AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
------------------------------
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>
AMOUNT PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF TO BE MAXIMUM MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE AGGREGATE FEE
PER UNIT(1) OFFERING PRICE(1)
====================================================================================================================
<S> <C> <C> <C> <C>
Asset Backed Notes and Asset Backed $1,440,873,000 100% $1,440,873,000 $425,040.54
Certificates(2)(3).......................
====================================================================================================================
</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) $1,439,873,000 in securities are being carried forward and $424,762.54
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. 333-62595 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.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1998
To Prospectus dated _____________
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 199_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_
THE PROVIDENT BANK
as Transferor and Master Servicer
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of The Provident Bank, the Trustee or any of
their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
THE TRUST
will issue one class of senior Class A Certificates
will issue a single Transferor Interest
THE CERTIFICATES
represent the entire beneficial interest in a trust, whose assets
are a pool of [adjustable rate] home equity revolving credit line
loan agreements
currently have no trading market
are not guaranteed
are obligations of the trust only and are not obligations of the
transferor and master servicer or its affiliates
CREDIT ENHANCEMENT
will be provided in the form of overcollateralization and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-8 AND ON PAGE 4 IN THE
PROSPECTUS.
For complete information about the Class A Certificates, read both this
prospectus supplement and the prospectus.
[____________], the Underwriter, will buy the Class A Certificates from
the Transferor at a price equal to ________ of their face value. The
Underwriter will sell the Class A Certificates from time to time in
negotiated transactions.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE CERTIFICATES OR PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITER
__________, 199_
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary..................................................................S-3
Risk Factors.............................................................S-8
The Certificate Insurer.................................................S-11
The Master Servicer.....................................................S-11
The Home Equity Loan Program............................................S-11
Description of the Mortgage Loans.......................................S-14
Maturity and Prepayment Considerations..................................S-23
Pool Factor and Trading Information.....................................S-24
Description of the Certificates.........................................S-25
Use of Proceeds.........................................................S-44
Federal Income Tax Consequences.........................................S-44
State Taxes.............................................................S-47
ERISA Considerations....................................................S-47
Legal Investment Considerations.........................................S-48
Underwriting............................................................S-49
Legal Matters...........................................................S-49
Experts.................................................................S-49
Ratings.................................................................S-50
Index of Defined Terms..................................................S-51
Annex I.................................................................S-54
PROSPECTUS
Risk Factors...............................................................4
The Trust Fund.............................................................5
Use of Proceeds............................................................9
The Provident Bank........................................................10
Loan Program..............................................................11
Description of the Securities.............................................13
Credit Enhancement........................................................23
Yield and Prepayment Considerations.......................................27
The Agreements............................................................29
Certain Legal Aspects of the Loans........................................40
Federal Income Tax Consequences...........................................46
State Tax Considerations..................................................67
ERISA Considerations......................................................68
Legal Investment..........................................................72
Method of Distribution....................................................73
Legal Matters.............................................................73
Financial Information.....................................................74
Rating....................................................................74
Index of Defined Terms....................................................75
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus for additional information about the Class A
Certificates.
<TABLE>
<CAPTION>
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199__
------------------------------------------------------------------------------------------------
----------------------- ---------------- --------------------------- ---------------------------
<S> <C> <C> <C>
CERTIFICATE
RATE INITIAL CLASS LAST SCHEDULED
CLASS/INTEREST PRINCIPAL BALANCE DISTRIBUTION DATE1
----------------------- ---------------- --------------------------- ---------------------------
----------------------- ---------------- --------------------------- ---------------------------
Class A % $________________ ____________
----------------------- ---------------- --------------------------- ---------------------------
----------------------- ---------------- --------------------------- ---------------------------
Transferor N.A. 0 N.A.
----------------------- ---------------- --------------------------- ---------------------------
</TABLE>
1 We expect the actual last distribution date for the Class A Certificates
will be significantly earlier its last scheduled distribution date.
2 The Transferor Interest is not being offered pursuant to the prospectus
supplement and prospectus.
THE TRANSFEROR AND MASTER SERVICER
The Provident Bank.
The Provident Bank maintains its principal office at One East Fourth
Street, Cincinnati, Ohio. Its telephone number is (513)579-2000.
The master servicer will receive a monthly fee from the interest
payments on the mortgage loans equal to ___% per annum on the principal
balance of each mortgage loan.
We refer you to "THE PROVIDENT BANK" in the prospectus and "The Master
Servicer" in this prospectus supplement for additional information.
TRUST FUND
Provident Bank Home Equity Loan Trust, 199_-_.
TRUSTEE
[--------------------------]
CERTIFICATE INSURER
[--------------------------]
We refer you to "The Certificate Insurer" in this prospectus supplement
for additional information.
CUT-OFF DATE
___________, 199_.
CLOSING DATE
___________, 199_.
DISTRIBUTION DATE
The [15]th day of each month, or if such day is not a business day, the
next business day. The first distribution date is _____________, 199_.
DUE PERIOD
The calendar month immediately preceding a determination date or a
distribution date, as applicable.
REGISTRATION OF CLASS A CERTIFICATES
We will issue the Class A Certificates in book-entry form. You will hold
your interests either through a depository in the United States or
through one of two depositories in Europe. While the certificates are
book-entry, they will be registered in the name of the applicable
depository, or in the name of this depository's nominee.
Transfers within any depository system will be made in accordance with
the usual rules and operating procedures of that system. Cross-market
transfers between two different depository systems may be made through a
third-party bank and/or the related depositories. The limited
circumstances under which definitive certificates will replace the
book-entry certificates are described in this prospectus supplement.
We refer you to "RISK FACTORS-- Consequences on Liquidity and Payment
Delay Because of Owning Book-Entry Certificates", "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Certificates" and "ANNEX I" in this prospectus
supplement for additional information.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
a pool of [adjustable rate] home equity revolving credit line loan
agreements, secured by either first or second deeds of trust or mortgages
on one- to four-family residential properties;
payments on the mortgage loans received on and after the cut-off date,
plus any additions to the mortgage loans as a result of new advances made
on the applicable credit line agreement during the life of the trust
fund;
property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure; and
rights under certain hazard insurance policies covering the mortgaged
properties.
During the life of the trust fund, all new advances made to mortgagors
under the applicable credit line agreement will be transferred and become
property of the trust fund. Due to such advances and any principal
payments on the mortgage loans, the pool balance will generally fluctuate
and differ from day to day.
THE MORTGAGE LOANS
1. Mortgage Loan Statistics
On the closing date, the trust fund will acquire a pool of
[adjustable rate] home equity revolving credit line loan agreements,
or "mortgage loans" with an aggregate principal balance as of the
cut-off date of $__________. Each borrower may borrow amounts from
time to time up to the maximum amount of that borrowers line of
credit. If borrowed amounts are repaid, they can again be borrowed.
The mortgage loans will have the following characteristics:
number of mortgage loans: _____
aggregate principal balance: $__________
mortgaged property location: ___ states and the District of
Columbia
average credit limit: $_____
credit limits on the mortgage loans range: $____ to $____
interest rates range: _____% to ______%
weighted average interest rate: _____% (approximate)
weighted average remaining term to stated maturity, based on
principal balance: ____months (approximate)
term to stated maturity range: ___ months to ___ months
last maturity date: ________
combined loan-to-value ratio range, of ____% to _____%
(approximate)
weighted average combined loan-to-value ratio ____%
(approximate)
all of the mortgage loans bear interest at a [adjustable]
[fixed rate]
balloon loans - loans with amortization schedules that don't
fully amortize by their maturity date: ____% (approximate).
2. Payment Terms of Mortgage Loans
Interest - Interest on each mortgage loan is payable monthly on
the related outstanding principal balance for each day in the
billing cycle. The loan rate is variable and is equal to
[describe rate]
Principal - The loans have a ___ year draw period during which
time amounts may be borrowed under the credit line agreement.
The draw period is followed by a ___ year repayment period
during which the loan must be repaid.
We refer you to "DESCRIPTION OF THE MORTGAGE LOANS" in this
prospectus supplement for additional information.
MONTHLY ADVANCES
During any due period, the master servicer may receive less than the
amount due on each mortgage loan.
If the master servicer reasonably believes that cash advances can be
recovered from future payments or collections on the mortgage loans, the
master servicer will make cash advances to the trust fund to cover
delinquent mortgage loan payments. The master servicer will make advances
only to maintain a regular flow of scheduled interest and principal
payments on the certificates, not to guarantee or insure against losses.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Monthly Advances" in
this prospectus supplement for additional information.
THE CERTIFICATES
1. General
Each month, the trustee will calculate the amount you are owed.
If you hold a certificate on the last day of a calendar month, you
will be entitled to receive payments on the distribution date in the
next month.
2. Interest Distributions: Interest on the certificates accrues during the
period beginning on the prior distribution date (or in the case of the
first distribution date, beginning on the closing date) and ending on the
day before the applicable distribution date. The trustee will calculate
interest based on the actual number of days in the interest period and a
year assumed to consist of 360 days. On each distribution date, you will
be entitled to the following:
interest at the related certificate rate that accrued during the
interest period; and
any interest that was due on a prior distribution date and not paid.
In addition, interest will have accrued on the amount of interest
which was previously due and not paid.
3. Principal Distributions: From the first distribution date and ending on
the distribution date in __________ and if certain events causing an
acceleration of payment of principal do not occur, you will be entitled
to either (a) or (b), which ever is the lesser amount:
(a) ___% of the principal collected during the prior due period; or
(b) the amount of principal collected during the prior due period minus
advances made by the borrowers under the credit line agreement during
that due period.
On the distribution date following ___________, or if certain events
causing an acceleration of principal occur, you will be entitled to
receive the amount described in (a) above.
We refer you to "DESCRIPTION OF THE CERTIFICATES" in this prospectus
supplement for additional information.
CREDIT ENHANCEMENTS
1. The Certificate Insurance Policy: The certificate insurance policy
unconditionally guarantees the payment of:
accrued and unpaid interest due on the Class A Certificates;
principal losses on the mortgage loans; and
any principal amounts owed to certificateholders on the last
scheduled distribution date.
We refer you to "DESCRIPTION OF THE CERTIFICATES--The Policy" in this
prospectus supplement for additional information.
[2. The Spread Account: Amounts on deposit in the spread account will be
available to the trustee to pay principal and interest due and payable on
the Class A Certificates prior to a draw on the certificate insurance
policy.]
[3. Excess Interest Collections; Overcollateralization: You will receive a
certain amount of excess interest collections on the mortgage loans as
part of your principal distribution. These payments will compensate you
for mortgage loan losses not otherwise absorbed by the
overcollateralization. If no losses have occurred, the payment of the
excess interest collections will cause your interest in the pool to be
overcollateralizatized.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Overcollateralization"
in this prospectus supplement for additional information.]
PRE-FUNDING ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
pre-funding account. The trust will use the amounts on deposit in the
pre-funding account to acquire additional mortgage loans from the
transferor. The trust may acquire such additional mortgage loans until
_________________.
If any amounts are left in the pre-funding account on
___________________, you will receive these amounts on the following
distribution date as payment of principal.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Pre-Funding Account" in
this prospectus supplement for additional information.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
capitalized interest account. The trust will use the amounts on deposit in
the capitalized interest account to cover interest shortfalls on the
certificates expected to occur until the trust purchases the additional
mortgage loans. Until the trust purchases the additional mortgage loans or
prepays the certificates, interest payments on the loans will not cover the
amount of interest due on the certificates.
Any amounts left in the capitalized interest account after _______________
will be paid to Provident.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Capitalized Interest
Account" in this prospectus supplement for additional information.
OPTIONAL TERMINATION
The mortgage loans will be subject to an optional transfer to the owner
of the transferor interest on any distribution date after:
the principal balance of the certificates is reduced to any amount
less than or equal to __% of the original principal balance of the
certificates; and
all amounts due and owing to the certificate insurer and
unreimbursed draws on the certificate insurance policy, with
interest thereon have been paid.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Termination; Retirement
of the Certificates" in this prospectus supplement for additional
information.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
Tax counsel is of the opinion that the certificates will be treated as
debt instruments.
You must agree to treat your certificate as indebtedness for federal,
state and local income and franchise tax purposes.
We refer you to "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in the
prospectus supplement and in this prospectus for additional information.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, or ERISA, can limit investments by certain pension
and other employee benefit plans. For example, the acquisition of certain
certificates may be considered a "prohibited transaction" under ERISA.
Certain exemptions from the prohibited transaction rules could be
applicable to the acquisition of the Class A Certificates. If you are a
fiduciary of a pension or other employee benefit plan which is subject to
ERISA, you should consult with your counsel regarding the applicability
of the provisions of ERISA and the tax code before purchasing a Class A
Certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines "mortgage
related securities" to include only first mortgages, and not second
mortgages. Because the pool of mortgage loans owned by the trust fund
includes second mortgage loans, the certificates will not be "mortgage
related securities" under that definition. Some institutions may be
limited in their legal investment authority to only first mortgages or
"mortgage related securities" and will be unable to invest in the Class A
Certificates.
We refer you to "LEGAL INVESTMENT CONSIDERATIONS" in this prospectus
supplement and "LEGAL INVESTMENT" in the prospectus for additional
information.
CERTIFICATE RATING
The Trust Fund will not issue the Class A Certificates unless they
receive the following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal by either rating agency.
We refer you to "RATINGS" and "RISK FACTORS--Certificate Rating Based
Primarily on Claims-Paying Ability of the Certificate Insurer" in this
prospectus supplement for additional information.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY
CERTIFICATES
Limit on Liquidity of Certificates. Issuance of 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.
Limit on Ability to Transfer or Pledge. Since transactions in
the book-entry certificates can be effected only through DTC, participating
organizations, indirect participants and certain banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do not
participate in the DTC system or otherwise to take actions in respect of such
certificates, may be limited due to lack of a physical certificate
representing the book-entry certificates.
Delays in Distributions. You may experience some delay in the
receipt of distributions on the book-entry certificates since the
distributions will be forwarded by the trustee to DTC for DTC to credit the
accounts of its participants which will thereafter credit them to your account
either directly or indirectly through indirect participants, as applicable.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Book-Entry
Certificates" in this prospectus supplement.
BALLOON LOAN RISK
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the
certificate insurer fails to perform its obligations under the policy.
Approximately ___% of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS
THAN MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the certificate insurer fails to perform
its obligations under the certificate insurance policy.
We refer you to "CERTAIN LEGAL ASPECTS OF LOANS--Foreclosure" in the
prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
Mortgagors may fully or partially prepay their mortgage loan at any
time. However, some mortgage loans require that the mortgagor pay a fee with any
prepayment. This may result in the rate of prepayments being slower than
otherwise be the case.
All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the master servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic conditions,
interest rates, the availability of alternative financing and homeowner
mobility.
We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies or statistics
on the rate of prepayment of mortgage loans similar to the mortgage loans in the
pool.
We refer you to "PREPAYMENT AND YIELD CONSIDERATIONS" in the prospectus.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE CERTIFICATE
INSURER
The rating on the certificates depends primarily on the claim's paying
ability of the certificate insurer. Therefore, a reduction of the rating
assigned to the claims-paying ability of the certificate insurer may have a
corresponding reduction on the ratings assigned to the certificates. A
reduction in the rating assigned to the certificates will reduce the market
value of the certificates and may affect your ability to sell them. In
general, the rating on your certificate addresses credit risk and does not
address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Most of the mortgage loans are secured by mortgages which are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under certain circumstances to a new first priority
lien regardless of the principal amount, which has the effect of making the
first mortgage a junior mortgage. Mortgage loans that are secured by junior
mortgages will receive proceeds from a sale of the related mortgaged property
only after any senior mortgage loans and prior statutory liens have been paid.
If the remaining proceeds are insufficient to satisfy the mortgage loan in the
trust fund and the certificate insurer fails to perform its obligations under
the policy, then:
there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF
TRANSFEROR
The sale of the mortgage loans from the transferor to the trust will be
treated by the transferor and the trust as a sale of the mortgage loans. If
the transferor were to become insolvent, a receiver or conservator for, or a
creditor of, the transferor, may argue that the transaction between the
transferor and the trust is a pledge of mortgage loans as security for a
borrowing rather than a sale. Such an attempt, even if unsuccessful, could
result in delays in distributions to you.
[The transferor will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the transferor's long-term debt rating is
reduced below [describe]. Within 30 days of any such occurrence, the
transferor is required to deliver the mortgage documents to the trustee and to
either record the assignments or deliver a legal opinion to the effect that
recordation of such assignments is not necessary in order to perfect the
interest of trust in the mortgages. Prior to delivery and recording, the
interest of the trustee in the mortgages, the mortgage notes and any proceeds
from the mortgage loans 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 transferor.
In an insolvency proceeding of the transferor, 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 to the trustee, the trust may be
a general unsecured creditor of the transferor. If the trust were determined
to be a general unsecured creditor of the transferor, the mortgages, the
mortgage notes and the proceeds thereof would not be available to make
payments on the certificates.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
Prepayments of Principal May Reduce Interest Payments. If a
mortgagor fully prepays a mortgage loan, the mortgagor is charged interest
only up to the date of the prepayment, instead of a full month. This may
result in an interest shortfall. The master servicer is obligated to pay that
interest shortfall, without any right of reimbursement, up to the amount of
its servicing fee for that month. If the servicing fee is insufficient to pay
such interest shortfalls attributed to prepayments, they will be covered by
the certificate insurance policy.
Certain Interest Shortfalls Are Not Covered by the Master Servicer
or the Certificate Insurance Policy. The Soldiers' and Sailors' Civil Relief
Act of 1940 permits certain modifications to the payment terms for mortgage
loans, including a reduction in the amount of interest paid by the borrower,
under certain circumstances. Neither the master servicer nor the certificate
insurer will pay for any interest shortfalls created by the Soldiers' and
Sailors' Civil Relief Act of 1940.
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, __% of the mortgaged properties
(by principal balance as of the cut-off date) are located in Ohio. If Ohio
experiences in the future weaker economic conditions or greater rates of decline
in real estate values than the United States generally, then the mortgage loans
may experience higher rates of delinquencies, defaults and foreclosures than
would otherwise be the case.]
[RISK OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the transferor until
_______. The transferor will sell mortgage loans to the trust if it has
mortgage loans to sell. The ability of the transferor to originate and acquire
additional mortgage loans is affected by a variety of factors, including
interest rates, unemployment levels, the rate of inflation and consumer
perception of economic conditions generally. If the full amount deposited in
the pre-funding account for the purpose of purchasing additional mortgage
loans cannot be used for that purpose within [three] months from the closing
date, any remaining amounts will be paid to you as a prepayment.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The
year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000 compliance,
the performance of obligations of the master servicer could be materially
adversely affected. This could result in delays in processing payments on the
mortgage loans and cause a related delay in distributions to you.
THE CERTIFICATE INSURER
The following information set forth in this section has been provided by
[____________], the certificate insurer (the "Certificate Insurer").
Accordingly, neither The Provident Bank ("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
Provident, as master servicer (the "Master Servicer") will service the
mortgage loans (the "Mortgage Loans") in accordance with the terms set forth
in the pooling and servicing agreement (the "Agreement") to be dated as of
_________, 199__, (the "Cut-Off Date"), between Provident as transferor (the
"Transferor") and Master Servicer and _________, as trustee (the "Trustee").
The Master Servicer may perform any of its obligations under the Agreement
through one or more subservicers. Notwithstanding any such subservicing
arrangement, the Master Servicer will remain liable for its servicing duties
and obligations under the Agreement as if the Master Servicer alone were
servicing the Mortgage Loans.
THE MASTER SERVICER
Provident will be responsible for servicing the Mortgage Loans for the
Trust Fund (the "Trust Fund") 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 ___% 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 ("CLTV") 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, 1998] and the years ended [December 31, 1997]
[December 31, 1996] [December 31, 1995] and [December 31, 1994].
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTH ENDED
---------------------------------------------------------------------------------------- ---------------------
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
------------------- -------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF AMOUNT(4) OF AMOUNT(4) OF AMOUNT(4) OF AMOUNT(4) OF AMOUNT(4)
LOANS LOANS LOANS LOANS LOANS
------- --------- -------------------- -------- ---------- ------- ----------- -------- ----------
Portfolio..
Delinquency
percentage(1)
30-59
days.......
60-89
days.......
90 days
or
more(2)....
TOTAL......
</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 (the "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. 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
additions thereto as a result of new advances made pursuant to the applicable
Credit Line Agreement (the "Additional Balances") in respect of such Mortgage
Loan during the life of the Trust Fund, 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 "Cut-Off Date Principal
Balance" is the unpaid principal balance of each Mortgage Loan 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:
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
RANGE OF PRINCIPAL BALANCES NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <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>
STATE NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
$ %
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
(1) Geographic location is determined by the address of the Mortgaged
Property securing the related Mortgage Loan.
COMBINED LOAN-TO-VALUE RATIOS(1)
<TABLE>
<CAPTION>
RANGE OF COMBINED NUMBER OF CUT-OFF DATE PERCENT OF POOL
LOAN-TO-VALUE RATIOS MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <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.
<TABLE>
<CAPTION>
PROPERTY TYPE
PROPERTY TYPE NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- --------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Single Family...................................... $ %
Two- to Four-Family................................
Condominium........................................
PUD................................................
--------------- -------------------- ------------------
Total......................................... $ 100.00%
=============== ==================== ==================
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
LIEN PRIORITY NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ---------------- -------------------- ------------------
<S> <C> <C> <C> <C>
First Lien......................................... $ %
Second Lien........................................
---------------- -------------------- ------------------
Total......................................... $ 100.00%
================ ==================== ==================
</TABLE>
LOAN RATES(1)
<TABLE>
<CAPTION>
RANGE OF NUMBER OF CUT-OFF DATE PERCENT OF POOL
LOAN RATES MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- --------------- -------------------- ------------------
<S> <C> <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.
<TABLE>
<CAPTION>
MARGIN
RANGE OF NUMBER OF CUT-OFF DATE PERCENT OF POOL
MARGINS MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL 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>
<TABLE>
<CAPTION>
CREDIT LIMIT UTILIZATION RATES
RANGE OF CREDIT LIMIT NUMBER OF CUT-OFF DATE PERCENT OF POOL
UTILIZATION RATES MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ---------------- -------------------- ------------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
---------------- -------------------- ------------------
Total......................................... $ 100.00%
================ ==================== ==================
</TABLE>
CREDIT LIMITS
<TABLE>
<CAPTION>
RANGE OF CREDIT LIMITS NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL 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>
MAXIMUM RATES NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- -------------- -------------------- ------------------
<S> <C> <C> <C>
- -----%............................................. $ %
- -----%.............................................
- -----%.............................................
- -----%.............................................
-------------- -------------------- ------------------
Total......................................... $ 100.00%
============== ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
MONTHS REMAINING TO SCHEDULED MATURITY(1)
RANGE OF MONTHS NUMBER OF CUT-OFF DATE PERCENT OF POOL
REMAINING TO SCHEDULED MATURITY MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL 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>
ORIGINATION YEAR NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
- ----............................................... $ %
- ----...............................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
NUMBER OF DAYS DELINQUENT NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL 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 (the "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 (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 the [15th] day of each
month, or if such day is not a business day, the next succeeding business day
(the "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 Home Equity Loan Asset-Backed Certificates, Series 199__-__ (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 (the "Prospectus Supplement") and the prospectus
(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.
A Certificate's "Percentage Interest" in the Trust Fund will be equal to
the percentage derived by dividing the denomination of such Certificate by the
Original Certificate Principal Balance.
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
Bank, societe 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
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
N.A. 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 plus any Additional Balances, 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, Loan Rate and other
information.
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 Fund, 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 obligations; and provided, further, that
no instrument described hereunder may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to its stated maturity.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements between amounts collected in
respect of interest and amounts collected in respect of principal. As to any
Distribution Date, "Interest Collections" will be equal to the amounts
collected during the related Collection Period, including such portion of Net
Liquidation Proceeds allocated to interest pursuant to the terms of the Credit
Line Agreements less Servicing Fees for the related Collection Period.
As to any Distribution Date, "Principal Collections" will be equal to the
sum of (i) the amounts collected during the related Collection Period,
including such portion of Net Liquidation Proceeds allocated to principal
pursuant to the terms of the Credit Line Agreements and (ii) any Transfer
Deposit Amounts. "Net Liquidation Proceeds" with respect to a Mortgage Loan
are equal to the Liquidation Proceeds, reduced by related expenses, but not
including the portion, if any, of such amount that exceeds the Principal
Balance of the Mortgage Loan plus accrued and unpaid interest thereon to the
end of the Collection Period during which such Mortgage Loan became a
Liquidated Mortgage Loan. "Liquidation Proceeds" are the proceeds (excluding
any amounts drawn on the Policy) received in connection with the liquidation
of any Mortgage Loan, whether through trustee's sale, foreclosure sale or
otherwise.
With respect to any Distribution Date, the portion of Interest
Collections allocable to the Certificates ("Investor Interest Collections")
will equal the product of (a) Interest Collections for such Distribution Date
and (b) the Investor Floating Allocation Percentage. With respect to any
Distribution Date, the "Investor Floating Allocation Percentage" is the
percentage equivalent of a fraction determined by dividing the Invested Amount
at the close of business on the preceding Distribution Date (or the Closing
Date in the case of the first Distribution Date) by the Pool Balance at the
beginning of the related Collection Period. The remaining amount of Interest
Collections will be allocated to the Transferor Interest.
Principal Collections will be allocated between the Certificateholders
and the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections", respectively) as described herein.
The Trustee will deposit any amounts drawn under the Policy into the
Collection Account.
With respect to any date, the "Pool Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date. The
"Principal Balance" of a Mortgage Loan (other than a Liquidated Mortgage Loan)
on any day is equal to the Cut-Off Date Principal Balance thereof, plus (i)
any Additional Balances in respect of such Mortgage Loan minus (ii) all
collections credited against the Principal Balance of such Mortgage Loan in
accordance with the related Credit Line Agreement prior to such day. The
Principal Balance of a Liquidated Mortgage Loan after final recovery of
related Liquidation Proceeds shall be zero.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the first Distribution Date (which will occur on
__________, 199_), distributions on the Certificates will be made by the
Trustee or the Paying Agent on each Distribution Date to the persons in whose
names such Certificates are registered at the close of business on the day
prior to each Distribution Date or, if the Certificates are no longer
Book-Entry Certificates, at the close of business on the last day of the month
preceding such Distribution Date (the "Record Date"). The term "Distribution
Date" means the [fifteenth] day of each month or, if such day is not a
Business Day, then the next succeeding Business Day. Distributions will be
made by check or money order mailed (or upon the request of a
Certificateholder owning Certificates having denominations aggregating at
least $_________, by wire transfer or otherwise) to the address of the person
entitled thereto (which, in the case of Book-Entry Certificates, will be DTC
or its nominee) as it appears on the Certificate Register in amounts
calculated as described herein on the Determination Date. However, the final
distribution in respect of the Certificates will be made only upon
presentation and surrender thereof at the office or the agency of the Trustee
specified in the notice to Certificateholders of such final distribution. For
purposes of the Agreement, a "Business Day" is any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the State of
_________ 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) the London
Interbank offered rate for one-month United States dollar deposits ("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. 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.
Distributions of Principal Collections. Principal Collections will be
allocated between the Investor Principal Collections and Transferor Principal
Collections 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 Collection may be
distributed during the Managed Amortization Period (as defined below). The
"Investor Fixed Allocation Percentage" shall be __%. 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, an irrevocable and unconditional limited
financial guaranty insurance policy (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 199_,
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 or cause to be
maintained for each Mortgage Loan fire and hazard insurance providing extended
coverage in an amount which is at least equal to the lesser of (i) the maximum
insurable value of the improvements securing such Mortgage Loan and (ii) the
combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan, and 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 from time to time of
the improvements which are a part of such property or (b) the combined
principal balance owing on such Mortgage Loan and any mortgage loan senior to
such Mortgage Loan. 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 (the "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 of the
Master Servicer to deposit in the Collection Account any deposit required to
be made under the Agreement; (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 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 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 (10) 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 at least 51% of the Voting
Rights in the Trust Fund 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, to comply with any requirements imposed by the Internal
Revenue Code or any regulation thereunder 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
Certificate Principal Balance of not less than 51% and the consent of 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 Foreign Investor 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. For purposes of this section, a
"Foreign Investor" is defined for United States federal income tax purposes as
any individual or entity other than (i) any individual who is a citizen or
resident of the United States, (ii) a corporation or partnership (including
any entity treated as a corporation or partnership for United States 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 provide otherwise, (iii) an estate the
income of which is subject to United States federal income tax regardless of
its source, (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, or (v) certain trusts in existence on August 20, 1996, and
treated as United States persons (as defined in Code Section 7701(a)(30))
prior to such date that elect to continue to be so treated.
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, 1999, 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 or a similar form
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 fiduciary of a pension or other employee benefit plan ("Plan") 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 Plan's 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 S&P, Moody's, Duff & Phelps Credit Rating Co. or
Fitch IBCA, Inc.;
(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 Transferor 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 represents 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
Transferor, 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 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.P.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 _________ (each, a "Rating Agency" and together, the
"Rating Agencies").
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-33
Accredited Investors.......................................................S-48
Additional Balances........................................................S-15
Agreement..................................................................S-11
Alternative Principal Payment..............................................S-35
beneficial owner...........................................................S-26
BIF........................................................................S-31
Book-Entry Certificates....................................................S-26
Business Day.........................................................S-32, S-37
Capitalized Interest Account...............................................S-38
Cede.......................................................................S-28
CEDEL Participants.........................................................S-28
CEDEL......................................................................S-26
Certificate Insurer........................................................S-11
Certificate Owners.........................................................S-26
Certificate Principal Balance..............................................S-25
Certificate Rate...........................................................S-34
Certificateholder..........................................................S-47
Certificates...............................................................S-25
Closing Date...............................................................S-34
Code.......................................................................S-44
Collection Account.........................................................S-31
Collection Period..........................................................S-33
Cooperative................................................................S-27
[CLTV......................................................................S-12
Credit Limit Utilization Rate..............................................S-15
Credit Limit...............................................................S-12
Credit Line Agreements.....................................................S-14
Cut-Off Date Pool Balance..................................................S-14
Cut-Off Date Principal Balance.............................................S-15
Cut-Off Date...............................................................S-11
Debt Securities............................................................S-45
[Debt-to-Income Ratio......................................................S-12
Defective Mortgage Loans...................................................S-30
Definitive Certificate.....................................................S-26
Determination Date.........................................................S-31
Dissolution Distribution Date..............................................S-36
Distribution Date....................................................S-23, S-32
DTC..................................................................S-26, S-54
Eligible Account...........................................................S-31
Eligible Investments.......................................................S-31
Eligible Substitute Mortgage Loan..........................................S-29
ERISA......................................................................S-48
Euroclear Operator.........................................................S-27
Euroclear Participants.....................................................S-27
Euroclear..................................................................S-26
European Depositaries......................................................S-26
Events of Servicing Termination............................................S-42
Exemption..................................................................S-48
Financial Intermediary.....................................................S-26
Fixed Allocation Percentage................................................S-35
Foreign Investors..........................................................S-46
Funding Period.............................................................S-38
Global Securities..........................................................S-54
Guaranteed Distributions...................................................S-36
Guaranteed Principal Distribution Amount...................................S-37
Index Rate.................................................................S-15
Indirect Participants......................................................S-26
Initial Mortgage Loans.....................................................S-23
Insurance Agreement........................................................S-36
Interest Collections.......................................................S-32
Interest Period............................................................S-34
Invested Amount............................................................S-25
Investor Fixed Allocation Percentage.......................................S-35
Investor Floating Allocation Percentage....................................S-32
Investor Interest Collections..............................................S-32
Investor Loss Amount.......................................................S-33
Investor Principal Collections.............................................S-32
IRS........................................................................S-45
LIBOR......................................................................S-34
LIBOR Business Day.........................................................S-34
Liquidated Mortgage Loan...................................................S-33
Liquidation Loss Amount....................................................S-33
Liquidation Proceeds.......................................................S-32
Loan Rate..................................................................S-15
Loss Payee Clause..........................................................S-12
Managed Amortization Period................................................S-35
Margin.....................................................................S-15
Master Servicer............................................................S-11
Maximum Principal Payment..................................................S-35
Maximum Rate...............................................................S-15
Minimum Transferor Interest................................................S-30
Mortgage Clause............................................................S-12
Mortgage Loan Schedule...............................................S-29, S-30
Mortgage Loans.............................................................S-11
Mortgaged Properties.......................................................S-14
Mortage Related Securities.................................................S-48
Net Liquidation Proceeds...................................................S-32
New Withholding Regulations................................................S-47
OID Regulations............................................................S-45
OID........................................................................S-45
Order......................................................................S-37
Original Certificate Principal Balance.....................................S-25
Original Invested Amount...................................................S-25
Overcollateralization Amount...............................................S-34
Participants...............................................................S-26
Paying Agent...............................................................S-35
Percentage Interest........................................................S-25
Plan.......................................................................S-47
Policy.....................................................................S-36
Pool Balance...............................................................S-32
Pool Factor................................................................S-24
Pre-Funded Amount..........................................................S-38
Pre-Funding Account........................................................S-38
Principal Balance.....................................................S-14,S-32
Principal Collections......................................................S-32
Prospectus.................................................................S-25
Prospectus Supplement......................................................S-25
Provident..................................................................S-11
Rapid Amortization Event...................................................S-35
Rating Agencies............................................................S-50
Receipt....................................................................S-37
Received...................................................................S-37
Record Date................................................................S-32
Reference Bank Rate........................................................S-34
Related Documents..........................................................S-29
Relevant Depositary........................................................S-26
Required Overcollateralization Amount......................................S-33
Rules......................................................................S-26
SAIF.......................................................................S-31
Scheduled Principal Collections Distribution Amount........................S-35
Transferor.................................................................S-11
Servicing Fee Rate.........................................................S-41
Servicing Fee..............................................................S-41
SMMEA......................................................................S-49
Spread Account.............................................................S-37
STIFS......................................................................S-31
Subsequent Mortgage Loans..................................................S-23
Subsequent Transfer Date...................................................S-23
Subservicer................................................................S-11
Tax Counsel................................................................S-44
Taxable Mortgage Pool......................................................S-46
Telerate Screen Page 3750..................................................S-34
Terms and Conditions.......................................................S-28
Transfer Date..............................................................S-30
Transfer Deficiency........................................................S-29
Transfer Deposit Amount....................................................S-29
Transferor Interest........................................................S-25
Transferor Principal Collections...........................................S-32
Transferor.................................................................S-25
Trust Fund.................................................................S-11
Trustee....................................................................S-11
U.S. Person................................................................S-56
Underwriter..........................................................S-48, S-49
Underwriting Agreement.....................................................S-49
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 transferor'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 transferor 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
transferor 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 Transferor 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 transferor 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".
===============================================================================
PROVIDENT BANK HOME EQUITY
LOAN TRUST 199__-__
$-------------
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 199__-__
THE PROVIDENT BANK,
AS TRANSFEROR AND MASTER SERVICER
Until [Date], all dealers selling the Class A Certificates will deliver a
prospectus supplement and prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters of the Class A
Certificates and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
We are not offering the Class A Certificates in any state where the offer
is not permitted.
- -------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
__________, 199__
- -------------------------------------------------------------------------------
UNDERWRITER
- -------------------------------------------------------------------------------
<PAGE>
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1998
To Prospectus dated _____________
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 199_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_
THE PROVIDENT BANK
as Seller and Master Servicer
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of The Provident Bank, the Trustee or any of
their affiliates.
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
THE TRUST
will issue [6] classes of senior Class A Certificates
will issue a single Residual Certificate
will make a REMIC election for federal income tax purposes
THE CERTIFICATES
represent the entire beneficial interest in a trust, whose assets
are a pool of closed-end fixed and adjustable rate mortgage loans
consisting of two loan groups
currently have no trading market
are not guaranteed
are obligations of the trust only and are not obligations of the
seller and master servicer or its affiliates
CREDIT ENHANCEMENT
will be provided in the form of [overcollateralization] and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer]
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-9 AND ON PAGE 8 IN THE
PROSPECTUS.
For complete information about the Class A Certificates, read both this
prospectus supplement and the prospectus.
[____________], the Underwriter, will buy the Class A Certificates from
The Provident Bank at a price equal to ________ of their face value. The
Underwriter will sell the Class A Certificates from time to time in
negotiated transactions.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE
UNDERWRITER
___________, 199_
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Summary..................................................................S-3
Risk Factors.............................................................S-9
The Certificate Insurer.................................................S-12
The Provident Bank......................................................S-13
Description of the Mortgage Loans.......................................S-16
Prepayment and Yield Considerations.....................................S-33
Description of the Certificates.........................................S-38
Use of Proceeds.........................................................S-60
Federal Income Tax Consequences.........................................S-60
State Taxes.............................................................S-62
ERISA Considerations....................................................S-63
Legal Investment Considerations.........................................S-64
Underwriting............................................................S-64
Experts.................................................................S-64
Legal Matters...........................................................S-64
Ratings.................................................................S-65
Index of Defined Terms..................................................S-66
Annex I.................................................................S-69
PROSPECTUS
isk Factors...............................................................4
he Trust Fund.............................................................6
se of Proceeds...........................................................10
he Provident Bank........................................................10
oan Program..............................................................11
escription of the Securities.............................................13
redit Enhancement........................................................23
ield and Prepayment Considerations.......................................27
he Agreements............................................................29
ertain Legal Aspects of the Loans........................................40
ederal Income Tax Consequences...........................................46
tate Tax Considerations..................................................68
RISA Considerations......................................................68
egal Investment..........................................................72
ethod of Distribution....................................................73
egal Matters.............................................................74
inancial Information.....................................................74
ating....................................................................74
ndex of Defined Terms....................................................76
SUMMARY
This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making
your investment decision. Please read this entire prospectus supplement and
the accompanying prospectus carefully for additional information about the
Class A Certificates.
<TABLE>
<CAPTION>
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
----------------------- ------------------ ------------------------- ----------------------
LAST SCHEDULED
INITIAL CLASS DISTRIBUTION
CLASS CERTIFICATE RATE PRINCIPAL BALANCE (1) DATE(2)
----- ---------------- ------------------ -------
<S> <C> <C> <C>
----------------------- ------------------ ------------------------- ----------------------
Class A-1 % $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class A-2 % $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class A-3 % $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class A-4 % $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class A-5 % $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class A-6 Variable(3) $ -
----------------------- ------------------ ------------------------- ----------------------
----------------------- ------------------ ------------------------- ----------------------
Class R N/A $0 -
----------------------- ------------------ ------------------------- ----------------------
</TABLE>
(1) This amount is subject to a variance of 5%.
(2) We expect the actual last distribution date for each Class A Certificate
to be significantly earlier than its last scheduled distribution date.
(3) [Describe variable rate]
(4) The Class R Certificates are not offered pursuant to this prospectus
supplement and prospectus.
THE SELLER AND MASTER SERVICER
o The Provident Bank.
o The Provident Bank maintains its principal office at One East Fourth
Street, Cincinnati, Ohio. Its telephone number is (513) 579-2000.
o The master servicer will receive a monthly fee from the interest
payments on the mortgage loans equal to .50% per annum on the
principal balance of each mortgage loan.
We refer you to "THE PROVIDENT BANK" in this prospectus supplement for
additional information.
TRUST FUND
o Provident Bank Home Equity Loan Trust 199_-_.
TRUSTEE
o [----------------------------]
CERTIFICATE INSURER
o [------------------].
We refer you to "THE CERTIFICATE INSURER" in this prospectus supplement
for additional information.
CUT-OFF DATE
o ____________, 199_.
CLOSING DATE
o ________________, 199_.
DISTRIBUTION DATE
o The 25th day of each month, or if such day is not a business day, the
next business day. The first distribution date is ___________ 199_.
DUE PERIOD
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
DESIGNATIONS
o Offered Certificates - The Class A Certificates.
o Non-Offered Certificates - The Class R Certificates.
o Regular Certificates - All classes of certificates other than the
Class R Certificates.
o Residual Certificates - The Class R Certificates.
o Class A Certificates - Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5 and Class A-6 Certificates.
o Fixed Rate or Group 1 Certificates - Class A-1, Class A-2, Class A-3,
Class A-4 and Class A-5 Certificates. These certificates will receive
their payments from loan group 1.
o Variable Rate or Group 2 Certificates - The Class A-6 Certificates.
These certificates will receive their payments from loan group 2.
o Loan Group 1 - Mortgage loans which bear interest at a fixed rate.
o Loan Group 2 - Mortgage loans which bear interest at an adjustable
rate.
REGISTRATION OF CLASS A CERTIFICATES
We will issue the Class A Certificates in book-entry form. You will hold
your interests either through a depository in the United States or
through one of two depositories in Europe. While the certificates are
book-entry, they will be registered in the name of the applicable
depository, or in the name of the depository's nominee. Transfers within
any depository system will be made in accordance with the usual rules and
operating procedures of that system. Cross-market transfers between two
different depository systems may be made through a third-party bank
and/or the related depositories. The limited circumstances under which
definitive certificates will replace the book-entry certificates are
described in this prospectus supplement.
We refer you to "RISK FACTORS--Consequences on Liquidity and Payment
Delay Because of Owing Book-Entry Certificates", "DESCRIPTION OF THE
CERTIFICATES--Book-Entry Certificates" and "ANNEX I" in this prospectus
supplement for additional information.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
a pool of closed-end fixed and adjustable rate mortgage loans,
secured by first and second deeds of trust or mortgages on one- to
four-family residential properties;
payments on the mortgage loans received on and after the cut-off
date;
property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure;
rights under any hazard insurance policies covering the mortgaged
properties; and
amounts on deposit in certain accounts described in this prospectus
supplement.
THE MORTGAGE LOANS
On the closing date, the trust fund will acquire a pool of fixed and
adjustable rate home equity loans, or "mortgage loans" with an aggregate
principal balance as of the cut-off date of $____________.
The mortgage loans will have the following characteristics as of the
cut-off date:
number of mortgage loans: _______
aggregate principal balance: $____________
mortgaged property location: __ states and the District of Columbia
loan rates range: _____% to _____%
weighted average interest rate: _____% (approximate)
weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
term to stated maturity range: __ months to 360 months
last maturity date: __________
combined loan-to-value ratio range: _____% to _____% (approximate)
balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
The mortgage loans in loan group 1 will have the following characteristics as
of the cut-off date:
number of mortgage loans: _______
aggregate principal balance: $___________
mortgaged property location: __ states and the District of Columbia
average principal balance: $___________
maximum principal balance: $___________
interest rates range: _____% to ____%
weighted average interest rate: _________% (approximate)
weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
term to stated maturity range: __ months to 360 months
combined loan-to-value ratio range: ____% to _____% (approximate)
balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
The mortgage loans in loan group 2 will have the following characteristics as
of the cut-off date:
number of mortgage loans: _______
aggregate principal balance: $___________
mortgaged property location: __ states and the District of Columbia
average principal balance: $___________
maximum principal balance: $___________
interest rates range: _____% to ____%
weighted average interest rate: _________% (approximate)
weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
term to stated maturity range: __ months to 360 months
combined loan-to-value ratio range: ____% to _____% (approximate)
weighted average combined loan-to-value ratio: ____% (approximate)
balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
weighted average periodic cap: __%
range of periodic caps: ___% to ___%.
We refer you to "DESCRIPTION OF THE MORTGAGE LOANS" in this prospectus
supplement for additional information.
MONTHLY ADVANCES
If the master servicer reasonably believes that cash advances can be
recovered from future payments or collections on the mortgage loans, the
master servicer will make cash advances to the trust fund to cover
delinquent mortgage loan payments. The master servicer will make advances
only to maintain a regular flow of scheduled interest and principal
payments on the certificates, not to guarantee or insure against losses.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Monthly Advances" in
this prospectus supplement for additional information.
THE CERTIFICATES
1. General
Each month the trustee will calculate the amount you are owed.
If you hold a certificate on the last day of a calendar month, you
will be entitled to receive payments on the distribution date in the
next month.
We refer you to "DESCRIPTION OF THE CERTIFICATES" in this prospectus
supplement for additional information.
2. Interest Distributions
Interest accrues on the group 1 certificates from the first day of a
calendar month through the last day of that calendar month.
Interest accrues on the group 2 certificates from the distribution
date in the month prior to that distribution date through the day
before that distribution date.
On each distribution date, you will be entitled to the following:
interest at the related certificate rate that accrued during the
related interest period; and
any interest that was due on a prior distribution date and not paid.
In addition, interest will have accrued on the amount of interest
which was previously due and not paid.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Interest" in this
prospectus supplement for additional information.
3. Principal Distributions
Principal distributions are payable on each distribution date.
However, no class of group 1 certificates will receive a principal
distribution until the other classes with a lower numerical class
designation are paid in full.
Shortfalls in available funds may result in a class receiving less
than what is due.
The calculation of the amount a class is entitled to receive on each
distribution date and the priority of principal distributions among
the group 1 certificates is described in this prospectus supplement
under "DESCRIPTION OF THE CERTIFICATES --Principal."
We refer you to "DESCRIPTION OF THE CERTIFICATES--Principal" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENTS
1. The Certificate Insurance Policy: The Certificate Insurance Policy
guarantees the payment of:
o accrued and unpaid interest on the Class A Certificates;
o principal losses on the mortgage loans; and
o any principal amounts owed to the certificateholders on the last
scheduled distribution date.
We refer you to "THE CERTIFICATE INSURER" in this prospectus supplement
for additional information.
2. Overcollateralization:On the closing date, the aggregate principal balance
of the mortgage loans in each group will equal the aggregate principal
balance of the certificates in the related certificate group. The interest
payments on the mortgage loans in each loan group are expected to exceed
the amount of interest due and payable on the certificates in the related
certificate group. This excess will be applied as principal payments to the
most senior Class A Certificate in the related certificate group that is
outstanding on that distribution date. This will result in a limited
acceleration of principal payments on the certificates relative to the
amortization of the related mortgage loans, thereby creating
overcollateralization for the Class A Certificates. Once the required level
of overcollateralization is reached, the application of the excess interest
payments will stop, until it is again needed to maintain the required level
of overcollateralization.
The level of required overcollateralization will increase and decrease
over time. For example, an increase in the required level of
overcollateralization will result if the delinquency or default
experience on the mortgage loans exceeds certain set levels. In that
event, amortization of the Class A Certificates would be accelerated
until the level of overcollateralization reaches its required level.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Overcollateralization"
in this prospectus supplement for additional information.
3. Crosscollateralization
The excess interest generated by one loan group may be used to fund
shortfalls on the certificates in the other loan group.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Crosscollateralization"
in this prospectus supplement for additional information.
PRE-FUNDING ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
group 1 pre-funding account and $_____________ in the group 2 pre-funding
account. The trust will use the amounts on deposit in the pre-funding
accounts to acquire additional mortgage loans for the related loan group
from the seller. The trustee may only acquire such additional mortgage
loans until _________________.
If any amounts are left in the pre-funding accounts on
___________________, holders of the group 1 certificates will receive
amounts left in the group 1 pre-funding account and holders of the group
2 certificates will receive amounts left in the group 2 pre-funding
account on the next distribution date as payment of principal.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Pre-Funding Account" in
this prospectus supplement for additional information.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee shall deposit $_______________ in the
group 1 capitalized interest account and $____________ in the group 2
capitalized interest account. The trust will use the amounts on deposit in
the capitalized interest accounts to cover interest shortfalls on the
certificates expected to occur prior to the trust's purchase of the
additional mortgage loans. Until the trust purchases the additional
mortgage loans or prepays the certificates, interest payments on the loans
will not cover the amount of interest due on the certificates.
Any amounts left in the capitalized interest account after
_______________ will be paid to Provident.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Capitalized Interest
Account" in this prospectus supplement for additional information.
OPTIONAL TERMINATION
If the total pool principal balance declines below __% of the total pool
principal balance as of the cut-off date, then the seller may purchase
all of the mortgage loans and the related properties in the trust fund.
If the seller purchases all of the mortgage loans, you will receive a
final distribution and the trust fund will be terminated.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Termination; Purchase
of the Mortgage Loans" in this prospectus supplement for more detail.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o An election will be made to treat the trust fund as a "real estate
mortgage investment conduit" or REMIC
o The Class A Certificates will be "regular interests" in the REMIC and
will be treated as debt instruments of the REMIC
o The Class R Certificates will represent the beneficial ownership of
the sole class of "residual interest" in the REMIC.
We refer you to "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in this
prospectus supplement and in this prospectus for additional information.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, or ERISA, can limit investments by certain pension
and other employee benefit plans. For example, the acquisition of certain
certificates may be considered a "prohibited transaction" under ERISA.
Certain exemptions from the prohibited transaction rules could be
applicable to the acquisition of the Class A Certificates. If you are a
fiduciary of a pension or other employee benefit plan which is subject to
ERISA, you should consult with your counsel regarding the applicability
of the provisions of ERISA and the tax code before purchasing a Class A
Certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines "mortgage
related securities" to include only first mortgages, and not second
mortgages. Because the pool of mortgage loans owned by the trust fund
includes second mortgage loans, the certificates will not be "mortgage
related securities" under that definition. Some institutions may be
limited in their legal investment authority to only first mortgages or
"mortgage related securities" and will be unable to invest in the Class A
Certificates.
We refer you to "LEGAL INVESTMENT CONSIDERATIONS" in this prospectus
supplement and "LEGAL INVESTMENT" in the prospectus for additional
information.
CERTIFICATE RATING
The Trust Fund will not issue the Class A Certificates unless they
receive the following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal by either rating agency.
We refer you to "RATINGS" and "RISK FACTORS--Rating of the Securities" in
the prospectus for additional information.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION
SET FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY
CERTIFICATES
Limit on Liquidity of Certificates. Issuance of 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.
Limit on Ability to Transfer or Pledge. Since transactions in
the book-entry certificates can be effected only through DTC, participating
organizations, indirect participants and certain banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do not
participate in the DTC system or otherwise to take actions in respect of such
certificates, may be limited due to lack of a physical certificate
representing the book-entry certificates.
Delays in Distributions. You may experience some delay in the
receipt of distributions on the book-entry certificates since the
distributions will be forwarded by the trustee to DTC for DTC to credit the
accounts of its participants which will thereafter credit them to your account
either directly or indirectly through indirect participants, as applicable.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Book-Entry
Certificate" in this prospectus supplement.
BALLOON LOAN RISK
Balloon loans pose a risk because a borrower must pay a large lump
sum payment of principal at the end of the loan term. If the borrower is
unable to pay the lump sum or refinance such amount, you will suffer a loss if
the certificate insurer fails to perform its obligations under the policy.
Approximately ___% of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS
THAN MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the certificate insurer fails to perform
its obligations under the certificate insurance policy.
We refer you to "CERTAIN LEGAL ASPECTS OF LOANS--Foreclosure" in the
prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related
to the rate of principal payments on the mortgage loans. Please consider the
following:
- Mortgagors may fully or partially prepay their mortgage loan at any time.
However, some mortgage loans require the mortgagor pay a fee with any
prepayment. This may result in the rate of prepayments being slower than
otherwise be the case.
- All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the master servicer will enforce the
due-on-sale provision unless prohibited by applicable law.
- The rate of principal payments on pools of mortgage loans is influenced
by a variety of factors, including general economic conditions, interest rates,
the availability of alternative financing and homeowner mobility.
- We cannot predict the rate at which borrowers will repay their mortgage
loans, nor are we aware of any publicly available studies or statistics on the
rate of prepayment of mortgage loans similar to the mortgage loans in the pool.
We refer you to "PREPAYMENT AND YIELD CONSIDERATIONS" in this
prospectus supplement.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE CERTIFICATE
INSURER
The rating on the certificates depends primarily on the claim's
paying ability of the certificate insurer. Therefore, a reduction of the
rating assigned to the claims-paying ability of the certificate insurer may
have a corresponding reduction on the ratings assigned to the certificates. A
reduction in the rating assigned to the certificates would reduce the market
value of the certificates and may affect your ability to sell them. In
general, the rating on your certificate addresses credit risk and does not
address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Some of the mortgage loans are secured by mortgages which are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under certain circumstances to a new first priority
lien regardless of the principal amount, which has the effect of making the
first mortgage a junior mortgage. Mortgage loans that are secured by junior
mortgages will receive proceeds from a sale of the related mortgaged property
only after any senior mortgage loans and prior statutory liens have been paid.
If the remaining proceeds are insufficient to satisfy the mortgage loan in the
trust fund and the certificate insurer fails to perform its obligations under
the policy, then:
- there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
- you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF SELLER
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. If the
seller were to become insolvent, a receiver or conservator for, or a creditor
of, the seller, may argue that the transaction between the seller and the
trust is a pledge of mortgage loans as security for a borrowing rather than a
sale. Such an attempt, even if unsuccessful, could result in delays in
distributions to you.
[The seller will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the seller's long-term debt rating is reduced
below [describe]. Within 30 days of any such occurrence, the seller is
required to deliver the mortgage documents to the trustee and to either record
the assignments or deliver a legal opinion to the effect that recordation of
such assignments is not necessary in order to perfect the interest of trust in
the mortgages. Prior to delivery and recording, the interest of the trustee in
the mortgages, the mortgage notes and any proceeds from the mortgage loans 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.
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 to the trustee, 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
certificates.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
- Prepayments of Principal May Reduce Interest Payments. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only up to
the date of the prepayment, instead of a full month. This may result in an
interest shortfall. The master servicer is obligated to pay that interest
shortfall, without any right of reimbursement, up to the amount of its
servicing fee for that month. If the servicing fee is insufficient to pay such
interest shortfalls attributed to prepayments, they will be covered by the
certificate insurance policy.
- Certain Interest Shortfalls Are Not Covered by the Master Servicer or
the Certificate Insurance Policy. The Soldiers' and Sailors' Civil Relief Act
of 1940 permits certain modifications to the payment terms for mortgage loans,
including a reduction in the amount of interest paid by the borrower, under
certain circumstances. Neither the master servicer nor the certificate insurer
will pay for any interest shortfalls created by the Soldiers' and Sailors'
Civil Relief Act of 1940.
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, __% of the mortgaged properties
(by principal balance as of the cut-off date) are located in Ohio. If Ohio
experiences in the future weaker economic conditions or greater rates of decline
in real estate values than the United States generally, then the mortgage loans
may experience higher rates of delinquencies and foreclosures than would
otherwise be the case.]
[RISK OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the seller until
_______. The seller will sell mortgage loans to the trust if it has mortgage
loans to sell. The ability of the seller to originate and acquire additional
mortgage loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. If the full amount deposited in the pre-funding accounts
for the purpose of purchasing additional mortgage loans cannot be used for that
purpose within [three] months from the closing date, any remaining amounts will
be paid to you as a prepayment on the certificates.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their
operations, the master servicer is faced with the task of preparing for year
2000. The year 2000 issue is the result of prior computer programs being
written using two digits, rather than four digits, to define the applicable
year. Any of the master servicer's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. Major computer system failure or miscalculations may occur as a result.
The master servicer is presently engaged in various procedures to ensure that
their computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers or agents do not successfully and timely achieve year 2000 compliance,
the performance of obligations of the master servicer could be materially
adversely affected. This could result in delays in processing payments on the
mortgage loans and cause a related delay in distributions to you.
THE CERTIFICATE INSURER
The information set forth in this section and in the financial
statements of t[_____], the certificate insurer (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, [____] and [____] and for each of the three years in the period
ended December 31, [____] 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 199_ 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. ("Moody's") rates the claims paying
ability of the Certificate Insurer "Aaa".
Standard & Poor's Rating Services rates, a division of The
McGraw-Hill Companies, Inc. ("S&P") the claims paying ability of the
Certificate Insurer "AAA".
Fitch IBCA, Inc. ("Fitch") 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
The Provident Bank ("Provident"), as Master Servicer (the "Master
Servicer") will be responsible for servicing the Mortgage Loans for the Trust
Fund in accordance with the terms of the pooling and servicing agreement (the
"Agreement") to be dated as of _____, 199_, between Provident, as seller (the
"Seller") and Master Servicer, and ________, as trustee (the "Trustee").
[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 __% 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 Fund,
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 [September 30, 1997], [December 31, 1997], [March
31, 1998] and [June 30, 1998].
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, 1998 MARCH 31, 1998 DECEMBER 31, 1997 SEPTEMBER 30, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
Portfolio...........
Delinquency
percentage
(1)(2)
30-59 days.......
60-89 days.......
90 days or more..
Total...............
- -------------------------------------------------------------------------------------------------------------------
</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
(the "Prospectus Supplement") is only with respect to the Mortgage Loans and
describes the Mortgage Loans in loan group 1 ("Loan Group 1") and the Mortgage
Loans in loan group 2 ("Loan Group 2" and each, a "Loan Group") and is based
on the characteristics of such Loan Group as of _______, 199_, (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. 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 Mortgage Loans to be purchased by the Trust Fund will be
originated or purchased by Provident and sold by Provident to the Trust Fund.
The mortgage pool (the "Mortgage Pool") consists of mortgage loans
(the "Mortgage Loans") with an aggregate Principal Balance as of the Cut-Off
Date of $ (the "Cut-Off Date Pool 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. With
respect to any date, the "Pool Principal Balance" will be equal to the
aggregate of the Principal Balances of all the Mortgage Loans as of such date.
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
$ , and the minimum Cut-Off Date Principal Balance was $ , the maximum Cut-Off
Date Principal Balance was $ . Interest on each Mortgage Loan is payable
monthly on the outstanding Principal Balance thereof at a rate per annum
("Loan Rate") specified in the related Mortgage Note. 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 (as defined herein) 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. "Balloon
Loans" are mortgage loans in which borrowers are not required to make monthly
payments of principal that will fully amortize such mortgage loan by their
maturity. 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 (the "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
Range of Cut-Off Number of Cut-Off Date % of Cut-Off Date
Date Principal Balances Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 1
State Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 1
Loan-to-Value Ratio Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
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
Loan Rates Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 1
Original Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 1
Remaining Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
MONTHS SINCE ORIGINATION
LOAN GROUP 1
Months Since Origination Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
PROPERTY TYPE
LOAN GROUP 1
Property Type Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
OCCUPANCY TYPE
LOAN GROUP 1
Occupancy Type Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
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 (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
Range of Cut-Off Number of Cut-Off Date % of Cut-Off Date
Date Principal Balances Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
GEOGRAPHIC DISTRIBUTION BY STATE(1)
LOAN GROUP 2
State Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
- -------------------------------------------------------------------------------
(1) Determined by property address designated as such in the related Mortgage.
LOAN-TO-VALUE RATIOS(1)
LOAN GROUP 2
Loan-to-Value Ratio Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
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
Loan Rates Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 2
Original Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 2
Remaining Term to Number of Cut-Off Date % of Cut-Off Date
Stated Maturity Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
MONTHS SINCE ORIGINATION
LOAN GROUP 2
Months Since Origination Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
PROPERTY TYPE
LOAN GROUP 2
Property Type Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
OCCUPANCY TYPE
LOAN GROUP 2
Occupancy Type Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
MARGIN
LOAN GROUP 2
Margin Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
LIFETIME CAP
LOAN GROUP 2
Lifetime Cap Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
FLOOR
LOAN GROUP 2
Floor Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the Class A Certificates, the
aggregate amount of distributions on the Class A Certificates and the yield to
maturity of the Class A 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 Fund)
will result in distributions on the related Class A 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 a Class A 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 Fund 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 Class A Certificates, the use of Excess Spread to pay principal of
the Class A Certificates of the related Certificate Group to the extent
required by the Agreement will result in the acceleration of the Class ___ and
Class ___ 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 the Class A Certificates purchased at a price less than
par and will decrease the yield on the Class A 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 Class A 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 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 the
Class A 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 Class A Certificates set forth in the tables. In addition, since the
actual Mortgage Loans in the Trust Fund have characteristics which differ from
those assumed in preparing the tables set forth below, the distributions of
principal on the Class A 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 %.
<TABLE>
<CAPTION>
Amortization Principal Loan Rate Original Original Remaining Term
Methodology Balance Amortization Term Term to Maturity to Maturity
(months) (months) (months)
<S> <C> <C> <C> <C> <C>
GROUP 1
Balloon........... $
Level Pay.......... $
Level Pay.......... $
</TABLE>
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>
Amortization Principal Loan Months Gross Maximum Minimum Original Original Remaining
Methodology Balance Rate to Rate Margin Interest Interest Amortization Term to Term to
Change Rate Rate Term Maturity Maturity(months)
(months) (months)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP 2
Balloon.... $
Level Pay... $
Level Pay... $
</TABLE>
<TABLE>
<CAPTION>
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS A-1 CLASS A-2
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100 100 100 100 100 100 100 100
Percentage.......
Weighted Average
Life (years)*....
</TABLE>
- -------------------------------------------------------------------------------
* 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.
<TABLE>
<CAPTION>
CLASS A-3 CLASS A-4
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100 100 100 100 100 100 100 100
Percentage.......
Weighted Average
Life (years)*....
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
<TABLE>
<CAPTION>
CLASS A-5 CLASS A-6
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial 100 100 100 100 100 100 100 100
Percentage.......
Weighted Average
Life (years)*....
</TABLE>
- -------------------------------------------------------------------------------
* 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 Home Equity Loan Asset - Backed Certificates, Series 199_-_ (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 Fund. The property of the trust fund (the "Trust Fund")
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 Fund 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 Trust Fund will issue six classes (each, a "Class") of Class A
Certificates, 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") and one Class of subordinated Certificates
(the "Class R 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 Bank societe anonyme (the "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 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
N.A. ("Citibank") will act as depositary for CEDEL and Chemical Bank
("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 Fund 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 Fund 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 Fund 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 Fund and Provident will agree to hold the Mortgage Files for and
on behalf of the Trustee.]
[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 Fitch or (iii) the suspension, termination or withdrawal of
the Seller's long-term unsecured debt rating by Moody's or S&P.]
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 Fund as a real estate mortgage
investment conduit ("REMIC") or result in a prohibited transaction tax under
the Internal Revenue Code of 1986, as amended (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 "Determination
Date" is the eighteenth day of each month. 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
transferred to the Trust Fund; (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 Fund, 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 Fund, 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 Fund. 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 the 25th day of each month, or if such day is not a Business Day,
then the next succeeding Business Day, commencing in ______________________,
(each such day, a "Distribution Date"), the holders of the Offered
Certificates 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, 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 Fund 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 Period " means, with respect to each Distribution Date and
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 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. 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 Fund), (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, ___%. 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, the "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 Fund, 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 Fund 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 Fund 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-_ Certificates,
; and Class A-_ 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 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 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 lesser of (i)
the maximum insurable value of the improvements securing such Mortgage Loan
from time to time and (ii) the combined principal balance owing on such
Mortgage Loan and any mortgage loan senior to such Mortgage Loan. The Master
Servicer shall also maintain on property acquired upon foreclosure, or by deed
in lieu of foreclosure, hazard insurance with extended coverage in an amount
which is at least equal to the lesser of (i) the maximum insurable value from
time to time of the improvements which are a part of such property and (ii)
the combined principal balance owing on such Mortgage Loan and any mortgage
loan senior to such Mortgage Loan. In cases in which any Mortgaged Property is
located in a federally designated flood area as designated by the Federal
Emergency Management Agency, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance to the extent such flood
insurance is available and the Master Servicer has determined such insurance
to be necessary in accordance with accepted first and second mortgage loan
servicing standards, as applicable. All such flood insurance shall be in
amounts equal to the lesser of (A) the amount in clause (ii) above and (B) 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, on behalf of itself,
a portion of such interest payments as a monthly servicing fee (the "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 199_, 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 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 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 Fund
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 Fund 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 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. 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 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 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 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; (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 (10) Business Days or
referred to under clause (ii) above for a period of thirty (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 voting rights in the Trust Fund, 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 Fund 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 Fund, (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 Fund 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.
VOTING RIGHTS
Under the Agreement, the voting rights (the "Voting Rights") will be
allocated to the Class A Certificates among such Classes in proportion to
their respective Class Principal Balances. Voting Rights allocated to a Class
of Certificates will be further allocated among the Certificates of such Class
on the basis of their respective Percentage Interests. [So long as no Insurer
Default is continuing, the Certificate Insurer will be entitled to exercise
the Voting Rights of the Class A Certificates].
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 Fund 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 Fund 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, 1999, 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, any state
thereof or the District of Columbia, (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, (iv) a trust
fund if a court within the United States is able to exercise primary
supervision over the administration of the trust fund and one or more United
States persons have authority to control all substantial decisions of the
trust fund, or (v) certain trusts treated as United States persons before
August 20, 1996 that 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 or similar form
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 the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and the Code, of the Plan's 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 S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch IBCA, Inc.;
(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 represents 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 ______ (each, a "Rating
Agency" and together, the "Rating Agencies").
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-38
Agreement.............................................................S-13, S-51
Amount Available............................................................S-46
Assignment Event............................................................S-43
Available Funds.............................................................S-46
Balloon Loans...............................................................S-17
Beneficial owner............................................................S-39
BIF.........................................................................S-44
Book-Entry Certificates.....................................................S-39
Business Day................................................................S-51
Capitalized Interest Account................................................S-53
Cede........................................................................S-69
CEDEL.......................................................................S-39
CEDEL Participants..........................................................S-40
Certificate Insurer.........................................................S-12
Certificate Owners..........................................................S-39
Certificate Rate............................................................S-48
Certificate Register........................................................S-46
Certificate Registrar.......................................................S-46
Certificateholder.....................................................S-38, S-39
Certificates................................................................S-38
Chemical....................................................................S-39
Citibank....................................................................S-39
Civil Relief Act Interest Shortfalls........................................S-56
Class.......................................................................S-38
Class A Certificateholder...................................................S-61
Class A Monthly Principal Distributable Amount........................S-48, S-49
Class A Principal Balance...................................................S-38
Class A Principal Carryover Shortfall.......................................S-49
Class A Principal Distribution..............................................S-49
Class A-1 Certificates......................................................S-38
Class A-2 Certificates......................................................S-38
Class A-3 Certificates......................................................S-38
Class A-4 Certificates......................................................S-38
Class A-5 Certificates......................................................S-38
Class A-6 Certificates......................................................S-38
Class A-6 Interest Carryover................................................S-47
Class Interest Carryover Shortfall..........................................S-48
Class Interest Distribution.................................................S-48
Class Monthly Interest Distributable Amount.................................S-48
Class R Certificates........................................................S-38
Closing Date................................................................S-42
Code..................................................................S-43, S-60
Collection Account..........................................................S-44
Cooperative.................................................................S-41
CPR...................................................................S-34, S-61
Cut-Off Date................................................................S-16
Cut-Off Date Loan Group 1 Principal Balance.................................S-17
Cut-Off Date Loan Group 2 Principal Balance.................................S-24
Cut-Off Date Pool Principal Balance.........................................S-16
Defective Mortgage Loans....................................................S-44
Deficiency Amount...........................................................S-51
Definitive Certificate......................................................S-39
Determination Date..........................................................S-43
Distributable Excess Spread.................................................S-49
Distribution Account........................................................S-44
Distribution Date...........................................................S-46
DTC.........................................................................S-39
Due Period..................................................................S-50
Eligible Account............................................................S-44
Eligible Investments........................................................S-44
Eligible Substitute Mortgage Loan...........................................S-43
ERISA.......................................................................S-63
Euroclear...................................................................S-39
Euroclear Operator..........................................................S-41
Euroclear Participants......................................................S-41
European Depositaries.......................................................S-39
Events of Default...........................................................S-58
Excess Spread...............................................................S-50
Exemption...................................................................S-63
Financial Intermediary......................................................S-39
Fiscal Agent................................................................S-51
Fitch.......................................................................S-13
Foreign Investor............................................................S-62
Foreign Investors...........................................................S-62
Funding Period..............................................................S-53
GAAP........................................................................S-12
Global Securities...........................................................S-69
Group 1 Certificates........................................................S-38
Group 2 Certificates........................................................S-38
Guaranteed Principal Amount...........................................S-51, S-52
Insolvency Event............................................................S-58
Insured Payment.............................................................S-52
Insurer Default.............................................................S-50
Interest Period.............................................................S-48
LIBOR Rate..................................................................S-48
Liquidated Mortgage Loan....................................................S-50
Loan Group............................................................S-16, S-38
Loan Group Principal Balance................................................S-16
Loan Group 1..........................................................S-16, S-38
Loan Group 1 Principal Balance..............................................S-16
Loan Group 2..........................................................S-16, S-38
Loan Group 2 Principal Balance..............................................S-16
Loan Rate...................................................................S-17
Loan-to-Value Ratio...................................................S-20, S-28
Loss Pay of Clause..........................................................S-14
Master Servicer.............................................................S-13
Master Servicing Fee........................................................S-56
Master Servicing Fee Rate...................................................S-56
Monthly Advance.............................................................S-45
Moody's.....................................................................S-13
Mortgage Clause.............................................................S-14
Mortgage File...............................................................S-42
Mortgage Loan Schedule......................................................S-42
Mortgage Loans..............................................................S-16
Mortgage Pool...............................................................S-16
Mortgaged Properties........................................................S-17
Net Funds Cap...............................................................S-48
New Withholding Regulations.................................................S-62
Nonrecoverable Advance......................................................S-45
Notice......................................................................S-52
Offered Certificates........................................................S-38
OID.........................................................................S-60
Owner.......................................................................S-52
Percentage Interest.........................................................S-39
Policy......................................................................S-38
Pool Principal Balance......................................................S-17
Preference Amount...........................................................S-52
Pre-Funded Amount...........................................................S-53
Pre-Funding Account.........................................................S-53
Prepayment Assumption.......................................................S-34
Principal Balance...........................................................S-16
Prospectus..................................................................S-24
Prospectus Supplement.......................................................S-16
Provident...................................................................S-13
Purchase Price..............................................................S-43
Rating Agency...............................................................S-65
Rating Agencies.............................................................S-65
Related Documents...........................................................S-42
Relevant Depositary.........................................................S-39
REMIC.................................................................S-43, S-60
Rules.......................................................................S-39
SAIF........................................................................S-44
SAP.........................................................................S-12
S&P.........................................................................S-13
Seller......................................................................S-13
Servicing Advance...........................................................S-45
SMMEA.......................................................................S-64
STIFS.......................................................................S-45
Subsequent Transfer Date....................................................S-24
Subservicer.................................................................S-13
Substitution Adjustment.....................................................S-43
Successor Master Servicer...................................................S-58
Terms and Conditions........................................................S-41
Trust Fund..................................................................S-38
Trustee.....................................................................S-50
U.S. Person.................................................................S-72
Underwriter...........................................................S-63, S-64
Underwriting Agreement......................................................S-64
Voting Rights...............................................................S-60
Weighted average life.......................................................S-34
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Provident Home Equity Loan Asset-Backed Certificates, Series 199___ (the
"Global Securities") will be available only in book-entry form. Investors in
the Global Securities may hold such Global Securities through any of DTC,
CEDEL or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior 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. ("Cede") as nominee of DTC. Investors' interests in the
Global Securities will be represented through financial institutions acting on
their behalf as direct and indirect Participants in DTC. As a result, CEDEL
and Euroclear will hold positions on behalf of their participants through
their 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.
PROVIDENT BANK HOME EQUITY
LOAN TRUST 199_-_
$-------------
$ _________ Class A-1 _____% Certificates
$ _________ Class A-2 _____% Certificates
$ _________ Class A-3 _____% Certificates
$ _________ Class A-4 _____% Certificates
$ _________ Class A-5 _____% Certificates
$ _________ Class A-6 _____% Certificates
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 199_-_
THE PROVIDENT BANK,
AS SELLER AND MASTER SERVICER
Until [Date], all dealers selling the Class A Certificates will
deliver a prospectus supplement and prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters of the
Class A Certificates and with respect to their unsold allotments or
subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Class A Certificates in any state where the
offer is not permitted.
We do not claim that the information in this prospectus supplement
and prospectus is accurate as of any date other than the dates stated on the
respective covers.
PROSPECTUS SUPPLEMENT
________, 199_
- -------------------------------------------------------------------------------
UNDERWRITER
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1998
PROSPECTUS
Asset Backed Securities
(Issuable in Series)
----------------
Consider carefully the risk The Provident Bank may periodically issue
facotrs beginning on page 4 of securities, which may be in the form of
this prospectus. asset-backed certificates or asset-backed
notes. Each issue of securities will have
The securities represent its own series designation and will evidence
obligations of the trust only interests in or obligations of a trust
and do not represent an established by The Provident Bank.
increase in or obligation of
The Provident Bank, the master Each trust will consist of:
servicer or any of their
affiliates. - mortgage loans secured by senior
or junior liens on a one- to four-family
This prospectus may be used to residential properties; and
offer and sell the securities
only if accompanied by a - closed-end and/or revolving home equity
prospectus supplement. loans secured by senior or junior liens
and a one- to four-family residential
properties.
Each series of securities will:
- either evidence beneficial ownership of
a trust or be secured by the assets of a
trust;
- will be issued in one or more classes of
securities. A class of securities:
- will be entitled to anywhere from 0%
to 100% of the interest payments and
principal payments on the assets of
the trust;
- may be senior or subordinate in right
of payment to other classes; and
- may receive payments from an
insurance policy, cash account or
other form of credit enhancement to
cover losses on the trust assets.
No market will exist for the securities of any series before they are issued.
In addition, even after the securities of a series have been issued and sold,
there can be no assurance that a resale market will develop.
The securities may be offered to the public through different methods as
described in "Method of Distribution" in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
________________, 1998
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about the securities in two separate documents
that progressively provide more detail: (a) this prospectus, which provides
general information, some of which may not apply to your series of securities
and (b) the accompanying prospectus supplement, which describes the specific
terms of your series of securities.
If the terms of a particular series of securities vary between this prospectus
and the accompanying prospectus supplement, you should rely on the information
in the prospectus supplement.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the securities in any state where the offer
is not permitted. We do not claim the accuracy of the information in this
prospectus or the accompanying prospectus supplement as of any date other than
the dates stated on their respective covers.
We include cross-references in this prospectus and the accompanying prospectus
supplement to captions in these materials where you can find further related
discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus supplement provide the pages on which
these captions are located.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Defined Terms" beginning on
page 76
TABLE OF CONTENTS
Page
----
RISK FACTORS.....................................4
THE TRUST FUND...................................5
General......................................5
The Loans....................................7
Substitution of Trust Fund Assets............9
USE OF PROCEEDS..................................9
THE PROVIDENT BANK...............................10
General......................................10
Available Information........................10
Incorporation of Certain Documents by
Reference.................................10
LOAN PROGRAM.....................................11
Underwriting Standards.......................11
Qualifications of Provident..................12
Representations by Provident; Repurchases....12
DESCRIPTION OF THE SECURITIES....................13
General......................................13
Distributions on Securities..................14
Advances.....................................16
Reports to Securityholders...................16
Categories of Classes of Securities..........18
Book-Entry Registration of Securities........20
CREDIT ENHANCEMENT...............................23
General......................................23
Subordination................................23
Letter of Credit.............................24
Insurance Policies, Surety Bonds
and Guaranties.............................24
Over-Collateralization.......................24
Reserve Accounts.............................25
Pool Insurance Policies......................26
Cross-Collateralization......................26
YIELD AND PREPAYMENT
CONSIDERATIONS..................................27
THE AGREEMENTS...................................29
Assignment of the Trust Fund Assets..........29
Payments on Loans; Deposits to
Security Account...........................30
Pre-Funding Account..........................32
Sub-Servicing................................33
Collection Procedures........................33
Hazard Insurance.............................33
Realization Upon Defaulted Loans.............35
Servicing and Other Compensation and
Payment of Expenses.......................35
Evidence as to Compliance....................35
Certain Matters Regarding the Master Servicer
and Provident.............................36
Events of Default; Rights Upon Event of
Default...................................36
Amendment....................................38
Page
----
Termination; Optional Termination.............39
The Trustee...................................40
CERTAIN LEGAL ASPECTS OF
THE LOANS......................................40
General.......................................40
Foreclosure/Repossession......................40
Environmental Risks...........................41
Rights of Redemption..........................42
Anti-Deficiency Legislation; Bankruptcy
Laws; Tax Liens.............................43
Due-on-Sale Clauses...........................44
Enforceability of Prepayment and Late
Payment Fees...............................44
Applicability of Usury Laws...................44
Soldiers' and Sailors' Civil Relief Act.......45
Junior Mortgages; Rights of Senior
Mortgagees.................................45
Consumer Protection Laws......................46
FEDERAL INCOME TAX CONSEQUENCES...................46
General.......................................46
Taxation of Debt Securities ..................47
Taxation of the REMIC and its Holders.........51
REMIC Expenses; Single Class REMICS...........51
Taxation of the REMIC.........................52
Taxation of Holders of Residual Interest
Securities..................................53
Administrative Matters........................55
Tax Status as a Grantor Trust.................55
Sale or Exchange..............................57
Miscellaneous Tax Aspects.....................58
Tax Treatment of Foreign Investors............58
Tax Characterization of the Trust Fund as a
Partnership................................59
Tax Consequences to Holders of the Notes......59
Tax Consequences to Holders of the
Certificates...............................61
Taxation of the Trust as a FASIT..............65
Treatment of FASIT Regular Securities.........66
Treatment of High-Yield Interests.............66
Tax Treatment of FASIT Ownership
Securities.................................67
STATE TAX CONSIDERATIONS..........................67
ERISA CONSIDERATIONS..............................68
LEGAL INVESTMENT..................................72
METHOD OF DISTRIBUTION............................73
LEGAL MATTERS.....................................73
FINANCIAL INFORMATION.............................74
RATING............................................74
INDEX OF DEFINED TERMS............................75
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
Limited Resale Market for Securities
No market will exist for the securities of any series before they are
issued. We cannot give you any assurances that a resale market will develop
following the issuance and sale of any series of the securities. Consequently,
you may not be able to sell your securities at prices that will enable you to
realize your desired yield.
Limited Source of Payments - No Recourse to Provident or Master Servicer
The securities of each series will be payable solely from the assets of
the related trust, including any applicable credit enhancement. Moreover, at
the times specified in the related prospectus supplement, certain assets of
the trust may be released to The Provident Bank (Provident), the master
servicer, a credit enhancement provider or other person. Once released, such
assets will no longer be available to make payments to securityholders.
The securities will not represent an interest in Provident, the master
servicer or any of their respective affiliates, nor will the securities
represent an obligation of any of them. The only obligation of Provident with
respect to a trust is the obligation to repurchase a trust asset if Provident
breaches a representation and warranty concerning the related trust asset.
There will be no recourse against Provident or the master servicer if any
required distribution on the securities is not made. Consequently, if payments
on the trust assets are insufficient to make all payments required on the
securities you may incur a loss of your investment.
Limitations on the Effectiveness of Credit Enhancement
Credit enhancement is intended to reduce the effect of delinquent
payments or loan losses on those classes of securities that have the benefit
of the credit enhancement. However, the amount of any credit enhancement may
decline or be depleted before the securities are paid in full. As a result,
securityholders may suffer losses. In addition, credit enhancement may not
cover all potential sources of loss, such as a loss resulting from fraud or
negligence by a loan originator or other party.
Nature of Mortgages Securing The Loans
- Decline in Property Values May Increase Loan Losses. Because your
securities represent an interest in mortgage loans or are secured by mortgage
loans, your investment may be affected by a decline in property values. If the
outstanding balance of a mortgage loan and any secondary financing on the
underlying property is greater than the value of the property, there is an
increased risk of delinquency, foreclosure and loss. A decline in property
values could extinguish the value of a junior mortgagee's interest in a
property.
- Delays Due to Liquidation. Substantial delays may occur before
defaulted loans are liquidated and the proceeds forwarded to investors.
Property foreclosure actions are regulated by state statutes and rules and are
subject to many of the delays and expenses that characterize lawsuits if
defenses or counterclaims are made. As a result, foreclosure actions can
sometimes take several years to complete and property proceeds may not cover
the defaulted loan amount. Some states prohibit a mortgage lender from
obtaining a judgment against the borrower for amounts not covered by property
proceeds if the property is sold outside of a judicial proceeding.
We refer you to "Certain Legal Aspects of the Loans--Anti-Deficiency
Legislation; Bankruptcy Laws; Tax Liens" for additional information.
- Junior Liens Satisfied After Senior Liens. Mortgages or deeds of trust
securing junior loans will be satisfied after the claims of the senior mortgage
holders and the foreclosure costs are satisfied. In addition, a junior mortgage
lender may only foreclose subject to any related senior mortgage. As a result,
the junior mortgage lender generally must either pay the related senior mortgage
lender in full at or before the foreclosure sale or agree to make the regular
payments on the senior mortgage. Since the trust will not have any source of
funds to satisfy any senior mortgage or to continue making payments thereon, the
trust's ability as a practical matter to foreclose on any junior mortgage will
be limited.
- Regulated by Consumer Protection Laws. Most states have laws and public
policies for the protection of consumers that prohibit unfair and deceptive
practices in the origination, servicing and collection of loans, regulate
interest rates and other loan changes and require licensing of loan
originators and servicers. Violations of these laws may limit the ability of
the master servicer to collect interest or principal on the loans and may
entitle the borrowers to a refund of amounts previously paid.
The loans may also be subject to federal laws relating to the origination
and underwriting of loans. These laws
- require certain disclosures to the borrowers regarding the terms of
the loans;
- 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;
- regulate the use and reporting of information related to the
borrower's credit experience; and
- require additional application disclosures, limit changes that may be
made to the loan documents without the borrower's consent and restrict
a lender's ability to declare a default or to suspend or reduce a
borrower's credit limit to certain enumerated events.
If certain provisions of these federal laws are violated, the master
servicer may be unable to collect all or part of the principal or interest on
the loans. The trust also could be subject to damages and administrative
enforcement.
We refer you to "Certain Legal Aspects of the Loans" for additional
information.
Trust Subject to 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. In
addition, the holder of a mortgage, such as a trust, may be held responsible
for the costs associated with the clean up of hazardous substances released at
a property. Such costs could result in a loss to the securityholders.
We refer you to "Certain Legal Aspects of the Loans--Environmental Risks"
for additional information.
Value of Trust Assets
There is no assurance that the value of the trust assets for any series
of securities at any time will equal or exceed the principal amount of the
outstanding securities of the series. If trust assets have to be sold because
of an event of default or otherwise, providers of services to the trust
(including the trustee, the master servicer and the credit enhancer, if any)
generally will be entitled to receive the proceeds of the sale to the extent
of their unpaid fees and other amounts due them before any proceeds are paid
to investors. As a result, you may not receive the full amount of interest and
principal due on your security.
THE TRUST FUND
General
The Asset-Backed Certificates (the "Certificates") and the 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")
will represent interests in the assets of the related trust fund (the "Trust
Fund"). 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 holders of the related Securities (the
"Securityholders"). Each Trust Fund will consist of certain assets (the "Trust
Fund Assets") consisting of a pool (each, a "Pool") comprised of loans (the
"Loans") as specified in the related Prospectus Supplement, together with
payments in respect of such Loans, as specified in the related prospectus
supplement (the "Prospectus Supplement"). The Pool will be created on the
first day of the month of the issuance of the related Series of Securities or
such other date specified in the related Prospectus Supplement (the "Cut-Off
Date"). The Securities will be entitled to payment from the assets of the
related Trust Fund or other assets pledged for the benefit of the
Securityholders as specified in the related Prospectus Supplement and will not
be entitled to payments in respect of the assets of any other trust fund
established by Provident.
Each Loan will have been originated or acquired by The Provident Bank
("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 Securityholders. The
master servicer (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 ("Pooling and
Servicing Agreement") among Provident, the Master Servicer and the trustee
(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 Pooling and Servicing 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"). 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 ("Mortgage Loans") and home
equity loans ("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:
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.
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.
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.
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 or certain balances
thereof (the "Revolving Credit Line Loans"), 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 (the
"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
General
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.
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, exhibits and the information incorporated by reference described
below can be inspected and copied at prescribed rates at the public reference
facilities maintained by the Commission at its Public Reference Room at 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. Information on the
operation of Public Reference Room may be obtained by calling the Commission
at 1-800-SEC-0330. The Commission also maintains a Web site at
http://www.sec.gov from which such Registration Statement and exhibits may be
obtained.
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 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.
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 an election is
to be made with respect to a Trust Fund as a "real estate mortgage investment
conduit" ("REMIC"), 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 REMIC as defined in the Code. The
related Prospectus Supplement will specify whether a REMIC election is to be
made. Alternatively, the Agreement for a Series of Securities may provide that
a REMIC election may be made at the discretion of Provident or the Master
Servicer and may only be made if certain conditions are satisfied. As to any
such Series, the terms and provisions applicable to the making of a REMIC
election will be set forth in the related Prospectus Supplement. If such an
election is made with respect to a Series of Securities, one of the classes
will be designated as evidencing the sole class of "residual interests" in the
related REMIC, as defined in the Code. All other classes of Securities in such
a Series will constitute "regular interests" in the related REMIC, as defined
in the Code. As to each Series of Securities with respect to which a REMIC
election is to be made, the Master Servicer, the Trustee or a holder of the
related residual certificate will be obligated to take all actions required in
order to comply with applicable laws and regulations.
Distributions on Securities
General. In general, the method of determining the amount of
distributions on a particular Series of Securities will depend on the type of
credit support, if any, that is used with respect to such Series. See "Credit
Enhancement". Set forth below are descriptions of various methods that may be
used to determine the amount of distributions on the Securities of a
particular Series. The Prospectus Supplement for each Series of Securities
will describe the method to be used in determining the amount of distributions
on the Securities of such Series.
Distributions on the Securities entitled thereto will be made monthly,
semi-annually or at such other intervals and on the date specified in the
related Prospectus Supplement (each, a "Distribution Date"). 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 holders of
Subordinated Securities on such Distribution Date, and (b) withdrawn from
the Reserve Account, if any, that is included in the amounts distributed
to the holders of Senior Securities;
(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, societe 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 Fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to beneficial
owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Securities of such beneficial owners are
credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of
the Book-Entry Securities under the applicable Agreement only at the direction
of one or more Financial Intermediaries to whose DTC accounts the Book-Entry
Securities are credited, to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such Book-Entry Securities.
CEDEL or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Securityholder under the Agreement on behalf
of a CEDEL Participant or Euroclear Participant only in accordance with its
relevant rules and procedures and subject to the ability of the Relevant
Depositary to effect such actions on its behalf through DTC. DTC may take
actions, at the direction of the related Participants, with respect to some
Securities which conflict with actions taken with respect to other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Master Servicer, Provident or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Securities held by
Cede & Co., as nominee of DTC, or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
General
Credit enhancement may be provided with respect to one or more classes of
a Series of Securities or with respect to the related Trust Fund Assets.
Credit enhancement may be in the form of a limited financial guaranty policy
issued by an entity named in the related Prospectus Supplement, the
subordination of one or more classes of the Securities of such Series, the
establishment of one or more Reserve Accounts, the use of a
cross-collateralization feature, use of a mortgage pool insurance policy,
bankruptcy bond, special hazard insurance policy, surety bond, letter of
credit, guaranteed investment contract, overcollateralization, or another
method of credit enhancement contemplated herein and described in the related
Prospectus Supplement, or any combination of the foregoing. Unless otherwise
specified in the related Prospectus Supplement, credit enhancement will not
provide protection against all risks of loss and will not guarantee repayment
of the entire principal balance of the Securities and interest thereon. If
losses occur which exceed the amount covered by credit enhancement or which
are not covered by the credit enhancement, Securityholders will bear their
allocable share of any deficiencies.
If specified in the related Prospectus Supplement, the coverage provided
by one or more of the forms of credit enhancement described in this Prospectus
may apply concurrently to two or more separate Trust Funds. If applicable, the
related Prospectus Supplement will identify the Trust Funds to which such
credit enhancement relates and the manner of determining the amount of
coverage provided to such Trust Funds thereby and of the application of such
coverage to the identified Trust Funds.
Subordination
If so specified in the related Prospectus Supplement, protection afforded
to holders of one or more classes of Securities of a Series by means of the
subordination feature may be accomplished by the preferential right of holders
of one or more other classes of such Series (the "Senior Securities") to
distributions in respect of scheduled principal, Principal Prepayments,
interest or any combination thereof that otherwise would have been payable to
holders of subordinated securities (the "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 holders of Subordinated
Securities 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, the holders of Senior
Securities 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 the holders of Senior Securities 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 (the "Reserve Account") 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
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.
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 ("
(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 an account (the "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
(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
period specified in the related Prospectus Supplement (the "Funding Period")
to pay to Provident the purchase price for subsequent loans (the "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 (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"
(each, an "Event 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 66-2/3% 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 the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA"), the United States Environmental
Protection Agency ("EPA") may impose a lien on property where EPA has incurred
clean-up costs. However, a CERCLA lien is subordinate to pre-existing,
perfected security interests.
Under the laws of some states and under CERCLA, it is conceivable that a
secured lender may be held liable as an "owner" or "operator" for the costs of
addressing releases or threatened releases of hazardous substances at a
property, even though the environmental damage or threat was caused by a prior
or current owner or operator. CERCLA imposes liability for such costs on any
and all "responsible parties," including owners or operators. However, CERCLA
excludes from the definition of "owner or operator" a secured creditor who
holds indicia of ownership primarily to protect its security interest but
without "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.
The Reigle Act. Certain Loans may be subject to the Reigle Community
Development Regulatory Improvement Act of 1994 (the "Reigle 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 Reigle Act apply on a
mandatory basis to all 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 Loans.
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 Internal Revenue Code of 1986, as
amended (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 Securityholders 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
Securityholders 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 Securityholder'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 Securityholders 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 Securityholder 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
Securityholder 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
holder of a Debt Security 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. Securityholders 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 Securityholders 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.
Treasury 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 Securityholder 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 Securityholder 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 Securityholder 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
Securityholder 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 Securityholder 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 Secuirtyholders of Pay-Through
Securities based on the Prepayment Assumption, no representation is made to
Securityholders 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
Internal Revenue Service ("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 Securityholder who purchases such Debt
Security for an amount that exceeds its adjusted issue price will be entitled
(as will an initial Securityholder 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. Securityholders 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 Securityholder of
such a Security in any period could significantly exceed the amount of cash
distributed to such Securityholder in that period. The Securityholder 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, Securityholders 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
Securityholder for such Security over its stated principal amount, if any.
Under this approach, a Securityholder 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 Securityholder, 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 Securityholder 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 Securityholder
may elect to include market discount in income currently as it accrues, on all
market discount obligations acquired by such Securityholder during the taxable
year such election is made and thereafter, in which case the interest deferral
rule will not apply.
Premium. A Securityholder 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
Securityholder 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 Securityholder at
the beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such Securityholder, 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 Securityholder, exceed 2% of such Securityholder'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 Securityholder. 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 Securityholder's other miscellaneous itemized deductions
for that year, do not exceed two percent of such Securityholder'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 Securityholders 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
Securityholder may take into account currently is limited to the
Securityholder's adjusted basis at the end of the calendar quarter in which
such loss arises. A Securityholder's basis in a Residual Interest Security
will initially equal such Securityholder's purchase price, and will
subsequently be increased by the amount of the REMIC's taxable income
allocated to the Securityholder, and decreased (but not below zero) by the
amount of distributions made and the amount of the REMIC's net loss allocated
to the Securityholder. 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 Securityholders of Residual Interest Securities
to deduct net losses may be subject to additional limitations under the Code,
as to which such Securityholders 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 Securityholder of a Residual
Interest Security. If the amount of such payment exceeds a Securityholder's
adjusted basis in the Residual Interest Security, however, the Securityholder
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 Securityholder'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 Securityholder 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 Securityholder'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 Securityholder's excess
inclusion income will be treated as unrelated business taxable income of such
Securityholder. 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 the holder of a Residual Interest Security. First,
alternative minimum taxable income for such holder of a Residual Interest
Security is determined without regard to the special rule that taxable income
cannot be less than excess inclusions. Second, a Residual Interest Security
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 holder of a Residual Interest Security 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 Securityholder 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 Securityholder 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 Securityholder 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 Securityholder'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
Securityholder owns an interest. The Securityholder 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 Securityholder, however, Servicing Fees (to the extent not
otherwise disallowed, e.g., because they exceed reasonable compensation) will
be deductible in computing such Securityholder'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 Securityholder'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 Securityholder'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 Securityholder 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 Securityholder 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 Securityholder 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 Securityholder 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 Securityholder'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 Securityholder'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 Securityholder's tax basis in its Security is
the price such Securityholder 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
Securityholder's income if the yield on such Regular Interest Security had
equaled 110% of the applicable federal rate as of the beginning of such
Securityholder's holding period, over the amount of ordinary income actually
recognized by the Securityholder 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 20%. The maximum tax rate on both ordinary income and long-term capital
gains of corporate taxpayers is 35%. 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 Securityholder, 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
Securityholder (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 Securityholder's securities broker with a
certified statement, signed under penalty of perjury, that the TIN provided is
its correct number and that the Securityholder is not subject to backup
withholding. Backup withholding will not apply, however, with respect to
certain payments made to Securityholders, including payments to certain exempt
recipients (such as exempt organizations) and to certain Nonresidents (as
defined below). Securityholders 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 Securityholders 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 "Foreign Holder" (as hereinafter defined), 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 Foreign Holders. Foreign
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 Securityholders who are Foreign Holders are not
subject to withholding if they are effectively connected with a United States
business conducted by the Securityholder. They will, however, generally be
subject to the regular United States income tax.
Payments to Foreign 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. Securityholders 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 Foreign 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 Foreign Holder 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."
For purposes of this section, a "Foreign Holder" is defined for United
States federal income tax purposes as any Securityholder other than (i) any
individual who is a citizen or resident of the United States, (ii) a
corporation or partnership (including any entity treated as a corporation or
partnership for United States 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 provide otherwise, (iii) an estate the income of which is subject
to United States federal income tax regardless of its source, (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, or (v) certain
trusts in existence on August 20, 1996, and treated as United States persons
(as defined in Code Section 7701(a)(30)) prior to such date that elect to
continue to be so treated.
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 Securityholders will agree by their purchase of Notes (the "Noteholders"),
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 Noteholder of a Short-Term Note (and certain
cash method Noteholders, 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 Noteholders 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 Noteholder 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 Noteholder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the Noteholder's adjusted tax basis in the
Note. The adjusted tax basis of a Note to a particular Noteholder will equal
the Noteholder'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 Foreign Holder 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 Holder and the
Foreign Holder (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 Holder 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 Holder and (ii) in the case of an individual Foreign
Holder, the Foreign Holder is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each of a Noteholder (other than an exempt Noteholder
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 Noteholder's
name, address, correct federal taxpayer identification number and a statement
that the Noteholder 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
Noteholder, and remit the withheld amount to the IRS as a credit against the
Noteholder's federal income tax liability.
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, 1999, subject to certain transition
rules. Prospective investors are strongly urged to consult their own tax
advisors with respect to the New Withholding Regulations.
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 Noteholders. 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 Securityholders will agree by their
purchase of Certificates (the "Certificateholders"), 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 Certificateholder'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 Certificateholders 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 Certificateholder 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 Certificateholder being taxed on an amount of
income that exceeds the amount of cash actually distributed to such
Certificateholder 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 Certificateholder's cost increased by the Securityholder'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 Certificateholder's share of the Notes and other liabilities of the Trust
Fund. A Certificateholder 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
Certificateholder's share of unrecognized accrued market discount on the Loans
would generally be treated as ordinary income to the Certificateholder 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
Securityholder 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
Certificateholders 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, Certificateholders must file tax returns that are
consistent with the information return filed by the Trust Fund or be subject
to penalties unless the Certificateholder 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
Foreign Holders 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 Certificateholder's withholding
status, the Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the
Certificateholder's certification of nonforeign status signed under penalties
of perjury.
Each Foreign Holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the 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 Holder 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, Foreign Holders 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 Certificateholder is an exempt recipient
under applicable provisions of the Code.
New Withholding Regulations. As discussed above, the New Withholding
Regulations deal 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 and will generally be
effective for payments made after December 31, 1999, 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 ("IO") 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 the Employee
Retirement Income Security Act of 1974, as amended ("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 subject to ERISA and
on persons who are fiduciaries with respect to such Plans and Section 4975 of
the Code imposes requirements 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").
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 generally provides that, in addition to
certain other technical exceptions, 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 and the Code prohibit a broad
range of transactions involving Plan assets and persons ("Parties in
Interest") having certain specified relationships to a Plan and impose
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 or
give rise to a prohibited transaction under ERISA Sections 406 and 407 that is
subject to an excise tax under Code Section 4975 unless a statutory,
regulatory 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 (greater than 0%) of future interest
payments 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 of 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
Senior Securities only in a Series issued with a subordination feature,
provided that the subordination and Reserve Account, subordination by shifting
of interests, 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. In any event, 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.
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") (each, a "Rating Agency");
(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 any 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.
On July 21, 1997, the DOL published in the Federal Register an amendment
to the Underwriter Exemptions 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.
(1) 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.
(2) 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.
(3) 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.
(1) 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" and
together, the "Rating Agencies") 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.........................................................15
Additional Obligations.....................................................71
Agreement...................................................................6
Amortizable Bond Premium Regulations.......................................50
APR.........................................................................9
Available Funds............................................................14
Average Interest Rate......................................................71
Balloon payment.............................................................7
Belgian Cooperative........................................................22
Beneficial owner...........................................................20
BIF........................................................................30
Book-Entry Securities......................................................20
Buydown Fund................................................................7
Buydown Loans...............................................................7
Capitalized Interest Account...............................................32
Cash Flow Bond Method......................................................57
CEDEL Participants.........................................................21
CEDEL......................................................................20
CERCLA.....................................................................42
Certificateholders.........................................................61
Certificates................................................................5
Class Security Balance.....................................................15
Closed-End Loan.............................................................8
Code.......................................................................46
Collateral Value............................................................9
Combined Loan-to-Value Ratio................................................9
Commission.................................................................10
Companion Classes..........................................................19
Components.................................................................18
Contingent Regulations.....................................................48
Credit Enhancement.........................................................69
Cut-Off Date................................................................6
Cut-Off Date Principal Balance.............................................13
DCR........................................................................70
Debt Securities............................................................47
Debt-to-income ratio.......................................................11
Definitive Security........................................................20
Detailed Description........................................................7
Disqualified Organization..................................................54
Distribution Date..........................................................14
DOL........................................................................68
Eligible Corporations......................................................66
EPA........................................................................42
ERISA......................................................................68
Euroclear..................................................................20
Euroclear Operator.........................................................21
Euroclear Participants.....................................................21
European Depositaries......................................................20
Event of Default...........................................................36
Excess Servicing Fees......................................................56
Exchange Act...............................................................10
FASIT......................................................................65
FASIT Ownership Security...................................................65
FASIT Provisions...........................................................65
FASIT Qualification Test...................................................65
FASIT Regular Securities...................................................65
FDIC.......................................................................12
FHLMC......................................................................12
Financial Intermediary.....................................................20
Fitch......................................................................70
FNMA.......................................................................12
Foreign Holder.............................................................59
Funding Period.............................................................32
Garn-St Germain Act........................................................44
High-Yield Interest........................................................66
Home Equity Loans...........................................................7
Indenture..................................................................13
Insurance Proceeds.........................................................31
Insured Expenses...........................................................31
Interest Weighted Securities...............................................49
IO ........................................................................65
IRS........................................................................49
L/C Bank...................................................................24
Liquidation Expenses.......................................................31
Liquidation Proceeds.......................................................31
Loan Rate...................................................................7
Loans.......................................................................6
Loan-to-Value Ratio.........................................................9
Lockout Periods.............................................................7
Master Servicer.............................................................6
Master Servicing Agreement..................................................6
Master Servicing Fee.......................................................35
Moody's....................................................................70
Morgan.....................................................................21
Mortgage Loans..............................................................7
Mortgage pass-through certificate..........................................69
Mortgage related security..................................................72
Mortgage...................................................................29
Mortgaged Properties........................................................8
NCUA.......................................................................72
New partnership............................................................62
New Withholding Regulations................................................61
Noteholders................................................................59
Notes.......................................................................5
Obligations................................................................71
OID Regulations............................................................47
OID........................................................................47
Old partnership............................................................62
PACs.......................................................................18
Parties in Interest........................................................68
Pass-Through Securities....................................................55
Pay-Through Security.......................................................49
Permitted Investments......................................................25
Plans......................................................................68
Policy Statement...........................................................72
Pool Insurance Policy......................................................26
Pool Insurer...............................................................26
Pool........................................................................6
Pooling and Servicing Agreement..........................................6,13
Pre-Funded Amount..........................................................32
Pre-Funding Account........................................................32
Pre-Funding Limit..........................................................71
Prepayment Assumption......................................................49
Primary Mortgage Insurance Policy...........................................8
Principal Prepayments......................................................15
Properties..................................................................8
Prospectus Supplement.......................................................6
Provident...................................................................6
PTE 83-1...................................................................68
Purchase Price.............................................................12
Rating Agencies............................................................74
Rating Agency..........................................................70, 74
Ratio Strip Securities.....................................................56
RCRA.......................................................................42
Record Date................................................................14
Refinance Loan..............................................................9
Regular Interest Securities................................................47
Reigle Act.................................................................46
Relevant Depositary........................................................20
Relief Act.................................................................45
REMIC..................................................................12, 65
Reserve Account............................................................25
Residual Interest Security.................................................53
Restricted Group...........................................................70
Retained Interest..........................................................13
Revolving Credit Line Loans.................................................8
Rules......................................................................20
S&P........................................................................70
SAIF.......................................................................30
Secured Creditor Exclusion.................................................42
Security Account...........................................................30
Security Owners............................................................20
Security Register..........................................................14
Securityholders.............................................................6
Securities..................................................................5
Senior Securities..........................................................23
Series......................................................................6
Servicing Fees.............................................................55
Short-Term Note............................................................60
Single Family Properties....................................................8
Single Family Securities...................................................68
SMMEA......................................................................72
STIFS......................................................................25
Stripped Securities........................................................55
Subordinated Securities....................................................23
Subsequent Loans...........................................................32
Sub-Servicer...............................................................33
Sub-Servicing Agreement....................................................33
TACs.......................................................................19
Terms and Conditions.......................................................22
Thrift institutions........................................................54
TIN........................................................................58
Title V....................................................................44
Trust Agreement.........................................................6, 13
Trust Fund..................................................................6
Trust Fund Assets...........................................................6
Trustee..................................................................6,13
Underwriter Exemptions.....................................................69
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.......................................... $ 425,040.54
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......................................................... $ 1,815,040.54
================
- ------------
* 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 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. 333-62595).
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 19th day of
November, 1998.
THE PROVIDENT BANK
By: /s/ Kevin M. Shea
-----------------------------
Name: Kevin M. Shea
Title: 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.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Robert L. Hoverson President November 19, 1998
- -----------------------
Robert L. Hoverson (Principal Executive Officer)
and Director
/s/ Senior Vice President and Chief
- -----------------------
John R. Farrenkopf Financial Officer (Principal
Accounting Officer)
/s/ Jack M. Cook Director November 19, 1998
- -----------------------
Jack M. Cook
/s/ Thomas D. Grote Jr. Director November 19, 1998
- -----------------------
Thomas D. Grote, Jr.
/s/ Joseph A. Steger Director November 19, 1998
- -----------------------
Joseph A. Steger
/s/ Philip R. Myers Director November 19, 1998
- -----------------------
Philip R. Myers
/s/ Joseph A. Pedoto Director November 19, 1998
- -----------------------
Joseph A. Pedoto
/s/ Sidney A. Peerless Director November 19, 1998
- -----------------------
Sidney A. Peerless
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
No. Description of Exhibit Number
- ------- ---------------------- ----------
<S> <C> <C>
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. 333-62595).
</TABLE>
<PAGE>
EXHIBIT 5.1
JAMES R. WHITAKER
DIRECT DIAL: (513) 579-6415
FACSIMILE: (513) 579-6457
E-MAIL: [email protected]
November 19, 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 $1,440,873,000
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
<PAGE>
The Provident Bank
Page 3
November 19, 1998
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.
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.
The foregoing opinions are subject to the following qualifications:
(i) The opinions expressed herein are rendered as of the date hereof
and we undertake no obligation to update the opinions or advise you of
any changes in the event there is any change in legal authorities, facts,
assumptions or documents on which the opinions are 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 the opinions expressed herein unless we are specifically
engaged to do so;
(ii) 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
<PAGE>
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;
(iii) The legality, validity and enforceability of any rights and
remedies provided in any of the Agreements or the Securities are subject
to exceptions provided by bankruptcy, insolvency, reorganization,
receivership, moratorium, assignment for the benefit of creditors' laws
or similar laws now or hereafter in effect affecting the validity,
legality and binding affect and enforceability of creditors' rights
generally, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances or preferential transfers;
(iv) Specific performance, injunctive relief or other traditional
equitable remedies may not be available as being subject to the
discretion of the court before which any proceeding therefore may be
brought;
(v) We express no opinion as to the enforceability of any provisions
in any of the Agreements or the Securities providing for the recovery of
attorneys' fees or other costs of collection.
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
<PAGE>
BROWN & WOOD LLP
One World Trade Center
New York, N.Y. 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
EXHIBIT 8.1
November 19, 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 $1,440,873,000
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
<PAGE>
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
<PAGE>
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
November 19, 1998
VIA ELECTRONIC FILING
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Provident Bank
Registration Statement on Form S-3
Ladies and Gentlemen:
On behalf of The Provident Bank (the "Company"), I am transmitting for
filing under the Securities Act of 1933, as amended, a Registration Statement on
Form S-3 relating to asset backed securities of the Company.
Please note that pursuant to Rule 429 this Registration Statement also
relates to Registration Statement No. 333-62595. Pursuant to conversations with
staff of the SEC and the recent change in the SEC's policy regarding the
disaggregation of the fee table, we are filing a new Registration Statement
pursuant to Rule 429, as recommended by the staff. Thus, there are primarily
three changes to the Registration Statement from the prior filing: (1) An
increase in the Company's principal amount of securities available by
$1,000,000; (2) Modification to the fee table; and (3) Revisions pursuant to the
Plain English requirements.
The appropriate Registration Fee of $278.00 was wired this afternoon to
the SEC's account at Mellon Bank.
Please address any inquiries or comments to the undersigned at (212)
839-5631.
Very truly yours,
/s/ Anna H. Choe
Anna H. Choe
Attachment
