deposit in an account (the
"Capitalized Interest Account") cash in such amount as is necessary to
cover shortfalls in interest on the related Series of Securities that may
arise as a result of utilization of the Pre-Funding Account as described
above. The Capitalized Interest Account shall be maintained with the
Trustee for the related Series of Securities and is designed solely to
cover the above-mentioned interest shortfalls. Monies on deposit in the
Capitalized Interest Account will not be available to cover losses on or
in respect of the related Loans. To the extent that the entire amount on
deposit in the Capitalized Interest Account has not been applied to cover
shortfalls in interest on the related Series of Securities by the end of
the Funding Period, any amounts remaining in the Capitalized Interest
Account will be paid to Provident.
SUB-SERVICING
The Master Servicer may enter into an agreement (a "Sub-Servicing
Agreement") with any servicing entity which will act as the Sub-Servicer
for the related Loans, which Sub-Servicing Agreement will not contain any
terms inconsistent with the related Agreement. Notwithstanding any such
subservicing arrangement, unless otherwise provided in the related
Prospectus Supplement, the Master Servicer will remain liable for its
servicing duties and obligations under the Master Servicing Agreement as
if the Master Servicer alone were servicing the Loans.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers,
will make reasonable efforts to collect all payments called for under the
Loans and will, consistent with each Agreement and any Pool Insurance
Policy, Primary Mortgage Insurance Policy, bankruptcy bond or alternative
arrangements, follow such collection procedures as are customary with
respect to loans that are comparable to the Loans. Consistent with the
above, the Master Servicer may, in its discretion, (i) waive any
assumption fee, late payment or other charge in connection with a Loan and
(ii) to the extent not inconsistent with the coverage of such Loan by a
Pool Insurance Policy, Primary Mortgage Insurance Policy, bankruptcy bond
or alternative arrangements, if applicable, arrange with a borrower a
schedule for the liquidation of delinquencies consistent with the Master
Servicer's policies with respect to the mortgage loans it owns and
services for others. To the extent the Master Servicer is obligated to
make or cause to be made Advances, such obligation will remain during any
period of such an arrangement.
In any case in which property securing a Loan has been, or is about
to be, conveyed by the mortgagor or obligor, 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 Loan under any due-on-sale clause applicable thereto, but only if the
exercise of such rights is permitted by applicable law. If these
conditions are not met or if the Master Servicer reasonably believes it is
unable under applicable law 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 property has been or
is about to be conveyed, pursuant to which such person becomes liable for
repayment of the Loan and, to the extent permitted by applicable law, the
mortgagor 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 Loans--Due-on-Sale
Clauses". In connection with any such assumption, the terms of the
related Loan may not be changed.
HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement,
the Master Servicer will require the mortgagor or obligor on each 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 Property in the state in which such 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 Loan from time to time, (ii) the combined principal balance owing on
such Loan and any mortgage loan senior to such Loan and (iii) the minimum
amount required to compensate for damage or loss on a replacement cost
basis. All amounts collected by the Master Servicer under any hazard
policy (except for amounts to be applied to the restoration or repair of
the Property or released to the mortgagor or obligor in accordance with
the Master Servicer's normal servicing procedures) will be deposited in
the related Security Account. In the event that the Master Servicer
maintains a blanket policy insuring against hazard losses on all the Loans
comprising part of a Trust Fund, 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 Security Account the amounts which 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
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
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 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 Property securing a Loan is located in a federally
designated special flood area at the time of origination, the Master
Servicer will require the mortgagor or obligor to obtain and maintain
flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all
time to carry insurance of a specified percentage (generally 80% to 90%)
of the full replacement value of the insured 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 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 the amount of hazard insurance the Master Servicer
may cause to be maintained on the improvements securing the Loans declines
as the principal balances owing thereon decrease, and since improved real
estate generally has appreciated in value over time in the past, the
effect of this requirement in the event of partial loss may be that hazard
insurance proceeds will 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."
If the Property securing a defaulted Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore
the damaged Property, the Master Servicer is not required to expend its
own funds to restore the damaged Property unless it determines (i) that
such restoration will increase the proceeds to Securityholders on
liquidation of the 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 recovery on a defaulted Loan under any related Insurance Policy is
not available, or if the defaulted Loan is not covered by an 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 Loan. If the proceeds of any
liquidation of the Property securing the defaulted Loan are less than the
principal balance of such Loan plus interest accrued thereon that is
payable to Securityholders, the Trust Fund 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 which 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 Loan
plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security
Account amounts representing its normal servicing compensation with
respect to such 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
borrower, 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 such Loan plus interest accrued thereon that is
payable to Securityholders, the Master Servicer will be entitled to
withdraw or retain from the Security Account amounts representing its
normal servicing compensation with respect to such Loan. In the event
that the Master Servicer has expended its own funds to restore the damaged
Property and such funds have not been reimbursed under the related hazard
insurance policy, it will be entitled to withdraw from the Security
Account out of related Liquidation Proceeds or Insurance Proceeds an
amount equal to such expenses incurred by it, in which event the Trust
Fund 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 Fund which exceeds the principal balance of the defaulted
Loan together with accrued interest thereon. See "Credit Enhancement".
The proceeds from any liquidation of a Loan will be applied in the
following order of priority: first, to reimburse the Master Servicer for
any unreimbursed expenses incurred by it to restore the related Property
and any unreimbursed servicing compensation payable to the Master Servicer
with respect to such Loan; second, to reimburse the Master Servicer for
any unreimbursed Advances with respect to such Loan; third, to accrued and
unpaid interest (to the extent no Advance has been made for such amount)
on such Loan; and fourth, as a recovery of principal of such Loan.
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. If so specified in the related
Prospectus Supplement, the Master Servicer will maintain or cause to be
maintained, as the case may be, in full force and effect, a Primary
Mortgage Insurance Policy with regard to each Loan for which such coverage
is required. Primary Mortgage Insurance Policies reimburse certain losses
sustained by reason of defaults in payments by borrowers. 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 Securities that is required to be kept in force under the applicable
Agreement unless the replacement Primary Mortgage Insurance Policy for
such cancelled or nonrenewed policy is maintained with an insurer whose
claims-paying ability is sufficient to maintain the current rating of the
classes of Securities of such Series that have been rated.
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
Securities 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 Loan, and such compensation
will be retained by it from collections of interest on such Loan in the
related Trust Fund (the "Master Servicing Fee"). As compensation for its
servicing duties, a Sub-Servicer, if any, will be entitled to a monthly
servicing fee as described in the related Prospectus Supplement. In
addition, the Master Servicer or Sub-Servicer will retain all prepayment
charges, assumption fees and late payment charges, to the extent collected
from borrowers, and any benefit that may accrue as a result of the
investment of funds in the applicable Security Account (unless otherwise
specified in the related Prospectus Supplement).
The Master Servicer will pay or cause to be paid certain ongoing
expenses associated with each Trust Fund and incurred by it in connection
with its responsibilities under the related Agreement, including, without
limitation, and if so specified in the related Prospectus Supplement,
payment of any fee or other amount payable in respect of any credit
enhancement arrangements, 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. The Master Servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of Sub-
Servicers under certain limited circumstances.
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 or the Audit
Program for Mortgages serviced for FHLMC, the servicing by or on behalf of
the Master Servicer of the Trust Fund Assets pursuant to the Agreement was
conducted in compliance therewith except for any significant exceptions or
errors in records that, in the opinion of the firm, the Audit Program for
Mortgages serviced for FHLMC, or the Uniform Single Attestation Program
for Mortgage Bankers, it is required to report. In rendering its
statement such firm may rely, as to matters relating to the direct
servicing of Loans by Sub-Servicers, upon comparable statements for
examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC (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 two
officers 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 Securityholders of the
related Series without charge upon written request to the Master Servicer
at the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND PROVIDENT
The Master Servicer under each Pooling and Servicing Agreement or
Master Servicing Agreement, as applicable, will be named in the related
Prospectus Supplement. Provident, an affiliate of Provident or another
entity may serve as Master Servicer.
Each Agreement will provide that the Master Servicer may not resign
from its obligations and duties under the Agreement except upon (a)
appointment of a successor servicer and receipt by the Trustee of a letter
from the Rating Agency that such resignation and appointment will not
result in a downgrade of the Securities and (b) a determination that its
duties thereunder are no longer permissible under applicable law. The
Master Servicer may, however, be removed from its obligations and duties
as set forth in the Agreement. 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,
Provident nor any director, officer, employee, or agent of the Master
Servicer or Provident will be under any liability to the related Trust
Fund or Securityholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Master Servicer,
Provident nor
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any such person will be protected against any liability which would
otherwise be imposed by reason of wilful misfeasance, bad faith or gross
negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. Each Agreement
will further provide that the Master Servicer, Provident and any director,
officer, employee or agent of the Master Servicer or Provident will be
entitled to indemnification by the related Trust Fund and will be held
harmless against any loss, liability or expense incurred in connection
with any legal action relating to the Agreement or the Securities, other
than any loss, liability or expense related to any specific Loan or Loans
(except any such loss, liability or expense otherwise reimbursable
pursuant to the Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Agreement will
provide that neither the Master Servicer nor Provident 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 or Provident may, however, in its discretion undertake any
such action which it may deem necessary or desirable with respect to the
Agreement and the rights and duties of the parties thereto and the
interests of the Securityholders 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 Fund, and the Master
Servicer or Provident, as the case may be, will be entitled to be
reimbursed therefor out of funds otherwise distributable to
Securityholders.
Except as otherwise specified in the related Prospectus Supplement,
any person into which the Master Servicer may be merged or consolidated,
or any person resulting from any merger or consolidation to which the
Master Servicer is a party, or any person succeeding to the business of
the Master Servicer, will be the successor of the Master Servicer under
each Agreement, provided that such person is qualified to sell mortgage
loans to, and service mortgage loans on behalf of, FNMA or FHLMC 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 Securities of such Series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Except
as otherwise specified in the related Prospectus Supplement, Events of
Default under each Agreement will consist of (i) any failure by the Master
Servicer to make any required deposit pursuant to the related Agreement
(other than an Advance) which continues unremedied for five 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 a holder of the
Securities of the related Series; (ii) any failure by the Master Servicer
to make an Advance as required under the Agreement; (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 a holder of the Securities of the related Series; and
(iv) certain events of insolvency, readjustments of debt, marshalling of
assets and liabilities or similar proceedings 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 Trust Fund Assets in the event that
payments in respect thereto are insufficient to make payments required in
the Agreement. The Trust Fund Assets will be sold only under the
circumstances and in the manner specified in the related Prospectus
Supplement.
Unless otherwise provided in the related Prospectus Supplement, so
long as an Event of Default under an Agreement remains unremedied, the
Trustee may (and at the direction of holders of Securities evidencing not
less than 51% of the aggregate Percentage Interests 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 Fund and in and to the related Trust
Fund Assets, 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; provided, however, that if the
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Event of Default results from the Master Servicer's failure to make an
Advance, the Trustee shall terminate the Master Servicer. 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 a least
$50,000,000 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 upon the
servicing compensation to be paid, which in no event may be greater than
the compensation payable to the Master Servicer under the Agreement.
Unless otherwise provided in the related Prospectus Supplement, no
Securityholder, solely by virtue of such holder's status as a
Securityholder, 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 Securities of any class of such Series evidencing not less than 25% of
the aggregate Percentage Interests constituting such class 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.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default in the payment of any principal of or interest on
any Note of such Series which continues unremedied for five days after
written notice of such default is given as specified in the related
Prospectus Supplement; (ii) failure to perform in any material respect any
other covenant of Provident or the Trust Fund in the Indenture which
continues for a period of thirty days after notice thereof is given in
accordance with the procedures described in the related Prospectus
Supplement; (iii) certain events of bankruptcy, insolvency, receivership
or liquidation of Provident or the Trust Fund; or (iv) any other Event of
Default provided with respect to Notes of that Series including but not
limited to certain defaults on the part of the issuer, if any, of a credit
enhancement instrument supporting such Notes.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the
holders of a majority of the then aggregate outstanding amount of the
Notes of such Series may declare the principal amount (or, if the Notes of
that Series have an interest rate of 0%, such portion of the principal
amount as may be specified in the terms of that Series, as provided in the
related Prospectus Supplement) of all the Notes of such Series to be due
and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the holders of more than 50%
of the Percentage Interests of the Notes of such Series.
If, following an Event of Default with respect to any Series of
Notes, the Notes of such Series have been declared to be due and payable,
the Trustee may, in its discretion, notwithstanding such acceleration,
elect to maintain possession of the collateral securing the Notes of such
Series and to continue to apply distributions on such collateral as if
there had been no declaration of acceleration if such collateral continues
to provide sufficient funds for the payment of principal of and interest
on the Notes of such Series as they would have become due if there had not
been such a declaration. In addition, the Trustee may not sell or
otherwise liquidate the collateral securing the Notes of a Series
following an Event of Default, other than a default in the payment of any
principal or interest on any Note of such Series which continues
unremedied for five days after written notice of such default is given as
specified in the related Prospectus Supplement, unless (a) the holders of
100% of the Percentage Interests of the Notes of such Series consent to
such sale, (b) the proceeds of such sale or liquidation are sufficient to
pay in full the principal of and accrued interest, due and unpaid, on the
outstanding Notes of such Series at the date of such sale or (c) the
Trustee determines that such collateral would not be sufficient on an
ongoing basis to make all payments on such Notes as such payments would
have become due if such Notes had not been declared due and payable, and
the Trustee obtains the consent of the holders of 662/3% of the Percentage
Interests of the Notes of such Series.
In the event that the Trustee liquidates the collateral in connection
with an Event of Default involving a default in the payment of principal
of or interest on the Notes of a Series which continues unremedied for
five days after written notice of such default is given as specified in
the related Prospectus Supplement, the Indenture provides that the Trustee
will have a prior lien on the proceeds of any such liquidation for unpaid
fees and expenses. As a result, upon the occurrence of such an Event of
Default, the amount available for distribution to the Noteholders would be
less than would otherwise be the case. However, the Trustee may not
institute a proceeding for the enforcement of its lien except in
connection with a proceeding for the enforcement of the lien of the
Indenture for the benefit of the Noteholders after the occurrence of such
an Event of Default.
Except as otherwise specified in the related Prospectus Supplement,
in the event the principal of the Notes of a Series is declared due and
payable as described above, the holders of any such Notes issued at a
discount from par may be entitled to receive no more than an amount equal
to the unpaid principal amount thereof less the amount of such discount
which is unamortized.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default shall occur and be continuing
with respect to a Series of Notes, the Trustee shall be under no
obligation to exercise any of the rights or powers under the Indenture at
the request or direction of any of the holders of Notes of such Series
unless such holders offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities which might
be incurred by it in complying with such request or direction. Subject to
such provisions for indemnification and certain limitations contained in
the Indenture, the holders of a majority of the then aggregate outstanding
amount of the Notes of such Series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Notes of such Series, and the holders of a
majority of the then aggregate outstanding amount of the Notes of such
Series may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of the Indenture that cannot be
modified without the waiver or consent of all the holders of the
outstanding Notes of such Series affected thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement,
each Agreement may be amended by Provident, the Master Servicer and the
Trustee, without the consent of any of the Securityholders, (i) to cure
any ambiguity; (ii) to correct or supplement any provision therein which
may be defective or inconsistent with any other provision therein; or
(iii) to make any other revisions with respect to matters or questions
arising under the Agreement which are not inconsistent with the provisions
thereof, provided that such action will not adversely affect in any
material respect the interests of any Securityholder. An amendment will
be deemed not to adversely affect in any material respect the interests of
the Securityholders if the person requesting such amendment obtains a
letter from each Rating Agency requested to rate the class or classes of
Securities of such Series stating that such amendment will not result in
the downgrading or withdrawal of the respective ratings then assigned to
such Securities. In addition, to the extent provided in the related
Agreement, an Agreement may be amended without the consent of any of the
Securityholders to change the manner in which the Security Account is
maintained, provided that any such change does not adversely affect the
then current rating on the class or classes of Securities of such Series
that have been rated. In addition, if a REMIC election is made with
respect to a Trust Fund, 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 Fund 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. Except as otherwise specified in the related Prospectus
Supplement, each Agreement may also be amended by Provident, the Master
Servicer and the Trustee with consent of holders of Securities of such
Series evidencing not less than 51% of the aggregate Percentage Interests
of each class affected thereby for the purpose of adding any provisions to
or changing in an manner or eliminating any of the provisions of the
Agreement or of modifying in any manner the rights of the holders of the
related Securities; provided, however, that no such amendment may (i)
reduce in any -------- -------
manner the amount of or delay the timing of, payments received on Loans
which are required to be distributed on any Security without the consent
of the holder of such Security, or (ii) reduce the aforesaid percentage of
Securities of any class the holders of which are required to consent to
any such amendment without the consent of the holders of all Securities of
such class covered by such Agreement then outstanding. If a REMIC
election is made with respect to a Trust Fund, the Trustee will not be
entitled to consent to an amendment to the related Agreement without
having first received an opinion of counsel to the effect that such
amendment will not cause such Trust Fund to fail to qualify as a REMIC.
TERMINATION; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each
Pooling and Servicing Agreement and Trust Agreement for each Series of
Securities will terminate upon the payment to the related Securityholders
of all amounts held in the Security Account by the Master Servicer and
required to be paid to them pursuant to such Agreement following the later
of (i) the final payment of or other liquidation of the last of the Trust
Fund Assets subject thereto or the disposition of all property acquired
upon foreclosure of any such Trust Fund Assets remaining in the Trust Fund
and (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 or any other party specified
to have such right (see "Federal Income Tax Consequences" below), from the
related Trust Fund of all of the remaining Trust Fund Assets and all
property acquired in respect of such Trust Fund Assets.
Unless otherwise specified by the related Prospectus Supplement, any
such purchase of Trust Fund Assets and property acquired in respect of
Trust Fund Assets evidenced by a Series of Securities will be made at the
option of the Master Servicer, such other person or, if applicable, such
holder of the REMIC residual interest, at a price specified in the related
Prospectus Supplement. The exercise of such right will affect early
retirement of the Securities of that Series, but the right of the Master
Servicer, such other person or, if applicable, such holder of the REMIC
residual interest, to so purchase is subject to the principal balance of
the related Trust Fund Assets being less than the percentage specified in
the related Prospectus Supplement of the aggregate principal balance of
the Trust Fund Assets at the Cut-off Date for the Series. The foregoing
is subject to the provision that if a REMIC election is made with respect
to a Trust Fund, 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.
Indenture. The Indenture will be discharged with respect to a Series
of Notes (except with respect to certain continuing rights specified in
the Indenture) upon the delivery to the Trustee for cancellation of all
the Notes of such Series or, with certain limitations, upon deposit with
the Trustee of funds sufficient for the payment in full of all of the
Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any
Series, the related Trust Fund will be discharged from any and all
obligations in respect of the Notes of such Series (except for certain
obligations relating to temporary Notes and exchange of Notes, to register
the transfer of or exchange Notes of such Series, to replace stolen, lost
or mutilated Notes of such Series, to maintain paying agencies and to hold
monies for payment in trust) upon the deposit with the Trustee, in trust,
of money and/or direct obligations of or obligations guaranteed by the
United States of America which through the payment of interest and
principal in respect thereof in accordance with their terms will provide
money in an amount sufficient to pay the principal of and each installment
of interest on the Notes of such Series on the last scheduled Distribution
Date for such Notes and any installment of interest on such Notes in
accordance with the terms of the Indenture and the Notes of such Series.
In the event of any such defeasance and discharge of Notes of such Series,
holders of Notes of such Series would be able to look only to such money
and/or direct obligations for payment of principal and interest, if any,
on their Notes until maturity.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with Provident, the Master
Servicer and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Loans. Because such
legal aspects are governed primarily by applicable state law (which laws
may differ substantially), the descriptions do not, except as expressly
provided below, reflect the laws of any particular state, nor do they
encompass the laws of all states in which the security for the Loans is
situated. The descriptions are qualified in their entirety by reference
to the applicable federal laws and the appropriate laws of the states in
which Loans may be originated.
GENERAL
The Loans for a Series may 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. Deeds of trust are used almost exclusively in California instead
of mortgages. 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 on their
terms and generally on the order of recording with a state or county
office. 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 called the trustor (similar to a mortgagor), 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, as opposed to merely creating a lien upon, the subject property
to the grantee 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/REPOSSESSION
Deed of Trust. Foreclosure of a deed of trust is generally
accomplished by a non-judicial 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 addition to any notice requirements contained in a deed of
trust, in some states (such as California), the trustee must record a
notice of default and send a copy to the borrower-trustor, to any person
who has recorded a request for a copy of any notice of default and notice
of sale, to any successor in interest to the borrower-trustor, to the
beneficiary of any junior deed of trust and to certain other persons. In
some states (including California), 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 statutorily
prescribed reinstatement period, cure a monetary default by paying the
entire amount in arrears plus other designated costs and expenses incurred
in enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. After the reinstatement period has expired without
the default having been cured, the borrower or junior lienholder no longer
has the right to reinstate the loan and must pay the loan in full to
prevent the scheduled foreclosure sale. 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 (including California),
published for a specific period of time in one or more newspapers. In
addition, some state laws require that a copy of the notice of sale be
posted on the property and sent to all parties having an interest of
record in the real property. In California, the entire process from
recording a notice of default to a non-judicial sale usually takes four to
five months.
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. Judicial foreclosure
proceedings are often not contested by any of the parties. When the
mortgagee's right to foreclosure is contested, the legal proceedings
necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally
issues a judgment of foreclosure and appoints a referee or other court
officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings
and a requirement that the purchaser pay for the property in cash or by
cashier's check. Thus the foreclosing lender often purchases the property
from the trustee or referee for an amount equal to the principal amount
outstanding under the loan, accrued and unpaid interest and the expenses
of foreclosure in which event the mortgagor's debt will be extinguished or
the lender may purchase for a lesser amount in order to preserve its right
against a borrower to seek a deficiency judgment in states where such
judgment is available. Thereafter, subject to the right of the borrower
in some states to remain in possession during the redemption period, the
lender will assume the burden of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain
the services of a real estate broker and pay the broker's 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 guaranty insurance proceeds.
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.
When the beneficiary under a junior mortgage or deed of trust cures
the default and reinstates or redeems by paying the full amount of the
senior mortgage or deed of trust, the amount paid by the beneficiary so to
cure or redeem becomes a part of the indebtedness secured by the junior
mortgage or deed of trust. See "Junior Mortgages; Rights of Senior
Mortgagees" below.
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 CERCLA, the United States Environmental
Protection Agency ("EPA") may impose a lien on property where EPA has
incurred clean-up costs. However, a CERCLA lien is subordinate to pre-
existing, perfected security interests.
Under the laws of some states and under CERCLA, it is conceivable
that a secured lender may be held liable as an "owner" or "operator" for
the costs of addressing releases or threatened releases of hazardous
substances at a property, even though the environmental damage or threat
was caused by a prior or current owner or operator. CERCLA imposes
liability for such costs on any and all "responsible parties," including
owners or operators. However, CERCLA excludes from the definition of
"owner or operator" a secured creditor who holds indicia of ownership
primarily to protect its security interest but without "participating in
the management" of the Property (the "Secured Creditor Exclusion"). Thus,
if a lender's activities begin to encroach on the actual management of a
contaminated facility or property, the lender may incur liability as an
"owner or operator" under CERCLA. Similarly, if a lender forecloses and
takes title to a contaminated facility or property, the lender may incur
CERCLA liability in various circumstances, including, but not limited to,
when it holds the facility or property as an investment (including leasing
the facility or property to third party) or fails to market the property
in a timely fashion.
Whether actions taken by a lender would constitute participation in
the management of a mortgaged property or the business of a borrower so as
to render the secured creditor exemption unavailable to a lender has been
a matter of judicial interpretation of the statutory language, and court
decisions have been inconsistent. In 1990, the Court of Appeals for the
Eleventh Circuit suggested that the mere capacity of the lender to
influence a borrower's decisions regarding disposal of hazardous
substances was sufficient participation in the management of the
borrower's business to deny the protection of the Secured Creditor
Exclusion to the lender.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act
of 1996, which was signed into law by President Clinton on September 30,
1996. The new legislation provides that in order to be deemed to have
participated in the management of a mortgaged property, a lender must
actually participate in the operational affairs of the property or the
borrower. The legislation also provides that participation in the
management of the property does not include "merely having the capacity to
influence, or unexercised right to control" operations. Rather, a lender
will lose the protection of the Secured Creditor Exclusion only if it
exercises decision-making control over the borrower's environmental
compliance and hazardous substance handling and disposal practices, or
assumes day-to-day management of all operational functions of the
mortgaged property. If a lender is or becomes liable, it can bring an
action for contribution against any other "responsible parties," including
a previous owner or operator, who created the environmental hazard, but
those persons or entities may be bankrupt or otherwise judgment proof.
The costs associated with environmental cleanup may be substantial. It is
conceivable that such costs arising from the circumstances set forth above
would result in a loss to Securityholders.
CERCLA does not apply to petroleum products, and the Secured Creditor
Exclusion does not govern liability for cleanup costs under federal laws
other than CERCLA, in particular Subtitle I of the federal Resource
Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum storage tanks (except heating oil tanks). The EPA has adopted a
lender liability rule for underground storage tanks under Subtitle I of
RCRA. Under such rule, a holder of a security interest in an underground
storage tank or real property containing an underground storage tank is
not considered an operator of the underground storage tank as long as
petroleum is not added to, stored in or dispensed from the tank. In
addition, under the Asset Conservation, Lender Liability and Deposit
Insurance Protection Act of 1996, the protections accorded to lenders
under CERCLA are also accorded to the holders of security interests in
underground storage tanks. Liability for cleanup of petroleum
contamination may, however, be governed by state law, which may not
provide for any specific protection for secured creditors.
Except as otherwise specified in the related Prospectus Supplement,
at the time the Loans were originated, no environmental assessments or
very limited environmental assessments of the Properties were conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure
sale. In certain other states (including California), this right of
redemption applies only to sales following judicial foreclosure and not to
sales pursuant to a non-judicial power of sale. In most states where the
right of redemption is available, statutory redemption may occur upon
payment of the foreclosure purchase price, accrued interest and taxes. In
other states, redemption may be authorized if the former borrower pays
only a portion of the sums due. The effect of a statutory right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of
any purchaser from the lender subsequent to 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. In some states, there is
no right to redeem property after a trustee's sale under a deed of trust.
ANTI-DEFICIENCY LEGISLATION; BANKRUPTCY LAWS; TAX LIENS
Certain states have imposed statutory and judicial restrictions that
limit the remedies of a beneficiary under a deed of trust or a mortgagee
under a mortgage. In some states, including California, statutes and case
law limit the right of the beneficiary or mortgagee to obtain a deficiency
judgment against borrowers financing the purchase of their residence or
following sale under a deed of trust or certain other foreclosure
proceedings. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to
the lender and the fair market value of the real property at the time of
the foreclosure sale. As a result of these prohibitions, it is
anticipated that in most instances the Master Servicer will utilize the
non-judicial foreclosure remedy and will not seek deficiency judgments
against defaulting borrowers.
Some state statutes require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in
an attempt to satisfy the full debt before bringing a personal action
against the borrower. In certain other states, the lender has the option
of bringing a personal action against the borrower on the debt without
first exhausting such security; 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 security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually
proceed first against the security rather than bringing a personal action
against the borrower. 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. Finally, other
statutory provisions limit any deficiency judgment against the former
borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of the public
sale. The purpose of these statutes is generally to prevent a beneficiary
or a mortgagee from obtaining a large deficiency judgment against the
former borrower as a result of low or no bids at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous
other federal and state statutory provisions, including the federal
bankruptcy laws and state laws affording relief to debtors, may interfere
with or affect the ability of the secured mortgage lender to realize upon
its security. For example, in a proceeding under the federal Bankruptcy
Code, a lender may not foreclose on a mortgaged property without the
permission of the bankruptcy court. 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 Loans underlying a Series of Securities and
possible reductions in the aggregate amount of such payments.
The federal tax laws provide priority to certain tax liens over the
lien of a mortgage or secured party.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will generally
provide that if the mortgagor or obligor sells, transfers or conveys the
Property, the Loan or contract may be accelerated by the mortgagee or
secured party. Court decisions and legislative actions have placed
substantial restrictions 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 a result, due-on-sale clauses are generally enforceable except 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.
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 Act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have
occurred. The inability to enforce a due-on-sale clause may result in
transfer of the related Property to an uncreditworthy person, which could
increase the likelihood of default or may result in a mortgage bearing an
interest rate below the current market rate being assumed by a new home
buyer, which may affect the average life of the Loans and the number of
Loans which may extend to maturity.
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.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
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, and in some circumstances may provide for
prepayment fees or penalties if the obligation is paid prior to maturity.
In certain states, there are or may be specific limitations upon the late
charges which a lender may collect from a borrower for delinquent
payments. Certain states also limit the amounts that a lender may collect
from a borrower as an additional charge if the loan is prepaid. Under
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 Properties will be owner-
occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the Loans. The absence of such a restraint on
prepayment, particularly with respect to fixed rate Loans having higher
Loan Rates, may increase the likelihood of refinancing or other early
retirement of such Loans or contracts. Late charges and prepayment fees
are typically retained by servicers as additional servicing compensation.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 ("Title V") provides that state usury limitations
shall not apply to certain types of residential first mortgage loans
originated by certain lenders after March 31, 1980. The Office of Thrift
Supervision, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. Title V authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state
is authorized by the law to adopt a provision limiting discount points or
other charges on mortgage loans covered by Title V. Certain states have
taken action to reimpose interest rate limits and/or to limit discount
points or other charges.
HOME IMPROVEMENT CONTRACTS
General. Home Improvement Contracts, other than those Home
Improvement Contracts that are unsecured or secured by mortgages on real
estate, (such Home Improvement Contracts hereinafter referred to in this
section as "contracts") generally are "chattel paper" or constitute
"purchase money security interests", each as defined in the UCC. Pursuant
to the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related
Agreement, Provident will transfer physical possession of the contracts to
the Trustee or a designated custodian or may retain possession of the
contracts as custodian for the Trustee. In addition, Provident will make
an appropriate filing of a UCC-1 financing statement in the appropriate
states to, among other things, give notice of the Trust Fund's ownership
of the contracts. Unless otherwise specified in the related Prospectus
Supplement, the contracts will not be stamped or otherwise marked to
reflect their assignment from Provident to the Trustee. Therefore, if
through negligence, fraud or otherwise, a subsequent purchaser were able
to take physical possession of the contracts without notice of such
assignment, the Trust Fund's interest in the contracts could be defeated.
Security Interests in Home Improvements. The contracts that are
secured by the Home Improvements financed thereby grant to the originator
of such contracts a purchase money security interest in such Home
Improvements to secure all or part of the purchase price of such Home
Improvements and related services. A financing statement generally is not
required to be filed to perfect a purchase money security interest in
consumer goods. Such purchase money security interests are assignable.
In general, a purchase money security interest grants to the holder a
security interest that has priority over a conflicting security interest
in the same collateral and the proceeds of such collateral. However, to
the extent that the collateral subject to a purchase money security
interest becomes a fixture, in order for the related purchase money
security interest to take priority over a conflicting interest in the
fixture, the holder's interest in such Home Improvement must generally be
perfected by a timely fixture filing. In general, a security interest
does not exist under the UCC in ordinary building material incorporated
into an improvement on land. Contracts that finance lumber, bricks, other
types of ordinary building material or other goods that are deemed to lose
such characterization upon incorporation of such materials into the
related property will not be secured by a purchase money security interest
in the Home Improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as
the Home Improvement has not become subject to real estate law, a creditor
can repossess a Home Improvement securing a contract by voluntary
surrender, by "self-help" repossession that is "peaceful" (i.e., without
breach of the peace) or, in the absence of voluntary surrender and the
ability to repossess without breach of the peace, by judicial process.
The holder of a contract must give the debtor a specified number of days'
notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in
most states place restrictions on repossession sales, including requiring
prior notice to the debtor and commercial reasonableness in effecting such
a sale. The law in most states also requires that the debtor be able to
redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on
repossession and resale of the property securing the debtor's loan.
However, some states impose prohibitions or limitations on deficiency
judgments, and in many cases the defaulting borrower would have no assets
with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit
or delay the ability of a lender to repossess and resell collateral or
enforce a deficiency judgment.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule
of the Federal Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of goods
which gave rise to the transaction (and certain related lenders and
assignees) to transfer such contract free of notice of claims by the
debtor thereunder. The effect of this rule is to subject the assignee of
such a contract to all claims and defenses which the debtor could assert
against the seller of goods. Liability under this rule is limited to
amounts paid under a contract; however, the obligor also may be able to
assert the rule to set off remaining amounts due as a defense against a
claim brought by the assignee against such obligor. Numerous other
federal and state consumer protection laws impose requirements applicable
to the origination of, and lending pursuant to, the contracts, including
the Truth in Lending Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to
comply with their provisions may affect the enforceability of the related
contract.
Applicability of Usury Laws. Title V provides that, subject to the
following conditions, state usury limitations shall not apply to any
contract which is secured by a first lien on certain kinds of consumer
goods. The contracts are covered if they satisfy certain conditions
governing, among other things, the terms of any prepayments, late charges
and deferral fees and if they require a 30-day notice period prior to
instituting any action leading to repossession of the related unit.
Title V authorized any state to reimpose limitations on interest
rates and finance charges by adopting before April 1, 1983 a law or
constitutional provision which expressly rejects application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1983
deadline. In addition, even where Title V was not so rejected, any state
is authorized by the law to adopt a provision limiting discount points or
other charges on loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts. Under an
installment contract ("Installment Contract"), the seller (hereinafter
referred to in this section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser (hereinafter
referred to in this section as the "borrower") for the payment of the
purchase price, plus interest, over the term of such Installment Contract.
Only after full performance by the borrower of the contract is the lender
obligated to convey title to the property to the borrower. As with
mortgage or deed of trust financing, during the effective period of the
Installment Contract, the borrower is generally responsible for
maintaining the property in good condition and for paying real estate
taxes, assessments and hazard insurance premiums associated with the
property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to
which state courts are willing, or able pursuant to state statute, to
enforce the Installment Contract strictly according to its terms. The
terms of Installment Contracts generally provide that upon a default by
the borrower, the borrower loses the right to occupy the property, the
entire indebtedness is accelerated, and the buyer's equitable interest in
the property is forfeited. The lender in such a situation does not have
to foreclose in order to obtain title to the property, although in some
cases a quiet title action is in order if the borrower has filed the
Installment Contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases
of borrower default during the early years of an Installment Contract, the
courts will permit ejectment of the buyer and a forfeiture of his or her
interest in the property. However, most state legislatures have enacted
provisions analogous to mortgage laws which protect borrowers under
Installment Contracts from the harsh consequences of forfeiture. Under
such statutes, a judicial or nonjudicial foreclosure may be required, the
lender may be required to give notice of default, the borrower may be
granted some grace period during which the Installment Contract may be
reinstated upon full payment of the default amount and the borrower may
have a post-foreclosure statutory redemption right. In other states,
courts in equity may permit a borrower with a significant investment in
the property under an Installment Contract to share in the proceeds of
sale of the property after the indebtedness is repaid or may otherwise
refuse to enforce the forfeiture clause. Nevertheless, generally
speaking, the lender's procedures for obtaining possession and clear title
under an Installment Contract in a given state are simpler, less time-
consuming and less costly than are the procedures for foreclosing and
obtaining clear title to a property subject to one or more liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's 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 Loan and is later called to active
duty) may not be charged interest above an annual rate of 6% during the
period of such borrower's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such
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 Loans. Unless otherwise provided in the
related Prospectus Supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to
Securityholders. The Relief Act also imposes limitations which would
impair the ability of the Master Servicer to foreclose on an affected Loan
during the borrower's period of active duty status. Moreover, the Relief
Act permits the extension of a Loan's maturity and the re-adjustment of
its payment schedule beyond the completion of military service. Thus, in
the event that such a Loan goes into default, there may be delays and
losses occasioned by the inability to realize upon the Property in a
timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the Loans comprising the Trust Fund for a Series
are secured by mortgages which are junior to other mortgages held by other
lenders or institutional investors, the rights of the Trust Fund (and
therefore the Securityholders) as mortgagee under any such junior mortgage
are subordinate to those of any mortgagee under any senior mortgage. The
senior mortgagee has the right to receive hazard insurance and
condemnation proceeds and to cause the property securing the 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 a default and
bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In most states, absent a provision
in the mortgage or deed of trust, no notice of default is required to be
given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage, in such order as the mortgagee 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 a senior mortgage 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
senior mortgage. Proceeds in excess of the amount of senior mortgage
indebtedness, in most cases, may be applied to the indebtedness of a
junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay
before delinquency 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, and to appear in and defend any action
or proceeding purporting to affect the property or the rights of the
mortgagee under the mortgage. Upon a failure of the mortgagor to perform
any of these obligations, the mortgagee is given the right under certain
mortgages to perform the obligation itself, at its election, with the
mortgagor reimbursing the mortgagee for any sums expended by the mortgagee
on behalf of the mortgagor. All sums so expended by the mortgagee become
part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically
contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the borrower by the
beneficiary or lender are to be secured by the deed of trust or mortgage.
Any amounts so advanced after the Cut-off Date with respect to any
Mortgage will not be included in the Trust Fund. The priority of the lien
securing any advance made under the clause may depend in most states on
whether the deed of trust or mortgage is called and recorded as a credit
line deed of trust or mortgage. If the beneficiary or lender advances
additional amounts, the advance is entitled to receive the same priority
as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages
and other liens which intervene between the date of recording of the trust
deed or mortgage and the date of the future advance, and notwithstanding
that the beneficiary or lender had actual knowledge of such intervening
junior trust deeds or mortgages and other liens at the time of the
advance. In most states, the trust deed or mortgage lien securing
mortgage loans of the type which includes home equity credit lines applies
retroactively to the date of the original recording of the trust deed or
mortgage, provided that the total amount of advances under the home equity
credit line does not exceed the maximum specified principal amount of the
recorded trust deed or mortgage and except as to advances made after
receipt by the lender of a written notice of lien from a judgment lien
creditor of the trustor.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with
originating, servicing and enforcing loans secured by Single Family
Properties. These laws include the federal Truth-in-Lending Act and
Regulation Z promulgated thereunder, Real Estate Settlement Procedures Act
and Regulation B promulgated thereunder, Equal Credit Opportunity Act,
Fair Credit Billing Act, Fair Credit Reporting Act and related statutes
and regulations. In particular, Regulation Z requires certain disclosures
to borrowers regarding terms of the Loans; the Equal Credit Opportunity
Act and Regulation B promulgated thereunder prohibit discrimination in the
extension of credit 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; and the
Fair Credit Reporting Act regulates the use and reporting of information
related to the borrower's credit experience. Certain provisions of these
laws impose specific statutory liabilities upon lenders who fail to comply
therewith. In addition, violations of such laws may limit the ability of
Provident to collect all or part of the principal of or interest on the
Loans and could subject Provident and in some cases its assignees to
damages and administrative enforcement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of the anticipated material federal income
tax consequences of the purchase, ownership, and disposition of the
Securities and is based on advice of Brown & Wood LLP, special counsel to
Provident. The summary is based upon the provisions of the Code, the
regulations promulgated thereunder, including, where applicable, proposed
regulations, and the judicial and administrative rulings and decisions now
in effect, all of which are subject to change or possible differing
interpretations. The statutory provisions, regulations, and
interpretations on which this interpretation is based are subject to
change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal
income taxation that may affect particular investors in light of their
individual circumstances, nor with certain types of investors subject to
special treatment under the federal income tax laws. This summary focuses
primarily upon investors who will hold Securities as "capital assets"
(generally, property held for investment) within the meaning of Section
1221 of the Code, but much of the discussion is applicable to other
investors as well. Prospective investors are advised to consult their own
tax advisers concerning the federal, state, local and any other tax
consequences to them of the purchase, ownership and disposition of the
Securities.
The federal income tax consequences to Holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness;
(ii) an election is made to treat the Trust Fund relating to a particular
Series of Securities as a REMIC under the Code; (iii) the Securities
represent an ownership interest in some or all of the assets included in
the Trust Fund for a Series; or (iv) an election is made to treat the
Trust Fund relating to a particular Series of Certificates as a
partnership. The Prospectus Supplement for each Series of Securities will
specify how the Securities will be treated for federal income tax purposes
and will discuss whether a REMIC election, if any, will be made with
respect to such Series. Prior to issuance of each Series of Securities,
Provident shall file with the Commission a Form 8-K on behalf of the
related Trust Fund containing an opinion of Brown & Wood LLP with respect
to the validity of the information set forth under "Federal Income Tax
Consequences" herein and in the related Prospectus Supplement.
TAXATION OF DEBT SECURITIES
Status as Real Property Loans. Except to the extent otherwise
provided in the related Prospectus Supplement, Brown & Wood LLP will have
advised Provident that: (i) Securities held by a domestic building and
loan association will constitute "loans... secured by an interest in real
property" within the meaning of Code section 7701(a)(19)(C)(v); and (ii)
Securities held by a real estate investment trust will constitute "real
estate assets" within the meaning of Code section 856(c)(5)(A) and
interest on such Securities will be considered "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Code section 856(c)(3)(B).
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code section 593(d) to any taxable year beginning after
December 31, 1995.
Interest and Acquisition Discount. Securities representing regular
interests in a REMIC ("Regular Interest Securities") are generally taxable
to Holders in the same manner as evidences of indebtedness issued by the
REMIC. Stated interest on the Regular Interest Securities will be taxable
as ordinary income and taken into account using the accrual method of
accounting, regardless of the Holder's normal accounting method. Interest
(other than original issue discount) on Securities (other than Regular
Interest Securities) that are characterized as indebtedness for federal
income tax purposes will be includible in income by Holders thereof in
accordance with their usual methods of accounting. Securities
characterized as debt for federal income tax purposes and Regular Interest
Securities will be referred to hereinafter collectively as "Debt
Securities."
Debt Securities that are Compound Interest Securities will, and
certain of the other Debt Securities may, be issued with "original issue
discount" ("OID"). The following discussion is based in part on the rules
governing OID which are set forth in Sections 1271-1275 of the Code and
the Treasury regulations issued thereunder on February 2, 1994 (the "OID
Regulations"). A Holder should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to
prepayable securities, such as the Debt Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. A
Holder of a Debt Security must include such OID in gross income as
ordinary interest income as it accrues under a method taking into account
an economic accrual of the discount. In general, OID must be included in
income in advance of the receipt of the cash representing that income.
The amount of OID on a Debt Security will be considered to be zero if it
is less than a de minimis amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less
than a substantial amount of a particular class of Debt Securities is sold
for cash on or prior to the related Closing Date, the issue price for such
class will be treated as the fair market value of such class on such
Closing Date. The issue price of a Debt Security also includes the amount
paid by an initial Debt Security Holder for accrued interest that relates
to a period prior to the issue date of the Debt Security. The stated
redemption price at maturity of a Debt Security includes the original
principal amount of the Debt Security, but generally will not include
distributions of interest if such distributions constitute "qualified
stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the
Debt Security. The OID Regulations state that interest payments are
unconditionally payable only if a late payment or nonpayment is expected
to be penalized or reasonable remedies exist to compel payment. Certain
Debt Securities may provide for default remedies in the event of late
payment or nonpayment of interest. The interest on such Debt Securities
will be unconditionally payable and constitute qualified stated interest,
not OID. However, absent clarification of the OID Regulations, where Debt
Securities do not provide for default remedies, the interest payments will
be included in the Debt Security's stated redemption price at maturity and
taxed as OID. Interest is payable at a single fixed rate only if the rate
appropriately takes into account the length of the interval between
payments. Distributions of interest on Debt Securities with respect to
which deferred interest will accrue, will not constitute qualified stated
interest payments, in which case the stated redemption price at maturity
of such Debt Securities includes all distributions of interest as well as
principal thereon. Where the interval between the issue date and the
first Distribution Date on a Debt Security is either longer or shorter
than the interval between subsequent Distribution Dates, all or part of
the interest foregone, in the case of the longer interval, and all of the
additional interest, in the case of the shorter interval, will be included
in the stated redemption price at maturity and tested under the de minimis
rule described below. In the case of a Debt Security with a long first
period which has non-de minimis OID, all stated interest in excess of
interest payable at the effective interest rate for the long first period
will be included in the stated redemption price at maturity and the Debt
Security will generally have OID. Holders of Debt Securities should
consult their own tax advisors to determine the issue price and stated
redemption price at maturity of a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered
to be zero if such OID is less than 0.25% of the stated redemption price
at maturity of the Debt Security multiplied by the weighted average
maturity of the Debt Security. For this purpose, the weighted average
maturity of the Debt Security is computed as the sum of the amounts
determined by multiplying the number of full years (i.e., rounding down
partial years) from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made by a fraction,
the numerator of which is the amount of each distribution included in the
stated redemption price at maturity of the Debt Security and the
denominator of which is the stated redemption price at maturity of the
Debt Security. Holders generally must report de minimis OID pro rata as
principal payments are received, and such income will be capital gain if
the Debt Security is held as a capital asset. However, accrual method
Holders may elect to accrue all de minimis OID as well as market discount
under a constant interest method.
Debt Securities may provide for interest based on a qualified
variable rate. Under the OID Regulations, interest is treated as payable
at a qualified variable rate and not as contingent interest if, generally,
(i) such interest is unconditionally payable at least annually, (ii) the
issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating
rate," an "objective rate," or a combination of "qualified floating rates"
that do not operate in a manner that significantly accelerates or defers
interest payments on such Debt Security. In the case of Compound Interest
Securities, certain Interest Weighted Securities (as defined herein), and
certain of the other Debt Securities, none of the payments under the
instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption
price.
The Internal Revenue Service (the "IRS") recently issued final
regulations (the "Contingent Regulations") governing the calculation of
OID on instruments having contingent interest payments. The Contingent
Regulations specifically do not apply for purposes of calculating OID on
debt instruments subject to Code Section 1272(a)(6), such as the Debt
Security. Additionally, the OID Regulations do not contain provisions
specifically interpreting Code Section 1272(a)(6). Until the Treasury
issues guidance to the contrary, the Trustee intends to base its
computation on Code Section 1272(a)(6) and the OID Regulations as
described in this Prospectus. However, because no regulatory guidance
currently exists under Code Section 1272(a)(6), there can be no assurance
that such methodology represents the correct manner of calculating OID.
The Holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such OID. The amount of OID
includible in income by a Holder will be computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued
during the relevant accrual period. In the case of a Debt Security that
is not a Regular Interest Security and the principal payments on which are
not subject to acceleration resulting from prepayments on the Loans, the
amount of OID includible in income of a Holder for an accrual period
(generally the period over which interest accrues on the debt instrument)
will equal the product of the yield to maturity of the Debt Security and
the adjusted issue price of the Debt Security, reduced by any payments of
qualified stated interest. The adjusted issue price is the sum of its
issue price plus prior accruals or OID, reduced by the total payments made
with respect to such Debt Security in all prior periods, other than
qualified stated interest payments.
The amount of OID to be included in income by a Holder of a debt
instrument, such as certain Classes of the Debt Securities, that is
subject to acceleration due to prepayments on other debt obligations
securing such instruments (a "Pay-Through Security"), is computed by
taking into account the anticipated rate of prepayments assumed in pricing
the debt instrument (the "Prepayment Assumption"). The amount of OID that
will accrue during an accrual period on a Pay-Through Security is the
excess (if any) of the sum of (a) the present value of all payments
remaining to be made on the Pay-Through Security as of the close of the
accrual period and (b) the payments during the accrual period of amounts
included in the stated redemption price of the Pay-Through Security, over
the adjusted issue price of the Pay-Through Security at the beginning of
the accrual period. The present value of the remaining payments is to be
determined on the basis of three factors: (i) the original yield to
maturity of the Pay-Through Security (determined on the basis of
compounding at the end of each accrual period and properly adjusted for
the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment
Assumption. The effect of this method is to increase the portions of OID
required to be included in income by a Holder to take into account
prepayments with respect to the Loans at a rate that exceeds the
Prepayment Assumption, and to decrease (but not below zero for any period)
the portions of OID required to be included in income by a Holder of a
Pay-Through Security to take into account prepayments with respect to the
Loans at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Holders of Pay-Through Securities based on the
Prepayment Assumption, no representation is made to Holders that Loans
will be prepaid at that rate or at any other rate.
Provident may adjust the accrual of OID on a Class of Regular
Interest Securities (or other regular interests in a REMIC) in a manner
that it believes to be appropriate to take account of realized losses on
the Loans, although the OID Regulations do not provide for such
adjustments. If the IRS were to require that OID be accrued without such
adjustments, the rate of accrual of OID for a Class of Regular Interest
Securities could increase.
Certain classes of Regular Interest Securities may represent more
than one class of REMIC regular interests. Unless otherwise provided in
the related Prospectus Supplement, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the
purposes of computing OID, the separate regular interests were a single
debt instrument.
A subsequent Holder of a Debt Security will also be required to
include OID in gross income, but such a Holder who purchases such Debt
Security for an amount that exceeds its adjusted issue price will be
entitled (as will an initial Holder who pays more than a Debt Security's
issue price) to offset such OID by comparable economic accruals of
portions of such excess.
Effects of Defaults and Delinquencies. Holders will be required to
report income with respect to the related Securities under an accrual
method without giving effect to delays and reductions in distributions
attributable to a default or delinquency on the Loans, except possibly to
the extent that it can be established that such amounts are uncollectible.
As a result, the amount of income (including OID) reported by a Holder of
such a Security in any period could significantly exceed the amount of
cash distributed to such Holder in that period. The Holder will
eventually be allowed a loss (or will be allowed to report a lesser amount
of income) to the extent that the aggregate amount of distributions on the
Securities is deducted as a result of a Loan default. However, the timing
and character of such losses or reductions in income are uncertain and,
accordingly, Holders of Securities should consult their own tax advisors
on this point.
Interest Weighted Securities. It is not clear how income should be
accrued with respect to Regular Interest Securities or Stripped Securities
(as defined under "--Tax Status as a Grantor Trust; General" herein) the
payments on which consist solely or primarily of a specified portion of
the interest payments on qualified mortgages held by the REMIC or on Loans
underlying Pass-Through Securities ("Interest Weighted Securities"). The
Issuer intends to take the position that all of the income derived from an
Interest Weighted Security should be treated as OID and that the amount
and rate of accrual of such OID should be calculated by treating the
Interest Weighted Security as a Compound Interest Security. However, in
the case of Interest Weighted Securities that are entitled to some
payments of principal and that are Regular Interest Securities, the IRS
could assert that income derived from an Interest Weighted Security should
be calculated as if the Security were a security purchased at a premium
equal to the excess of the price paid by such Holder for such Security
over its stated principal amount, if any. Under this approach, a Holder
would be entitled to amortize such premium only if it has in effect an
election under Section 171 of the Code with respect to all taxable debt
instruments held by such Holder, as described below. Alternatively, the
IRS could assert that an Interest Weighted Security should be taxable
under the rules governing bonds issued with contingent payments. Such
treatment may be more likely in the case of Interest Weighted Securities
that are Stripped Securities as described below. See "--Tax Status as a
Grantor Trust; Discount or Premium on Pass-Through Securities."
Variable Rate Debt Securities. In the case of Debt Securities
bearing interest at a rate that varies directly, according to a fixed
formula, with an objective index, it appears that (i) the yield to
maturity of such Debt Securities and (ii) in the case of Pay-Through
Securities, the present value of all payments remaining to be made on such
Debt Securities, should be calculated as if the interest index remained at
its value as of the issue date of such Securities. Because the proper
method of adjusting accruals of OID on a variable rate Debt Security is
uncertain, Holders of variable rate Debt Securities should consult their
own tax advisers regarding the appropriate treatment of such Securities
for federal income tax purposes.
Market Discount. A purchaser of a Security may be subject to the
market discount rules of Sections 1276-1278 of the Code. A Holder that
acquires a Debt Security with more than a prescribed de minimis amount of
"market discount" (generally, the excess of the principal amount of the
Debt Security over the purchaser's purchase price) will be required to
include accrued market discount in income as ordinary income in each
month, but limited to an amount not exceeding the principal payments on
the Debt Security received in that month and, if the Securities are sold,
the gain realized. Such market discount would accrue in a manner to be
provided in Treasury regulations but, until such regulations are issued,
such market discount would in general accrue either (i) on the basis of a
constant yield (in the case of a Pay-Through Security, taking into account
a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security (as defined herein),
as set forth below, the Loans underlying such Security) not originally
issued with OID, stated interest payable in the relevant period to total
stated interest remaining to be paid at the beginning of the period or (b)
in the case of Securities (or, in the case of a Pass-Through Security, as
described below, the Loans underlying such Security) originally issued at
a discount, OID in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a
Security (or, in the case of a Pass-Through Security, as described below,
the underlying Loans) with market discount over interest received on such
Security is allowed as a current deduction only to the extent such excess
is greater than the market discount that accrued during the taxable year
in which such interest expense was incurred. In general, the deferred
portion of any interest expense will be deductible when such market
discount is included in income, including upon the sale, disposition, or
repayment of the Security (or in the case of a Pass-Through Security, an
underlying Loan). A Holder may elect to include market discount in income
currently as it accrues, on all market discount obligations acquired by
such Holder during the taxable year such election is made and thereafter,
in which case the interest deferral rule will not apply.
Premium. A Holder who purchases a Debt Security (other than an
Interest Weighted Security to the extent described above) at a cost
greater than its stated redemption price at maturity, generally will be
considered to have purchased the Security at a premium, which it may elect
to amortize as an offset to interest income on such Security (and not as a
separate deduction item) on a constant yield method. Although no
regulations addressing the computation of premium accrual on securities
similar to the Securities have been issued, the legislative history of the
1986 Act indicates that premium is to be accrued in the same manner as
market discount. Accordingly, it appears that the accrual of premium on a
Class of Pay-Through Securities will be calculated using the Prepayment
Assumption used in pricing such Class. If a Holder makes an election to
amortize premium on a Debt Security, such election will apply to all
taxable debt instruments (including all REMIC regular interests and all
pass-through certificates representing ownership interests in a trust
holding debt obligations) held by the Holder at the beginning of the
taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such Holder, and will be irrevocable
without the consent of the IRS. Purchasers who pay a premium for the
Securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
On June 27, 1996, the IRS issued proposed regulations (the
"Amortizable Bond Premium Regulations") dealing with amortizable bond
premium. These regulations specifically do not apply to prepayable debt
instruments subject to Code Section 1272(a)(6) such as the Securities.
Absent further guidance from the IRS, the Trustee intends to account for
amortizable bond premium in the manner described above. Prospective
purchasers of the Securities should consult their tax advisors regarding
the possible application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Holder of a Debt Security to elect to accrue all
interest, discount (including de minimis market or original issue
discount) and premium income as interest, based on a constant yield method
for Debt Securities acquired on or after April 4, 1994. If such an
election were to be made with respect to a Debt Security with market
discount, the Holder of the Debt Security would be deemed to have made an
election to include in income currently market discount with respect to
all other debt instruments having market discount that such Holder of the
Debt Security acquires during the year of the election or thereafter.
Similarly, a Holder of a Debt Security that makes this election for a Debt
Security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Holder owns or acquires. The
election to accrue interest, discount and premium on a constant yield
method with respect to a Debt Security is irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Brown & Wood LLP, special counsel to
Provident, if a REMIC election is made with respect to a Series of
Securities, then the arrangement by which the Securities of that Series
are issued will be treated as a REMIC as long as all of the provisions of
the applicable Agreement are complied with and the statutory and
regulatory requirements are satisfied. Securities will be designated as
"Regular Interests" or "Residual Interests" in a REMIC, as specified in
the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement,
if a REMIC election is made with respect to a Series of Securities, (i)
Securities held by a domestic building and loan association will
constitute "a regular or a residual interest in a REMIC" within the
meaning of Code Section 7701(a)(19)(C)(xi) (assuming that at least 95% of
the REMIC's assets consist of cash, government securities, "loans secured
by an interest in real property," and other types of assets described in
Code Section 7701(a)(19)(C)); and (ii) Securities held by a real estate
investment trust will constitute "real estate assets" within the meaning
of Code Section 856(c)(6)(B), and income with respect to the Securities
will be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Code
Section 856(c)(3)(B) (assuming, for both purposes, that at least 95% of
the REMIC's assets are qualifying assets). If less than 95% of the
REMIC's assets consist of assets described in (i) or (ii) above, then a
Security will qualify for the tax treatment described in (i), (ii) or
(iii) in the proportion that such REMIC assets are qualifying assets.
The Small Business Job Protection Act of 1996, as part of the repeal
of the bad debt reserve method for thrift institutions, repealed the
application of Code Section 593(d) to any taxable year beginning after
December 31, 1995.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, all of the expenses of a REMIC will be taken into
account by Holders of the Residual Interest Securities. In the case of a
"single class REMIC," however, the expenses will be allocated, under
Treasury regulations, among the Holders of the Regular Interest Securities
and the Holders of the Residual Interest Securities (as defined herein) on
a daily basis in proportion to the relative amounts of income accruing to
each Holder on that day. In the case of a Holder of a Regular Interest
Security who is an individual or a "pass-through interest holder"
(including certain pass-through entities, but not including real estate
investment trusts), such expenses will be deductible only to the extent
that such expenses, plus other "miscellaneous itemized deductions" of the
Holder, exceed 2% of such Holder's adjusted gross income. In addition,
for taxable years beginning after December 31, 1990, the amount of
itemized deductions otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds the applicable amount
(which amount will be adjusted for inflation for taxable years beginning
after 1990) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount
of itemized deductions otherwise allowable for such taxable year. The
reduction or disallowance of this deduction may have a significant impact
on the yield of the Regular Interest Security to such a Holder. In
general terms, a single class REMIC is one that either (i) would qualify
under existing Treasury regulations as a grantor trust if it were not a
REMIC (treating all interests as ownership interests, even if they would
be classified as debt for federal income tax purposes) or (ii) is similar
to such a trust and which is structured with the principal purpose of
avoiding the single class REMIC rules. Unless otherwise specified in the
related Prospectus Supplement, the expenses of the REMIC will be allocated
to Holders of the related Residual Interest Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income
tax purposes, a REMIC is not generally subject to entity-level tax.
Rather, the taxable income or net loss of a REMIC is taken into account by
the Holders of Residual Interests. As described above, the Regular
Interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. The taxable income or net loss of a
REMIC is determined under an accrual method of accounting and in the same
manner as in the case of an individual, with certain adjustments. In
general, the taxable income or net loss will be the difference between (i)
the gross income produced by the REMIC's assets, including stated interest
and any OID or market discount on Loans and other assets, and (ii)
deductions, including stated interest and OID accrued on Regular Interest
Securities, amortization of any premium with respect to Loans, and
servicing fees and other expenses of the REMIC. A Holder of a Residual
Interest Security that is an individual or a "pass-through interest
holder" (including certain pass-through entities, but not including real
estate investment trusts) will be unable to deduct servicing fees payable
on the Loans or other administrative expenses of the REMIC for a given
taxable year, to the extent that such expenses, when aggregated with such
Holder's other miscellaneous itemized deductions for that year, do not
exceed two percent of such Holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the Regular Interests and the Residual
Interests on the Startup Day (generally, the day that the interests are
issued). That aggregate basis will be allocated among the assets of the
REMIC in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals
originated on or after March 2, 1984, and the market discount provisions
apply to loans originated after July 18, 1984. Subject to possible
application of the de minimis rules, the method of accrual by the REMIC of
OID income on such Loans will be equivalent to the method under which
Holders of Pay-Through Securities accrue OID (i.e., under the constant
yield method taking into account the Prepayment Assumption). The REMIC
will deduct OID on the Regular Interest Securities in the same manner that
the Holders of the Regular Interest Securities include such discount in
income, but without regard to the de minimis rules. See "Taxation of Debt
Securities" above. However, a REMIC that acquires Loans at a market
discount must include such market discount in income currently, as it
accrues, on a constant interest basis.
To the extent that the REMIC's basis allocable to Loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the
life of the Loans (taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding
recovery of premium attributable to Loans originated on or before such
date, it is possible that such premium may be recovered in proportion to
payments of Loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without
taking into account any losses from prohibited transactions or any
deductions attributable to any prohibited transaction that resulted in a
loss. In general, prohibited transactions include: (i) subject to
limited exceptions, the sale or other disposition of any qualified
mortgage transferred to the REMIC; (ii) subject to limited exceptions, the
sale or other disposition of a cash flow investment; (iii) the receipt of
any income from assets not permitted to be held by the REMIC pursuant to
the Code; or (iv) the receipt of any fees or other compensation for
services rendered by the REMIC. It is anticipated that a REMIC will not
engage in any prohibited transactions in which it would recognize a
material amount of net income. In addition, subject to a number of
exceptions, a tax is imposed at the rate of 100% on amounts contributed to
a REMIC after the close of the three-month period beginning on the Startup
Day. The Holders of Residual Interest Securities will generally be
responsible for the payment of any such taxes imposed on the REMIC. To
the extent not paid by such Holders or otherwise, however, such taxes will
be paid out of the Trust Fund and will be allocated pro rata to all
outstanding classes of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
The Holder of a Security representing a Residual Interest (a
"Residual Interest Security") will take into account the "daily portion"
of the taxable income or net loss of the REMIC for each day during the
taxable year in which such Holder held the Residual Interest Security.
The daily portion is determined by allocating to each day in any calendar
quarter its ratable portion of the taxable income or net loss of the REMIC
for such quarter, and by allocating that amount among the Holders (on such
day) of the Residual Interest Securities in proportion to their respective
holdings on such day.
The Holder of a Residual Interest Security must report its
proportionate share of the taxable income of the REMIC whether or not it
receives cash distributions from the REMIC attributable to such income or
loss. The reporting of taxable income without corresponding distributions
could occur, for example, in certain REMIC issues in which the Loans held
by the REMIC were issued or acquired at a discount, since mortgage
prepayments cause recognition of discount income, while the corresponding
portion of the prepayment could be used in whole or in part to make
principal payments on Regular Interests issued without any discount or at
an insubstantial discount (if this occurs, it is likely that cash
distributions will exceed taxable income in later years). Taxable income
may also be greater in earlier years of certain REMIC issues as a result
of the fact that interest expense deductions, as a percentage of
outstanding principal on Regular Interest Securities, will typically
increase over time as lower yielding Securities are paid, whereas interest
income with respect to Loans will generally remain constant over time as a
percentage of Loan principal.
In any event, because the Holder of a Residual Interest is taxed on
the net income of the REMIC, the taxable income derived from a Residual
Interest Security in a given taxable year will not be equal to the taxable
income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pretax yield.
Therefore, the after-tax yield on the Residual Interest Security may be
less than that of such a bond or instrument.
Limitation on Losses. The amount of the REMIC's net loss that a
Holder may take into account currently is limited to the Holder's adjusted
basis at the end of the calendar quarter in which such loss arises. A
Holder's basis in a Residual Interest Security will initially equal such
Holder's purchase price, and will subsequently be increased by the amount
of the REMIC's taxable income allocated to the Holder, and decreased (but
not below zero) by the amount of distributions made and the amount of the
REMIC's net loss allocated to the Holder. Any disallowed loss may be
carried forward indefinitely, but may be used only to offset income of the
REMIC generated by the same REMIC. The ability of Holders of Residual
Interest Securities to deduct net losses may be subject to additional
limitations under the Code, as to which such Holders should consult their
tax advisers.
Distributions. Distributions on a Residual Interest Security
(whether at their scheduled times or as a result of prepayments) will
generally not result in any additional taxable income or loss to a Holder
of a Residual Interest Security. If the amount of such payment exceeds a
Holder's adjusted basis in the Residual Interest Security, however, the
Holder will recognize gain (treated as gain from the sale of the Residual
Interest Security) to the extent of such excess.
Sale or Exchange. A Holder of a Residual Interest Security will
recognize gain or loss on the sale or exchange of a Residual Interest
Security equal to the difference, if any, between the amount realized and
such Holder's adjusted basis in the Residual Interest Security at the time
of such sale or exchange. Except to the extent provided in regulations,
which have not yet been issued, any loss upon disposition of a Residual
Interest Security will be disallowed if the selling Holder acquires any
residual interest in a REMIC or similar mortgage pool within six months
before or after such disposition.
Excess Inclusions. The portion of the REMIC taxable income of a
Holder of a Residual Interest Security consisting of "excess inclusion"
income may not be offset by other deductions or losses, including net
operating losses, on such Holder's federal income tax return. Further, if
the Holder of a Residual Interest Security is an organization subject to
the tax on unrelated business income imposed by Code Section 511, such
holder's excess inclusion income will be treated as unrelated business
taxable income of such Holder. In addition, under Treasury regulations
yet to be issued, if a real estate investment trust, a regulated
investment company, a common trust fund, or certain cooperatives were to
own a Residual Interest Security, a portion of dividends (or other
distributions) paid by the real estate investment trust (or other entity)
would be treated as excess inclusion income. If a Residual Security is
owned by a foreign person, excess inclusion income is subject to tax at a
rate of 30% which may not be reduced by treaty, is not eligible for
treatment as "portfolio interest" and is subject to certain additional
limitations. See "Tax Treatment of Foreign Investors." The Small
Business Job Protection Act of 1996 has eliminated the special rule
permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1,
1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect of excess inclusions on the
alternative minimum taxable income of a residual Holder. First,
alternative minimum taxable income for such residual Holder is determined
without regard to the special rule that taxable income cannot be less than
excess inclusions. Second, a residual Holder's alternative minimum
taxable income for a tax year cannot be less than excess inclusions for
the year. Third, the amount of any alternative minimum tax net operating
loss deductions must be computed without regard to any excess inclusions.
These rules are effective for tax years beginning after December 31, 1986,
unless a residual Holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal
to the excess, if any, of REMIC taxable income for the quarterly period
allocable to a Residual Interest Security, over the daily accruals for
such quarterly period of (i) 120% of the long-term applicable federal rate
on the Startup Day multiplied by (ii) the adjusted issue price of such
Residual Interest Security at the beginning of such quarterly period. The
adjusted issue price of a Residual Interest at the beginning of each
calendar quarter will equal its issue price (calculated in a manner
analogous to the determination of the issue price of a Regular Interest),
increased by the aggregate of the daily accruals for prior calendar
quarters, and decreased (but not below zero) by the amount of loss
allocated to a Holder and the amount of distributions made on the Residual
Interest Security before the beginning of the quarter. The long-term
federal rate, which is announced monthly by the Treasury Department, is an
interest rate that is based on the average market yield of outstanding
marketable obligations of the United States government having remaining
maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership
and Transfer of Residual Interest Securities" and "--Tax Treatment of
Foreign Investors" below.
Restrictions on Ownership and Transfer of Residual Interest
Securities. As a condition to qualification as a REMIC, reasonable
arrangements must be made to prevent the ownership of a Residual Interest
by any "Disqualified Organization." Disqualified Organizations include
the United States, any State or political subdivision thereof, any foreign
government, any international organization, or any agency or
instrumentality of any of the foregoing, a rural electric or telephone
cooperative described in Section 1381(a)(2)(C) of the Code, or any entity
exempt from the tax imposed by Sections 1-1399 of the Code, if such entity
is not subject to tax on its unrelated business income. Accordingly, the
applicable Pooling and Servicing Agreement will prohibit Disqualified
Organizations from owning a Residual Interest Security. In addition, no
transfer of a Residual Interest Security will be permitted unless the
proposed transferee shall have furnished to the Trustee an affidavit
representing and warranting that it is neither a Disqualified Organization
nor an agent or nominee acting on behalf of a Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization (in violation of the restrictions set forth above), a
substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a
Disqualified Organization holds an interest in a pass-through entity
(including, among others, a partnership, trust, real estate investment
trust, regulated investment company, or any person holding as nominee),
that owns a Residual Interest Security, the pass-through entity will be
required to pay an annual tax on its allocable share of the excess
inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a
Residual Interest Security to a United States person will be disregarded
for all Federal tax purposes unless no significant purpose of the transfer
was to impede the assessment or collection of tax. A Residual Interest
Security is a "noneconomic residual interest" unless at the time of the
transfer (i) the present value of the expected future distributions on the
Residual Interest Security at least equals the product of the present
value of the anticipated excess inclusions and the highest rate of tax for
the year in which the transfer occurs, and (ii) the transferor reasonably
expects that the transferee will receive distributions from the REMIC at
or after the time at which the taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. If a
transfer of a Residual Interest is disregarded, the transferor would be
liable for any Federal income tax imposed upon taxable income derived by
the transferee from the REMIC. The REMIC Regulations provide no guidance
as to how to determine if a significant purpose of a transfer is to impede
the assessment or collection of tax. A similar type of limitation exists
with respect to certain transfers of Residual Interests by foreign persons
to United States persons. See "--Tax Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a Residual Interest
Security should be aware that the IRS recently released proposed
regulations (the "Proposed Mark-to-Market Regulations") which provide that
a Residual Interest Security acquired after January 3, 1995 cannot be
marked-to-market. The Proposed Mark-to-Market Regulations replace the
temporary regulations which allowed a Residual Interest Security to be
marked-to-market provided that it was not a negative value Residual
Interest and did not have the same economic effect as a negative value
Residual Interest. The IRS could issue subsequent regulations, which
could apply retroactively, providing additional or different requirements
with respect to such deemed negative value Residual Interests.
Prospective purchasers of a Residual Interest Security should consult
their tax advisors regarding the possible application of the Proposed
Mark-to-Market Regulations.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also
be subject to the procedural and administrative rules of the Code
applicable to partnerships, including the determination of any adjustments
to, among other things, items of REMIC income, gain, loss, deduction, or
credit, by the IRS in a unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As specified in the related Prospectus Supplement if a
REMIC or partnership election is not made, in the opinion of Brown & Wood
LLP, special counsel to Provident, the Trust Fund relating to a Series of
Securities will be classified for federal income tax purposes as a grantor
trust under Subpart E, Part I of Subchapter J of the Code and not as an
association taxable as a corporation (the Securities of such Series,
"Pass-Through Securities"). In some Series there will be no separation of
the principal and interest payments on the Loans. In such circumstances,
a Holder will be considered to have purchased a pro rata undivided
interest in each of the Loans. In other cases ("Stripped Securities"),
sale of the Securities will produce a separation in the ownership of all
or a portion of the principal payments from all or a portion of the
interest payments on the Loans.
Each Holder must report on its federal income tax return its share of
the gross income derived from the Loans (not reduced by the amount payable
as fees to the Trustee and the Servicer and similar fees (collectively,
the "Servicing Fees")), at the same time and in the same manner as such
items would have been reported under the Holder's tax accounting method
had it held its interest in the Loans directly, received directly its
share of the amounts received with respect to the Loans, and paid directly
its share of the Servicing Fees. In the case of Pass-Through Securities
other than Stripped Securities, such income will consist of a pro rata
share of all of the income derived from all of the Loans and, in the case
of Stripped Securities, such income will consist of a pro rata share of
the income derived from each stripped bond or stripped coupon in which the
Holder owns an interest. The holder of a Security will generally be
entitled to deduct such Servicing Fees under Section 162 or Section 212 of
the Code to the extent that such Servicing Fees represent "reasonable"
compensation for the services rendered by the Trustee and the Servicer (or
third parties that are compensated for the performance of services). In
the case of a noncorporate Holder, however, Servicing Fees (to the extent
not otherwise disallowed, e.g., because they exceed reasonable
compensation) will be deductible in computing such Holder's regular tax
liability only to the extent that such fees, when added to other
miscellaneous itemized deductions, exceed 2% of adjusted gross income and
may not be deductible to any extent in computing such Holder's alternative
minimum tax liability. In addition, the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount (which amount will be adjusted
for inflation) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the applicable amount or (ii) 80% of the amount
of itemized deductions otherwise allowable for such taxable year.
Discount or Premium on Pass-Through Securities. The Holder's
purchase price of a Pass-Through Security is to be allocated among the
Loans in proportion to their fair market values determined as of the time
of purchase of the Securities. In the typical case, the Trustee (to the
extent necessary to fulfill its reporting obligations) will treat each
Loan as having a fair market value proportional to the share of the
aggregate principal balances of all of the Loans that it represents, since
the Securities, unless otherwise specified in the related Prospectus
Supplement, will have a relatively uniform interest rate and other common
characteristics. To the extent that the portion of the purchase price of
a Pass-Through Security allocated to a Loan (other than to a right to
receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal
balance of the Loan allocable to the Security, the interest in the Loan
allocable to the Pass-Through Security will be deemed to have been
acquired at a discount or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in
excess of a prescribed de minimis amount or a Stripped Security, a Holder
of a Security will be required to report as interest income in each
taxable year its share of the amount of OID that accrues during that year
in the manner described above. OID with respect to a Loan could arise,
for example, by virtue of the financing of points by the originator of the
Loan, or by virtue of the charging of points by the originator of the Loan
in an amount greater than a statutory de minimis exception, in
circumstances under which the points are not currently deductible pursuant
to applicable Code provisions. Any market discount or premium on a Loan
will be includible in income, generally in the manner described above,
except that in the case of Pass-Through Securities, market discount is
calculated with respect to the Loans underlying the Certificate, rather
than with respect to the Security. A Holder that acquires an interest in
a Loan originated after July 18, 1984 with more than a de minimis amount
of market discount (generally, the excess of the principal amount of the
Loan over the purchaser's allocable purchase price) will be required to
include accrued market discount in income in the manner set forth above.
See "--Taxation of Debt Securities; Market Discount" and "--Premium"
above.
In the case of market discount on a Pass-Through Security
attributable to Loans originated on or before July 18, 1984, the Holder
generally will be required to allocate the portion of such discount that
is allocable to a Loan among the principal payments on the Loan and to
include the discount allocable to each principal payment in ordinary
income at the time such principal payment is made. Such treatment would
generally result in discount being included in income at a slower rate
than discount would be required to be included in income using the method
described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the Loans, a right to
receive only principal payments on the Loans, or a right to receive
certain payments of both interest and principal. Certain Stripped
Securities ("Ratio Strip Securities") may represent a right to receive
differing percentages of both the interest and principal on each Loan.
Pursuant to Section 1286 of the Code, the separation of ownership of the
right to receive some or all of the interest payments on an obligation
from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to
principal payments and "stripped coupons" with respect to interest
payments. Section 1286 of the Code applies the OID rules to stripped
bonds and stripped coupons. For purposes of computing OID, a stripped
bond or a stripped coupon is treated as a debt instrument issued on the
date that such stripped interest is purchased with an issue price equal to
its purchase price or, if more than one stripped interest is purchased,
the ratable share of the purchase price allocable to such stripped
interest.
Servicing Fees in excess of reasonable Servicing Fees ("Excess
Servicing Fees") will be treated under the stripped bond rules. If the
Excess Servicing Fees are less than 100 basis points (i.e., 1% interest on
the Loan principal balance) or the Securities are initially sold with a de
minimis discount (assuming no Prepayment Assumption is required), any
non-de minimis discount arising from a subsequent transfer of the
Securities should be treated as market discount. The IRS appears to
require that reasonable Servicing Fees be calculated on a Loan-by-Loan
basis, which could result in some Loans being treated as having more than
100 basis points of interest stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and OID rules are to apply to Stripped
Securities and other Pass-Through Securities. Under the method described
above for Pay-Through Securities (the "Cash Flow Bond Method"), a
Prepayment Assumption is used and periodic recalculations are made which
take into account with respect to each accrual period the effect of
prepayments during such period. However, the 1986 Act does not, absent
Treasury regulations, appear specifically to cover instruments such as the
Stripped Securities which technically represent ownership interests in the
underlying Loans, rather than being debt instruments "secured by" those
Loans. Nevertheless, it is believed that the Cash Flow Bond Method is a
reasonable method of reporting income for such Securities, and it is
expected that OID will be reported on that basis unless otherwise
specified in the related Prospectus Supplement. In applying the
calculation to Pass-Through Securities, the Trustee will treat all
payments to be received by a Holder with respect to the underlying Loans
as payments on a single installment obligation. The IRS could, however,
assert that OID must be calculated separately for each Loan underlying a
Security.
Under certain circumstances, if the Loans prepay at a rate faster
than the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a Holder's recognition of income. If, however, the Loans
prepay at a rate slower than the Prepayment Assumption, in some
circumstances the use of this method may decelerate a Holder's recognition
of income.
In the case of a Stripped Security that is an Interest Weighted
Security, the Trustee intends, absent contrary authority, to report income
to Securityholders as OID, in the manner described above for Interest
Weighted Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible
interpretations of the applicable Code provisions. Among other
possibilities, the IRS could contend that (i) in certain Series, each
non-Interest Weighted Security is composed of an unstripped undivided
ownership interest in Loans and an installment obligation consisting of
stripped principal payments; (ii) the non-Interest Weighted Securities are
subject to the contingent payment provisions of the Contingent
Regulations; or (iii) each Interest Weighted Stripped Security is composed
of an unstripped undivided ownership interest in Loans and an installment
obligation consisting of stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result
from each alternative, potential purchasers are urged to consult their own
tax advisers regarding the proper treatment of the Securities for federal
income tax purposes.
Character as Qualifying Loans. In the case of Stripped Securities,
there is no specific legal authority existing regarding whether the
character of the Securities, for federal income tax purposes, will be the
same as the Loans. The IRS could take the position that the Loans'
character is not carried over to the Securities in such circumstances.
Pass-Through Securities will be, and, although the matter is not free from
doubt, Stripped Securities should be, considered to represent "real estate
assets" within the meaning of Section 856(c)(6)(B) 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; and interest income attributable to the
Securities should be considered to represent "interest on obligations
secured by mortgages on real property or on interests in real property"
within the meaning of Section 856(c)(3)(B) of the Code. Reserves or funds
underlying the Securities may cause a proportionate reduction in the
above-described qualifying status categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds as to
which a partnership election is made, a Holder's tax basis in its Security
is the price such Holder pays for a Security, plus amounts of original
issue or market discount included in income and reduced by any payments
received (other than qualified stated interest payments) and any amortized
premium. Gain or loss recognized on a sale, exchange, or redemption of a
Security, measured by the difference between the amount realized and the
Security's basis as so adjusted, will generally be capital gain or loss,
assuming that the Security is held as a capital asset. In the case of a
Security held by a bank, thrift, or similar institution described in
Section 582 of the Code, however, gain or loss realized on the sale or
exchange of a Regular Interest Security will be taxable as ordinary income
or loss. In addition, gain from the disposition of a Regular Interest
Security that might otherwise be capital gain will be treated as ordinary
income to the extent of the excess, if any, of (i) the amount that would
have been includible in the Holder's income if the yield on such Regular
Interest Security had equaled 110% of the applicable federal rate as of
the beginning of such Holder's holding period, over the amount of ordinary
income actually recognized by the Holder with respect to such Regular
Interest Security. For taxable years beginning after December 31, 1993,
the maximum tax rate on ordinary income for individual taxpayers is 39.6%
and the maximum tax rate on long-term capital gains reported after
December 31, 1990 for such taxpayers is 28%. The maximum tax rate on both
ordinary income and long-term capital gains of corporate taxpayers is 35%.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to
Trust Funds as to which a partnership election is made, a Holder, other
than a Holder of a Residual Interest Security, may, under certain
circumstances, be subject to "backup withholding" at a rate of 31% with
respect to distributions or the proceeds of a sale of certificates to or
through brokers that represent interest or OID on the Securities. This
withholding generally applies if the Holder of a Security (i) fails to
furnish the Trustee with its taxpayer identification number ("TIN"); (ii)
furnishes the Trustee an incorrect TIN; (iii) fails to report properly
interest, dividends or other "reportable payments" as defined in the Code;
or (iv) under certain circumstances, fails to provide the Trustee or such
Holder's securities broker with a certified statement, signed under
penalty of perjury, that the TIN provided is its correct number and that
the Holder is not subject to backup withholding. Backup withholding will
not apply, however, with respect to certain payments made to Holders,
including payments to certain exempt recipients (such as exempt
organizations) and to certain Nonresidents (as defined below). Holders
should consult their tax advisers as to their qualification for exemption
from backup withholding and the procedure for obtaining the exemption.
The Trustee will report to the Holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the
Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds as to
which a partnership election is made, under the Code, unless interest
(including OID) paid on a Security (other than a Residual Interest
Security) is considered to be "effectively connected" with a trade or
business conducted in the United States by a nonresident alien individual,
foreign partnership or foreign corporation ("Nonresidents"), such interest
will normally qualify as portfolio interest (except where (i) the
recipient is a holder, directly or by attribution, of 10% or more of the
capital or profits interest in the issuer, or (ii) the recipient is a
controlled foreign corporation to which the issuer is a related person)
and will be exempt from federal income tax. Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations
to withhold tax from such interest payments. These provisions supersede
the generally applicable provisions of United States law that would
otherwise require the issuer to withhold at a 30% rate (unless such rate
were reduced or eliminated by an applicable tax treaty) on, among other
things, interest and other fixed or determinable, annual or periodic
income paid to Nonresidents. Holders of Pass-Through Securities and
Stripped Securities, including Ratio Strip Securities, however, may be
subject to withholding to the extent that the Loans were originated on or
before July 18, 1984.
Interest and OID of Holders who are foreign persons are not subject
to withholding if they are effectively connected with a United States
business conducted by the Holder. They will, however, generally be
subject to the regular United States income tax.
Payments to Holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume
that such income does not qualify for exemption from United States
withholding tax as "portfolio interest." It is clear that, to the extent
that a payment represents a portion of REMIC taxable income that
constitutes excess inclusion income, a Holder of a Residual Interest
Security will not be entitled to an exemption from or reduction of the 30%
(or lower treaty rate) withholding tax rule. If the payments are subject
to United States withholding tax, they generally will be taken into
account for withholding tax purposes only when paid or distributed (or
when the Residual Interest Security is disposed of). The Treasury has
statutory authority, however, to promulgate regulations which would
require such amounts to be taken into account at an earlier time in order
to prevent the avoidance of tax. Such regulations could, for example,
require withholding prior to the distribution of cash in the case of
Residual Interest Securities that do not have significant value. Under
the REMIC Regulations, if a Residual Interest Security has tax avoidance
potential, a transfer of a Residual Interest Security to a Nonresident
will be disregarded for all federal tax purposes. A Residual Interest
Security has tax avoidance potential unless, at the time of the transfer,
the transferor reasonably expects that the REMIC will distribute to the
transferee amounts that will equal at least 30% of each excess inclusion,
and that such amounts will be distributed at or after the time at which
the excess inclusions accrue and not later than the calendar year
following the calendar year of accrual. If a Nonresident transfers a
Residual Interest Security to a United States person, and if the transfer
has the effect of allowing the transferor to avoid tax on accrued excess
inclusions, then the transfer is disregarded and the transferor continues
to be treated as the owner of the Residual Interest Security for purposes
of the withholding tax provisions of the Code. See "--Excess Inclusions."
TAX CHARACTERIZATION OF THE TRUST FUND AS A PARTNERSHIP
Brown & Wood LLP, special counsel to Provident, will deliver its
opinion that a Trust Fund for which a partnership election is made will
not be an association (or publicly traded partnership) taxable as a
corporation for federal income tax purposes. This opinion will be based
on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that (1) the
Trust Fund will not have certain characteristics necessary for a business
trust to be classified as an association taxable as a corporation and (2)
the nature of the income of the Trust Fund will exempt it from the rule
that certain publicly traded partnerships are taxable as corporations or
the issuance of the Securities has been structured as a private placement
under an IRS safe harbor, so that the Trust Fund will not be characterized
as a publicly traded partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income
tax purposes, the Trust Fund would be subject to corporate income tax on
its taxable income. The Trust Fund's taxable income would include all its
income, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make
payments on the Notes and distributions on the Certificates, and
Certificateholders could be liable for any such tax that is unpaid by the
Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree,
and the Noteholders will agree by their purchase of Notes, to treat the
Notes as debt for federal income tax purposes. Special counsel to
Provident will, except as otherwise provided in the related Prospectus
Supplement, advise Provident that the Notes will be classified as debt for
federal income tax purposes. The discussion below assumes this
characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes
are not Indexed Securities or Strip Notes. Moreover, the discussion
assumes that the interest formula for the Notes meets the requirements for
"qualified stated interest" under the OID Regulations, and that any OID on
the Notes (i.e., any excess of the principal amount of the Notes over
their issue price) does not exceed a de minimis amount (i.e., 0.25% of
their principal amount multiplied by the number of full years included in
their term), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes,
additional tax considerations with respect to such Notes will be disclosed
in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except
as discussed in the following paragraph, the Notes will not be considered
issued with OID. The stated interest thereon will be taxable to a
Noteholder as ordinary interest income when received or accrued in
accordance with such Noteholder's method of tax accounting. Under the OID
Regulations, a Holder of a Note issued with a de minimis amount of OID
must include such OID in income, on a pro rata basis, as principal
payments are made on the Note. It is believed that any prepayment premium
paid as a result of a mandatory redemption will be taxable as contingent
interest when it becomes fixed and unconditionally payable. A purchaser
who buys a Note for more or less than its principal amount will generally
be subject, respectively, to the premium amortization or market discount
rules of the Code.
A Holder of a Note that has a fixed maturity date of not more than
one year from the issue date of such Note (a "Short-Term Note") may be
subject to special rules. An accrual basis Holder of a Short-Term Note
(and certain cash method Holders, including regulated investment
companies, as set forth in Section 1281 of the Code) generally would be
required to report interest income as interest accrues on a straight-line
basis over the term of each interest period. Other cash basis Holders of
a Short-Term Note would, in general, be required to report interest income
as interest is paid (or, if earlier, upon the taxable disposition of the
Short-Term Note). However, a cash basis Holder of a Short-Term Note
reporting interest income as it is paid may be required to defer a portion
of any interest expense otherwise deductible on indebtedness incurred to
purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of
the Code to accrue interest income on all nongovernment debt obligations
with a term of one year or less, in which case the taxpayer would include
interest on the Short-Term Note in income as it accrues, but would not be
subject to the interest expense deferral rule referred to in the preceding
sentence. Certain special rules apply if a Short-Term Note is purchased
for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the Holder
will recognize gain or loss in an amount equal to the difference between
the amount realized on the sale and the Holder's adjusted tax basis in the
Note. The adjusted tax basis of a Note to a particular Noteholder will
equal the Holder's cost for the Note, increased by any market discount,
acquisition discount, OID and gain previously included by such Noteholder
in income with respect to the Note and decreased by the amount of bond
premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note.
Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal
income tax and withholding tax if the interest is not effectively
connected with the conduct of a trade or business within the United States
by the foreign person and the foreign person (i) is not actually or
constructively a "10 percent shareholder" of the Trust Fund or Provident
(including a Holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust Fund or
Provident is a "related person" within the meaning of the Code and (ii)
provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement
(on Form W-8 or a similar form), signed under penalties of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant
signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form
provided by the foreign person that owns the Note. If such interest is
not portfolio interest, then it will be subject to United States federal
income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a Note by a foreign person will be exempt
from United States federal income and withholding tax, provided that (i)
such gain is not effectively connected with the conduct of a trade or
business in the United States by the foreign person and (ii) in the case
of an individual foreign person, the foreign person is not present in the
United States for 183 days or more in the taxable year.
Backup Withholding. Each Holder of a Note (other than an exempt
Holder such as a corporation, tax-exempt organization, qualified pension
and profit-sharing trust, individual retirement account or nonresident
alien who provides certification as to status as a nonresident) will be
required to provide, under penalties of perjury, a certificate containing
the Holder's name, address, correct federal taxpayer identification number
and a statement that the Holder is not subject to backup withholding.
Should a nonexempt Noteholder fail to provide the required certification,
the Trust Fund will be required to withhold 31 percent of the amount
otherwise payable to the Holder, and remit the withheld amount to the IRS
as a credit against the Holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of special counsel to Provident, the IRS successfully asserted
that one or more of the Notes did not represent debt for federal income
tax purposes, the Notes might be treated as equity interests in the Trust
Fund. If so treated, the Trust Fund might be taxable as a corporation
with the adverse consequences described above (and the taxable corporation
would not be able to reduce its taxable income by deductions for interest
expense on Notes recharacterized as equity). Alternatively, and most
likely in the view of special counsel to Provident, the Trust Fund might
be treated as a publicly traded partnership that would not be taxable as a
corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain Holders.
For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income", income to foreign
Holders generally would be subject to U.S. tax and U.S. tax return filing
and withholding requirements, and individual Holders might be subject to
certain limitations on their ability to deduct their share of the Trust
Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Master Servicer will agree, and the Certificateholders will agree by their
purchase of Certificates, to treat the Trust Fund as a partnership for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income, with the assets of the partnership
being the assets held by the Trust Fund, the partners of the partnership
being the Certificateholders, and the Notes being debt of the partnership.
However, the proper characterization of the arrangement involving the
Trust Fund, the Certificates, the Notes, the Trust Fund and the Servicer
is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
A variety of alternative characterizations are possible. For
example, because the Certificates have certain features characteristic of
debt, the Certificates might be considered debt of the Trust Fund. Any
such characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below.
The following discussion assumes that the Certificates represent equity
interests in a partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a
Series of Securities includes a single class of Certificates. If these
conditions are not satisfied with respect to any given Series of
Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust Fund will not be
subject to federal income tax. Rather, each Certificateholder will be
required to separately take into account such Holder's allocated share of
income, gains, losses, deductions and credits of the Trust Fund. The
Trust Fund's income will consist primarily of interest and finance charges
earned on the Loans (including appropriate adjustments for market
discount, OID and bond premium) and any gain upon collection or
disposition of Loans. The Trust Fund's deductions will consist primarily
of interest accruing with respect to the Notes, servicing and other fees,
and losses or deductions upon collection or disposition of Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership
agreement (here, the Trust Agreement and related documents). The Trust
Agreement will provide, in general, that the Certificateholders will be
allocated taxable income of the Trust Fund for each month equal to the sum
of (i) the interest that accrues on the Certificates in accordance with
their terms for such month, including interest accruing at the Pass-
Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust Fund income
attributable to discount on the Loans that corresponds to any excess of
the principal amount of the Certificates over their initial issue price
(iii) prepayment premium payable to the Certificateholders for such month;
and (iv) any other amounts of income payable to the Certificateholders for
such month. Such allocation will be reduced by any amortization by the
Trust Fund of premium on Loans that corresponds to any excess of the issue
price of Certificates over their principal amount. All remaining taxable
income of the Trust Fund will be allocated to Provident. Based on the
economic arrangement of the parties, this approach for allocating Trust
Fund income should be permissible under applicable Treasury regulations,
although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificateholders. Moreover,
even under the foregoing method of allocation, Certificateholders may be
allocated income equal to the entire Pass-Through Rate plus the other
items described above even though the Trust Fund might not have sufficient
cash to make current cash distributions of such amount. Thus, cash basis
Holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Trust Fund income even if they have not received cash from the Trust Fund
to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and
at different prices, Certificateholders may be required to report on their
tax returns taxable income that is greater or less than the amount
reported to them by the Trust Fund.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) will constitute
"unrelated business taxable income" generally taxable to a Holder under
the Code.
An individual taxpayer's share of expenses of the Trust Fund
(including fees to the Servicer but not interest expense) would be
miscellaneous itemized deductions. Such deductions might be disallowed to
the individual in whole or in part and might result in such Holder being
taxed on an amount of income that exceeds the amount of cash actually
distributed to such Holder over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to
income and allocations to Certificateholders on an aggregate basis. If
the IRS were to require that such calculations be made separately for each
Loan, the Trust Fund might be required to incur additional expense but it
is believed that there would not be a material adverse effect on
Certificateholders. Discount and Premium. It is believed that the
Loans were not issued
with OID, and, therefore, the Trust Fund should not have OID income.
However, the purchase price paid by the Trust Fund for the Loans may be
greater or less than the remaining principal balance of the Loans at the
time of purchase. If so, the Loan will have been acquired at a premium or
discount, as the case may be. (As indicated above, the Trust Fund will
make this calculation on an aggregate basis, but might be required to
recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium,
the Trust Fund will elect to include any such discount in income currently
as it accrues over the life of the Loans or to offset any such premium
against interest income on the Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust
Fund will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the Trust Fund are sold or
exchanged within a 12-month period. If such a termination occurs, the
Trust Fund will be considered to distribute its assets to the partners,
who would then be treated as recontributing those assets to the Trust Fund
as a new partnership. The Trust Fund will not comply with certain
technical requirements that might apply when such a constructive
termination occurs. As a result, the Trust Fund may be subject to certain
tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust Fund might not be
able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates
sold. A Certificateholder's tax basis in a Certificate will generally
equal the Holder's cost increased by the Holder's share of Trust Fund
income (includible in income) and decreased by any distributions received
with respect to such Certificate. In addition, both the tax basis in the
Certificates and the amount realized on a sale of a Certificate would
include the Holder's share of the Notes and other liabilities of the Trust
Fund. A Holder acquiring Certificates at different prices may be required
to maintain a single aggregate adjusted tax basis in such Certificates,
and, upon sale or other disposition of some of the Certificates, allocate
a portion of such aggregate tax basis to the Certificates sold (rather
than maintaining a separate tax basis in each Certificate for purposes of
computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the Holder's
share of unrecognized accrued market discount on the Loans would generally
be treated as ordinary income to the Holder and would give rise to special
tax reporting requirements. The Trust Fund does not expect to have any
other assets that would give rise to such special reporting requirements.
Thus, to avoid those special reporting requirements, the Trust Fund will
elect to include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount
of income (not including income attributable to disallowed itemized
deductions described above) over the life of the Certificates that exceeds
the aggregate cash distributions with respect thereto, such excess will
generally give rise to a capital loss upon the retirement of the
Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust Fund's taxable income and losses will be determined monthly and the
tax items for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates
owned by them as of the close of the last day of such month. As a result,
a Holder purchasing Certificates may be allocated tax items (which will
affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the
Certificateholders. The Trust Fund's method of allocation between
transferors and transferees may be revised to conform to a method
permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells
its Certificates at a profit (loss), the purchasing Certificateholder will
have a higher (lower) basis in the Certificates than the selling
Certificateholder had. The tax basis of the Trust Fund's assets will not
be adjusted to reflect that higher (or lower) basis unless the Trust Fund
were to file an election under Section 754 of the Code. In order to avoid
the administrative complexities that would be involved in keeping accurate
accounting records, as well as potentially onerous information reporting
requirements, the Trust Fund will not make such election. As a result,
Certificateholders might be allocated a greater or lesser amount of Trust
Fund income than would be appropriate based on their own purchase price
for Certificates.
Administrative Matters. The Owner Trustee is required to keep or
have kept complete and accurate books of the Trust Fund. Such books will
be maintained for financial reporting and tax purposes on an accrual basis
and the fiscal year of the Trust Fund will be the calendar year. The
Trustee will file a partnership information return (IRS Form 1065) with
the IRS for each taxable year of the Trust Fund and will report each
Certificateholder's allocable share of items of Trust Fund income and
expense to Holders and the IRS on Schedule K-1. The Trust Fund will
provide the Schedule K-l information to nominees that fail to provide the
Trust Fund with the information statement described below and such
nominees will be required to forward such information to the beneficial
owners of the Certificates. Generally, Holders must file tax returns that
are consistent with the information return filed by the Trust Fund or be
subject to penalties unless the Holder notifies the IRS of all such
inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the
Trust Fund with a statement containing certain information on the nominee,
the beneficial owners and the Certificates so held. Such information
includes (i) the name, address and taxpayer identification number of the
nominee and (ii) as to each beneficial owner (x) the name, address and
identification number of such person, (y) whether such person is a United
States person, a tax-exempt entity or a foreign government, an
international organization, or any wholly owned agency or instrumentality
of either of the foregoing, and (z) certain information on Certificates
that were held, bought or sold on behalf of such person throughout the
year. In addition, brokers and financial institutions that hold
Certificates through a nominee are required to furnish directly to the
Trust Fund information as to themselves and their ownership of
Certificates. A clearing agency registered under Section 17A of the
Exchange Act is not required to furnish any such information statement to
the Trust Fund. The information referred to above for any calendar year
must be furnished to the Trust Fund on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the
Trust Fund with the information described above may be subject to
penalties.
Provident will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing
the Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on
which the partnership information return is filed. Any adverse
determination following an audit of the return of the Trust Fund by the
appropriate taxing authorities could result in an adjustment of the
returns of the Certificateholders, and, under certain circumstances, a
Certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the Trust Fund. An adjustment could also
result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear
whether the Trust Fund would be considered to be engaged in a trade or
business in the United States for purposes of federal withholding taxes
with respect to non-U.S. persons because there is no clear authority
dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Trust Fund would
be engaged in a trade or business in the United States for such purposes,
the Trust Fund will withhold as if it were so engaged in order to protect
the Trust Fund from possible adverse consequences of a failure to
withhold. The Trust Fund expects to withhold on the portion of its
taxable income that is allocable to foreign Certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to
a U.S. trade or business, at a rate of 35% for foreign holders that are
taxable as corporations and 39.6% for all other foreign holders.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust Fund to change its
withholding procedures. In determining a Holder's withholding status, the
Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the Holder's
certification of nonforeign status signed under penalties of perjury.
The term "U.S. Person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision
thereof, or an estate whose income is subject to U.S. federal income tax
regardless of its source of income, or a trust if a court within the
United States is able to exercise primary supervision of the
administration of the trust and one or more United States fiduciaries have
the authority to control all substantial decisions of the trust.
Each foreign Holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
Holder must obtain a taxpayer identification number from the IRS and
submit that number to the Trust Fund on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign Holder generally
would be entitled to file with the IRS a claim for refund with respect to
taxes withheld by the Trust Fund taking the position that no taxes were
due because the Trust Fund was not engaged in a U.S. trade or business.
However, interest payments made (or accrued) to a Certificateholder who is
a foreign person generally will be considered guaranteed payments to the
extent such payments are determined without regard to the income of the
Trust Fund. If these interest payments are properly characterized as
guaranteed payments, then the interest will not be considered "portfolio
interest." As a result, Certificateholders will be subject to United
States federal income tax and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable treaty. In such
case, a foreign Holder would only be entitled to claim a refund for that
portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to
comply with certain identification procedures, unless the Holder is an
exempt recipient under applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the
state and local income tax consequences of the acquisition, ownership, and
disposition of the Securities. 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 their own tax
advisors with respect to the various state and local tax consequences of
an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the
Code, which apply only to Securities of a Series that are not divided into
subclasses. If Securities are divided into subclasses, the related
Prospectus Supplement will contain information concerning considerations
relating to ERISA and the Code that are applicable to such Securities.
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 and
separate 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 Securities 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 the
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 Loans may be deemed Plan assets of each Plan that
purchases Securities, an investment in the Securities 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. PTE 83-1 permits, subject to
certain conditions, transactions which 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, and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by Plans. If the general conditions
(discussed below) of PTE 83-1 are satisfied, investments by a Plan in
Securities that represent interests in a Pool consisting of Loans ("Single
Family Securities") 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
Securities at no more than fair market value and will be exempt from the
prohibitions of ERISA Sections 406(b)(1) and (2) (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved
by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25% of all Single Family
Securities, and at least 50% of all Single Family Securities are purchased
by persons independent of the pool sponsor or pool trustee. PTE 83-1 does
not provide an exemption for transactions involving Subordinate
Securities. Accordingly, unless otherwise provided in the related
Prospectus Supplement, no transfer of a Subordinate Security or a Security
which is not a Single Family Security may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only
to Single Family Securities. Provident believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Securities issued in a Series consisting of only a single class of
Securities; and (ii) Securities issued in a Series in which there is only
one class of such Securities; provided that the Securities in the case of
clause
--------
(i), or the Securities in the case of clause (ii), evidence the beneficial
ownership of both a specified percentage of future interest payments
(greater than 0%) and a specified percentage (greater than 0%) of future
principal payments on the Loans. It is not clear whether a class of
Securities that evidences the beneficial ownership in a Trust Fund divided
into 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 Securities entitled
to receive payments of interest and principal on the 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 Securityholders against
reductions in pass-through payments due to property damage or defaults in
loan payments in an amount not less than the greater of one percent of the
aggregate principal balance of all covered pooled 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 pool.
Provident believes that the first general condition referred to above will
be satisfied with respect to the Securities in a Series issued without a
subordination feature, or the Securities only in a Series issued with a
subordination feature, provided that the subordination and Reserve
Account, subordination by shifting of interests, the pool insurance or
other form of credit enhancement described under "Credit Enhancement"
herein (such subordination, pool insurance or other form of credit
enhancement being the system of insurance or other protection referred to
above) with respect to a Series of Securities is maintained in an amount
not less than the greater of one percent of the aggregate principal
balance of the Loans or the principal balance of the largest Loan. See
"Description of the Securities" herein. In the absence of a ruling that
the system of insurance or other protection with respect to a Series of
Securities 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 Provident.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single
Family Securities must make its own determination as to whether the first
and third general conditions, and the specific conditions described
briefly in the preceding paragraphs, 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 Securities 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 DOL 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.
While each Underwriter Exemption is an individual exemption
separately granted to a specific underwriter, the terms and conditions
which generally apply to the Underwriter Exemptions are substantially the
following: (1) the acquisition of the certificates by a Plan
is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction
with an unrelated party;
(2) the rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust fund;
(3) the certificates required by the Plan have received a
rating at the time of such acquisition that is one of the three
highest generic rating categories from Standard & Poor's Ratings
Group, a Division of The McGraw-Hill Companies ("S&P"), Moody's
Investors Service, Inc. ("Moody's"), Duff & Phelps Credit Rating Co.
("DCR") or Fitch Investors Service, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of
the Restricted Group as defined below;
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the certificates
represents not more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the
seller pursuant to the assignment of the loans to the trust fund
represents not more than the fair market value of such loans; the sum
of all payments made to and retained by the servicer and any other
servicer represents not more than reasonable compensation for such
person's services under the agreement pursuant to which the loans are
pooled and reimbursements of such person's reasonable expenses in
connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933,
as amended.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of S&P, Moody's, Fitch
or DCR for at least one year prior to the Plan's acquisition of
certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least
one year prior to any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from
certain self-dealing/conflict of interest prohibited transactions that may
occur when the Plan fiduciary causes a Plan to acquire certificates in a
trust as to which the fiduciary (or its affiliate) is an obligor on the
receivables held in the trust, provided that, among other requirements:
(i) in the case of an acquisition in connection with the initial issuance
of certificates, at least fifty percent (50%) of each class of
certificates in which Plans have invested is acquired by persons
independent of the Restricted Group (as defined below), (ii) such
fiduciary (or its affiliate) is an obligor with respect to five percent
(5%) or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not
exceed twenty-five percent (25%) of all of the certificates of that class
outstanding at the time of the acquisition; and (iv) immediately after the
acquisition, no more than twenty-five percent (25%) of the assets of the
Plan with respect to which such person is a fiduciary is invested in
certificates representing an interest in one or more trusts containing
assets sold or serviced by the same entity. The Underwriter Exemptions do
not apply to Plans sponsored by Provident, the related Underwriter, the
Trustee, the Master Servicer, any insurer with respect to the Loans, any
obligor with respect to Loans included in the Trust Fund constituting more
than five percent (5%) of the aggregate unamortized principal balance of
the assets in the Trust Fund, or any affiliate of such parties (the
"Restricted Group").
The Prospectus Supplement for each Series of Securities will indicate
the classes of Securities, if any, offered thereby as to which it is
expected that an Underwriter Exemption will apply.
The Underwriter Exemption contains several requirements, some of
which differ from those in PTE 83-l. The Underwriter Exemption contains
an expanded definition of "certificate" which includes an interest which
entitles the holder to pass-through payments of principal, interest and/or
other payments. The Underwriter Exemption contains an expanded definition
of "trust" which permits the trust corpus to consist of secured consumer
receivables. The definition of "trust", however, does not include any
investment pool unless, inter alia, (i) the investment pool consists only
of assets of the type which have been included in other investment pools,
(ii) certificates evidencing interests in such other investment pools have
been purchased by investors other than Plans for at least one year prior
to the Plan's acquisition of certificates pursuant to the Underwriter
Exemption, and (iii) certificates in such other investment pools have been
rated in one of the three highest generic rating categories of the four
credit rating agencies noted below. Generally, the Underwriter Exemption
holds that the acquisition of the certificates by a Plan must be on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party. The Underwriter Exemption requires that the rights and
interests evidenced by the certificates not be "subordinated" to the
rights and interests evidenced by other certificates of the same trust.
The Underwriter Exemption requires that certificates acquired by a Plan
have received a rating at the time of their acquisition that is in one of
the three highest generic rating categories of S&P, Moody's, Fitch or DCR.
The Underwriter Exemption specifies that the pool trustee must not be an
affiliate of the pool sponsor, nor an affiliate of the Underwriter, the
pool servicer, any obligor with respect to mortgage loans included in the
trust constituting more than five percent (5%) of the aggregate
unamortized principal balance of the assets in the trust, or any affiliate
of such entities. Finally, the Underwriter Exemption stipulates that any
Plan investing in the certificates must be an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Any Plan fiduciary which proposes to cause a Plan to purchase
Securities should consult with their counsel concerning the impact of
ERISA and the Code, the applicability of PTE 83-1 and the Underwriter
Exemption, 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
prudence and diversification an investment in the Securities 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 Securities will specify
which, if any, of the classes of Securities offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Classes of Securities 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 regulations 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 enacted
legislation prior to October 4, 1991 specifically limiting the legal
investment authority of any such entities with respect to "mortgage
related securities", Securities 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 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 Securities without limitations as to the percentage of
their assets represented thereby, federal credit unions may invest "in
mortgage related securities", and national banks may purchase securities
for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. 24 (Seventh),
subject in each case to 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), which sets forth
certain restrictions on investments by federal credit unions in "mortgage
related securities" (in each case whether or not the class of Securities
under consideration for purchase constituted a "mortgage related
security").
All depository institutions considering an investment in the
Securities (whether or not the class of Securities under consideration for
purchase constitutes a "mortgage related security") should review the
Federal Financial Institutions Examination Council's Supervisory Policy
Statement on the 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", which 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 Securities
not entitled to distributions allocated to principal or interest, or
Subordinated Securities. 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 which may restrict or prohibit
investment in securities which are not "interest bearing" or "income
paying".
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Securities or to
purchase Securities representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Securities constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
Securities are being offered hereby in Series from time to time (each
Series evidencing or relating to a separate Trust Fund) 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 Provident 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 Provident, or the method by which the
price at which the underwriters will sell the Securities 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 Provident 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 Securities so offered. In
firm commitment underwritten offerings, the underwriters will be obligated
to purchase all of the Securities of such Series if any such Securities
are purchased. Securities 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 Provident to indemnification by Provident 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
Provident and purchasers of Securities of such Series.
LEGAL MATTERS
(Certain legal matters relating to the Securities of each Series will
be passed upon for Provident by Brown & Wood LLP, New York, New York, and
by Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain legal
matters relating to certain federal income tax consequences with respect
to the Securities will be passed upon for Provident by Brown & Wood LLP,
New York, New York.)
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities and no Trust Fund will engage in any business activities or
have any assets or obligations prior to the issuance of the related Series
of Securities. Accordingly, no financial statements with respect to any
Trust Fund will be included in this Prospectus or in the related
Prospectus Supplement.
RATING It is a condition to the
issuance of the Securities of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies (each, a "Rating Agency")
specified in the related Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy
of the value of the Trust Fund Assets and any credit enhancement with
respect to such class and will reflect such Rating Agency's assessment
solely of the likelihood that Holders of a class of Securities will
receive payments to which such Securityholders are entitled under the
related Agreement. Such rating will not constitute an assessment of the
likelihood that principal prepayments on the related Loans will be made,
the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of
the Series of Securities. Such rating should not be deemed a
recommendation to purchase, hold or sell Securities, inasmuch as it does
not address market price or suitability for a particular investor. Each
security rating should be evaluated independently of any other security
rating. Such rating will not address the possibility that prepayment at
higher or lower rates than anticipated by an investor may cause such
investor to experience a lower than anticipated yield or that an investor
purchasing a Security at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn
entirely by the Rating Agency in the future 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 Trust
Fund Assets or any credit enhancement with respect to a Series, such
rating might also be lowered or withdrawn for other reasons, including,
but not limited to, an adverse change in the financial or other condition
of a credit enhancement provider or a change in the rating of such credit
enhancement provider's long-term debt.
The amount, type and nature of credit enhancement, if any,
established with respect to a Series of Securities will be determined on
the basis of criteria established by each Rating Agency rating classes of
such Series. Such criteria are sometimes based upon an actuarial analysis
of the behavior of mortgage loans in a larger group. Such analysis is
often the basis upon which each Rating Agency determines the amount of
credit enhancement required with respect to each such class. There can be
no assurance that the historical data supporting any such actuarial
analysis will accurately reflect future experience nor any assurance that
the data derived from a large pool of mortgage loans accurately predicts
the delinquency, foreclosure or loss experience of any particular pool of
Loans. No assurance can be given that values of any Properties have
remained or will remain at their levels on the respective dates of
origination of the related Loans. If the residential real estate markets
should experience an overall decline in property values such that the
outstanding principal balances of the Loans in a particular Trust Fund and
any secondary financing on the related Properties become equal to or
greater than the value of the Properties, the rates of delinquencies,
foreclosures and losses could be higher than those now generally
experienced in the mortgage lending industry. In additional, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent
that such losses are not covered by credit enhancement, such losses will
be borne, at least in part, by the Holders of one or more classes of the
Securities of the related Series.
INDEX OF DEFINED TERMS
Term Page
---- ---
Accrual Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Amortizable Bond Premium Regulations . . . . . . . . . . . . . . . . . 67
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Balloon payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Belgian Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Book-Entry Securities . . . . . . . . . . . . . . . . . . . . . . . . . 33
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Buydown Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Buydown Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Capitalized Interest Account . . . . . . . . . . . . . . . . . . . . . 46
Cash Flow Bond Method . . . . . . . . . . . . . . . . . . . . . . . . . 73
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Class Security Balance . . . . . . . . . . . . . . . . . . . . . . . . 28
Closed-End Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 63
Collateral Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . 23
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Companion Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Contingent Regulations . . . . . . . . . . . . . . . . . . . . . . . . 64
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Cut-off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 19
Cut-off Date Principal Balance . . . . . . . . . . . . . . . . . . . . 26
DCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Debt-to-income ratio . . . . . . . . . . . . . . . . . . . . . . . . . 24
Definitive Security . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Detailed Description . . . . . . . . . . . . . . . . . . . . . . . . . 20
Disqualified Organization . . . . . . . . . . . . . . . . . . . . . . . 71
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . 35
European Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . 33
Excess Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . 73
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . 34
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Foreign person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Garn-St Germain Act . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Holder in Due Course Rules . . . . . . . . . . . . . . . . . . . . . . 16
Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Home Improvement Contracts . . . . . . . . . . . . . . . . . . . . . 1, 5
Home Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Installment Contract . . . . . . . . . . . . . . . . . . . . . . . . . 60
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Insured Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Interest Weighted Securities . . . . . . . . . . . . . . . . . . . . . 66
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 37
Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 45
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . 45
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 20
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lockout Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Master Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . 19
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . 49
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . 21
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 63
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
PACs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Pass-Through Securities . . . . . . . . . . . . . . . . . . . . . . . . 72
Pay-Through Security . . . . . . . . . . . . . . . . . . . . . . . . . 65
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . 38
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 19
Pool Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . 39
Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . 26
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . 4, 17
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . 65
Primary Mortgage Insurance Policy . . . . . . . . . . . . . . . . . . . 21
Principal Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 29
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 21
Proposed Mark-to-Market Regulations . . . . . . . . . . . . . . . . . . 71
Provident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Ratio Strip Securities . . . . . . . . . . . . . . . . . . . . . . . . 73
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Refinance Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Regular Interest Securities . . . . . . . . . . . . . . . . . . . . . . 63
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Residual Interest Security . . . . . . . . . . . . . . . . . . . . . . 69
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Revolving Credit Line Loans . . . . . . . . . . . . . . . . . . . . . 1, 4
Riegle Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Secured Creditor Exclusion . . . . . . . . . . . . . . . . . . . . . . 56
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Security Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Security Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Securityholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . 5, 37
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Short-Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Single Family Properties . . . . . . . . . . . . . . . . . . . . . . . 21
Single Family Securities . . . . . . . . . . . . . . . . . . . . . . . 82
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 85
STIFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Stripped Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . 47
Subordinated Securities . . . . . . . . . . . . . . . . . . . . . . . . 5
Subsequent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
TACs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 35
Thrift institutions . . . . . . . . . . . . . . . . . . . . . . . . . . 70
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 26
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust Fund Assets . . . . . . . . . . . . . . . . . . . . . . . . 1, 4, 19
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 26
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Underwriter Exemptions . . . . . . . . . . . . . . . . . . . . . . . . 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Securities being registered
under this Registration Statement, other than underwriting discounts and
commissions:
SEC Registration Fee $
Printing and Engraving Expenses $
Legal Fees and Expenses $
Trustee Fees and Expenses $
Accounting Fees and Expenses $
Blue Sky Fees and Expenses $
Rating Agency Fees $
Miscellaneous $
-----
Total $
____________
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of a Series
of Securities in an aggregate principal amount assumed for these
purposes to be equal to $_____________ of Securities registered
hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Code of Regulations provides for indemnification of
directors and officers of the Registrant to the fullest extent permitted
by law. In particular, the Code of Regulations provides for
indemnification for 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, by
reason of the fact that he is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the
Registrant as a director, trustee, officer, employee or agent of another
corporation, domestic or foreign non-profit or for profit,
partnership,joint venture, trust or other enterprise; provided, however,
that the Registrant shall indemnify any such agent (as opposed to any
director, officer or employee) of the Company to an extent that the
directors may, in their discretion, so determine.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement.**
4.1 Form of Pooling and Servicing Agreement relating to
Home Equity Loan Asset Backed Certificates.**
4.2 Form of Pooling and Servicing Agreement relating to
Mortgage Pass-Through Certificates.**
4.3 Form of Trust Agreement.**
4.4 Form of Indenture.**
4.5 Form of Master Servicing Agreement.**
5.1 Opinion of Brown & Wood LLP as to legality of the
Securities.**
5.2 Opinion of Keating, Muething & Klekamp, P.L.L. as to
the legality of the Securities.**
8.1 Opinion of Brown & Wood LLP as to certain tax matters
(included in Exhibit 5.1).**
23.1 Consent of Brown & Wood LLP (included in Exhibits 5.1
and 8.1 hereof).**
23.2 Consent of Keating, Muething & Klekamp, P.L.L.
(included in Exhibit 5.2).**
24.1 Power of Attorney.
__________________________
**To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement
(or the most recent post-effective amendment hereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Act, each filing of a Trust Fund's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee
to act under subsection (a) of Section 310 of the Trust Indenture Act of
1939 in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust Indenture Act of 1939.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that (i) it reasonably believes that the
security rating requirement of Transaction Requirement B.5 of Form S-3
will be met by the time of sale of each Series of Securities to which this
Registration Statement relates and (ii) it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Cincinnati, Ohio on the
23rd day of December, 1996.
THE PROVIDENT BANK
By /s/Allen L. Davis
-------------------------
Name: Allen L. Davis
President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of John R. Farrenkopf and Mark
E. Magee, or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as they might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or their or his substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/Allen L. Davis President December 23, 1996
-------------------
Allen L. Davis (Principal Executive Officer)
and Director
/s/John R. Farrenkopf Senior Vice President Decmeber 23, 1996
--------------------- and Chief
John R. Farrenkopf Financial Officer (Principal
Accounting Officer)
/s/Jack M. Cook Director December 23, 1996
-----------------------
Jack M. Cook
/s/Thomas D. Grote, Jr. Director December 23, 1996
-----------------------
Thomas D. Grote, Jr.
/s/Joseph A. Steger Director December 23, 1996
-----------------------
Joseph A. Steger
/s/Philip R. Myers Director December 23, 1996
-----------------------
Philip R. Myers
/s/Joseph A. Pedoto Director December 23, 1996
-----------------------
Joseph A. Pedoto
/s/Sidney A. Peerless Director December 23, 1996
-----------------------
Sidney A. Peerless
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
------- ---------------------- --------
1.1 -- Form of Underwriting Agreement.**
4.1 -- Form of Pooling and
Servicing Agreement
relating to Home Equity
Loan Asset Backed
Certificates.**
4.2 -- Form of Pooling and
Servicing Agreement
relating to Mortgage
Pass-Through
Certificates.**
4.3 -- Form of Trust Agreement.**
4.4 -- Form of Indenture.**
4.5 -- Form of Master Servicing Agreement.** 5.1
-- Opinion of Brown & Wood
LLP as to the legality
of the Securities.**
5.2 -- Opinion of Keating,
Muething & Klekamp,
P.L.L. as to the
legality of the
Securities.**
8.1 -- Opinion of Brown & Wood
LLP as to certain tax
matters (included in
Exhibit 5.1).**
23.1 -- Consent of Brown & Wood
LLP (included in
Exhibits 5.1 and 8.1).**
23.2 -- Consent of Keating,
Muething & Klekamp,
P.L.L. (included in
Exhibit 5.2).**
24.1 -- Power of Attorney (included on
page II-3).
--------------------
**To be filed by amendment.
