AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
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 of to be Offering Price Aggregate Registration
Securities to Be Registered Registered Per Unit/(1)/ Offering Fee
Price/(1)/
<S> <C> <C> <C> <C>
Asset Backed Notes and Asset Backed
Certificates/(2)//(3)/ . . . . . . $1,149,873,000 100% $1,149,873,000 $340,416.06
</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.
/(3)/ $149,873,000 in securities are being carried forward and
$45,416.06 of the filing fee is associated with the securities
being carried forward and was previously paid with the earlier
registration statement.
PURSUANT TO RULE 429 OF THE SECURITIES AND EXCHANGE COMMISSION'S RULES
AND REGULATIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE PROSPECTUS
AND PROSPECTUS SUPPLEMENT CONTAINED IN THIS REGISTRATION STATEMENT ALSO
RELATES TO REGISTRANT'S REGISTRATION STATEMENT NO. 333-35275 AS PREVIOUSLY
FILED BY THE REGISTRANT ON 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 JANUARY 30, 1998
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 (85) 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 under "Summary--
Collections"), 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 under "Summary--The Policy") 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 (12) 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.
<TABLE>
<CAPTION> Price to Underwriting Proceeds to
Public (1) Discount(2) Provident (3)
<S> <C> <C> <C>
Per Certificate . . . . . . . . . . . . . . . . . . . . . % % %
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $
</TABLE>
(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_
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
CERTIFICATES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND
THE PURCHASE OF CLASS A CERTIFICATES TO COVER SYNDICATE SHORT POSITIONS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" HEREIN.
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 85 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 under
"Description of the Certificates-- Distributions on the
Certificates") after final recovery of related
Liquidation Proceeds (as defined herein under
"Description of the Certificates--Allocations and
Collections") 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 under
"Summary--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 under "Summary--Collections"). The
Transferor 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 approxi-
mately __% of the Cut-Off Date Pool Balance. 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 under "Description
of the Certificates--Optional Transfers of Mortgage
Loans to the Transferor") (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 under
"Summary--Principal Payments from Principal
Collections") 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 under "Summary--Certificate
Rating") 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 Loans 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 Loan) 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 Limit
Utilization Rate (as defined herein under
"Description of the Mortgage Loans--General") was
100% and the weighted average Credit Limit
Utilization Rate was approximately ____%. As of the
Cut-Off Date, approximately ____% of 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 under
"Description of the Certificates--Book-
Entry Certificates"), 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 under
"Description of the Certificates--Book-
Entry Certificates") 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, an Ohio banking corporation
headquartered in Cincinnati, Ohio. The principal
executive offices of Provident are located at One East
Fourth Street, Cincinnati, Ohio 45202. See "Provident"
herein.
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 under "Description of the Certificates--Book-Entry
Certificates").
"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 under "Summary--Collections") 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 allocable to the Certificateholders,
(b) absorbed by the Overcollateralization Amount (as defined herein
under "Summary-Collection"), (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 under
"Description of the Certificates--Distributions on the
Certificates" (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 dollar deposits
("LIBOR") appearing on the Telerate Screen Page 3750, as of
the second LIBOR Business Day (as defined herein under
"Description of the Certificates--Distributions on the
Certificates") 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 an amount derived
from 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 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
below) and (ii) the Alternative Principal
Payment (as defined below). 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 of (i) the Guaranteed Principal Distribution
Amount (as defined below) 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. As
specified in the Agreement, the Certificate Insurer will be
entitled to reimbursement from funds on deposit in the Spread
Account of certain amounts previously paid by it. Further, as
specified in the Agreement, the Trustee will use funds on deposit
in the Spread Account to make distributions to the
Certificateholders prior to making a claim on the Policy. 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.
(Pre-Funding Account On the Closing Date, $__________ (the "Pre-
Funded Amount") will be deposited in an account
(the "Pre-Funding Account"), which account
shall be in the name of and maintained by the
Trustee and shall be part of the Trust Fund and
will be used to acquire Subsequent Mortgage
Loans. During the period beginning on the
Closing Date and terminating on ____________,
19__ (the "Funding Period"), the Pre-Funded
Amount will be maintained in the Pre-Funding
Account. The Pre-Funding Account will be an
asset of the Trust Fund; however, the REMIC
election will not be made with respect to the
Pre-Funding Account. The amounts on deposit in
the Pre-Funding Account will be used either
to acquire Subsequent Mortgage Loans (which
will be assets of the Trust Fund for which the
REMIC election is made) during the Funding
Period or to make a principal prepayment to the
holders of the classes of Certificates then
entitled to distributions of principal of the
amounts on deposit therein at the end of the
Funding Period. All reinvestment earnings
on the Pre-Funding Account shall be owned by, and
be taxable to, the Transferor.
Capitalized Interest Account On the Closing Date there will be
deposited in an account (the "Capitalized
Interest Account") maintained with and in
the name of the Trustee on behalf of the
Trust Fund a portion of the proceeds of
the sale of the Certificates. The amount
deposited therein will be used by the
Trustee on the Distribution Dates in
__________ 19__, __________, 19__ and
__________ 19__ to cover shortfalls in
interest on the Certificates that may
arise as a result of the utilization of
the Pre-Funding Account for the purchase
by the Trust Fund of Subsequent Mortgage
Loans after the Closing Date. Any amounts
remaining in the Capitalized Interest
Account at the end of the Funding Period
are required to be paid directly to
Provident.)
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. For an explanation of the
compensation paid in respect of such
retransferred Mortgage Loan, 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, Brown & Wood LLP special
tax counsel to the Trust Fund 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, Brown & Wood LLP special tax
counsel to the Trust Fund 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"), or
to Section 4975 of the Code could, in some
instances, result in a "prohibited transaction"
or other violation of the fiduciary
responsibility provisions of ERISA and 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
Investors should consider the following risks in connection with the
purchase of Certificates.
Risk of Reduced Liquidity Because 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.
Payment Delay as a Result of Owning Book-Entry Certificates.
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
under "Description of the Certificates--Book-Entry Certificates") 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 of Shortfalls. 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 Effect on Yield to Maturity and Weighted
Average Life of Certificates. 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 Based Primarily on Claims-Paying Ability of the
Certificate Insurer. 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 and Possible Delay in
Distributions or Losses. 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. Therefore, there is generally no
limit on the principal amount of prior liens that can be placed ahead of the
Mortgage Loans. 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. If 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 the risk of
delay in distributions while a deficiency judgment against the borrower is
obtained and the risk of loss if the deficiency judgment cannot be obtained
or is insufficient to satisfy the Mortgage Loan. See "Certain Legal Aspects
of the Loans" in the Prospectus.
Bankruptcy and Insolvency Risks. Provident and the Trust will treat the
transfer of the Mortgage Loans from Provident to the Trust 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, that the
secured indebtedness be reduced 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 reductions in the aggregate amount of such payments.
(Risk of Losses as a Result of 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.
(Risk of Prepayment Due to Subsequent Mortgage Loans. The ability of
the Trust to purchase mortgage loans after the date of this Prospectus
Supplement and on or prior to ____________, 19__ that meet the requirements
for transfer during the Funding Period under the Agreement is affected by a
variety of factors, including interest rates, unemployment levels, the rate
of inflation and consumer perception of economic conditions generally. On
the Distribution Date in ____________ 19__, a principal prepayment will be
made to the holders of the Certificates in the amount which represents the
excess of the original Pre-Funded Amount over the Principal Balance of all
Subsequent Mortgage Loans as of the related Cut-Off Date (i.e., the balance
on deposit in the Pre-Funding Account on such date (net of investment
earnings)). Although no assurances can be given, Provident intends that no
material principal prepayment will be required to be made to the holders of
the Certificates on the Distribution Date in ____________ 19__. Any
reinvestment risk resulting from such prepayment will be borne entirely by
the Certificateholders.)
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. Not-
withstanding 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. (Beginning on
__________, _____________ (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 Financial
Group, Inc., a Cincinnati-based bank holding company registered under the
Bank Holding Company Act. Provident Financial Group, Inc. operates
throughout Ohio, Northern Kentucky, Southeastern Indiana and Florida. As of
____________, Provident Financial Group, Inc. had total assets of $____
billion, net loans of $___ billion, deposits of $____ billion and total
shareholders' equity of $____ million. Provident Financial Group's tier 1
and total capital ratios were ____% and _____%, respectively. For the (___)
months ended ______________, Provident Financial Group had net earnings of
$____ million. As of _______________, Provident Financial Group had total
assets of $____ billion, net loans of $___ billion, deposits of $___ billion
and total shareholders' equity of $___ million. Provident Financial Group's
tier I and total capital ratios were ____% and ____%, respectively. For the
fiscal year ended __________________, Provident Financial Group, Inc. had net
earnings of $___ million. Provident represents approximately 91% of
Provident Financial Group, 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 its retail originations of
mortgage loans for non-purchase money purposes. Provident believes its
underwriting guidelines are consistent with those utilized by home equity
lenders generally.
Provident performs underwriting procedures intended to assess a
prospective borrower's credit standing and repayment ability, and the value
and adequacy of the mortgaged property as collateral. Exceptions to the
underwriting guidelines are made when compensating factors are present. Such
factors include the quality and location of the property, the length of
employment, credit history, current and pending debt obligations, payment
habits and status of past and currently existing mortgages. Each prospective
borrower is required to complete an application which lists assets,
liabilities, income, credit and employment history and other demographic and
personal information. If the information in the application demonstrates
that there is sufficient income and equity in the real property to justify
the making of the mortgage loan, Provident will conduct a further credit
investigation, including obtaining and reviewing an independent credit bureau
report in order to evaluate the applicant's ability to repay.
Provident has historically used a debt-to-income ratio to determine
whether a prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the home equity loan in
addition to any senior mortgage loan payments (including any escrows for
property taxes and hazard insurance premiums) and other monthly credit
obligations. The "debt-to-income ratio" is the ratio of a borrower's total
monthly payments to the borrower's gross monthly income. The monthly debt-
to-income ratio, in general, does not exceed 45% when the Combined Loan-to-
Value Ratio does not exceed 80%. For mortgage loans with CLTVs in excess of
80%, the monthly debt-to-income ratio generally does not exceed 40%. The
foregoing CLTV and debt-to-income limitations may be exceeded if one or more
of the compensating factors described above are present. In addition, these
limitations may be exceeded if specific approval is obtained from an
authorized officer of Provident.
In addition to the foregoing guidelines, beginning in December, 1996,
Provident instituted a credit scoring procedure as an additional guideline in
evaluating applications for mortgage loans. Generally, applicants must meet
a minimum score predetermined by Provident. Scores are calculated on the
basis of scoring model developed by Fair-Isaacs Inc. and utilized by
financial institutions which originate home equity loans.
The maximum amount permitted to be drawn (the "Credit Limit") under the
Credit Line Agreements generally range from a minimum of $5,000 to a maximum
of $250,000. For CLTVs in excess of 80%, the Credit Limit is generally
limited to $50,000 and mortgage loans secured by third mortgages are limited
to a CLTV of 80%. These limitations may be exceeded if approval is obtained
from a senior officer of Provident.
Provident requires a valuation on all mortgaged property representing
security for a loan. The mortgaged property used as collateral to secure the
mortgage loans may be either primary residential (which includes second and
vacation homes) or investor owned one- to four-family homes, planned unit
developments and condominiums. Mobile housing, commercial or agricultural
land are not accepted as collateral. In some cases, the mortgage loan may be
secured by the owner-occupied residence plus additional collateral.
Provident personnel decide whether property value will be determined by
a full appraisal, a "drive-by" appraisal or an appraisal based on tax
assessment valuation. A "drive-by" appraisal consists of: (i) the appraiser
reviewing appropriate records concerning the tax valuation of the mortgaged
property and the recent sale prices of homes in the same neighborhood; and
(ii) an inspection of the exterior of the mortgaged property. If such
exterior inspection indicates that the mortgaged property is well-maintained,
the appraiser determines a market value based upon the available records; if
such exterior inspection reveals signs of improper maintenance, Provident
requires a full appraisal, which includes an interior inspection of the
mortgaged property. A current-owner title search of the mortgaged property
is also obtained by Provident in addition to an appraisal. In connection
with originating a mortgage loan which is in a junior lien position,
Provident typically assumes that the first mortgage lender has obtained an
ALTA title insurance policy although Provident does not independently verify
whether such title insurance policy has been obtained. Provident generally
does not require borrowers to obtain title insurance.
Applicants are 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 mortgage loan originated by
Provident exceeds replacement value, insurance equal to replacement value may
be accepted. Provident ensures 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 obtained.
As a part of Provident's loan application process, each mortgage
applicant is typically required to provide personal financial information.
Applicants who are salaried employees may be required to provide current
employment information in addition to two recent years of employment history
and Provident may verify this information. Verifications are based on the
two most recent pay stubs, the two most recent years' W-2 tax forms or the
two most recent years' complete federal income tax returns (including
schedules). Self-employed applicants should be self-employed in the same
field for a minimum of two years. Self-employed applicants are typically
required to provide signed copies of complete federal income tax returns
(including schedules) filed for the most recent two years.
Credit reports are obtained from independent credit reporting agencies
reflecting each applicant's credit history. Credit reports should reflect
all delinquencies of 30 days or more, repossessions, judgements,
foreclosures, garnishments, bankruptcies, divorce actions and other adverse
credit events that can be discovered by a search of public records. If the
report is obtained more than 60 days prior to the loan closing, Provident may
obtain an updated credit report to verify that the reported information has
not changed. Verification is obtained of any first mortgage balance if not
reported in the credit report.
Generally, applicants are required to have an acceptable credit history,
satisfactory employment history and the level of income to debt obligations
to support the amount of the mortgage loan applied taking into account the
value of the equity in the mortgaged property. 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.
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 Mortgage Loans, including any deficiencies.
Once foreclosure is initiated by the Master Servicer, the foreclosure is
out-sourced to a law firm specializing in the handling of the foreclosure
process. The out-source agreement includes 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 Mortgage 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 AND CHARGE-OFF EXPERIENCE
The following tables set forth Provident's delinquency and charge-off
experience on its servicing portfolio of home equity lines of credit similar
to and including the Mortgage Loans for the periods indicated. There can be
no assurance that the delinquency and charge-off 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 tables set forth below are based on all of the home
equity lines of credit in Provident's servicing portfolio.
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.
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 six months ended June 30, 1997) and the years ended (December 31, 1996)
(December 31, 1995) (December 31, 1994) and (December 31, 1993).
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT(4) OF AMOUNT(4) OF AMOUNT(4)
LOANS LOANS LOANS
<S> <C> <C> <C> <C> <C> <C>
Portfolio (3) $115,309,000 (3) $135,794,000 (3) $160,226,000
Delinquency
percentage(1)
30-59 days.. (3) (3) (3) (3) (3) (3)
60-89 days.. (3) (3) (3) (3) (3) (3)
90 days
or more(2) (3) (3) (3) (3) (3) (3)
TOTAL . . (3) 0.25% (3) 0.32% (3) 0.25%
(table continued)
YEAR ENDED Six Month Ended
DECEMBER 31, 1996 June 30, 1997
NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT(4) OF AMOUNT(4)
LOANS LOANS LOANS
<S> <C> <C> <C>
7,496 $173,670,000 7,647 $182,544,000
0.45% 0.40% 0.37% 0.59%
0.08% 0.11% 0.10% 0.07%
0.21% 0.23% 0.16% 0.13%
0.74% 0.74% 0.63% 0.79%
</TABLE>
(1) The delinquency percentage represents the number and principal
balance of mortgage loans with monthly payments which are
contractually past due. Mortgage loans for which the related
borrower has declared bankruptcy are not included unless or until
such loans are delinquent pursuant to their repayment terms.
(2) Includes the principal balance of loans currently in process of
foreclosure and loans acquired through foreclosure or deed in lieu
of foreclosure.
(3) Insufficient information available.
(4) Dollar amounts rounded to the nearest $1,000.
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. In no event will more than 5% of the
Cut-Off Date Pool Principal Balance of the Mortgage Pool deviate from the
characteristics of the Mortgage Loans described herein.
MORTGAGE LOAN TERMS
(A borrower may access a Mortgage Loan by writing a check in a minimum
amount of $100. 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>
$ %
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>
(CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The Agreement permits the Trust Fund to purchase from Provident,
subsequent to the date hereof and prior to _______, 19__, Subsequent Mortgage
Loans in an amount not to exceed approximately $________ in aggregate
principal balance for inclusion in the Trust Fund. Each Subsequent Mortgage
Loan will have been originated or purchased by Provident in accordance with
the underwriting guidelines set forth above under "The Home Equity Loan
Program--Credit and Underwriting Guidelines." Accordingly, the statistical
characteristics of the Mortgage Pool set forth above are based exclusively on
the Initial Mortgage Loans and the statistical characteristics of the
Mortgage Pool after giving effect to the acquisition of any Subsequent
Mortgage Loans will likely differ from the information specified herein. The
date on which Provident transfers a Subsequent Mortgage Loan to the Trust
Fund shall be referred to herein as the "Subsequent Transfer Date".
In any event, each conveyance of Subsequent Mortgage Loans will be
subject to, among other things, the following conditions: (i) such
Subsequent Mortgage Loans must (a) satisfy the eligibility criteria set forth
in the Prospectus under "The Loan Program--Representations by Provident;
Repurchases" and (b) comply with each representation and warranty as to the
Mortgage Loans set forth in the Agreement; (ii) such Subsequent Mortgage Loan
must not have been selected by Provident in a manner that it believes is
adverse to the interests of the Certificateholders, (iii) no Subsequent
Mortgage Loan may be ___ or more days contractually delinquent as of the
applicable Cut-Off Date; (iv) no Subsequent Mortgage Loan may have a
remaining term to maturity in excess of ___ years; (v) no Subsequent Mortgage
Loan may have a Mortgage Rate less than ____%; (vi) following the purchase of
such Subsequent Mortgage Loans by the Trust Fund, the Mortgage Loans (a) will
have a weighted average Mortgage Rate of at least ____%; (b) will have a
weighted average Combined Loan-to-Value Ratio of not more than ____%; (c)
will not have a weighted average remaining term to stated maturity of more
than ____ months; and (d) will, in each case, have a principal balance in
excess of $_______ as of the Cut-Off Date; (vii) Provident (and the Trustee
shall not have been notified by either Rating Agency that the conveyance of
such Subsequent Mortgage Loans will result in a qualification, modification
or withdrawal of its then-current rating of any class of Certificates) (shall
have notified each Rating Agency of such conveyance as required by the
Agreement); and (viii) the Trustee shall have received certain opinions of
counsel as to, among other things, the enforceability and validity of the
transfer agreements relating to such conveyance of such Subsequent Mortgage
Loans.)
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 under "--Distributions on the Certificates"). 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 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.
The Certificates will not be listed on any securities exchange.
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
under "--Events of Servicing Termination"), 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 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 below). 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 below) 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
--------
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 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 bank 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 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 obli-
gations; 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 below) and (ii) the
Alternative Principal Payment (as defined below). 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 below) 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.)
(PRE-FUNDING ACCOUNT
On the Closing Date, $___________ (the "Pre-Funded Amount") will be
deposited in an account (the "Pre-Funding Account"), which account shall be
in the name of and maintained by the Trustee and shall be part of the Trust
Fund and will be used to acquire Subsequent Mortgage Loans. During the
period beginning on the Closing Date and terminating on _____________, 19__
(the "Funding Period"), the Pre-Funded Amount will be reduced by the amount
thereof used to purchase Subsequent Mortgage Loans in accordance with the
Agreement. Any Pre-Funded Amount remaining at the end of the Funding Period
will be distributed to holders of the classes of Certificates entitled to
receive principal on the Distribution Date in ______________, 19__ in
reduction of the related Certificate Principal Balances (thus resulting in a
partial principal prepayment of the related Certificates on such date).
Amounts on deposit in the Pre-Funding Account will be invested in
Permitted Investments. All interest and any other investment earnings on
amounts on deposit in the Pre-Funding Account will be deposited in the
Capitalized Interest Account.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date there will be deposited in an account (the
"Capitalized Interest Account") maintained with and in the name of the
Trustee on behalf of the Trust Fund a portion of the proceeds of the sale of
the Certificates. The amount deposited therein will be used by the Trustee
on the Distribution Dates in __________________ 19__, _____________ 19__ and
______________, 19__ to cover shortfalls in interest on the Certificates that
may arise as a result of the utilization of the Pre-Funding Account for the
purchase by the Trust Fund of Subsequent Mortgage Loans after the Closing
Date. Any amounts remaining in the Capitalized Interest Account at the end
of the Funding Period which are not needed to cover shortfalls on the
Distribution Date in ___________ 19__ are required to be paid directly to
Provident.)
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.
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, 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 Provident, or
the Master Servicer 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, the Master Servicer, 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 5% 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 the Trust Fund ("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 or a publicly traded partnership
treated as a corporation. Since Tax Counsel has opined 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 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, Tax Counsel is of the opinion
that 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.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
U.S. Holders are strongly urged to consult their own tax advisors with
respect to the New Withholding Regulations.
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.
In addition, prospective Certificate Owners are strongly urged to
consult their own tax advisors with respect to the New Withholding
Regulations. See "FEDERAL INCOME TAX CONSEQUENCES - Foreign Investors".
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 (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 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 Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust Fund;
(3) The 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 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 Fund 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 the 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
Fund, or any of their respective affiliates; 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 Underwriter believes that the Exemption as amended 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"), between
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.
Provident has been advised by the Underwriter that they presently intend
to make a market in the Class A Certificates offered hereby; however, the
Underwriter 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 Class A Certificates will develop.
Until the distribution of the Class A Certificates is completed, rules
of the Commission may limit the ability of the Underwriter and certain
selling group members to bid for and purchase the Class A Certificates. As
an exception to these rules, the Underwriter is permitted to engage in
certain transactions that stabilize the price of the Class A Certificates.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Class A Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither Provident nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Class A
Certificates. In addition, neither Provident nor the Underwriter makes any
representation that the Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreement provides that Provident will indemnify the
Underwriter against certain civil liabilities, including liabilities under
the Act.
Certain expenses of the Underwriter incurred in connection with this
offering will be paid by Provident.
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, P.L.L., 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-39
Additional Balances . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Alternative Principal Payment . . . . . . . . . . . . . . . . . . S-11, S-41
Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-32
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-39, S-44
Capitalized Interest Account . . . . . . . . . . . . . . . . . . S-13, S-45
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7, S-35
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-32
Certificate Principal Balance . . . . . . . . . . . . . . . . . . . S-4, S-32
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . S-4, S-10, S-40
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . S-33, S-53
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-4
Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-10, S-40
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-37
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-40
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . S-5
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Credit Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-19
Credit Limit Utilization Rate . . . . . . . . . . . . . . . . . . . . . S-22
Credit Line Agreements . . . . . . . . . . . . . . . . . . . . . . S-3, S-22
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Cut-Off Date Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . S-3
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . . . S-3
Debt-to-Income Ratio . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Defective Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . S-37
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . S-32
Determination Date . . . . . . . . . . . . . . . . . . . . . . . S-13, S-37
Dissolution Distribution Date . . . . . . . . . . . . . . . . . . . . . S-43
Distribution Date . . . . . . . . . . . . . . . . . . . . . . S-1, S-10, S-39
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-32, S-60
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Eligible Substitute Mortgage Loan . . . . . . . . . . . . . . . . . . . S-36
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-54
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . S-34
European Depositaries . . . . . . . . . . . . . . . . . . . . . . . S-7, S-32
Events of Servicing Termination . . . . . . . . . . . . . . . . . . . . S-48
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . S-33
Fixed Allocation Percentage . . . . . . . . . . . . . . . . . . . . . . . S-9
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-45
Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Guaranteed Distributions . . . . . . . . . . . . . . . . . . . . S-11, S-43
Guaranteed Principal Distribution Amount . . . . . . . . . . . . S-12, S-43
Index Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Insurance Agreement . . . . . . . . . . . . . . . . . . . . . . . S-11, S-43
Interest Collections . . . . . . . . . . . . . . . . . . . . . . . S-7, S-38
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-40
Invested Amount . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-32
Investor Fixed Allocation Percentage . . . . . . . . . . . . . . . . . . S-9
Investor Floating Allocation Percentage . . . . . . . . . . . . . . S-8, S-38
Investor Interest Collections . . . . . . . . . . . . . . . . . . . S-8, S-38
Investor Loss Amount . . . . . . . . . . . . . . . . . . . . . . . S-9, S-40
Investor Principal Collections . . . . . . . . . . . . . . . . . . S-9, S-39
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-40
Liquidation Loss Amount . . . . . . . . . . . . . . . . . . . . . . S-9, S-40
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-23
Managed Amortization Period . . . . . . . . . . . . . . . . . . . S-10, S-41
Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Maximum Principal Payment . . . . . . . . . . . . . . . . . . . . S-10, S-41
Maximum Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Minimum Transferor Interest . . . . . . . . . . . . . . . . . . . . S-5, S-37
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . S-5, S-36, S-37
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Net Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . S-8, S-38
New Withholding Regulations . . . . . . . . . . . . . . . . . . . . . . S-53
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Original Certificate Principal Balance . . . . . . . . . . . . . . S-4, S-32
Original Invested Amount . . . . . . . . . . . . . . . . . . . . . S-4, S-32
Overcollateralization Amount . . . . . . . . . . . . . . . . . . . . . . S-9
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-39
Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-44
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . S-12, S-44
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Principal Collections . . . . . . . . . . . . . . . . . . . . . . . S-7, S-38
Provident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Rapid Amortization Event . . . . . . . . . . . . . . . . . . . . . . . S-42
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Receipt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
Reference Bank Rate . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . S-32
Required Overcollateralization Amount . . . . . . . . . . . . . . . . . S-40
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-33
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Scheduled Principal Collections Distribution Amount . . . . . . . S-10, S-41
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . S-13, S-47
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-55
Spread Account . . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-43
STIFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . S-30
Subservicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Telerate Screen Page 3750 . . . . . . . . . . . . . . . . . . . . . . . S-40
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . S-34
Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Transfer Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . S-36
Transfer Deposit Amount . . . . . . . . . . . . . . . . . . . . . . . . S-36
Transferor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Transferor Interest . . . . . . . . . . . . . . . . . . . . . S-1, S-4, S-32
Transferor Principal Collections . . . . . . . . . . . . . . . . . S-9, S-39
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-14
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54, S-55
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-55
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 (other than a
partnership that is not treated as a United States person under any
applicable Treasury regulations), 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 persons have authority to control all substantial
decisions of the trust. In addition, certain trusts treated as United States
persons before August 20, 1996 may elect to continue to be so treated to the
extent provided in regulations. 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.
In addition, prospective investors are strongly urged to consult their
own tax advisors with respect to the New Withholding Regulations. See
"FEDERAL INCOME TAX CONSEQUENCES - Foreign Investors".
No dealer, salesman or other
person has been authorized to give
any information or to make any
representation not contained in
this Prospectus Supplement or the PROVIDENT HOME
Prospectus and, if given or made, EQUITY LOAN TRUST 199__-__
such information or representation
must not be relied upon as having
been authorized by the Company or
(Underwriter). This Prospectus $___________
Supplement and the Prospectus do (Approximate)
not constitute an offer of any
securities other than those to
which they relate or an offer to
sell, or a solicitation of an
offer to buy, to any person in any Home Equity Loan
jurisdiction where such an offer Asset Backed Certificates
or solicitation would be unlawful. Series 199_-_
Neither the delivery of this
Prospectus Supplement and the
Prospectus nor any sale made THE PROVIDENT BANK
hereunder shall, under any Transferor and Master Servicer
circumstances, create any
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
(UNDERWRITER)
The Home Equity Loan Program S-19
Description of the Mortgage Loans
S-22
Maturity and Prepayment
Considerations . . . . . . . S-30
Pool Factor and Trading
Information . . . . . . . . . S-31
Description of the Certificates
S-31
Use of Proceeds . . . . . . . S-50
Federal Income Tax Consequences
S-51
State Taxes . . . . . . . . . S-54
ERISA Considerations . . . . S-54
Legal Investment Considerations
S-55
Underwriting . . . . . . . . S-55
Legal Matters . . . . . . . . S-56
Experts . . . . . . . . . . . S-56
Ratings . . . . . . . . . . . S-56
Index of Defined Terms . . . S-57
Annex I . . . . . . . . . . . S-60
PROSPECTUS
Prospectus Supplement or Current
Report on Form 8K . . . . . . . 2
Available Information . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . 3
Reports to Securityholders . . 3
Summary of Terms . . . . . . . 4
Risk Factors . . . . . . . . . 12
The Trust Fund . . . . . . . . 17
Use of Proceeds . . . . . . . . 22
Loan Program . . . . . . . . . 22
The Provident Bank . . . . . . 22
Description of the Securities . 24
Credit Enhancement . . . . . . 35
Yield and Prepayment
Considerations . . . . . . . . 39
The Agreements . . . . . . . . 41
Certain Legal Aspects of the Loans
52
Federal Income Tax Consequences 59
State Tax Considerations . . . 78
ERISA Considerations . . . . . 78
Legal Investment . . . . . . . 81
Method of Distribution . . . . 82
Legal Matters . . . . . . . . . 83
Financial Information . . . . . 83
Ratings . . . . . . . . . . . . 83
Index of Defined Terms . . . . 85
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 JANUARY 30, 1998
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED (_____________)
$
(PROVIDENT MORTGAGE PASS-THROUGH 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)
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 199___
------------------
THE PROVIDENT BANK,
AS SELLER AND MASTER SERVICER
------------------
The Mortgage Pass-Through Certificates, Series _________ (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 fixed- and adjustable-rate
mortgage loans (the "Mortgage Loans") consisting of two groups ("Loan Group
1" and "Loan Group 2", respectively, and each a "Loan Group") held by
(Provident Mortgage Pass-Through 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 servicer (the "Master
Servicer"), and ________________________________________, 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 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-14 HEREIN AND ON PAGE 12
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
COMMISSION 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 Bank,
soci t anonyme, 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 under
"Description of the Certificates--Deposits to Collection Account and
Distribution Account"), 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.
The effective yield to the Certificateholders of each Class of Group I
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). See "PREPAYMENT AND YIELD CONSIDERATIONS--Payment
Delay Feature of Group I Certificates."
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
Mortgage Pass-Through 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.
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 Mortgage Pass-Through 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
fixed- and adjustable-rate mortgage loans (the "Mortgage
Loans"), secured by first 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 under "Description of the Certificates--Principal")
after the Due Period in which such Mortgage Loan becomes a
Liquidated Mortgage Loan shall be zero.
Securities The Mortgage Pass-Through 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 fixed- and adjustable-rate
mortgage loans secured by first deeds of trust or
mortgages on Mortgaged Properties located in __
states and the District of Columbia. The
Loan-to-Value Ratio of each Mortgage Loan, computed
on the date such loan was originated (the
"Loan-to-Value Ratio") did not exceed % as of
the Cut-Off Date. The weighted average
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 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
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 .
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 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 Class A Certificates are Book-Entry
Certificates (as defined herein under
"Description of the Certificates--Book-Entry
Certificates"), 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 under
"Description of the Certificates--Book-Entry
Certificates") 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" in the
Prospectus.
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 under "DESCRIPTION OF THE CERTIFICATES--The
Certificate 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. 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 under "Description of the Certificates--Deposits to
the Distribution Account") 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."
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 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 "DESCRIPTION OF THE
CERTIFICATES--Overcollateralization Provisions."
Crosscollateralization 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.
(Pre-Funding Account On the Closing Date, $__________ (the "Pre-
Funded Amount") will be deposited in an account
(the "Pre-Funding Account"), which account
shall be in the name of and maintained by the
Trustee and shall be part of the Trust Fund and
will be used to acquire Subsequent Mortgage
Loans. During the period beginning on the
Closing Date and terminating on ____________,
19__ (the "Funding Period"), the Pre-Funded
Amount will be maintained in the Pre-Funding
Account. The Pre-Funding Account will be an
asset of the Trust Fund; however, the REMIC
election will not be made with respect to the
Pre-Funding Account. The amounts on deposit in
the Pre-Funding Account will be used either to
acquire Subsequent Mortgage Loans (which will
be assets of the Trust Fund for which the REMIC
election is made) during the Funding Period or
to make a principal prepayment to the holders
of the classes of Certificates then entitled to
distributions of principal of the amounts on
deposit therein at the end of the Funding
Period. All reinvestment earnings on the Pre-
Funding Account shall be owned by, and be
taxable to, the Seller.)
Capitalized Interest
Account On the Closing Date there will be deposited in an account (the
"Capitalized Interest Account") maintained with and in the
name of the Trustee on behalf of the Trust Fund a portion of
the proceeds of the sale of the Certificates. The amount
deposited therein will be used by the Trustee on the
Distribution Dates in __________ 19__, __________, 19__ and
__________ 19__ to cover shortfalls in interest on the
Certificates that may arise as a result of the utilization of
the Pre-Funding Account for the purchase by the Trust Fund of
Subsequent Mortgage Loans after the Closing Date. Any amounts
remaining in the Capitalized Interest Account at the end of
the Funding Period are required to be paid directly to
Provident.) The Capitalized Interest Account shall not be an
asset of the REMIC. All reinvestment earnings on the
Capitalized Interest Account shall be owned by, and be taxable
to, the Seller.
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
and Civil Relief Act
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 The Seller 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."
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"). In the opinion of Brown &
Wood LLP, tax counsel to the Trust Fund ("Tax Counsel"),
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 "FEDERAL INCOME TAX CONSEQUENCES" herein and
"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"), or to Section 4975 of the Code
could, in some instances, result in a
"prohibited transaction" or other violation of
the fiduciary responsibility provisions of
ERISA and 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 constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA") so long
as they are rated in one of the two highest rating
categories by at least one nationally recognized
statistical rating organization and, as such, are legal
investments for certain entities to the extent provided
in SMMEA.
Institutions whose investment activities are subject to review by
federal or state regulatory authorities should consult with their
counsel or the applicable authorities to determine whether an
investment in the Offered Certificates complies with applicable
guidelines, policy statements or restrictions. 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
Consequences on Liquidity and Payment Delay Because of Owning 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 under "DESCRIPTION OF THE CERTIFICATES--Book-Entry Certificates")
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 and Risks of Shortfall. 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.
Prepayment Considerations and Effect on Yield to Maturity and Weighted
Average Life of Certificates. 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. 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 Based Primarily on Claims-Paying Ability of the
Certificate Insurer. 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.
Legal Considerations Resulting from Sale Treatment. 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 and Effect of Reduced Payments of
Interest 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.
(Risk of Losses as a Result of 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.)
(Risk of Prepayment Due to Subsequent Mortgage Loans. The ability of
the Seller to purchase mortgage loans subsequent to the date hereof and on or
prior to ____________, 19__ that meet the requirements for transfer during
the Funding Period under the Agreement is affected by a variety of factors,
including interest rates, unemployment levels, the rate of inflation and
consumer perception of economic conditions generally. On the Distribution
Date in ____________ 19__, a principal prepayment will be made to the holders
of the Certificates in the amount which represents the excess of the original
Pre-Funded Amount over the Principal Balance of all Subsequent Mortgage Loans
as of the related Cut-Off Date (i.e., the balance on deposit in the Pre-
Funding Account on such date (net of investment earnings)). All Subsequent
Mortgage Loans shall be added from a specified group of Mortgage Loans.
Although no assurances can be given, Provident intends that no material
principal prepayment will be required to be made to the holders of the
Certificates on the Distribution Date in ____________ 19__. Any reinvestment
risk resulting from such prepayment will be borne entirely by the
Certificateholders.)
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.
_____________ 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"):
SAP
December 31, 1996 Quarterly Report
(Audited) (Unaudited)
(in millions)
GAAP
December 31, 1996 Quarterly Report
(Audited) (Unaudited)
(in millions)
Audited financial statements of the Certificate Insurer as of December
31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996 are included herein as Appendix A. Unaudited financial
statements of the Certificate Insurer for the ( )-month period ended (
) 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 1996 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 address
of the Certificate Insurer is _______________________________________.
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 IBCA, Inc. 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 Financial
Group, Inc., a Cincinnati based bank holding company registered under the
Bank Holding Company Act. Provident Financial Group, Inc. operates
throughout Ohio, Northern Kentucky and Southeastern Indiana. As of
______________, Provident Financial Group, Inc. had total assets of $____
billion, net loans of $_____ billion, deposits of $_____ billion and total
shareholders' equity of $____ million. For the fiscal year ended
________________, Provident Financial Group, Inc. had net earnings of $____
million. At _________________, Provident Financial Group, Inc.'s tier 1 and
total capital ratios were _____% and _____%, respectively. Provident
represents approximately 91% of Provident Financial Group, 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 similar 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 and 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 (generally, a period of three days) 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 policies and procedures
customarily and currently employed by Provident with respect to the portion
of its mortgage loan portfolio which it services. Provident intends to
service the Mortgage Loans in accordance with these policies and procedures
and in accordance with the Agreement. Provident revises such policies and
procedures from time to time, based upon its business judgment, in connection
with changes in economic and market conditions, the mortgage loan portfolio
and applicable laws and regulations. Provident advises new borrowers of its
policies and procedures and of all appropriate phone numbers and addresses
for Provident's servicing personnel through an introductory courtesy call.
Servicing of Provident's mortgage loan portfolio is conducted through
its principal office in Cincinnati, Ohio. Centralized controls and standards
have been established by Provident for the servicing and collection of
mortgage loans in its portfolio. Servicing includes, but is not limited to,
post-closing loan processing, payment processing, customer service,
collections and liquidations.
Borrowers are billed monthly in advance of the date on which mortgage
payments are due. Provident's collection policy emphasizes working with
borrowers in default in an effort to bring payments current and to avoid
foreclosures. If timely payment is not received, collection procedures are
generally initiated within 5 days after the due date. Initial collection
procedures involve attempting to contact the borrower, on a two-day call
schedule, by telephone to make payment arrangements. Telephone contacts
continue on that schedule until the mortgage loan is brought current, other
payment arrangements are made or Provident determines to take other action.
A standard form letter is utilized when a mortgage loan becomes 30 days
delinquent. This letter sets forth Provident's collection options as well as
the borrower's options for curing the delinquency.
Regulations and practices regarding the liquidation of properties (e.g.,
foreclosure) and the rights of the borrower in default vary greatly from
state to state. Provident will decide that liquidation is the appropriate
course of action only if a delinquency cannot otherwise be cured. Generally,
Provident commences foreclosure proceedings when a loan becomes 60 days
delinquent. If Provident determines that purchasing a property securing a
mortgage loan will minimize the loss associated with it, Provident may bid at
the foreclosure sale for such property or accept a deed in lieu of
foreclosure.
Any realization from the sale of foreclosed property is taken as a
recovery. After Provident acquires title to a mortgaged property by
foreclosure or deed in lieu of foreclosure, an approved realtor is selected
to list and advertise the property for sale.
Provident's foreclosure on property securing a junior mortgage loan will
be subject to any senior mortgages. If any senior mortgage loan is in
default after Provident has initiated its foreclosure action, Provident may
advance funds to keep such senior mortgage loan current until such time as
Provident satisfies such senior mortgage loan. Such amounts are added to the
balance of the mortgage loan. In the event that foreclosure proceedings have
been instituted on any senior mortgage prior to the initiation of Provident's
foreclosure action, Provident will either satisfy the senior mortgage loan at
the time of the foreclosure sale or take other action to protect its interest
in the related property.
DELINQUENCY EXPERIENCE
The following table sets forth Provident's delinquency experience on its
serving portfolio of home equity loans (which includes home equity loans
subserviced by others for Provident) 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 may
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.
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the Mortgage Loans for
the quarters ended (December 31, 1996), (March 31, 1997), (June 30, 1997) and
(September 30, 1997).
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30 1997 JUNE 30 1997 MARCH 31 1997 DECEMBER 31 1996
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio . . . . (11,211 $820,937,476 7,763 5,782 $433,107,871 3,776 $287,409,449
$582,523,598
Delinquency
percentage
(1)(2)
30-59 days . 3.27% 3.36% 3.12% 3.12% 2.30% 2.86% 2.44% 2.72%
60-89 days . 1.03% 1.24% 1.04% 1.03% 1.07% 1.34% 0.79% 0.83%
90 days or 2.81% 3.71% 2.51% 3.67% 1.82% 2.54% 1.27% 1.80%
more . . . .
Total . . . . . . 7.11% 8.31% 6.67% 7.82% 5.19% 6.74% 4.50% 5.35%
</TABLE>
(1) The delinquency percentage represents the number and principal balance
of mortgage loans with payments contractually past due.
(2) Includes properties in foreclosure, delinquent bankruptcies and real
estate owned.
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 fixed and adjustable
rate mortgage 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) 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
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. In no event will more than 5% of the Cut-Off Date Pool
Principal Balance of the Mortgage Pool deviate from the characteristics of
the Mortgage Loans described herein.
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 Loan-to-Value Ratio (as defined below) ranged from
% to % with a weighted average Loan-to-Value Ratio 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
- ----- -------------- ----------------- -----------------
LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 1
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
- ------------------
(1) The Loan-to-Value Ratios ("Loan-to-Value Ratio") shown above are equal,
with respect to each Mortgage Loan, to (i) the original principal
balance of such Mortgage Loan at the date of origination 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
Number of Loan Group 1 Loan Group 1
Months 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
- -------------- -------------- ----------------- -----------------
(CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The Agreement permits the Trust Fund to purchase from Provident,
subsequent to the date hereof and prior to _______, 19__, Subsequent Mortgage
Loans in an amount not to exceed approximately $________ in aggregate
principal balance for inclusion in the Trust Fund. Each Subsequent Mortgage
Loan will have been originated or purchased by Provident in accordance with
the underwriting guidelines set forth above under "Underwriting and Credit
Guidelines." Accordingly, the statistical characteristics of the Mortgage
Pool set forth above are based exclusively on the Initial Mortgage Loans and
the statistical characteristics of the Mortgage Pool after giving effect to
the acquisition of any Subsequent Mortgage Loans will likely differ from the
information specified herein. The date on which Provident transfers a
Subsequent Mortgage Loan to the Trust Fund shall be referred to herein as the
"Subsequent Transfer Date".
In any event, each conveyance of Subsequent Mortgage Loans will be
subject to, among other things, the following conditions: (i) such
Subsequent Mortgage Loans must (a) satisfy the eligibility criteria set forth
in the Prospectus under "The Loan Program--Representations by Sellers;
Repurchases" and (b) comply with each representation and warranty as to the
Mortgage Loans set forth in the Agreement; (ii) such Subsequent Mortgage Loan
must not have been selected by either the Seller or Provident in a manner
that it believes is adverse to the interests of the Certificateholders,
(iii) no Subsequent Mortgage Loan may be ___ or more days contractually
delinquent as of the applicable Cut-Off Date; (iv) no Subsequent Mortgage
Loan may have a remaining term to maturity in excess of ___ years; (v) no
Subsequent Mortgage Loan may have a Mortgage Rate less than ____%; (vi)
following the purchase of such Subsequent Mortgage Loans by the Trust Fund,
the Mortgage Loans (a) will have a weighted average Mortgage Rate of at least
____%; (b) will have a weighted average Loan-to-Value Ratio of not more than
____%; (c) will not have a weighted average remaining term to stated maturity
of more than ____ months; and (d) will, in each case, have a principal
balance in excess of $_______ as of the Cut-Off Date; (vii) Provident (and
the Trustee shall not have been notified by either Rating Agency that the
conveyance of such Subsequent Mortgage Loans will result in a qualification,
modification or withdrawal of its then-current rating of any class of
Certificates) (shall have notified each Rating Agency of such conveyance as
required by the Agreement); and (viii) the Trustee shall have received
certain opinions of counsel as to, among other things, the enforceability and
validity of the transfer agreements relating to such conveyance of such
Subsequent Mortgage Loans.) All Subsequent Mortgage Loans shall be added
from a specified group of Mortgage Loans.
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 Loan-to-Value Ratio (as defined below) ranged
from % to % with a weighted average Loan-to-Value Ratio of %.
The Mortgage Loans in Loan Group 2 had stated maturities ranging from
to . (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
- ----- -------------- ----------------- -----------------
- ------------------
(1) Determined by property address designated as such in the related
Mortgage.
LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 2
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
- ------------------
(1) The Loan-to-Value Ratios ("Loan-to-Value Ratio") shown above are equal,
with respect to each Mortgage Loan, to (i) the original principal
balance of such Mortgage Loan at the date of origination 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
Number of Loan Group 2 Loan Group 2
Months 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. 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 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."
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.
<TABLE>
<CAPTION>
Original Original Remaining
Months to Maximum Minimum Amortization Term to Term to
Amortization Principal Loan Rate Gross Interest Interest Term Maturity Maturity
Methodology Balance Rate Change Margin Rate Rate (months) (months) (months)
- ------------ --------- ---- ------ ------ -------- -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP 2
Balloon...... $
Level Pay.... $
Level Pay.... $
</TABLE>
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.
The Certificates will not be listed on any securities exchange.
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 "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 "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 under "--Events of Servicing
Termination), 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 Provident, 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 basis 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 trans-
ferred 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 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 below). 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.
"Eligible Investments" 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 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 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 bank 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 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 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.
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 available, 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 Provident
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
_________________, 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".
(PRE-FUNDING ACCOUNT
On the Closing Date, $___________ (the "Pre-Funded Amount") will be
deposited in an account (the "Pre-Funding Account"), which account shall be
in the name of and maintained by the Trustee and shall be part of the Trust
Fund and will be used to acquire Subsequent Mortgage Loans. During the
period beginning on the Closing Date and terminating on _____________, 19__
(the "Funding Period"), the Pre-Funded Amount will be reduced by the amount
thereof used to purchase Subsequent Mortgage Loans in accordance with the
Agreement. Any Pre-Funded Amount remaining at the end of the Funding Period
will be distributed to holders of the classes of Certificates entitled to
receive principal on the Distribution Date in ______________, 19__ in
reduction of the related Certificate Principal Balances (thus resulting in a
partial principal prepayment of the related Certificates on such date).
Amounts on deposit in the Pre-Funding Account will be invested in
Permitted Investments. All interest and any other investment earnings on
amounts on deposit in the Pre-Funding Account will be deposited in the
Capitalized Interest Account. The Pre-Funding Account shall not be an asset
of the REMIC. All reinvestment earnings on the Pre-Funding Account shall be
owned by, and be taxable to, the Seller.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date there will be deposited in an account (the
"Capitalized Interest Account") maintained with and in the name of the
Trustee on behalf of the Trust Fund a portion of the proceeds of the sale of
the Certificates. The amount deposited therein will be used by the Trustee
on the Distribution Dates in __________________ 19__, _____________ 19__ and
______________, 19__ to cover shortfalls in interest on the Certificates that
may arise as a result of the utilization of the Pre-Funding Account for the
purchase by the Trust Fund of Subsequent Mortgage Loans after the Closing
Date. Any amounts remaining in the Capitalized Interest Account at the end
of the Funding Period which are not needed to cover shortfalls on the
Distribution Date in ___________ 19__ are required to be paid directly to
Provident.) The Capitalized Interest Account shall not be an asset of the
REMIC. All reinvestment earnings on the Capitalized Interest Account shall
be owned by, and be taxable to, the Seller.)
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 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 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, (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, Provident, 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 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 unless the related mortgager is in default, or such default is, in
the judgment of the Master Servicer, imminent. 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 the Master Servicer nor their
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, neither Provident 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 or the Master
Servicer, as the case may be, 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 Provident and 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 towards general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust as a "real estate mortgage
investment conduit" ("REMIC") for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). In the opinion of
Tax Counsel, 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 "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.
In the opinion of Tax Counsel, 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) assets described in section
7701(a)(19)(C) of the Code, and (ii) "real estate assets" within the meaning
of section 856(c)(4)(A) 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 "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.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made
after December 31, 1998, subject to certain transition rules. Prospective
Certificate Owners are strongly urged to consult their own tax advisors with
respect to the New Withholding Regulations.
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, (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(iii) an estate the income of which is includible in gross income for United
States federal income 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 persons
have authority to control all substantial decisions of the trust. In
addition, certain trusts treated as United States persons before August 20,
1996 may elect to continue to be so treated to the extent provided in
regulations.
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.
In addition, prospective Certificate Owners are strongly urged to
consult their own tax advisors with respect to the New Withholding
Regulations. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES - Backup
Withholding".
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 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 _________________________
(the "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 _____________ 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 Fund;
(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 Fund 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
Fund, or any of their respective affiliates; 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 as amended 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
The Offered Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") so long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization and, as such, are legal investments for certain entities to the
extent provided in SMMEA.
Institutions whose investment activities are subject to review by
federal or state regulatory authorities should consult with their counsel or
the applicable authorities to determine whether an investment in the Offered
Certificates complies with applicable guidelines, policy statements or
restrictions. 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, 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
- ----- ----
Aggregate Class A Principal Balance . . . . . . . . . . . . . . . . S-4, S-40
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Amount Available . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
Assignment Event . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Balloon Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-41
Capitalized Interest Account . . . . . . . . . . . . . . . . . . S-11, S-55
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-10
Certificate Owners . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-41
Certificate Rate . . . . . . . . . . . . . . . . . . . . . . S-4, S-6, S-49
Certificate Register . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Certificate Registrar . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Certificateholder . . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Chemical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Civil Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Civil Relief Act Interest Shortfalls . . . . . . . . . . . . . . S-12, S-58
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Class A Certificateholder . . . . . . . . . . . . . . . . . . . . . . . S-62
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Class A Monthly Principal Distributable Amount . . . . . . . . . . S-8, S-50
Class A Principal Balance . . . . . . . . . . . . . . . . . . . . . S-4, S-40
Class A Principal Carryover Shortfall . . . . . . . . . . . . . . . . . S-51
Class A Principal Distribution . . . . . . . . . . . . . . . . . . S-8, S-50
Class A-1 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-2 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-3 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-4 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-5 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-40
Class A-6 Interest Carryover . . . . . . . . . . . . . . . . . . . . . S-49
Class Interest Distribution . . . . . . . . . . . . . . . . . . . . S-7, S-50
Class Monthly Interest Distributable Amount . . . . . . . . . . . . S-7, S-50
Class R Certificates . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Compensating Interest . . . . . . . . . . . . . . . . . . . . . . . . . S-15
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37, S-62
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Cut-Off Date Loan Group 1 Principal Balance . . . . . . . . . . . . S-4, S-21
Cut-Off Date Loan Group 2 Principal Balance . . . . . . . . . . . . S-5, S-27
Cut-Off Date Pool Principal Balance . . . . . . . . . . . . . . . . . . S-21
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . . . S-3
Defective Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . S-45
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . S-41
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Distributable Excess Spread . . . . . . . . . . . . . . . . . . . . S-8, S-51
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-7
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5, S-41
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-51
Eligible Account . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Eligible Substitute Mortgage Loan . . . . . . . . . . . . . . . . . . . S-45
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . S-42
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . S-42
European Depositaries . . . . . . . . . . . . . . . . . . . . . . . S-6, S-41
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Excess Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-51
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . S-41
Fiscal Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Foreign Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . S-63
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-54
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Global Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . S-70
Group 1 Certificates . . . . . . . . . . . . . . . . . . . . . 1, S-4, S-40
Group 2 Certificates . . . . . . . . . . . . . . . . . . . . . 1, S-4, S-40
Guaranteed Principal Amount . . . . . . . . . . . . . . . . . . . . . . S-10
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Insurer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Interest Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
LIBOR Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Liquidated Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-51
Loan Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-40
Loan Group 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-40
Loan Group 1 Principal Balance . . . . . . . . . . . . . . . . . . . . . S-3
Loan Group 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-40
Loan Group 2 Principal Balance . . . . . . . . . . . . . . . . . . . . . S-3
Loan Group Principal Balance . . . . . . . . . . . . . . . . . . . . . . S-3
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . S-4, S-24, S-31
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3, S-6
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . S-11
Master Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . S-11, S-57
Monthly Advance . . . . . . . . . . . . . . . . . . . . . . . . . S-12, S-47
Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-44
Mortgage Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . S-44
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Mortgage Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Net Funds Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
New Withholding Regulations . . . . . . . . . . . . . . . . . . . . . . S-63
Nonrecoverable Advance . . . . . . . . . . . . . . . . . . . . . . . . S-47
Offered Certificates . . . . . . . . . . . . . . . . . . . . . 1, S-4, S-40
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Original Aggregate Class A Principal Balance . . . . . . . . . . . . . . S-4
Percentage Interest . . . . . . . . . . . . . . . . . . . . . . . . . . S-40
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-3, S-40
Pool Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-54
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . S-10, S-54
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . S-37
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . . . . S-12
Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Provident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . S-44
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-12, S-61
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-41
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
SAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3, S-6
Servicing Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13, S-65
STIFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . S-27
Subservicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Substitution Adjustment . . . . . . . . . . . . . . . . . . . . . . . . S-45
Successor Master Servicer . . . . . . . . . . . . . . . . . . . . . . . S-59
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-3, S-11, S-52
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-73
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . S-64, S-65
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-65
Weighted average life . . . . . . . . . . . . . . . . . . . . . . . . . S-37
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Provident
Mortgage Pass-Through 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 Mortgage Pass-Through
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 Mortgage Pass-Through
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
Mortgage Pass-Through 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, (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
this Prospectus Supplement or the
Prospectus and, if given or made,
such information or representation
must not be relied upon as having
been authorized by Provident or
the Underwriter. This Prospectus
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
offer to buy, to any person in any
jurisdiction where such an offer
or solicitation would be unlawful.
Neither the delivery of this
Prospectus Supplement and the
Prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to their
respective dates.
--------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Summary . . . . . . . . . . . . . . . S-3
Risk Factors . . . . . . . . . . . . S-14
The Certificate Insurer . . . . . . . S-16
The Provident Bank. . . . . . . . . . S-17
Description of the Mortgage Loans . . S-21
Prepayment and Yield Considerations . S-36
Description of the Certificates . . . S-40
Use of Proceeds . . . . . . . . . . . S-61
Federal Income Tax Consequences . . . S-61
State Taxes . . . . . . . . . . . . . S-64
ERISA Considerations . . . . . . . . S-64
Legal Investment Considerations . . . S-65
Underwriting . . . . . . . . . . . . S-65
Experts . . . . . . . . . . . . . . . S-66
Legal Matters . . . . . . . . . . . . S-66
Ratings . . . . . . . . . . . . . . . S-66
Index of Defined Terms . . . . . . . S-67
Annex I . . . . . . . . . . . . . . . S-70
PROSPECTUS
Prospectus Supplement or Current
Report on Form 8-K . . . . . . . 2
Available Information . . . . . . . 2
Reports to Securityholders . . . . 2
Incorporation of Certain Documents
by Reference. . . . . . . . . . 3
Summary of Terms . . . . . . . . . 4
Risk Factors . . . . . . . . . . . 12
The Trust Fund . . . . . . . . . . 17
Use of Proceeds . . . . . . . . . . 22
The Provident Bank . . . . . . . . 22
Loan Program . . . . . . . . . . . 22
The Agreements . . . . . . . . . . 41
Certain Legal Aspects of Loans. . . 52
Federal Income Tax Consequences . . 59
State Tax Considerations . . . . . 78
ERISA Considerations . . . . . . . 78
Legal Investment . . . . . . . . . 81
Method of Distribution . . . . . . 82
Legal Matters . . . . . . . . . . . 83
Financial Information . . . . . . . 83
Rating . . . . . . . . . . . . . . 83
Index of Defined Terms . . . . . . 85
--------------------
PROVIDENT MORTGAGE PASS-THROUGH
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
MORTGAGE PASS-THROUGH
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 JANUARY 30, 1998
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 issued from time to time in
one or more series (each, a "Series") by a Trust Fund created by The
Provident Bank ("Provident") 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") and (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. The Trust Fund Assets will be originated or be
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
86 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 12.
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 DEPOSIT INSURANCE 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.
________________, 1998
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 85 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") and (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").
All Loans will have been originated or purchased by Provident,
either directly or through an affiliate.
As specified in the related Prospectus Supplement, the Home Equity
Loans will 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.
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.
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 basis, weighted average basis, a
notional amount or other basis, 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-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 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 A 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-Collateralization 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 prepayable 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 Section 4975 of
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
12 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
As further described 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 any 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 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 AND POSSIBLE LIMITATIONS ON EFFECTIVENESS
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 or the Master Servicer) 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 or the Seller may result from repurchases of Trust Fund
Assets due to material breaches of Provident's or the Seller's representa-
tions 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 AND INCREASED RISK OF DEFAULT
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
Change in Property Values and Possible Increase in Losses. 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. An uncontested foreclosure in Ohio will take approximately six
months to complete, depending upon how quickly all interested parties are
properly served with legal process to commence the action, and whether
reappraisal of the property is necessary because the bid received at the
sheriff's foreclosure sale is less than two-thirds of the appraised value.
In Ohio, foreclosure is usually contested unless the owner of the property is
contemplating bankruptcy. Furthermore, in some states an action to obtain a
deficiency judgment is not permitted following a nonjudicial sale of a
Property. This would apply in Ohio only as to the execution sale of any
personal property in which a security interest is granted by the mortgages to
be foreclosed, but not the real property. Ohio law generally imposes a two
year limitations period following confirmation of a judicial sale to collect
a deficiency judgment. Such limitation also applies to the collection of a
deficiency judgment by a junior mortgagee after foreclosure and sale of a
senior mortgage. 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 and Effect on Recoveries. 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. Except
from the sale of the mortgaged property, 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. As discussed above, in Ohio a junior mortgagee may be
subject to a two year limitations period for the collection of the deficiency
judgment if a judgment was entered in favor of the junior mortgagee in the
foreclosure action of a senior mortgagee.
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 TO TRUST FUND
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 actually participated in the management or
operations of such property, 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.
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 AND REDUCTION OF LIQUIDITY OF SECURITIES
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 AND POSSIBLE PREPAYMENT RISK
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.
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./FN/
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 established by Provident.
/FN/ Whenever the terms "Pool", "Certificates", "Notes" and "Securities" are
used in this Prospectus, such terms will be deemed to apply, unless the
context indicates otherwise, to one specific Pool and the Securities of one
Series including the Certificates representing certain undivided interests in,
and/or Notes secured by the assets of, a single Trust Fund consisting
primarily of the Loans in such Pool. Similarly, the term "Pass-Through Rate"
will refer to the Pass-Through Rate borne by the Certificates and the term
"interest rate" will refer to the interest rate borne by the Notes of one
specific Series, as applicable, and the term "Trust Fund" will refer to one
specific 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.
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"). In no event, however, will more
than 5% (by principal balance at the Cut-Off Date) of the Mortgage Pool
deviate from the characteristics of the Loans set forth in the related
Prospectus Supplement. A copy of the Agreement with respect to each Series
of Securities 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 and Home Equity Loans.
As more fully described in the related Prospectus Supplement, the Loans will
be "conventional" loans.
The Loans in a Pool will have monthly payments due on the first day of
each month or on such other day of the month specified in the related
Prospectus Supplement. 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". The 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. The Mortgaged Properties
are 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. The
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.
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 or other real property), (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.
Generally, 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. Generally, 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 by Provident from the sale of the Trust
Fund Assets by Provident to Trust Funds will be applied by Provident to the
purchase of additional trust fund assets or will be used by Provident for
general corporate purposes. Provident expects to sell Securities in Series
issued by the related Trust Fund 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 and sold to
the Trust Fund, prevailing interest rates, availability of funds and general
market conditions.
THE PROVIDENT BANK
Provident, an Ohio banking corporation, is the principal banking
subsidiary of Provident Financial Group, Inc., a Cincinnati-based bank
holding company registered under the Bank Holding Company Act. Provident
Financial Group, 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, either
directly or through affiliates. The Loans so originated or acquired by
Provident will have been originated in accordance with the underwriting
criteria specified below under "Underwriting Standards" and as further
described in the related Prospectus Supplement.
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 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 of 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 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 is, and each entity from which it acquires Loans must be, 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 and is 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 by Provident to the Trust Fund and 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. 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 unpaid accrued interest thereon to the
first day of the month following the month of repurchase at the Loan Rate
(less any Advances or amount payable as related servicing compensation if
Provident is the Master Servicer) 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, the Master Servicer or a holder of the related residual
certificate generally will be obligated to pay any prohibited transaction tax
which may arise in connection with any such repurchase or substitution and
the Trustee must have received a satisfactory opinion of counsel that such
repurchase or 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 holders of Securities 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
As described 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,
--------
however, that the final distribution in retirement of the Securities will be
- -------
made only upon presentation and surrender of the Securities at the office or
agency of the 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 Supple-
ment 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, as described in the related Prospectus
Supplement, increased by 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.
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 it is acting in such capacity. 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-collateral-
ization 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
bank 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 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 obli-
gations; 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.
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. The Pool Insurance Policies generally will not cover losses
due to a failure to pay or denial of a claim under a Primary Mortgage
Insurance Policy.
The Pool Insurance Policies generally 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.
The Pool Insurance Policies generally 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.
The original amount of coverage under each Pool Insurance Policy
generally 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 or such other date set forth 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.
As specified in the related Prospectus Supplement, certain of the
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.
Generally, 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.
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 assign the Loans comprising the
related Trust Fund to the Trustee, without recourse. However, 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
warranty 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 reimburse the Master Servicer or Provident for expenses
incurred and reimbursable pursuant to the Agreement;
(vii) to withdraw any amount deposited in the Security Account
and not required to be deposited therein; and
(viii) 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 may 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 times
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. Any of 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 or (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
-------- -------
any such person will be protected against any liability which would otherwise
be imposed by reason of wilful misfeasance, bad faith or 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
negligence in the performance of duties thereunder or by reason of reckless
disregard of obligations and duties thereunder. In addition, each Agreement
may 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 service mortgage loans and meets
the net worth requirement specified in the Agreement and further provided
that such merger, consolidation or succession does not adversely affect the
then current rating or ratings of the class or classes of 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
-------- -------
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 51% 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. 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 any manner or eliminating any of the provisions of the Agreement
or of modifying in any manner the rights of the holders of the related
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. In Ohio, judicial foreclosure is mandatory for residential
property. 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. Ohio requires judicial foreclosure, which includes the
issuance of a decree in foreclosure, a statutory required appraisal process,
public advertising for at least one month in a newspaper of general
circulation providing adequate notice of a public auction to be conducted by
the sheriff generally on one or more pre-established days each month,
depending on the county in which the foreclosure occurs. In Ohio, the
procedure, if uncontested, will take approximately six months assuming
successful service or process (one month), motion for summary judgment (two
months), decree in foreclosure and appraisal (one month), advertising (one
month) and sheriff's sale and confirmation (one month). A contested case
will take longer.
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. Ohio law places a two year limitations period, following the
sheriff's sale and confirmation order, in which a deficiency judgment may be
obtained and enforced.
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. How-
ever, 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 "actually 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 actual 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. In Ohio, the right of redemption is dual in nature,
arising both from equity and from statute. By customary practice in the
Court of Common Pleas, the judgment of foreclosure allows a three day grace
period for the defendant to pay amounts owed before foreclosure of the equity
of redemption. By statute, the debtor's common law equity of redemption
actually continues until the time of confirmation of sale. The judgment
debtor may redeem the property by depositing the amount of the judgment plus
costs with the Clerk of Court of Common Pleas where the execution was made.
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. Ohio law does not limit the amount of the deficiency judgment, but
does impose a two year limitations period on the enforcement of such
judgment. 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
Each conventional Loan generally 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.
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, including Ohio, 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 the
Trust Fund. 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, the Trust Fund 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
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, as amended on June 11,
1996, (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 under "--
Interest Weighted Securities"), 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 under "--Tax Status as a Grantor Trust"), 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 December 30, 1997, the IRS issued final 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 the
Trust Fund, 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)(4)(A), 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.
The Taxpayer Relief Act of 1997 adds provisions to the Code that will
apply to an "electing large partnership." If an electing large partnership
holds a Residual Interest Security, all interests in the electing large
partnership are treated as held by disqualified organizations for purposes of
the tax imposed upon a pass-through entity by section 860E(e) of the Code.
An exception to this tax, otherwise available to a pass-through entity that
is furnished certain affidavits by record holders of interests in the entity
and that does not know such affidavits are false, is not available to an
electing large partnership.
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 a Residual Interest Security acquired after
January 3, 1995 cannot be marked-to-market.
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. For tax years
beginning after August 5, 1997, the Taxpayer Relief Act of 1997 may allow use
of the Cash Flow Bond Method with respect to the Strip Securities and other
Pass-Through Securities because it provides that such method applies to any
pool of debt instruments the yield on which may be affected by prepayments.
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. The maximum tax rate on ordinary
income for individual taxpayers is 39.6% and the maximum tax rate on
long-term capital gains for such taxpayers is 28%. The maximum tax rate on
both ordinary income and long-term capital gains of corporate taxpayers is
35%. The Taxpayer Relief Act of 1997 reduces the maximum rates on long-term
capital gains recognized on capital assets held by individual taxpayers for
more than eighteen months as of the date of disposition (and would further
reduce the maximum rates on such gains in the year 2001 and thereafter for
certain individual taxpayers who meet specified conditions). Prospective
investors should consult their own tax advisors concerning these tax law
changes.
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 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. Brown & Wood LLP, 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 Brown & Wood LLP special counsel to the Trust Fund, the IRS
successfully asserted that one or more of the Notes did not represent debt
for federal income tax purposes, 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. Pursuant to final Treasury regulations issued
May 9, 1997 under section 708 of the Code a sale or exchange of 50 percent or
more of the capital and profits in the Trust Fund within a 12-month period
would cause a deemed contribution of assets of the Trust Fund (the "old
partnership") to a new partnership (the "new partnership") in exchange for
interests in the new partnership. Such interests would be deemed distributed
to the partners of the old partnership in liquidation thereof, which would
not constitute a sale or exchange.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of 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 or the Trustee 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, or partnership (including an entity treated as a corporation
or partnership for federal income tax purposes) created or organized in or
under the laws of the United States, any state thereof, or the District of
Columbia (unless in the case of a partnership, Treasury regulations are
adopted that provide otherwise), 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 persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1996, and treated as United States
persons prior to such date, that elect to continue to be treated as United
States persons also will be a U.S. Holder.
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.
New Withholding Regulations. Final regulations dealing with withholding
tax on income paid to foreign persons, backup withholding and related matters
(the "New Withholding Regulations") were issued by the Treasury Department on
October 6, 1997. The New Withholding Regulations will generally be effective
for payments made after December 31, 1998, subject to certain transition
rules. Prospective Investors are strongly urged to consult their own tax
advisors with respect to the New Withholding Regulations.
TAXATION OF TRUST AS FASIT
In the opinion of Brown & Wood LLP, special tax counsel to the Trust
Fund, if a FASIT election is made with respect to a Series of Securities, the
Trust Fund will be formed to qualify as a FASIT. The Small Business and Job
Protection Act of 1996 added Sections 860H through 860L to the Code (the
"FASIT Provisions"), which provide for a new type of entity for federal
income tax purposes known as a "financial asset securitization investment
trust" (a "FASIT"). Although the FASIT provisions of the Code became
effective on September 1, 1997, no Treasury regulations or other
administrative guidance have been issued with respect to those provisions.
Accordingly, definitive guidance cannot be provided with respect to many
aspects of the tax treatment of FASIT Regular Securityholders. Investors
should also note that the FASIT discussion contained herein constitutes only
a summary of the U.S. federal income tax consequences to the holders of FASIT
Securities. With respect to each Series of FASIT Regular Securities, the
related Prospectus Supplement will provide a detailed discussion regarding
the federal income tax consequences associated with the particular
transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for U.S. federal income tax purposes,
or FASIT Ownership Securities, which generally are not treated as debt for
such purposes, but rather as representing rights and responsibilities with
respect to the taxable income or loss of the related Series FASIT. The
Prospectus Supplement for each Series of Securities will indicate which
Securities of such Series will be designated as FASIT Regular Securities, and
which, if any, will be designated as FASIT Ownership Securities.
QUALIFICATION AS A FASIT. The Trust Fund will qualify under the Code as
a FASIT in which FASIT Regular Securities (the "FASIT Regular Securities")
and the Ownership Interest Security (the "FASIT Ownership Security") will
constitute the "regular interests" and the "ownership interest,"
respectively, if (i) a FASIT election is in effect, (ii) certain tests
concerning (A) the composition of the FASIT's assets and (B) the nature of
the Securityholders' interests in the FASIT are met on a continuing basis,
and (iii) the Trust Fund is not a regulated investment company as defined in
section 851(a) of the Code.
ASSET COMPOSITION. In order for the Trust Fund to be eligible for FASIT
status, substantially all of the assets of the Trust Fund must consist of
"permitted assets" as of the close of the third month beginning after the
closing date and at all times thereafter (the "FASIT Qualification Test").
Permitted assets include (i) cash or cash equivalents, (ii) debt instruments
with fixed terms that would qualify as regular interests if issued by a REMIC
as defined in section 860D of the Code ("REMIC") (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("I0") type rate), (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments
issued by the holder of the FASIT's ownership interest or by any person
related to such holder.
INTERESTS IN A FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if
it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interests (i.e., certain qualified floating rates and weighted average
rates). Interest will be considered to be based on a permissible variable
rate 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," a combination of a single
fixed rate and one or more "qualified floating rates," one "qualified inverse
floating rate," or a combination of "qualified floating rates" that do not
operate in a manner that significantly accelerates or defers interest
payments on such FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the requirements
set out in clauses (iii), (iv), or (v) in the immediately preceding
paragraph, but otherwise meets all requirements to be treated as a FASIT, it
may still qualify as a type of regular interest known as a "High-Yield
Interest." In addition, if an interest in a FASIT fails to meet the
requirement of clause (vi), but the interest payable on the interest consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the security, the interest will also
qualify as a High-Yield Interest. A High-Yield Interest may be held only by
domestic C corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs, and dealers in securities who
acquire such interests as inventory, rather than for investment. In
addition, holders of High-Yield Interests are subject to limitations on
offset of income derived from such interest. See "Certain Federal Income Tax
Consequences-Taxation of Trust as a FASIT-Treatment of High-Yield
Interests."
CONSEQUENCES OF DISQUALIFICATION. If the Trust Fund fails to comply
with one or more of the Code's ongoing requirements for FASIT status during
any taxable year, the Code provides that its FASIT status may be lost for
that year and thereafter. If FASIT status is lost, the treatment of the
former FASIT and interests therein for U.S. federal income tax purposes is
uncertain. Although the Code authorizes the Treasury to issue regulations
that address situations where a failure to meet the requirements for FASIT
status occurs inadvertently and in good faith, such regulations have not yet
been issued. It is possible that disqualification relief might be
accompanied by sanctions, such as the imposition of a corporate tax on all or
a portion of the FASIT's income for the period of time in which the
requirements for FASIT status are not satisfied. Nevertheless, in the
opinion of Tax Counsel, if the Trust Fund fails to qualify as a FASIT it will
qualify as a partnership. See "Taxation of the Trust Fund as Partnership."
TREATMENT OF FASIT REGULAR SECURITIES
Payments received by holders of FASIT Regular Securities generally will
be accorded the same tax treatment under the Code as payments received on
other taxable debt instruments. Holders of FASIT Regular Securities must
report income from such Securities under an accrual method of accounting,
even if they otherwise would have used the cash receipts and disbursements
method. Except in the case of FASIT Regular Securities issued with original
issue discount, interest paid or accrued on a FASIT Regular Security
generally will be treated as ordinary income to the Holder and a principal
payment on such Security will be treated as a return of capital to the extent
that the Securityholder's basis is allocable to that payment. FASIT Regular
Securities issued with original issue discount or acquired with market
discount or premium generally will treat interest and principal payments on
such Securities in the same manner described for Senior Securities. See
"Taxation of Trust as Partnership--Treatment of Senior Securities--OID,
Indexed Securities" below. High-Yield Securities may be held only by
Eligible Corporations, other FASITs, and certain securities dealers. Holders
of High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset
any income derived from those Securities.
If the FASIT Regular Security is sold, the Securityholder generally will
recognize gain or loss upon the sale in the manner described below for
Offered Senior Securities. See "Taxation of Trust as Partnership--Treatment
of Senior Securities--Sale or other Disposition." In addition, if a FASIT
regular interest becomes wholly or partially worthless as a result of losses
on the Underlying Assets, certain holders of such Security may be allowed to
deduct the loss sustained.
TREATMENT OF HIGH-YIELD INTERESTS
High-Yield Interests are subject to special rules regarding the
eligibility of holders of such interest, and the ability of such holders to
offset income derived from their FASIT Security with losses. High-Yield
Interests only may be held by Eligible Corporations, other FASITs, and
dealers in securities who acquire such interests as inventory. If a
securities dealer (other than an Eligible Corporation) initially acquires a
High-Yield Interest as inventory, but later begins to hold it for investment,
the dealer will be subject to an excise tax equal to the income from the
High-Yield Interest multiplied by the highest corporate income tax rate. In
addition, transfers of High-Yield Interests to disqualified holders will be
disregarded for federal income tax purposes, and the transferor will continue
to be treated as the holder of the High-Yield Interest.
The Holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities
backed by the FASIT Regular Security and that have the same features as High-
Yield Interests.
TAX TREATMENT OF FASIT OWNERSHIP SECURITIES
A FASIT Ownership Security represents the residual equity interest in a
FASIT. As such, the holder of a FASIT Ownership Security determines its
taxable income by taking into account all assets, liabilities, and items of
income, gain, deduction, loss, and credit of a FASIT. In general, the
character of the income to the holder of a FASIT Ownership Interest will be
the same as the character of such income to the FASIT, except that any tax-
exempt interest income taken into account by the holder of a FASIT Ownership
Interest is treated as ordinary income. In determining that taxable income,
the holder of a FASIT Ownership Security must determine the amount of
interest, original issue discount, market discount, and premium recognized
with respect to the FASIT's assets and the FASIT Regular Securities issued by
the FASIT according to a constant yield methodology and under an accrual
method of accounting. In addition, holders of FASIT Ownership Securities are
subject to the same limitations on their ability to use losses to offset
income from their FASIT Regular Securities as are holders of High-Yield
Interest. See "Certain Federal Income Tax Consequences-FASIT Regular
Securities-Tax Treatment of FASIT Regular Securities-Treatment of High-Yield
Interests."
Rules similar to the wash sale rules applicable to REMIC residual
securities also will apply to FASIT Ownership Securities. Accordingly,
losses on dispositions of a FASIT Ownership Security generally will be
disallowed where within six months before or after the disposition, the
seller of such Security acquires any other FASIT Ownership Security that is
economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holders of the related
FASIT Ownership Security was required to be marked-to-market under section
475 of the Code by such holder, then section 475 of the Code will continue to
apply to such securities, except that the amount realized under the mark-to-
market rules or the securities' value after applying special valuation rules
contained in the FASIT provisions. Those special valuation rules generally
require that the value of debt instruments that are not traded on an
established securities market be determined by calculating the present value
of the reasonably expected payments under the instrument using a discount
rate of 120% of the applicable Federal rate, compounded semi-annually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
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 regulation, 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, no transfer of a Subordinate Security or a Security
which is not a Single Family Security may be made to a Plan unless specified
in the related Prospectus Supplement.
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 those
particular 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 IBCA, 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.
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Exemption which extends exemptive relief to certain mortgage-backed
and asset-backed securities transactions using pre-funding accounts for
trusts issuing pass-through certificates. The amendment generally allows
Mortgage Loans or other secured receivables (the "Obligations") supporting
payments to holders of Securities and having a value equal to no more than
twenty-five percent of the total principal amount of the Securities being
offered by the Trust Fund, to be transferred to the Trust within the Funding
Period instead of requiring that all such Obligations be either identified or
transferred on or before the applicable Closing Date. The relief is
available when the following conditions are met:
(1) The ratio of the amount allocated to the Pre-Funding Account
to the total principal amount of the Securities being offered (the "Pre-
Funding Limit") must not exceed twenty-five percent.
(2) All Obligations transferred after the applicable Closing Date
(the "Additional Obligations") must meet the same terms and conditions
for eligibility as the original Obligations used to create the Trust
Fund, which terms and conditions have been approved by the Rating
Agency.
(3) The transfer of such Additional Obligations to the Trust Fund
during the Funding Period must not result in the Securities to be
covered by the Exemption receiving a lower credit rating from the Rating
Agency upon termination of Funding Period than the rating that was
obtained at the time of the initial issuance of the Securities by the
Trust Fund.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Obligations in the trust at the end of the Funding Period
must not be more than 100 basis points lower than the average interest
rate for the Obligations which were transferred to the Trust Fund on the
Closing Date.
(5) In order to ensure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which
were transferred to the Trust Fund:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider which is
independent of the Provident; or
(ii) an independent accountant retained by Provident must
provide Provident with a letter (with copies provided to each
Rating Agency, the related underwriter and the related Trustee)
stating whether or not the characteristics of the Additional
Obligations conform to the characteristics described in the
Prospectus Supplement for the related Series or the related
Agreement. In preparing such letter, the independent accountant
must use the same type of procedures as were applicable to the
Obligations which were transferred to the Trust Fund as of the
Closing Date.
(6) The Funding Period must end no later than three months or 90
days after the Closing Date or earlier in certain circumstances if the
Pre-Funding Account falls below the minimum level specified in the
related Agreement or an event of default occurs thereunder.
(7) Amounts transferred to Pre-Funding Account and/or Capitalized
Interest Account used in connection with the pre-funding may be invested
only in certain permitted investments.
(8) The Prospectus Supplement for the related Series must
describe:
(i) the Pre-Funding Account and/or Capitalized Interest
Account used in connection with the Pre-Funding Account;
(ii) the duration of the Funding Period;
(iii) the percentage and/or dollar amount of the Pre-
Funding Limit for the Trust Fund; and
(iv) that the amounts remaining in the Pre-Funding Account at
the end of the Funding Period will be remitted to holders of the
Securities specified in the Prospectus Supplement for the related
Series as repayments of principal.
(9) The related Agreement must describe the permitted investments
for the Pre-Funding Account and/or Capitalized Interest Account and the
terms and conditions for eligibility of Additional Obligations.
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 (as
amended), 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 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 the Trust
Fund by Brown & Wood LLP, New York, New York. Brown & Wood LLP, New York,
New York, will act as counsel for the underwriter or underwriters specified
in the Prospectus Supplement.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Additional Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 84
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Amortizable Bond Premium Regulations . . . . . . . . . . . . . . . . . . 63
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Average Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Balloon payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Belgian Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Beneficial owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
BIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Book-Entry Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Buydown Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Buydown Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Capitalized Interest Account . . . . . . . . . . . . . . . . . . . . . . 45
Cash Flow Bond Method . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CEDEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
CEDEL Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Class Security Balance . . . . . . . . . . . . . . . . . . . . . . . . . 26
Closed-End Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Collateral Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . 21
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Companion Classes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Contingent Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 60
Credit Enhancement . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 18
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . . . 25
DCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Debt Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Debt-to-income ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Definitive Security . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Detailed Description . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Disqualified Organization . . . . . . . . . . . . . . . . . . . . . . . . 67
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Eligible Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . 79
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . 33
European Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Excess Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FASIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
FASIT Ownership Security . . . . . . . . . . . . . . . . . . . . . . . . 78
FASIT Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
FASIT Qualification Test . . . . . . . . . . . . . . . . . . . . . . . . 78
FASIT Regular Securities . . . . . . . . . . . . . . . . . . . . . . . . 78
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . . 32
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Foreign person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Garn-St Germain Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Home Equity Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Insured Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Interest Weighted Securities . . . . . . . . . . . . . . . . . . . . . . 62
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
L/C Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 36
Liquidation Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Loan Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 19
Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lockout Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Master Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . 18
Master Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Morgan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 20
NCUA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
New Withholding Regulations . . . . . . . . . . . . . . . . . . . . . . . 77
Nonresidents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 59
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PACs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Pass-Through Securities . . . . . . . . . . . . . . . . . . . . . . . . . 68
Pay-Through Security . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 18
Pool Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Pool Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 24
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 16
Pre-Funding Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Primary Mortgage Insurance Policy . . . . . . . . . . . . . . . . . . . . 20
Principal Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Provident . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
PTE 83-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Ratio Strip Securities . . . . . . . . . . . . . . . . . . . . . . . . . 69
RCRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Refinance Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Regular Interest Securities . . . . . . . . . . . . . . . . . . . . . . . 59
Relevant Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 78
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Residual Interest Security . . . . . . . . . . . . . . . . . . . . . . . 65
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Retained Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Revolving Credit Line Loans . . . . . . . . . . . . . . . . . . . . . . 1, 4
Riegle Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SAIF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Secured Creditor Exclusion . . . . . . . . . . . . . . . . . . . . . . . 54
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Security Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Security Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Security Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Securityholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 35
Series . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Short-Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Single Family Properties . . . . . . . . . . . . . . . . . . . . . . . . 20
Single Family Securities . . . . . . . . . . . . . . . . . . . . . . . . 81
SMMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 85
STIFS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Stripped Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Sub-Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Sub-Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 45
Subordinated Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Subsequent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
TACs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Thrift institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
TIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Title V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 24
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust Fund Assets . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4, 18
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 24
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Underwriter Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . 82
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 $ 340,416.06
Printing and Engraving Expenses $ 200,000.00
Legal Fees and Expenses $ 500,000.00
Trustee Fees and Expenses $ 75,000.00
Accounting Fees and Expenses $ 250,000.00
Blue Sky Fees and Expenses $ 15,000.00
Rating Agency Fees $ 250,000.00
Miscellaneous $ 100,000.00
---------------
Total $ 1,730,416.06
____________
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of four Series
of Securities in an aggregate principal amount assumed for these
purposes to be equal to $1,000,000,000 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 Trust Agreement.*
4.3 Form of Indenture.*
4.4 Form of Master Servicing Agreement.*
5.1 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.
23.1 Consent of Brown & Wood LLP (included in Exhibit 8.1
hereof).
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (included
in Exhibit 5.1).
24.1 Power of Attorney.
__________________________
*Incorporated by reference from the Registrant's Registration Statement (File
No. 333-35275).
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 it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cincinnati, Ohio on the 26th day
of January, 1998.
THE PROVIDENT BANK
By /s/ Tayfun Tuzun
----------------------------
Name: Tayfun Tuzun
Vice President
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 Amendment to the 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 January 26, 1998
Allen L. Davis (Principal Executive Officer)
and Director
/s/ John R. Farrenkopf Senior Vice President and Chief January 26, 1998
John R. Farrenkopf Financial Officer (Principal
Accounting Officer)
/s/ Jack M. Cook Director January 23, 1998
Jack M. Cook
/s/ Thomas D. Grote Jr. Director January 23, 1998
Thomas D. Grote, Jr.
/s/ Joseph A. Steger Director January 23, 1998
Joseph A. Steger
/s/ Philip R. Myers Director January 26, 1998
Philip R. Myers
/s/ Joseph A. Pedoto Director January 26, 1998
Joseph A. Pedoto
/s/ Sidney A. Peerless Director January 23, 1998
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 Trust Agreement.*
4.3 -- Form of Indenture.*
4.4 -- Form of Master Servicing Agreement.*
5.1 -- 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.
23.1 -- Consent of Brown & Wood LLP
(included in Exhibit 8.1).
23.2 -- Consent of Keating,
Muething & Klekamp, P.L.L.
(included in Exhibit 5.1).
24.1 -- Power of Attorney (included on page
II-3).
- --------------------
*Incorporated by reference from the Registrant's Registration Statement (File
No. 333-35275).
EXHIBIT 5.1
January 30, 1998
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
RE: The Provident Bank -- Registration Statement on Form S-3
--------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Provident Bank, an Ohio banking
corporation ("Provident"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the Securities (defined below) and with the authorization and issuance from
time to time in one or more series (each a "Series") of up to $1,149,873,000
aggregate principal amount of asset-backed securities (the "Securities").
The Registration Statement is being filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended.
As set forth in the Registration Statement, each Series of Securities will be
issued under and pursuant to the conditions of a separate pooling and
servicing agreement, master pooling and servicing agreement, trust agreement
or indenture (each, an "Agreement") among Provident, a trustee (the
"Trustee") and where appropriate, a servicer (the "Servicer"), each to be
identified in the prospectus supplement for such Series of Securities.
We have examined the prospectus (the "Prospectus") and forms of
prospectus supplement (each, a "Prospectus Supplement") related thereto
contained in the Registration Statement. We have also examined the forms of
each Agreement filed or incorporated by reference as an exhibit to the
Registration Statement, the forms of each Series of Securities set forth in
the related Agreement filed or incorporated by reference as an exhibit to the
Registration Statement and such other records, documents and instruments as
we have deemed necessary for purposes of this opinion ("Documents").
In arriving at the opinions expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the
part of Provident, the Trustee, the Servicer (where applicable) and any other
party thereto for such Series of Securities and will be duly executed and
delivered by Provident, the Trustee, the Servicer and any other party thereto
substantially in the applicable form filed or incorporated by reference as an
exhibit to the Registration Statement, that each Series of Securities will be
duly executed and delivered in substantially the forms set forth in the
related Agreement filed or incorporated by reference as an exhibit to the
Registration Statement, and that Securities will be sold as described in the
Registration Statement.
In addition, in rendering the opinions set forth below, we have made
such investigations of such matters of law as we deemed appropriate as a
basis for the opinions expressed below. Further, we have assumed the
genuineness of all signatures and the authenticity of all Documents submitted
to us as originals. Our opinions are also based on the assumption that there
are no agreements or understandings with respect to the transactions
contemplated in the documents relating to the above-mentioned transaction
other than those contained in the Documents. Furthermore, our opinions are
based on the assumption that all parties to the Documents will comply with
the terms thereof.
Based upon the foregoing, we are of the opinion that:
1. Each Agreement, when duly authorized, executed and delivered by
Provident, the Trustee, the Servicer (where applicable) and any other party
hereto, will constitute a legal, valid and binding agreement of Provident,
enforceable against Provident in accordance with its terms, except as
enforcement thereof may be limited by insolvency or other laws applicable to
banks relating to or affecting creditors' rights or by general equity
principles.
2. When a Series of Securities has been duly authorized by all
necessary action on the part of Provident (subject to the terms thereof being
otherwise in compliance with applicable law at such time), duly executed and
authenticated by the Trustee for such Series in accordance with the terms of
the related Agreement and issued and delivered against payment therefor as
described in the Registration Statement, such Series of Securities will be
legally and validly issued, fully paid and nonassessable, and the holders
thereof will be entitled to the benefits of the related Agreement.
This opinion is rendered as of the date hereof and we undertake no
obligation to update this opinion or advise you of any changes in the event
there is any change in legal authorities, facts, assumptions or documents on
which this opinion is based (including the taking of any action by any party
to the Documents pursuant to any opinion of counsel or waiver), or any
inaccuracy in any of the representations, warranties or assumptions upon
which we have relied in rendering this opinion unless we are specifically
engaged to do so.
The opinions expressed herein are limited as described above, and we do
not express an opinion with respect to the laws of any jurisdiction other
than the laws of the States of Ohio and New York (excluding choice of law
principles therein) and the federal laws of the United States of America,
although we point out to you that we are not licensed to practice law in the
State of New York.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus and under the heading "Legal Matters" in
each Prospectus Supplement, in each case forming a part of the Registration
Statement, without admitting that we are "experts" within the meaning of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
KEATING, MUETHING & KLEKAMP, P.L.L.
BY: /s/ James R. Whitaker
--------------------------------
James R. Whitaker
EXHIBIT 8.1
January 30, 1998
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Re: The Provident Bank
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special tax counsel for The Provident Bank, an Ohio
banking corporation (the "Company"), in connection with the preparation of
the registration statement on Form S-3 (the "Registration Statement")
relating to the Securities (defined below) and with the authorization and
issuance from time to time in one or more series (each, a "Series") of up to
$1,149,873,000 aggregate principal amount of asset-backed securities (the
"Securities"). The Registration Statement is being filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended. As set
forth in the Registration Statement, each Series of Securities will be issued
under and pursuant to the conditions of a separate pooling and servicing
agreement, master pooling and servicing agreement, pooling agreement, trust
agreement or indenture (each an "Agreement") among the Company, a trustee
(the "Trustee") and, where appropriate, a servicer (the "Servicer"), each to
be identified in the prospectus supplement for such Series of Securities.
We have examined the prospectus and forms of prospectus supplement
related thereto contained in the Registration Statement (each, a
"Prospectus") and such other documents, records and instruments as we have
deemed necessary for the purposes of this opinion (the "Documents").
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the
part of the Company, the Trustee, the Servicer (where applicable) and any
other party thereto for such Series of Securities and will be duly executed
and delivered by the Company, the Trustee, the Servicer and any other party
thereto substantially in the applicable form filed or incorporated by
reference as an exhibit to the Registration Statement, that each Series of
Securities will be duly executed and delivered in substantially the forms set
forth in the related Agreement filed or incorporated by reference as an
exhibit to the Registration Statement, and that Securities will be sold as
described in the Registration Statement.
In addition, in rendering the opinions set forth below, we have made
such investigations of such matters of law as we deemed appropriate as a
basis for the opinions expressed below. Further, we have assumed the
genuineness of all signatures and the authenticity of all Documents submitted
to us as originals. Our opinions are also based on the assumption that there
are no agreements or understandings with respect to the transactions
contemplated in the documents relating to the above-mentioned transaction
other than those contained in the Documents. Furthermore, our opinions are
based on the assumption that all parties to the Documents will comply with
the terms thereof, including all tax reporting requirements contained
therein.
As special tax counsel to the Company, we have advised the Company with
respect to certain material federal income tax aspects of the proposed
issuance of each Series of Securities pursuant to the related Agreement.
Such advice has formed the basis for the description of selected federal
income tax consequences for holders of such Securities that appear under the
heading "Federal Income Tax Consequences" in the Prospectus forming a part of
the Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
Securities, but with respect to those federal income tax consequences
described therein, such description is accurate in all material respects.
This opinion is rendered as of the date hereof and we undertake no
obligation to update this opinion or advise you of any changes in the event
there is any change in legal authorities, facts, assumptions or documents on
which this opinion is based (including the taking of any action by any party
to the Documents pursuant to any opinion of counsel or a waiver), or any
inaccuracy in any of the representations, warranties or assumptions upon
which we have relied in rendering this opinion unless we are specifically
engaged to do so. Because the Prospectus contemplates Series of Securities
with numerous different characteristics, you should be aware that the
particular characteristics of each Series of Securities must be considered in
determining the applicability of this opinion to a particular Series of
Securities. The opinions expressed herein are limited as described above,
and we do not express an opinion with respect to any other federal or state
law or the law of any other jurisdiction, except as expressly stated herein.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Federal Income Tax Consequences" in the Prospectus and under the heading
"Federal Income Tax Consequences" in each Prospectus Supplement, in each case
forming a part of the Registration Statement, without admitting that we are
"experts" within the meaning of the 1933 Act or the Rules and Regulations of
the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ BROWN & WOOD LLP
