AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
REGISTRATION NO. 333-67593
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
REGISTRATION STATEMENT ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE PROVIDENT BANK
(Exact name of registrant as specified in its charter)
Ohio 31-0412725
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
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.|_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
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 $1,300,000,000 100% $1,300,000,000 $379,927.85(2)
Certificates............................
==================================================================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registration
fee.
(2) $1,089,873,000 in securities are being carried forward
and $321,512.54 of the filing fee is associated with the
securities being carried forward and was previously paid
with the earlier registration statement. $278.00 of the
filing fee was previously paid with the November 19, 1998
filing.
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 FEBRUARY 4, 1999
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
o will issue one class of senior Class A Certificates
o will issue a single Transferor Interest
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are a
pool of [adjustable rate] home equity revolving credit line loan
agreements
o currently have no trading market
o are not guaranteed
o are obligations of the trust only and are not obligations of the
transferor and master servicer or its affiliates
CREDIT ENHANCEMENT
o 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.
o For complete information about the Class A Certificates, read both this
prospectus supplement and the prospectus.
o [____________], 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.
- --------------------------------------------------------------------------------
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199__
CERTIFICATE INITIAL CLASS LAST SCHEDULED
CLASS/INTEREST RATE PRINCIPAL BALANCE DISTRIBUTION DATE
Class A % $________________ ____________
Transferor N.A. 0 N.A.
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
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 ___% 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
o Provident Bank Home Equity Loan Trust, 199_-_.
TRUSTEE
0 [--------------------------]
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 [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
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
REGISTRATION OF CLASS A CERTIFICATES
o 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.
o 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:
o 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;
o 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;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure; and
o 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:
o number of mortgage loans: _____
o aggregate principal balance: $__________
o mortgaged property location: ___ states and the District of Columbia
o average credit limit: $_____
o credit limits on the mortgage loans range: $____ to $____
o interest rates range: _____% to ______%
o weighted average interest rate: _____% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ____months (approximate)
o term to stated maturity range: ___ months to ___ months
o last maturity date: ________
o combined loan-to-value ratio range, of ____% to _____% (approximate)
o weighted average combined loan-to-value ratio ____% (approximate)
o all of the mortgage loans bear interest at a [adjustable] [fixed rate]
o balloon loans - loans with amortization schedules that don't fully
amortize by their maturity date: ____% (approximate).
2. Payment Terms of Mortgage Loans
o 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]
o 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:
o interest at the related certificate rate that accrued during the
interest period; and
o 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:
o accrued and unpaid interest due on the Class A Certificates;
o principal losses on the mortgage loans; and
o 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 trustee 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:
o 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
o 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:
o Tax counsel is of the opinion that the certificates will be treated as
debt instruments.
o 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
o 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.
o 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.
o 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:
o 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
would otherwise be the case.
o 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.
o 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.
o 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:
o there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
o 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
o 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.
o 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
------------------- -------------------- -------------------- -------------------- ---------------------
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
------- --------- -------------------- -------- ---------- ------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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>
$_______ 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>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
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.
<TABLE>
<CAPTION>
COMBINED LOAN-TO-VALUE RATIOS(1)
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>
______% 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>
Single Family...................................... $ %
Two- to Four-Family................................
Condominium........................................
PUD................................................
--------------- -------------------- ------------------
Total......................................... $ 100.00%
=============== ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
LIEN PRIORITY NUMBER OF CUT-OFF DATE PERCENT OF POOL
MORTGAGE PRINCIPAL BALANCE BY CUT-OFF DATE
LOANS PRINCIPAL BALANCE
- ---------------------------------------------------- ---------------- -------------------- ------------------
<S> <C> <C> <C>
First Lien......................................... $ %
Second Lien........................................
---------------- -------------------- ------------------
Total......................................... $ 100.00%
================ ==================== ==================
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES(1)
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>
_____% 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>
<TABLE>
<CAPTION>
CREDIT LIMITS
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>
<TABLE>
<CAPTION>
MAXIMUM RATES
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.
<TABLE>
<CAPTION>
ORIGINATION YEAR
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.
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Page
<S> <C>
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
</TABLE>
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
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS SUPPLEMENT
To Prospectus dated _____________________
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 199_-_
HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 199_-_
THE PROVIDENT BANK
as Transferor and Master
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 is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
The notes represent non-recourse obligations of the issuer 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 notes represent non-recourse obligations of the issuer 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
o is a Delaware business trust formed pursuant to a trust agreement between
The Provident Bank and ________
o will issue [___] class of senior Notes, which are offered hereby
o will issue a single Transferor Interest, which is not offered hereby
THE NOTES
o are principally secured by the assets of the TRUST which consist of a pool
of [adjustable rate home equity revolving credit line loan agreements and
fixed rate closed-end home equity loans] currently have no trading market
CREDIT ENHANCEMENT
o A SPREAD ACCOUNT WILL FUND SHORTFALLS IN PAYMENTS DUE ON THE NOTES.
o THE TRANSFEROR INTEREST WILL ABSORB UP TO A CERTAIN PERCENTAGE OF ALL
losses on the mortgage loans .
o AN IRREVOCABLE AND UNCONDITIONAL GUARANTY INSURANCE POLICY ISSUED BY
[________] WILL GUARANTEE PAYMENTS ON THE NOTES.
o IF _____ DEFAULTS, CERTAIN payments to the holder of THE TRANSFEROR
INTEREST will ONLY be PAID after payments DUE ON THE NOTES ARE MADE.
REVIEW THE INFORMATION IN "RISK FACTORS" ON PAGE S-_ IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 4 IN THE PROSPECTUS.
o For complete information about the Notes, read both this prospectus
supplement and the prospectus.
[___________________________________], the Underwriter, will buy the Notes
from the Transferor at the price specified below.
<TABLE>
<CAPTION>
PER $1,000 OF TOTAL
NOTES
<S> <C> <C>
Price to Public........................................... $ $
- -------------------------------------------------------------
Underwriters Discount..................................... $ $
- -------------------------------------------------------------
Proceeds, before expenses, to the Transferor.............. $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Underwriter
_________________, 199_
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
PROSPECTUS SUPPLEMENT
<S> <C>
Summary.........................................................................................S-3
Risk Factors....................................................................................S-8
The 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 Notes.......................................................................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
</TABLE>
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 Notes.
HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 199_-_
CLASS/INTEREST NOTE RATE INITIAL CLASS MATURITY DATE2
PRINCIPAL BALANCE1
Notes LIBOR + ___%3 $________________ ____________
Transferor4 N.A. N.A. N.A.
1 This amount is subject to a variance of ___%.
2 We expect the actual maturity date for the Notes will be significantly
earlier than its maturity date stated above.
3 IF THIS RATE EXCEEDS THE WEIGHTED AVERAGE OF THE NET LOAN RATES ON ANY
PAYMENT DATE, YOU WILL RECEIVE INTEREST AT THE WEIGHTED AVERAGE NET LOAN
RATE. We refer you to "Description of the Notes--Payments on the NOTES"
FOR MORE INFORMATION REGARDING THE WEIGHTED AVERAGE NET LOAN RATE AND
OTHER LIMITATIONS ON THE PAYMENT OF INTEREST ON THE NOTES.
4 The Transferor Interest is not being offered pursuant to this prospectus
supplement and THE prospectus.
THE TRANSFEROR 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 ___% per annum on the principal balance of
each mortgage loan.
o We refer you to "THE PROVIDENT BANK" in the prospectus and "The Master
Servicer" in this prospectus supplement for additional information.
TRUST
o Provident Bank Home Equity Loan Trust, 199_-_.
INDENTURE TRUSTEE
o [--------------------------]
OWNER TRUSTEE
o [--------------------------]
INSURER
o [------------------------]
We refer you to "The Insurer" in this prospectus supplement for additional
information.
CUT-OFF DATE
o ______________, 199_.
CLOSING DATE
o ______________, 199_.
PAYMENT DATE
o The __th day of each month, or if such day is not a business day, the next
business day. The first payment date is ____________, 199_.
COLLECTION PERIOD
o The calendar month preceding the month of a PAYMENT date.
REGISTRATION OF NOTES
We will issue the Notes 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 notes 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 notes will replace the book-entry
notes are described in this prospectus supplement.
We refer you to "RISK FACTORS-- Consequences on Liquidity and Payment
Delay Because of Owning Book-Entry Notes", "DESCRIPTION OF THE
NOTES--Book-Entry Notes" and "ANNEX I" in this prospectus supplement for
additional information.
ASSETS OF THE TRUST
The TRUST'S assets include:
o a pool of [adjustable rate home equity revolving credit line loan
agreements and fixed rate closed-end home equity loans,] secured by either
first or junior deeds of trust or mortgages on one- to four-family
residential properties;
o payments OF INTEREST DUE on the mortgage loans ON AND AFTER THE CUT-OFF
DATE AND PRINCIPAL PAYMENTS RECEIVED ON THE MORTGAGE LOANS on and after
the cut-off date;
o property that secured a mortgage loan which has been acquired by
foreclosure or deed in lieu of foreclosure; and
o rights under certain hazard insurance policies covering the mortgaged
properties.
During the life of the TRUST, all new advances made to mortgagors under
the applicable credit line agreement will become assets of the TRUST. 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 will acquire a pool of [adjustable rate
home equity revolving credit line loan agreements (the revolving
credit-line loans) and fixed rate closed-end home equity loans] (the
closed-end loans), or "mortgage loans". The mortgage loans will have
the following characteristics:
o number of mortgage loans: _____
o number of revolving credit-line loans:
o number of closed-end loans:
o aggregate principal balance: $__________
o number of mortgage loans: _____
o mortgaged property location: ___ states and the District of
Columbia
o average credit limit of revolving credit-line loans: $_____
o credit limits on the revolving credit-line loans range: $____ to
$____
o interest rates as of December 1, 1998 range: _____% to ______%
o weighted average interest rate as of the cut-off date _____%
(approximate)
o loan age range: ____ to ____months
o weighted average loan age: __ months
o credit limit utilization rate range for revolving credit-line
loans: ___ to ___
o weighted average credit limit utilization rate for revolving
credit-line loans: ___
o gross margin range for revolving credit-line loans: ___ to ___
o weighted average gross margin for revolving credit-line loans:
__
o combined loan-to-value ratio range, of ____% to _____%
(approximate)
o weighted average combined loan-to-value ratio ____%
(approximate)
o all of the revolving credit-line loans bear interest at an
adjustable rate based on the prime rate published in The Wall
Street Journal.
o balloon loans - loans with amortization schedules that don't
fully amortize by their maturity date: ____% (approximate).
1. Payment Terms of Mortgage Loans
A. Revolving Credit Line Loans
o Each borrower under a revolving credit-line loan may borrow
amounts from time to time up to the maximum amount of that
borrower's line of credit. If borrowed amounts are repaid, they
can again be borrowed.
o Interest - Interest on each revolving credit-line 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 __________.
o Principal - The revolving credit-line loans have EITHER: (I) a
___ year renewable draw period during which time amounts may be
borrowed under the credit line agreement. The draw period is
followed by a five year repayment period during which the
borrower must repay the outstanding principal of the loan; OR
o (II)A TEN YEAR DRAW PERIOD DURING WHICH TIME AMOUNTS MAY BE
BORROWED UNDER THE CREDIT LINE AGREEMENT, FOLLOWED BY A TEN YEAR
REPAYMENT PERIOD DURING WHICH THE BORROWER MUST REPAY THE
OUTSTANDING PRINCIPAL OF THE LOAN.
o B. Closed-End Home Equity Loans
o The amount borrowed under a closed-end loan is fully disbursed
on the date of origination of the related closed-end loan and
the borrower is not entitled to future advances of cash under
the related closed-end loan.
o Interest on each closed-end loan is payable monthly on the
related outstanding principal balance of the closed-end loan.
The loan rate FOR MOST OF THE CLOSED-END LOANS IS FIXED AT
ORIGINATION OF THE CLOSED-END LOAN. THE LOAN RATE FOR THE
REMAINDER OF THE CLOSED-END LOANS IS VARIABLE AND IS EQUAL TO
[________].
C. SIMPLE INTEREST LOANS
o ALL OF THE LOANS COMPUTE INTEREST BASED ON A SIMPLE INTEREST
METHOD. THIS MEANS THAT INTEREST IS COMPUTED AND CHARGED TO THE
BORROWER ON THE OUTSTANDING BALANCE OF THE LOAN BASED ON THE
NUMBER OF DAYS ELAPSED BETWEEN THE DATE THROUGH WHICH INTEREST
WAS LAST PAID ON THE LOAN through receipt of the BORROWER'S most
current payment. THE portions of each monthly payment that are
allocated to interest and principal are adjusted based on the
actual amount interest charged on such basis.
We refer you to "DESCRIPTION OF THE MORTGAGE LOANS" in this
prospectus upplement for additional information.
THE NOTES
1. General
o The notes will be secured by the assets of the TRUST.
o Each month, the indenture trustee will calculate the amount you are
owed.
o If you hold a note on the day immediately preceding the related
payment date, you will be entitled to receive payments on that
payment date.
2. Interest Payments: Interest on the notes accrues during the period
beginning on the prior payment date (or in the case of the first payment
date, beginning on the closing date) and ending on the day before the
applicable payment date. The indenture 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 payment date, you will be entitled
to the following amounts from your portion of interest collections on the
mortgage loans:
o interest at the related note rate that accrued during the interest
period on your invested amount; and
o any interest that was due on a prior payment date and not paid. In
addition, interest will have accrued on the amount of interest which
was previously due and not paid.
3. Principal Payments: From the first payment date and ending on the payment
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), WHICHEVER is the lesser amount:
o ___% of the principal collected during the prior due period; or
o the amount of principal collected during the prior due period minus
advances made TO the borrowers under the credit line AGREEMENTS
during that due period.
On the payment 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 NOTES--PAYMENTS ON THE NOTES" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENT
o The Insurance Policy: [_______________] will issue an insurance
policy which unconditionally guarantees the payment of:
o accrued and unpaid interest due on the Notes;
o principal losses on the mortgage loans; and
o any principal amounts owed to noteholders on the maturity date.
We refer you to "DESCRIPTION OF THE NOTES--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 indenture trustee to pay interest due on the notes and
to cover principal losses on the mortgage loans prior to a draw on the
insurance policy.]
WE REFER YOU TO "DESCRIPTION OF THE NOTES--THE SPREAD ACCOUNT" IN THIS
PROSPECTUS SUPPLEMENT FOR ADDITIONAL INFORMATION.
3. Limited Subordination of Transferor Interest: After the spread account is
depleted and prior to a draw on the policy, losses on the mortgage loans
WILL be allocable to the transferor interest. up to certain levels. In
addition, if the insurer defaults, certain payments to the holder of the
transferor interest will be made after payments to the notes.
We refer you to "DESCRIPTION OF THE NOTES--Overcollateralization" 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 payment date after:
o the principal balance of the notes is reduced to any amount less than
or equal to _% of the original principal balance of the notes; and
o all amounts due and owing to the insurer and unreimbursed draws on
the insurance policy, with interest thereon have been paid.
We refer you to "DESCRIPTION OF THE NOTES--Termination; Retirement of the
Notes" in this prospectus supplement for additional information.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o Tax counsel is of the opinion that the notes will be treated as debt
instruments.
o You must agree to treat your note as indebtedness for federal, state
and local income and franchise tax purposes.
We refer you to "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in THIS
prospectus supplement and in THE 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. Pension and other employee benefit plans
should be able to purchase investments like the notes so long as they are
treated as debt under applicable state law and have no "substantial equity
features". Any plan fiduciary considering whether to purchase the notes on
behalf of a plan should consult with its counsel regarding the
applicability of the provisions of ERISA and the internal revenue code and
the availability of any exemptions.
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 includes
JUNIOR mortgage loans, the notes 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 Notes.
We refer you to "LEGAL INVESTMENT CONSIDERATIONS" in this prospectus
supplement and "LEGAL INVESTMENT" in the prospectus for additional
information.
NOTE RATING
The TRUST will not issue the Notes unless they receive the following
ratings:
o ____ by ___________________________.
o ___ 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--Note Rating Based Primarily
on Claims-Paying Ability of the Insurer" in this prospectus supplement for
additional information.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS PRIOR TO ANY
PURCHASE OF NOTES. 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 NOTES
o Limit on Liquidity of Notes. Issuance of notes in book-entry form may
reduce the liquidity of such notes in the secondary trading market since
investors may be unwilling to purchase notes for which they cannot obtain
physical notes.
o Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry notes can be effected only through DTC, participating
organizations, indirect participants and certain banks, your ability to
transfer or pledge a book-entry note to persons or entities that do not
participate in the DTC system or otherwise to take actions in respect of
such notes, may be limited due to lack of a physical note representing the
book-entry notes.
o Delays in Payments. You may experience some delay in the receipt of
payments on the book-entry notes since the payments will be forwarded by
the indenture 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 NOTES--Book-Entry Notes" 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
insurer fails to perform its obligations under the policy AND THE OTHER FORMS
OF CREDIT ENHANCEMENT ARE INSUFFICIENT TO COVER THE LOSS. 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 insurer fails to perform its obligations
under the 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 notes will be directly related to the
rate of principal payments on the mortgage loans. Please consider the
following:
o 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
prepayments IN FULL WITHIN FIVE YEARS OF ORIGINATION, EXCEPT THAT
GENERALLY NO FEE IS REQUIRED FOR ANY PREPAYMENT IN FULL MADE WITHIN TWELVE
MONTHS OF A LOAN'S MATURITY DATE. This may result in the rate of
prepayments being slower than would otherwise be the case.
o During the period that a borrower may borrow money under a revolving
credit-line loan, the borrower may make monthly payments only for the
accrued interest or may also repay some or all of the amounts previously
borrowed. In addition, borrowers may borrow additional amounts up to the
maximum amounts of their lines of credit. As a result, the amount the
trust receives in any month (and in turn the amount of principal paid to
you) may change significantly.
o ALL OF THE MORTGAGE LOANS COMPUTE INTEREST DUE ON A SIMPLE INTEREST
METHOD. THIS MEANS THAT THE AMOUNT OF EACH MONTHLY PAYMENT WILL VARY EACH
MONTH IF THE MONTHLY PAYMENT IS NOT RECEIVED ON ITS SCHEDULED DUE DATE.
o 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 .
o 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.
o Home equity loans GENERALLY are not viewed by borrowers as permanent
financing. Accordingly, the mortgage loans may experience a higher rate of
prepayment than purchase money first lien mortgage loans.
o 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.
o IF YOU PURCHASED YOUR NOTE AT A PREMIUM AND YOU RECEIVE YOUR PRINCIPAL
FASTER THAN EXPECTED, YOUR YIELD TO MATURITY WILL BE LOWER THAN YOU
ANTICIPATED. IF YOU PURCHASED YOUR NOTE AT A DISCOUNT AND YOU RECEIVE YOUR
PRINCIPAL SLOWER THAN EXPECTED, YOUR YIELD TO MATURITY WILL BE LOWER THAN
YOU ANTICIPATED.
We refer you to "PREPAYMENT AND YIELD CONSIDERATIONS" in the
prospectus.
NOTE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE INSURER
The rating on the notes depends primarily on an assessment by the
rating agencies of the mortgage loans and upon the CLAIMS-paying ability of the
insurer. Any reduction of the rating assigned to the claims-paying ability of
the insurer may CAUSE a corresponding reduction on the ratings assigned to the
notes. A reduction in the rating assigned to the notes will reduce the market
value of the notes and may affect your ability to sell them. In general, the
rating on your notes 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 secured by first mortgages, the
master servicer may consent under certain circumstances to a new first priority
lien on the mortgaged property 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 and the insurer fails to perform its
obligations under the policy AND THE OTHER FORMS OF CREDIT ENHANCEMENT ARE
INSUFFICIENT TO COVER THE LOSS, then:
o there will be a delay in payments to you while a deficiency judgment
against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained or is not
realized upon.
We refer you to "Certain Legal Aspects of the Loans" in the
prospectus.
PAYMENTS TO 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 payments to you.
In the event of the transferor's insolvency, there is a possibility
that the Federal Deposit Insurance Corporation could be appointed as a receiver
or conservator and prevent the Indenture Trustee from taking any action with
respect to the Trust. The Federal Deposit Insurance Corporation may enforce the
transferor's contracts and may have the power to cause the transferor to
continue to perform the master servicer's duties. This would prevent the
appoint of a successor servicer and prevent the liquidation of the mortgage
loans or the early retirement of the notes.
The transferor will deliver TO THE INDENTURE TRUSTEE the mortgage
notes RELATING to the CLOSED-END LOANS on the date of initial issuance of the
notes AND THE ASSIGNMENTS OF EACH MORTGAGE RELATING TOT HE CLOSE-END LOANS
WITHIN NINETY DAYS OF THE INITIAL ISSUANCE OF THE NOTES. However, the
transferor will maintain possession of all other documentation relating to THE
mortgage LOANS and no assignment of any mortgage is required to be recorded in
the name of the INDENTURE trustee, unless the transferor's long-term debt
rating is reduced below [______ by ________________ or ______________ by
________]. Within 30 days of EITHER such occurrence, the transferor is required
to deliver the mortgage documents to the INDENTURE 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 THE trust
in the mortgages. Prior to delivery and recording, the interest of the
INDENTURE 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 certain states in which the mortgaged properties are located,
failure to record the assignments of the related mortgages to the INDENTURE
trustee will have the result of making the sale of the mortgage loans
potentially ineffective against:
o any creditors of the transferor who may have been fraudulently or
inadvertently induced to rely on the mortgage loans as assets of the
transferor, or
o any purchaser of a mortgage loan who had no notice of the prior conveyance
to the trust if such purchaser perfects his interest in the mortgage loan
by taking possession of the related documents or other evidence of
indebtedness or otherwise.
In such event, the trust would be an unsecured creditor of the transferor.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o Prepayments of Principal May Reduce Interest Payments. If a mortgagor
prepays a mortgage loan in full, the mortgagor is charged interest only up
to the date of the prepayment, instead of a full month. The master
servicer is obligated to reduce its servicing fee in the month of such
prepayment so that one month's interest is paid with such prepayment in
full. If the servicing fee is insufficient to pay such interest shortfalls
attributed to prepayments, a shortfall in interest due on the notes may
result. The insurer is required to cover this shortfall. If the insurer
fails to perform its obligations under the policy, you may incur a loss.
o Certain Interest Shortfalls Are Not Covered by the Master Servicer or the
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 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.
NOTEHOLDERS COULD BE ADVERSELY AFFECTED IN THE ABSENCE OF 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 payments to you.
RISK OF INCREASED DELINQUENCY, DEFAULT AND FORECLOSURE EXPERIENCE DUE TO LESS
STRINGENT UNDERWRITING STANDARDS
The Seller's underwriting standards are generally less stringent than
those of Fannie Nae or the Federal Home Loan Mortgage Corporation with respect
to credit history and certain other items. If a borrower has a poor credit
history, The seller may still make a loan to the borrower. this approach to
underwriting may result in higher rates of delinquencies, defaults and
foreclosures than for mortgage loans underwritten in a more traditional manner.
THE INSURER
The information set forth in this section have been provided by the
[________], the insurer (the "Insurer"). No representation is made by the
Underwriters, the Transferor, the Master Servicer or any of their affiliates as
to the accuracy of completeness of any such information.
[DESCRIPTION OF INSURER]
THE TRUST
GENERAL
Provident BANK Home Equity Loan Trust 199_-_ (THE "TRUST") is a
business trust formed under the laws of the State of Delaware pursuant to the
Trust Agreement for the transactions described in this Prospectus Supplement.
After its formation, the Trust will not engage in any activity other than (i)
acquiring, holding and managing the Mortgage Loans and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes and the Transferor
Interest, (iii) making payments on the Notes and the Transferor Interest and
(iv) engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or in connection therewith.
The Notes and the Transferor Interest will be delivered by the Trust
to the Transferor as consideration for the Mortgage Loans pursuant to the Sale
and Servicing Agreement.
On the Closing Date, the Trust will purchase Mortgage Loans having an
aggregate principal balance of approximately $___________ as of the Cut-Off
Date (the "Cut-Off Date Pool Principal Balance") from the Transferor pursuant
to a Sale and Servicing Agreement dated as of __________, 199_ (as amended and
supplemented from time to time, the "Sale and Servicing Agreement"), among the
Trust, the TRANSFEROR, the Master Servicer, the Owner Trustee and the Indenture
Trustee.
The assets of the Trust will consist primarily of the Mortgage Loans,
which will be secured by first- or junior-lien Mortgages on the Mortgaged
Properties. See "DESCRIPTION OF THE MORTGAGE LOANS" herein. The assets of the
Trust will also include (i) payments in respect ON the Mortgage Loans received
on or after the Cut-Off Date (EXCLUSIVE OF (I) CERTAIN PAYMENTS IN RESPECT OF
INTEREST ACCRUED ON THE MORTGAGE LOANS DURING ______ AND (II) PAYMENTS IN
RESPECT OF INTEREST ON THE DELINQUENT MORTGAGE LOANS DUE PRIOR TO THE CUT-OFF
DATE AND RECEIVED THEREAFTER), (ii) amounts on deposit in the COLLECTION
ACCOUNT, DISTRIBUTION ACCOUNT AND THE SPREAD ACCOUNT and (iii) certain other
ancillary or incidental funds, rights and properties related to the foregoing.
The Trust will include the unpaid principal balance of each Mortgage
Loan as of the opening of business on the Cut-Off Date (the "Cut-Off Date
Principal Balance"). With respect to any date, the "Pool Principal Balance"
will be equal to the aggregate Principal Balances of all Loans as of such date.
The assets of the Trust will be pledged to the Indenture Trustee as
security for the notes pursuant to the Indenture dated as of _________ (as
amended and supplemented from time to time), between the Trust and the
Indenture Trustee.
The Master Servicer is obligated to service the Mortgage Loans
pursuant to the Sale and Servicing Agreement (collectively with the Indenture
and the Trust Agreement, the "Agreements") and will be compensated for such
services as described under "--Servicing Compensation and Payment of Expenses"
herein.
The TRUST'S principal offices are located in __________________, in
care of [____________________], as Owner Trustee, at the address set forth
below.
THE OWNER TRUSTEE AND CO-OWNER TRUSTEE
[__________________] will act as the Owner Trustee under the Trust
Agreement. [_________________] is a ____________________________ banking
corporation and its principal offices are located at
[_________________________________________________________].
Certain functions of the Owner Trustee under the Trust Agreement and
the Sale and Servicing Agreement will be performed by [______________], in its
capacity as Co-Owner Trustee under the Trust Agreement and the Sale and
Servicing Agreement, including maintaining the Distribution Account and making
distributions therefrom.
THE PROVIDENT BANK
GENERAL
The PROVIDENT BANK ("PROVIDENT" OR THE "TRANSFEROR") WILL SELL THE
MORTGAGE LOANS TO THE TRUST PURSUANT TO THE SALE AND SERVICING AGREEMENT.
PROVIDENT (IN SUCH CAPACITY, THE "MASTER SERVICER") will service the Mortgage
Loans in accordance with the terms set forth in the Sale and Servicing
Agreement. As of the Closing Date, the Master Servicer will service the
Mortgage Loans without subservicing arrangements. The Master Servicer may
perform any of its obligations under the Sale and Servicing Agreement through
one or more subservicers and is permitted under the Sale and Servicing
Agreement to transfer servicing to affiliates, provided such affiliate meets
certain standards specified in the Sale and Servicing Agreement. See
"DESCRIPTION OF THE NOTES -- Certain Matters Regarding the Master Servicer and
the Transferor." Notwithstanding any subservicing arrangements, the Master
Servicer will remain liable for its servicing duties and obligations under the
Sale and Servicing Agreement as if the Master Servicer alone were servicing the
Mortgage Loans.
Provident is the principal banking subsidiary of Provident Financial
Group, Inc. (formerly known as Provident Bancorp, 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 _______________, 199_, Provident Financial Group,
Inc. had total assets of $[__] billion, net loans and leases of $[__] billion,
deposits of $[__] billion and tool shareholders' equity of $[__] million.
Provident Financial Group, Inc.'s tier land total capital ratios were [__]% and
[__]%, respectively. For the fiscal year ended ______________ __, 199_,
Provident Financial Group, Inc. had net earnings of $[__] million. For the
period ended _________________, 199_, Provident Financial Group, Inc. had net
earnings of $[__] million. Provident represents approximately [__]% of
Provident Financial Group, Inc.'s assets.
CREDIT AND UNDERWRITING GUIDELINES
Approximately [__]% of the Mortgage Loans were originated by Provident
and [__]% were originated by [__] (in each case, by Cut-Off Date Pool Balance).
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
under-writing 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 payments (including any escrows for property
taxes and hazard insurance premiums) and other monthly credit obligations. The
"debt-to-income ratio" is the ratio of a borrower's total monthly payments to
the borrower's gross monthly income. The monthly debt-to-income ratio, in
general, does not exceed 45% when the Combined Loan-to-Value Ratio does not
exceed 80%. For mortgage loans with CLTVs in excess of 80%, the monthly
debt-to-income ratio generally does not exceed 40%. The foregoing CLTV and
debt-to-income limitations may be exceeded if one or more of the compensating
factors described above are present. In addition, these limitations may be
exceeded if specific approval is obtained from an authorized officer of
Provident.
In addition to the foregoing guidelines, beginning 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 in 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, judgments, 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.
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. Provident has
serviced all of the Mortgage Loans, except for the Hunter Mortgage Loans, since
their origination. [The Hunter Mortgage Loans have been serviced by Provident
at all times since Provident's acquisition of Hunter in December 1991.] 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
[mortgage loans][home equity lines of credit] in Provident's servicing,
portfolio.
Delinquency is 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.
DELINQUENCY EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY
LINES OF CREDIT
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the Mortgage Loans for
the ___ months ended _________, 199_, and the years ended December 31, 199_,
December 31, 199_ and December 31, 199_.
[All information to be updated]
<TABLE>
<CAPTION>
YEAR ENDED ____ Months Ended
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ 30, 199_
NUMBER OF DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
LOANS AMOUNT(4) OF LOANS AMOUNT(4) OF LOANS AMOUNT(4) OF LOANS AMOUNT(4) OF LOANS AMOUNT(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio.......(3)......$ .(3). $ $ $
Delinquency
Percentage(1) (3) (3) (3) % % % %
30-59 days................................
60-89.........(3)....................(3). % % % %
90 days (3) (3) % % % %
or
more(2)................................
TOTAL...........(3)...............%....(3). % % % % %
- ------------------------------------------------------------------
(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.
CHARGE-OFF EXPERIENCE OF THE MASTER SERVICER'S PORTFOLIO OF HOME EQUITY LINES
OF CREDIT
The following table sets forth information relating to the loan
charge-off experience of mortgage loans similar to and including the Mortgage
Loans for the ____ months ended ____________, 199_, and the years ended
December 31, 199_, December 31, 199_ and December 31, 199_.
YEAR ENDED ____
MONTHS ENDED
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ __________, 199_
<S> <C> <C> <C> <C> <C>
Average Portfolio $125,552,000 $ $ $
Balance (1)...........
Charge-Offs (2)...........$ $ $ $
Charge-Offs as a % % % % %(3)
of Average Portfolio
Balance...........................
- --------------------
(1) "Average Portfolio Balance" during the period is the arithmetic average of
the principal balances of the mortgage loans outstanding on the first and
last days of each period. The Average Portfolio Balance has been rounded
to the nearest $1,000.
(2) "Charge-Offs" are amounts which have been determined by Provident to be
uncollectible relating to the mortgage loans for each respective period
and do not include any amount of collections or recoveries received by
Provident subsequent to charge-off dates. Provident's policy regarding
charge-offs provides that mortgaged properties are reappraised when a
mortgage loan has been delinquent for 180 days and based upon such
appraisals, a decision is then made concerning the amounts determined to
be uncollectible.
(3) Annualized.
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All statistical information concerning the Mortgage Loans is based
upon all of the Mortgage Loans included in the Trust . All weighted averages
described below are weighted on the basis of the Cut-Off Date Pool Balance
included in the Trust unless otherwise indicated.
Approximately ____% of the Mortgage Loans (by Cut-Off Date Pool
Balance) are fixed rate closed-end home equity loans evidenced by promissory
notes (such Mortgage Loans, the "Closed-End Loans"). Approximately ____% of the
Mortgage Loans (by Cut-Off Date Pool Balance) are adjustable rate revolving
home equity lines of credit (such Mortgage Loans, the "Revolving CREDIT-LINE
Loans").
All Mortgage Loans were originated between _________ and ____________.
The aggregate Cut-Off Date Principal Balance of the Mortgage Loans was
$___________ (the "Cut-Off Date Pool Balance"), which is equal to the aggregate
Principal Balances of the Mortgage Loans as of the close of business on
December 1, 1998 (the "Cut-Off Date"). Approximately ____% of the Mortgage
Loans (by Cut-Off Date Pool Balance) were secured by a first Mortgage on the
related Mortgaged Property, ____% of the Mortgage Loans (BY CUT-OFF DATE POOL
BALANCE") were secured by second Mortgages and ___% of the Mortgage Loans (by
Cut-Off Date Pool Balance) were secured by third Mortgages. No Mortgage Loan
had a Combined Loan-to-Value Ratio greater than 100%. As of the Cut-Off Date,
all of the Mortgage Loans were secured by Mortgaged Properties that are one- to
four-family residences. As of the Cut-Off Date, ___% of the Mortgage Loans (by
Cut-Off Date Pool Balance) were secured by Mortgaged Properties that are
owner-occupied, and ___% of the Mortgage Loans (by Cut-Off Date Pool Balance)
were secured by non-owner occupied Mortgaged Properties. Approximately ____%,
____% and ____% of the Mortgage Loans were secured by Mortgaged Properties in
Ohio, Kentucky and New Hampshire, respectively (by Cut-Off Date Pool Balance).
Approximately ____% of the Mortgage Loans were contractually delinquent 30 days
or more. No Mortgage Loan was delinquent more than 60 days.
The minimum Principal Balance of the Revolving Credit-Line Loans as of
the Cut-Off Date was $_______, the maximum Principal Balance of the Revolving
Credit-Line Loans as of the Cut-Off Date was $__________, and the average
Principal Balance of the Revolving Credit-Line Loans as of the Cut-Off Date was
$________. As of the Cut-Off Date, the RATE AT WHICH INTEREST ACCRUES on the
Revolving Credit-Line Loans (THE "LOAN RATES") ranged from ______% per annum to
_____% per annum and the weighted average Loan Rate was ____% per annum. The
average Credit Limit Utilization Rate (defined below) of the Revolving
Credit-Line Loans was ____% as of the Cut-Off Date. The weighted average
Combined Loan-to-Value Ratio of the Revolving Credit-Line Loans was ___% as of
the Cut-Off Date (by Cut-Off Date Pool Balance) and the weighted average junior
mortgage ratio of the Revolving Credit-Line Loans (computed by dividing the
greater of the Credit Limit and the Cut-Off Date Principal Balance for each
Revolving Credit-Line Loan, provided such Revolving Credit-Line Loan was in a
junior lien position, by the sum of such Credit Limit or Cut-Off Date Principal
Balance as applicable and the outstanding balances at the time such Revolving
Credit-Line Loan was originated of all senior mortgage loans affecting the
Mortgaged Property) was approximately ____% (by Cut-Off Date Pool Balance).
The "Combined Loan-to-Value Ratio" or "CLTV" of each REVOLVING
CREDIT-LINE Loan is the ratio, expressed as a percentage, of (a) the sum of (i)
the greater of the Credit Limit and the current balance as of the Cut-Off Date
and (ii) the principal balance of any senior mortgage loan as of the
origination of such Mortgage Loan, over (b) the value (based on an appraised
value or other acceptable valuation method) for the related Mortgaged Property
determined in the origination of such Mortgage Loan. THE "COMBINED
LOAN-TO-VALUE RATIO" OR "CLTV" OF EACH CLOSED-END LOAN IS THE RATIO, EXPRESSED
AS A PERCENTAGE, OF (I) THE SUM OF (A) THE ORIGINAL PRINCIPAL BALANCE OF SUCH
CLOSED-END LOAN AT THE DATE OF ORIGINATION PLUS (B) THE REMAINING PRINCIPAL
BALANCE OF THE SENIOR LIEN(S), IF ANY, AT THE DATE OF ORIGINATION OF SUCH
CLOSED-EN LOAN DIVIDED BY (II) THE VALUE OF THE RELATED MORTGAGED PROPERTY,
BASED UPON THE APPRAISAL MADE AT THE TIME OF ORIGINATION OF SUCH CLOSED-END
LOAN OR OTHER ACCEPTABLE VALUATION METHOD. The average "Credit Limit
Utilization Rate" for the Mortgage Loans as of the Cut-Off Date is determined
by dividing the sum of the Cut-Off Date Principal Balances of the Mortgage
Loans by the sum of the Credit Limits of the Mortgage Loans.
MORTGAGE LOAN TERMS
Revolving Credit-Line Loans. The Revolving Credit-Line Loans were
originated pursuant to loan agreements (the "Credit Line Agreements"). Under
the Credit Line Agreements, the borrowers may receive advances (an "Additional
Balance" or a "Draw") at any time during a specified period (the "Draw
Period"). The minimum amount of any Draw that a borrower may receive is $100.
The maximum amount of each Draw with respect to any Revolving Credit-Line Loan
is equal to the excess, if any, of the Credit Limit over the Principal Balance
outstanding under such Credit Line Agreement at the time of such Draw.
Approximately ____% (by Cut-Off Date Pool Balance) of the Mortgage
Loans (THE "ONE-YEAR DRAW PERIOD LOANS") have original terms of six years,
consisting of a Draw Period of one year and an "Amortization Period" of five
years. However, the Draw Period under each Credit Line Agreement FOR THE
ONE-YEAR DRAW PERIOD LOANS automatically renews for an unlimited number of
successive terms of one year each unless Provident notifies the borrower of its
election to terminate its obligation to make Draws. After the Draw Period has
so ended, the five-year "Amortization Period" begins during which the borrower
is obligated to make EQUAL MONTHLY PAYMENTS SUFFICIENT TO FULLY AMORTIZE THE
MORTGAGE LOAN OVER ITS REMAINING TERM. Minimal monthly principal payments may
be required to be made by the borrowers during the Draw Period, but such
payments will not be sufficient to fully amortize the Mortgage Loan during the
Draw Period. Notwithstanding the foregoing, Provident has agreed in the Sale
and Servicing Agreement not to terminate its obligation to make Draws with
respect to any Mortgage Loan during the 48-month period beginning on the
Closing Date, unless the borrower is in default of any material obligation
under the related Credit Line Agreement, the appraised value of the related
Mortgaged Property has declined significantly or Provident reasonably believes
the borrower will be unable to fulfill its payment obligations under the Credit
Line Agreement because of a material change in the borrower's financial
circumstances.
Approximately ___% (by cut-off date pool balance) of the mortgage
loans (the "ten-year draw period loans") have original terms of 20 years,
consisting of a draw period of 10 years and an amortization period of 10 years.
During the amortization period, the borrower is obligated to make monthly
payments equal to the sum of 1/120 of the unpaid balance of the mortgage loan
at the end of the draw period plus accrued finance charges. The loan rate for
each ten-year draw period loan adjusts monthly. Minimal monthly principal
payments may be required to be made by the borrowers during the draw period,
but such payments will not be sufficient to fully amortize the mortgage loan
the draw period.
The borrower's right to make a Draw under a Revolving Credit-Line Loan
may be suspended, or the Credit Limit may be reduced under a number of
circumstances, including, but not limited to, a material adverse change in the
borrower's financial circumstances, a significant decline in the appraised
value of the Mortgaged Property or a default by the borrower of any material
obligation under the Credit Line Agreement. Generally, such suspension or
reduction will not affect the payment terms for previously drawn balances. In
the event of default under a Revolving Credit-Line Loan, the right of the
borrower to make a Draw may be terminated and the entire outstanding Principal
Balance of such Revolving Credit-Line Loan may be declared immediately due and
payable. A "default" includes, but is not limited to, the borrower's failure to
make any payment as required, any action or inaction by the borrower that
adversely affects the Mortgaged Property or the rights in the Mortgaged
Property or any fraud or material misrepresentation by the borrower in
connection with the Revolving Credit-Line Loan. The Credit Limit may also be
increased, upon completion of satisfactory underwriting review, as described
below.
Interest (the "Finance Charge") accrues on each Revolving Credit-Line
Loan, payable monthly, on the related average daily outstanding Principal
Balance for each Billing Cycle at a LOAN RATE. THE LOAN RATE FOR EACH BILLING
CYCLE is adjusted quarterly (except for the TEN-YEAR DRAW PERIOD Loans which
are adjusted monthly) and is equal to the Index on the last day of THE MOST
RECENTLY ENDED March, June, September or December (OR, FOR THE TEN-YEAR DRAW
PERIOD LOANS, THE TWENTIETH DAY OF THE PRIOR MONTH) (such date, the "Adjustment
Date") as described below plus a fixed percentage amount (the "Gross Margin")
specified in the related Credit Line Agreement, computed on the basis of a 365
day year times actual days elapsed. The "Billing Cycle" for each Revolving
Credit-Line Loan is the calendar month preceding each Due Date.
The "Due Date" for payments under each Revolving Credit-Line Loan is
the twentieth day of each month.
The Finance Charge accrued each month with respect to each Revolving
Credit-Line Loan is calculated based on the "prime rate" as published in the
"Money Rates" table in The Wall Street Journal (the "Index") on the related
Adjustment Date. The Gross Margins for the Revolving Credit-Line Loans as of
the Cut-Off Date ranged from ___% to ____%. The weighted average Gross Margins
as of the Cut-Off Date for the Revolving Credit-Line Loans was ___%.
Substantially all of the REVOLVING CREDIT-LINE Loans are subject to a maximum
Loan Rate of AT LEAST __% per annum. The Revolving Credit-Line Loans have a
minimum Loan Rate equal to the greater of zero and the Gross Margin. No
Revolving Credit-Line Loan is subject to a periodic rate cap.
Payments made by or on behalf of the borrower for each Revolving
Credit-Line Loan are generally required to be applied, first, to any unpaid
Finance Charges and second, to the Principal Balance outstanding with respect
to such Mortgage Loan.
Revolving Credit-Line Loans originated in August 1994 and thereafter
are subject to a $250 termination fee to the extent the related borrower
prepays such loan within either a two or five year period following
origination, as indicated in the related Credit Line Agreement.
Closed-End Loans. All of the Closed-End Loans bear interest at rates
("Loan Rates") that are fixed and are evidenced by promissory notes (the
"Mortgage Notes") secured by deeds of trust or mortgages on the related
Mortgaged Properties. The Closed-End 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. Interest
is computed on the "simple interest basis" and charged to the borrower on the
outstanding Principal Balance of the related Closed-End Loan based on the
number of days elapsed between the date through which interest was last paid on
the closed-end loan through receipt of the borrower's most current monthly
payment, and the portions of each monthly payment that are allocated to
interest and principal are adjusted based on the actual amount of interest
charged on such basis. INTEREST ACCRUES DURING THE CALENDAR MONTH PRECEDING
EACH DUE DATE, COMPUTED ON THE BASIS OF A 365 DAY YEAR TIMES ACTUAL DAYS
ELAPSED IF SUCH CLOSED-END LOAN IS AN ADJUSTABLE LOAN OR A 360 DAY YEAR OF
TWELVE 30-DAY MONTHS, IF such Closed-End Loan IS A FIXED-RATE LOAN.
APPROXIMATELY __% OF THE CLOSED-END LOANS BEAR INTEREST AT A LOAN RATE
BASED ON THE INDEX PLUS A GROSS MARGIN, ADJUSTED QUARTERLY. THE ADJUSTMENT DATE
FOR EACH SUCH LOAN IS THE TWENTIETH DAY OF MARCH, JUNE, SEPTEMBER OR DECEMBER.
IN CONNECTION WITH EACH ADJUSTMENT, THE MONTHLY PAYMENT IS ADJUSTED TO AN
AMOUNT SUFFICIENT TO FULLY AMORTIZE THE MORTGAGE LOAN OVER ITS REMAINING TERM.
THE GROSS MARGINS FOR THE ADJUSTABLE RATE CLOSED-END LOANS AS OF THE CUT-OFF
DATE RANGED FROM ___% TO ___%. THE WEIGHTED AVERAGE GROSS MARGINS AS OF THE
CUT-OFF DATE FOR THE ADJUSTABLE RATE CLOSED-END LOANS WAS __%. SUBSTANTIALLY
ALL OF THE ADJUSTABLE RATE CLOSED-END LOANS ARE SUBJECT TO A MAXIMUM LOAN RATE
OF AT LEAST ___% PER ANNUM. THE ADJUSTABLE RATE CLOSED-END LOANS HAVE A MINIMUM
LOAN RATE EQUAL TO THE GROSS MARGIN. NO ADJUSTABLE RATE CLOSED-END LOAN IS
SUBJECT TO A PERIODIC RATE CAP.
MORTGAGE LOAN POOL STATISTICS
Provident has computed the following additional information as of the
Cut-Off Date with respect to the Mortgage Loans to be included in the Trust .
The following tables are based on the Cut-Off Date Principal Balances of all
Mortgage Loans.
COMBINED LOAN-TO-VALUE RATIOS
Combined Number of Cut-Off Date Percent of
Loan -to-Value Ratios Mortgage Loans Principal Balance Pool by Cut-Off
Date
Principal Balance
<S> <C> <C> <C>
0.000% ...........................................
0.001 to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
______ to ______.................................
Total................................................ ___ $__________ 100.00%
=== =========== ======
</TABLE>
<TABLE>
<CAPTION>
LIEN PRIORITY
LIEN PRIORITY NUMBER OF CUT-OFF DATE PERCENT OF
MORTGAGE LOANS PRINCIPAL BALANCE POOL BY CUT-OFF DATE
PRINCIPAL BALANCE
<S> <C> <C> <C>
1..........................................
2..........................................
3..........................................
Unknown....................................
Total................................. ___ $_____ 100.00%
=== ====== ======
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE
PROPERTY TYPE NUMBER OF CUT-OFF DATE PERCENT OF
MORTGAGE LOANS PRINCIPAL BALANCE POOL BY CUT-OFF DATE
PRINCIPAL BALANCE
<S> <C> <C> <C>
1- to 4-Family............................. ___ $______ %
--- -------
Total................................. ___ $______ 100.00%
=== ======= ======
</TABLE>
<TABLE>
<CAPTION>
OWNER OCCUPANCY STATUS
OWNER OCCUPANCY STATUS NUMBER OF CUT-OFF DATE PERCENT OF
MORTGAGE LOANS PRINCIPAL BALANCE POOL BY CUT-OFF DATE
PRINCIPAL BALANCE
<S> <C> <C> <C>
Owner Occupied.............................
Non-Owner Occupied.........................
Unknown.................................... __ ______ __
---- ---------- -----
Total................................. ___ $_________ 100.00%
=== ========== ======
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION(1)
OWNER OCCUPANCY STATUS NUMBER OF CUT-OFF DATE PERCENT OF
MORTGAGE LOANS PRINCIPAL BALANCE POOL BY CUT-OFF DATE
PRINCIPAL BALANCE
<S> <C> <C> <C>
- -----------------..........................
- -----------------..........................
- ----------.................................
Total................................. ___ $_____ 100.00%
=== ====== ======
</TABLE>
(1) Geographic location is determined by THE address of Mortgaged
Property securing each Mortgage Loan.
- === -
<TABLE>
<CAPTION>
PRINCIPAL BALANCES
PRINCIPAL BALANCES NUMBER OF CUT-OFF DATE PERCENT
MORTGAGE LOANS PRINCIPAL BALANCE BY CUT-OFF DATE
PRINCIPAL BALANCE
<S> <C> <C> <C>
$ 0.01 - _________ ...................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________ ......................
__________- _________.......................
__________- _________.......................
__________- _________ ......................
__________- _________ ......................
__________ and greater ....................
Total............................. ___ $__________ 100.00%
=== =========== ======
</TABLE>
<TABLE>
<CAPTION>
REVOLVING CREDIT-LINE LOANS
CREDIT LIMITS
CREDIT LIMITS NUMBER CUT-OFF DATE PERCENT
OF REVOLVING PRINCIPAL BALANCE BY CUT-OFF DATE
CREDIT-LINE LOANS PRINCIPAL BALANCE
<S> <C> <C> <C>
$ 0.01- __________ ...................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ ....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________- __________ .....................
_________ and greater .....................
Total............................... ____ $__________ 100.00%
==== =========== ======
</TABLE>
<TABLE>
<CAPTION>
REVOLVING CREDIT-LINE LOANS
CREDIT LIMIT UTILIZATION RATES
CREDIT LIMIT UTILIZATION RATES NUMBER CUT-OFF DATE PERCENT BY CUT-OFF DATE
OF REVOLVING PRINCIPAL BALANCE PRINCIPAL BALANCE
CREDIT-LINE LOANS
<S> <C> <C> <C>
------%.......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
---- - ---- ......................
Total......................... ____ $___________ 100.00%
</TABLE>
<TABLE>
<CAPTION>
LOAN AGE
LOAN AGE NUMBER OF CUT-OFF DATE PERCENT BY CUT-OFF DATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
0 months............................
1- 12................................
13- 24................................
25- 36................................
37- 48................................
49- 60................................
61- 72................................
73-84 ................................
85-96 ................................
97-108................................
109-120...............................
121-132 ..............................
Total............................ ____ $_________ 100.00%
==== ========== ======
</TABLE>
<TABLE>
<CAPTION>
LOAN RATES AS OF THE CUT-OFF DATE
LOAN RATES NUMBER OF CUT-OFF DATE PERCENT BY CUT-OFF DATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
- ------ - ------ %.....................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ .....................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------ ......................
- ------ - ------.......................
- ------ - ------.......................
- ------ - ------ ......................
- ------ - ------.......................
- ------ - ------.......................
- ------ - ------ ......................
Total........................... ____ $__________ 100.00%
==== =========== ======
</TABLE>
<TABLE>
<CAPTION>
GROSS MARGIN FOR ADJUSTABLE RATE MORTGAGE LOANS(1)
GROSS MARGIN NUMBER CUT-OFF DATE PERCENT BY CUT-OFF DATE
OF REVOLVING PRINCIPAL BALANCE PRINCIPAL BALANCE
CREDIT-LINE LOANS
<S> <C> <C> <C>
- ------ - -------%...................
- ------ - -------.....................
- ------ - - ------.....................
- ------ - ------.....................
----- - ------.....................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
------ ------......................
Total........................... ____ $________ 100.00%
==== ========= ======
</TABLE>
- ----------------
(1) Each ADJUSTABLE RATE MORTGAGE Loan is subject to a minimum Loan Rate
equal to the greater of zero and the Gross Margin.
<TABLE>
<CAPTION>
MAXIMUM RATES FOR ADJUSTABLE RATE MORTGAGE LOANS
MAXIMUM RATES NUMBER CUT-OFF DATE PERCENT BY CUT-OFF DATE
OF REVOLVING PRINCIPAL BALANCE PRINCIPAL BALANCE
CREDIT-LINE LOANS
<S> <C> <C> <C>
- -----%.......................
- ----- .......................
Total ................... _____ $_________ 100.00%
===== ======
</TABLE>
<TABLE>
<CAPTION>
ORIGINATION YEAR
ORIGINATION YEAR NUMBER OF CUT-OFF DATE PERCENT BY CUT-OFF DATE
MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C>
198__ .......................
198__ .......................
198__ .......................
198__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
Total................... ____ $_________ 100.00%
==== ========== ======
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY STATUS
NUMBER OF DAYS DELINQUENT NUMBER OF MORTGAGE CUT-OFF DATE PERCENT BY CUT-OFF DATE
- ------------------------- ---------
LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
<S> <C> <C> <C> <C> <C> <C>
Current.......................
30 to 59......................
Total...................... _____ $_______ 100.00%
===== ======
</TABLE>
DESCRIPTION OF THE NOTES
THE PROVIDENT BANK Home Equity Loan Trust 199__-__ (the "TRUST") will
issue one class of Home Equity Loan Asset-Backed Notes (the "Notes") pursuant
to the Indenture to be dated as of _________ __, 199__ (the "Indenture"),
between the TRUST and ________, as Indenture Trustee (the "Indenture Trustee").
The TRUST will also issue the transferor interest (the "Transferor Interest")
pursuant to the terms of a Trust Agreement to be dated as of _________ __,
199__ (the "Trust Agreement"), among the TRUST and __________, as owner trustee
(the "Owner Trustee"). The Notes will be secured by the assets of the TRUST
pursuant to the Indenture. In addition, The Provident Bank, as TRANSFEROR, will
enter into a sale and servicing agreement to be dated as of _________ __, 199__
(the "Sale and Servicing Agreement") among The Provident Bank, as TRANSFEROR,
the TRUST, the Indenture Trustee and the Master Servicer. The Indenture, the
Trust Agreement and the Sale and Servicing Agreement are collectively referred
to as the "Agreements" herein. The FORMS of the Agreements have been filed as
exhibits to the Registration Statement of which this Prospectus Supplement and
the Prospectus are a part. The following summaries describe certain provisions
of the Agreements. 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 Agreements. Wherever particular sections or defined terms of the
Agreements are referred to, such sections or defined terms are hereby
incorporated herein by reference.
GENERAL
The Notes will be issued in minimum denominations of $1,000 and
multiples of $1 in excess THEREOF and will evidence specified undivided
interests in the TRUST. The property of the TRUST WILL CONSIST OF: (i) each of
the Mortgage Loans that from time to time are subject to the Sale and Servicing
Agreement (including any Additional Balances arising after the Cut-Off Date)
and the Mortgage Files; (ii) collections on the Mortgage Loans received on and
after the Cut-Off Date (EXCLUSIVE OF CERTAIN PAYMENTS IN RESPECT OF INTEREST
ACCRUED ON THE MORTGAGE LOANS DURING ______ AND (II) PAYMENTS IN RESPECT TO
INTEREST ON THE DELINQUENT 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, the Distribution Account and the Spread Account; and (v)
the Policy. Definitive Notes (as defined below), if issued, will be
transferable and exchangeable at the corporate trust office of the Indenture
Trustee, which will initially act as Note Registrar. See "-- Book-Entry NOTES"
below. No service charge will be made for any registration of exchange or
transfer of Notes, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
The aggregate undivided interest in the TRUST represented by the Notes
as of the Closing Date will equal $____________ (the "Original Invested
Amount") which represents ___% of the Cut-Off Date Pool Balance. The "Original
Note Principal Balance" will equal $__________ (subject to a permitted variance
in the aggregate of plus or minus 5%). Following the Closing Date, the
"Invested Amount" with respect to any Payment Date will be an amount equal to
the Original Invested Amount minus (i) the amount of Investor Principal
Collections previously distributed to Noteholders, and minus (ii) an amount
equal to the product of the Investor Floating Allocation Percentage and the
Liquidation Loss Amounts NOT ALLOCATED TO THE TRANSFEROR INTEREST (each, as
defined herein). The principal amount of the outstanding Notes (the "Note
Principal Balance") on any Payment Date is equal to the Original Note Principal
Balance minus the aggregate of amounts actually distributed as principal to the
Noteholders. See "-- Payments on the Notes" below. Each Note represents the
right to receive payments of interest at the Note 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 approximately __% of the Cut-Off Date Pool Balance.
The "Transferor" as of any date is the owner of the Transferor Interest, which
initially will be Provident. 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.
The Transferor has the right to sell or pledge the Transferor Interest
at any time, provided (i) the Rating Agencies (as defined herein) have notified
the Transferor, the Insurer and the Indenture Trustee in writing that such
action will not result in the reduction or withdrawal of the ratings assigned
to the Notes, (ii) the Insurer has consented in writing to such transfer and
(iii) certain other conditions specified in the Sale and Servicing Agreement
are satisfied.
BOOK-ENTRY NOTES
The Notes will be book-entry Notes (the "Book-Entry Notes"). Persons
acquiring beneficial ownership interests in the Notes ("Notes Owners") may
elect to hold their Notes through The Depository Trust Company ("DTC") in the
United States, or Cedelbank ("Cedelbank") 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 Notes will
be issued in one or more notes which equal the aggregate principal balance of
the Notes and will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedelbank and Euroclear will hold omnibus positions on behalf
of their participants through customers' securities accounts in Cedelbank'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 Cedelbank
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
Notes in minimum denominations representing Note Principal Balances of $1,000
and in multiples of $1 in excess thereof. Except as described below, no person
acquiring a Book-Entry Note (each, a "beneficial owner") will be entitled to
receive a physical note representing such Note (a "Definitive Note"). Unless
and until Definitive Notes are issued, it is anticipated that the only
"Noteholder" of the Notes will be Cede & Co., as nominee of DTC. Note Owners
will not be Noteholders as that term is used in the Indenture. Note Owners are
only permitted to exercise their rights indirectly through Participants and
DTC.
The beneficial owner's ownership of a Book-Entry Note 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 Note 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 Cedelbank or Euroclear, as appropriate.
Note Owners will receive all payments of principal of, and interest
on, the Notes from the Indenture Trustee through DTC and DTC participants.
While the Notes 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 Notes and is
required to receive and transmit payments of principal of, and interest on, the
Notes. Participants and indirect participants with whom Note Owners have
accounts with respect to Notes are similarly required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Note Owners. Accordingly, although Note Owners will not possess notes, the
Rules provide a mechanism by which Note Owners will receive payments and will
be able to transfer their interest.
Note Owners will not receive or be entitled to receive DEFINITIVE
NOTES representing their respective interests in the Notes, except under the
limited circumstances described below. Unless and until Definitive Notes are
issued, Note Owners who are not Participants may transfer ownership of Notes
only through Participants and indirect participants by instructing such
Participants and indirect participants to transfer Notes, by book-entry
transfer, through DTC for the account of the purchasers of such Notes, which
account is maintained with their respective Participants. Under the Rules and
in accordance with DTC's normal procedures, transfers of ownership of Notes
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 Note Owners.
Because of time zone differences, credits of securities received in
Cedelbank 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 Cedelbank Participants on such business day. Cash received in
Cedelbank or Euroclear as a result of sales of securities by or through a
Cedelbank 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 Cedelbank 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 Notes, see "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES - Foreign Investors" and "-- Backup
Withholding" herein and "GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES Certain U.S. Federal Income Tax Documentation Requirements" in Annex
I hereto.
Transfers between Participants will occur in accordance with DTC
rules. Transfers between Cedelbank 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 Cedelbank 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. Cedelbank
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
Notes, whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book-Entry Notes will be subject to the rules,
regulations and procedures governing DTC and DTC participants as in effect from
time to time.
Cedelbank is incorporated under the laws of Luxembourg as a
professional depository. Cedelbank holds securities for its participating
organizations ("Cedelbank Participants") and facilitates the clearance and
settlement of securities transactions between Cedelbank Participants through
electronic book-entry changes in accounts of Cedelbank Participants, thereby
eliminating the need for physical movement of notes. Transactions may be
settled in Cedelbank in any of 28 currencies, including United States dollars.
Cedelbank provides to its Cedelbank Participants, among other things, services
for safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. Cedelbank interfaces
with domestic markets in several countries. As a professional depository,
Cedelbank is subject to regulation by the Luxembourg Monetary Institute.
Cedelbank 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
Cedelbank is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Cedelbank 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
notes 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 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 notes 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.
Payments on the Book-Entry Notes will be made on each Payment Date by
the Indenture 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 Notes 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 Notes that it
represents.
Under a book-entry format, beneficial owners of the Book-Entry Notes
may experience some delay in their receipt of payments, since such payments
will be forwarded by the Indenture Trustee to Cede. Payments with respect to
Notes held through Cedelbank or Euroclear will be credited to the cash accounts
of Cedelbank Participants or Euroclear Participants in accordance with the
relevant system's rules and procedures, to the extent received by the Relevant
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES - Foreign Investors" and "- Backup Withholding" herein.
Because DTC can only act on behalf of Financial Intermediaries, the ability of
a beneficial owner to pledge Book-Entry Notes to persons or entities that do
not participate in the Depository system, or otherwise take actions in respect
of such Book-Entry Notes, may be limited due to the lack of physical notes for
such Book-Entry Notes. In addition, issuance of the Book-Entry Notes in
book-entry form may reduce the liquidity of such Notes in the secondary market
since certain potential investors may be unwilling to purchase Notes for which
they cannot obtain physical notes.
Monthly and annual reports on the TRUST 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 Notes of such beneficial owners are credited.
DTC has advised the Transferor and the Indenture Trustee that, unless
and until Definitive Notes are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Notes under the Sale and Servicing
Agreement only at the direction of one or more Financial Intermediaries to
whose DTC accounts the Book-Entry Notes are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Notes. Cedelbank or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Noteholder under the Sale
and Servicing Agreement on behalf of a Cedelbank 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 Notes which conflict with actions taken with
respect to other Notes.
Definitive Notes will be issued to beneficial owners of the Book-Entry
Notes, or their nominees, rather than to DTC, only if (a) DTC or the TRUST
advises the Indenture 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 Notes and the TRUST or the Indenture
Trustee is unable to locate a qualified successor, (b) the Transferor, at its
sole option, elects to terminate a book-entry system through DTC or (c) after
the occurrence of an Event of Servicing Termination (as defined herein),
beneficial owners having Percentage Interests aggregating not less than 51% of
the Note Principal Balance of the Book-Entry Notes advise the Indenture 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
SENTENCE, the Indenture Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Notes. Upon surrender by DTC of the global note or notes
representing the Book-Entry Notes and instructions for re-registration, the
Indenture Trustee will issue Definitive Notes, and thereafter the Indenture
Trustee will recognize the holders of such Definitive Notes as Noteholders
under the Indenture.
Although DTC, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
Cedelbank and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
DTC Management is aware that some computer applications, systems, and
the like for processing data ("systems") that are dependent upon calendar
dates, including dates before, on, and after january 1, 2000, may encounter
"year 2000 problems." DTC has informed its participants and other members of
the financial community (the "industry") that it has developed and is
implementing a program so that its systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("dtc services"), continue to function appropriately. this program includes a
technical assessment and a remediation plan, each of which is complete.
additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom dtc licenses software and
hardware, and third party vendors on whom dtc relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the industry that it is
contacting (and will continue to contact) third party vendors from whom dtc
acquires services to: (i) impress upon them the importance of such services
being year 2000 compliant; and (ii) determine the extent of their efforts for
year 2000 remediation (and, as appropriate, testing) of their services. in
addition, DTC is in the process of developing such contingency plans as it
deems appropriate.
According to DTC, the foregoing information with respect to dtc has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Notes, Provident will transfer to the
TRUST all of its right, title and interest in and to each Mortgage Loan
(including any Additional Balances arising in the future), related Credit Line
Agreements and Mortgage Notes, AS APPLICABLE, AND THE mortgages and other
related documents (collectively, the "Related Documents"), including all
collections received on or with respect to each such Mortgage Loan on or after
the Cut-Off Date (EXCLUSIVE OF CERTAIN PAYMENTS IN RESPECT OF (I) INTEREST
ACCRUED ON THE MORTGAGE LOANS IN _____ AND (II) PAYMENTS IN RESPECT OF INTEREST
ON THE DELINQUENT MORTGAGE LOANS DUE PRIOR TO THE CUT-OFF DATE AND RECEIVED
THEREAFTER) . THE TRUST, concurrently with such transfer, will deliver or cause
to be delivered the Notes to Provident and the Transferor Interest to the
Transferor. Each Mortgage Loan transferred to the Trust will be identified on a
schedule (the "Mortgage Loan Schedule") WHICH WILL BE ATTACHED AS AN EXHIBIT TO
THE INDENTURE. Such schedule will include information as to the Cut-Off Date
Principal Balance of each Mortgage Loan, as well as information with respect to
the Loan Rate.
If the federal deposit insurance company determines that the transfer
of the mortgage loans from provident to the trust is fraudulent, it may avoid
that transfer even if the transfer occurred prior to the federal deposit
insurance company's appointment. The federal deposit insurance company may also
disaffirm or repudiate any of provident's contracts. because damages for the
repudiation or disaffirmance is limited by statute, the federal deposit
insurance company may require the indenture trustee to comply with certain
claims procedures. consequently, you may experience delays in or reductions on
the payments of your certificates. In addition, the federal deposit insurance
company may transfer provident's rights and obligations under the sale and
servicing agreement and the property of the trust to a third party.
If the federal deposit insurance company abides by its statement in
the statement of policy regarding the treatment of security interests after
appointment of the fdic as conservator or receiver (dated march 31, 1993) and
if provident meets certain other conditions, the federal deposit insurance
company will not avoid the security interest granted to the trust by provident.
However, the federal deposit insurance company may require compliance with its
claims procedures and thus limit the amount recoverable from provident. the
trust and the noteholders may become an unsecured creditor of provident to the
extent that any claims allowed by the federal deposit insurance company were
not satisfied from the security property.
The agreements will permit Provident to maintain possession of the
Related Documents and certain other document relating to the Mortgage Loans
(other than the mortgage notes and the assignments of each mortgage with
respect to the closed-end loans) (the "Mortgage Files"). Assignments of the
related mortgages to the Owner Trustee will not be required to be recorded for
so long as the long-term senior unsecured debt of Provident is rated at least
"_____" by each of ____________ and _____ and "_____" by __________. In the
event that Provident's long-term senior unsecured debt is not so rated by any
such entity or any such ratings are suspended or withdrawn (an "Assignment
Event"), Provident will have 90 days to record assignments of the mortgages for
each Mortgage Loan in favor of the Indenture Trustee and will have 60 days to
deliver the Mortgage File (or portion thereof held by provident) pertaining to
each Mortgage Loan to the indenture Trustee (unless opinions of counsel are
delivered to and satisfactory to the Rating Agencies and the Insurer to the
effect that recordation of such assignments or delivery of such documentation
is not required in the relevant jurisdiction to protect the interest of
Provident and the trust in the Mortgage Loans). In lieu of delivery of original
documentation and only to the extent such original documentation is
unavailable, Provident may deliver documents which have been imaged optically
upon delivery of an opinion of counsel to the Rating Agencies and the Insurer,
satisfactory to each, that (i) such documents do not impair the enforceability
of the transfer to the trust of the Mortgage Loans and (ii) the optical image
of such documents are enforceable in the relevant jurisdictions to the same
extent as the original documents.
With respect to each closed-end loan, the indenture trustee will
review or cause to be reviewed the mortgage notes within 60 days of the closing
date and the assignments of each mortgage within 180 days of the closing date.
with respect to the revolving credit-line loans within 60 days of an assignment
event, the indenture trustee will review or cause to be reviewed the mortgage
files. If any 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 Owner Trustee, the TRUST or the Insurer, Provident will be
obligated to accept the transfer of such Mortgage Loan from the TRUST. 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 Transfer Deficiency. Any such deduction, substitution or
deposit, will be considered for the purposes of the Sale and Servicing
Agreement a payment in full of such Mortgage Loan. Any Transfer Deposit Amount
will be treated as a Principal Collection. No such transfer shall be considered
to have occurred until the required deposit to the Collection Account is
actually made. The obligation of Provident to accept a transfer of a Defective
Mortgage Loan, is the sole remedy regarding any defects in the Mortgage File
and Related Documents available to the Owner Trustee, the Indenture Trustee or
the Noteholders.
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) that is approximately equal to 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 1% 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
Adjustment Date as that of the Defective Mortgage Loan; (iv) have a Gross
Margin that is not less than the Gross Margin of the Defective Mortgage Loan
and not more than 100 basis points higher than the Gross 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) comply
with each representation and warranty as to the Mortgage Loans set forth in the
Sale and Servicing Agreement (deemed to be made as of the date of
substitution); (vii) have an original Combined Loan-to-Value Ratio not greater
than that of the Defective Mortgage Loan; and (viii) satisfy certain other
conditions specified in the Sale and Servicing Agreement. To the extent the
Principal Balance of an Eligible Substitute Mortgage Loan is less than the
related Transfer Deficiency, Provident will be required to make a deposit to
the Collection Account equal to such difference. Any such amounts will be
treated as Principal Collections.
Provident will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the Owner
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, among other things: (i) at the time of transfer to
the trust , provident has transferred or assigned all of its rights, title and
interest in or granted a security interest in each mortgage loan and the
related documents, free of any lien (subject to certain exceptions) and (ii)
each mortgage loan complied, at the time or 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 Noteholders or the Insurer in the related Mortgage Loan and
Related Documents, Provident 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, Provident will be obligated to accept a transfer of the
Defective Mortgage Loan from the Trust . The same procedure and limitations
that are set forth in the two preceding paragraphs 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 Sale and Servicing Agreement that materially and adversely
affects the interests of the Noteholders.
Mortgage Loans required to be transferred to Provident as described in
the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Sale and Servicing 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 Noteholders or the Insurer, and (ii) are
consistent with prudent business practice. In addition, the Sale and Servicing
Agreement permits the Master Servicer, within certain limitations described
therein, to increase or reduce the Credit Limit of the related Mortgage Loan
and reduce the GROSS Margin for such Mortgage Loan.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
Subject to the conditions specified in the Sale and Servicing
Agreement, on any Payment Date the Transferor may, but shall not be obligated
to, remove on such Payment Date (the "Transfer Date") from the Trust , certain
Mortgage Loans without notice to the Noteholders. The Transferor is permitted
to randomly designate the Mortgage Loans to be removed. Mortgage Loans so
designated will only be removed upon satisfaction of certain conditions
specified in the Sale and Servicing Agreement, including: (i) the Transferor
Interest as of such Transfer Date (after giving effect to such removal) exceeds
the Minimum Transferor Interest; (ii) the Transferor shall have delivered to
the Indenture Trustee and the Insurer a "Mortgage Loan Schedule" containing a
list of all Mortgage Loans remaining in the TRUST after such removal; (iii) the
Transferor shall represent and warrant that no selection procedures which the
Transferor reasonably believes are adverse to the interests of the Noteholders
or the Insurer were used by the Transferor in selecting such Mortgage Loans;
(iv) in connection with each such retransfer of Mortgage Loans, the Rating
Agencies shall have been notified of the proposed transfer and prior to the
Transfer Date the Rating Agencies shall have notified the Transferor, the
Indenture Trustee and the Insurer in writing that such transfer will not result
in a reduction or withdrawal of the ratings assigned to the Notes without
regard to the Policy; and (v) the Transferor shall have delivered to the
Indenture Trustee and the Insurer an officer's certificate confirming the
satisfaction of the conditions set forth in clauses (i) through (iii) above.
As of any date of determination, the "Minimum Transferor Interest"
is an amount equal to the lesser of (a) 5% 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 AND DISTRIBUTION
ACCOUNT
The Master Servicer shall establish and maintain in the name of the
Indenture Trustee a separate trust account (the "Collection Account") for the
benefit of the Noteholders, the Insurer and the Transferor, as their interests
may appear. The Collection Account will be an Eligible Account (as defined
herein). Subject to the investment provisions described in the following
paragraphs, upon receipt by the Master Servicer of amounts in respect of the
Mortgage Loans (excluding amounts representing the Servicing Fee) the Master
Servicer will deposit such amounts in the Collection Account. Not later than
the eighteenth day of the calendar month of each Payment Date (the
"Determination Date"), the Master Servicer will notify the Indenture Trustee of
the amount of such deposit to be included in funds available for the related
Payment Date. Amounts so deposited may be invested in Eligible Investments (as
described in the Sale and Servicing Agreement) maturing no later than one
Business Day prior to the date on which amounts on deposit therein are required
to be deposited in the Distribution Account.
The Indenture Trustee will establish an account (the "Distribution
Account") into which will be deposited amounts withdrawn from the Collection
Account for payment to Noteholders on a Payment 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 Payment Date. NET INVESTMENT EARNINGS ON THE FUNDS IN THE DISTRIBUTION
ACCOUNT WILL BE PAID TO ____________.
An "Eligible Account" is a segregated 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 with a minimum long-term unsecured debt rating of "A1" by
Moody's and "A" by S&P and Fitch, 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 or association
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, and in each case of (a) - (d),
approved in writing by the Insurer, (ii) a segregated trust account maintained
with the corporate trust department of a federal or state chartered depository
institution or trust company,, having capital and surplus of not less than
$50,000,000, acting in its fiduciary capacity or (iii) otherwise acceptable to
each Rating Agency and the Insurer as evidenced by a letter from each Rating
Agency and the Insurer to the Indenture Trustee, without reduction or
withdrawal of their then current ratings of the Notes without regard to the
Policy.
Eligible Investments are specified in the Sale and Servicing Agreement
and are limited to investments which are acceptable to the Insurer and meet the
criteria of the Rating Agency from time to time as being consistent with their
then current ratings of the Notes.
SIMPLE INTEREST EXCESS SUB-ACCOUNT
The Sale and Servicing Agreement requires that the master servicer
establish and maintain in the name of the indenture trustee a sub-account of
the collection account (the "Simple Interest Excess Sub-Account") which must be
an eligible account. the indenture trustee will transfer to the simple interest
excess sub-account all net simple interest excess. "net simple interest excess"
means as of any payment date, the excess, if any, of the aggregate amount of
simple interest excess over the amount of simple interest shortfall. "Net
Simple Interest Shortfall" means as of any payment date, the excess, if any, of
the aggregate amount of simple interest shortfall over the amount simple
interest excess. "Simple Interest Shortfall" means as of any payment date for
each Simple Interest Qualifying Loan, the excess, if any, of (i) 30 days'
interest on the Principal Balance of all such Mortgage Loans at the Loan Rate,
over (ii) the portion of the monthly payment received from the Mortgagor for
such Mortgage Loan allocable to interest with respect to the related Collection
Period. "Simple Interest Excess" means as of any Payment Date for each Simple
Interest Qualifying Loan, the excess, if any, of (i) the portion of the monthly
payment received from the mortgagor for such Mortgage Loan allocable to
interest with respect to the related Collection Period, over (ii) 30 days'
interest on the Principal Balance of such Mortgage Loan at the Loan Rate. A
Simple Interest Qualifying Loan" as of any Determination Date is any Mortgage
Loan that was neither prepaid in full during the related Collection Period AND
IS NOT delinquent with respect to a payment that became due during the related
Collection Period as of the close of business on the Determination Date
following such Collection Period.
The Master Servicer will withdraw amounts on deposit in the Simple
Interest Excess Sub-Account for deposit to the Collection Account prior to each
Payment Date to pay Net Simple Interest Shortfalls.
All funds in the Simple Interest Excess Sub-Account may be invested in
Eligible Investments. So long as no Event of Servicing Termination shall have
occurred and be continuing, any investment earnings on funds held in the Simple
Interest Excess Sub-Account are for the account of the Master Servicer. Upon
receipt of notification of a loss on investment in the Simple Interest Excess
Sub-Account, the Master Servicer, including any predecessor Master Servicer,
which directed such investments, shall promptly remit the amount of such loss
from its own funds to the Simple Interest Excess Sub-Account.
ALLOCATIONS AND COLLECTIONS
All collections on the Mortgage Loans will generally be allocated in
accordance with the Credit Line Agreements or the Mortgage Notes, as
applicable, between amounts collected in respect of interest and amounts
collected in respect of principal. As to any Payment 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 or the Mortgage
Notes, as applicable, less Servicing Fees for the related Collection Period AND
AS ADJUSTED FOR SIMPLE INTEREST SHORTFALLS AND SIMPLE INTEREST EXCESS AS
DESCRIBED ABOVE UNDER "--SIMPLE INTEREST EXCESS SUB-ACCOUNT."
As to any Payment 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 or Mortgage Notes, as
applicable, and (ii) any Transfer Deposit Amounts. "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. "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 sum of (i) the Principal Balance of the Mortgage Loan plus (ii) accrued and
unpaid interest thereon to the end of the Collection Period during which such
Mortgage Loan became a Liquidated Mortgage Loan.
With respect to any Payment Date, the portion of Interest Collections
allocable to the Notes ("Investor Interest Collections") will equal the product
of (a) Interest Collections for such Payment Date and (b) the Investor Floating
Allocation Percentage. With respect to any Payment Date, the "Investor Floating
Allocation Percentage" is the percentage equivalent of a fraction determined by
dividing (a) the Invested Amount at the close of business on the preceding
Payment Date (or the Closing Date in the case of the first Payment Date) by (b)
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 Noteholders and
the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections", respectively) as described herein.
The Indenture Trustee will deposit any amounts withdrawn from the
Spread Account or drawn under the Policy into the DISTRIBUTION 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 OR MORTGAGE NOTE prior to such day. The
Principal Balance of a Liquidated Mortgage Loan after final recovery of related
Liquidation Proceeds shall be zero.
"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 received in connection therewith.
the "Investor Loss Amount" shall be the product of the investor floating
allocation percentage and the aggregate of the liquidation loss amounts for
such payment date. A "Liquidated Mortgage Loan" means, as to any payment date,
any mortgage loan in respect of which the master servicer has determined, based
on the servicing procedures specified in the sale and servicing 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.
As, to any payment date, the "Collection Period" is the calendar month
preceding each payment date.
PAYMENTS ON THE NOTES
Beginning with the first Payment Date (which will occur on _________
__, 199__), payments on the Notes will be made by the Indenture Trustee or the
Paying Agent based upon aggregate information provided by the Master Servicer
on each Payment Date to the persons in whose names such Notes are registered at
the close of business on the day prior to each Payment Date or, if the Notes
are no longer Book-Entry Notes, at the close of business on the last day of the
month preceding such Payment Date (the "Record Date"). The term "Payment Date"
means the twenty-fifth day of each month or, if such day is not a Business Day,
then the next succeeding Business Day. Payments will be made by check or money
order mailed (or upon the request of a Noteholder owning Notes having
denominations aggregating at least $1,000,000, by wire transfer or otherwise)
to the address of the person entitled thereto (which, in the case of Book-Entry
Notes, will be DTC or its nominee) as it appears on the Note Register in
amounts calculated as described herein on the Determination Date. However, the
final payment in respect of the Notes will be made only upon presentation and
surrender thereof at the office or the agency of the Indenture Trustee
specified in the notice to Noteholders of such final payment. For purposes of
the Agreements, a "Business Day" is any day other than (i) a Saturday or Sunday
or (ii) a day on which the Insurer or banking institutions in the States of
Ohio, California or New York are required or authorized by law to be closed.
Application of Interest Collections. On each Payment Date, the
Indenture Trustee or the Paying Agent will apply the Investor Interest
Collections in the following manner and order of priority:
(i) as payment to the Indenture Trustee for its fee for
services rendered pursuant to the Sale and Servicing Agreement and as
payment to the Owner Trustee for its fee for services rendered
pursuant to the Trust Agreement;
(ii) as payment for the premium for the Policy, AND
(iii) concurrently, as follows:
(a) TO THE NOTEHOLDERS, as payment for the accrued
interest due and any OVERDUE accrued interest (with interest
thereon to the extent permitted by law) on the Note Principal
Balance of the Notes; and
(B) TO THE HOLDER OF the Transferor Interest, the amount
to which it is entitled in accordance with the
provisions of the Sale and Servicing Agreement,
which will generally be equal to the amount accrued
on a notional balance equal to the Note Principal
Balance at a rate equal to the excess of the Net WAC
over the Note Rate;
provided, however, if Investor Interest Collections (prior to giving effect to
withdrawals from the Spread Account or draws on the Policy) on such Payment
Date are insufficient to make the payments required to be made pursuant to this
clause (iii), then Investor Interest Collections will be allocated between
subclauses (a) and (b) above, pro rata, based on the amount required to be paid
pursuant to each such subclause without giving effect to any shortfall in such
Investor Interest Collections; PROVIDED, FURTHER THAT IF THE AMOUNT ON DEPOSIT
IN THE SPREAD ACCOUNT HAS BEEN DEPLETED AND THE INSURER FAILS TO PAY UNDER THE
POLICY, THE AMOUNT PAYABLE PURSUANT TO CLAUSE (B) ABOVE ON ANY PAYMENT DATE
THEREAFTER WILL BE PAID TO THE HOLDER OF THE TRANSFEROR INTEREST AFTER PAYMENT
OF PRINCIPAL AND INTEREST DUE ON THE NOTES ARE MADE ON SUCH PAYMENT DATE.
CALCULATION OF THE NOTE RATE. Interest will be distributed on each
Payment Date at the Note Rate for the related Interest Period on the Note
Principal Balance as of the first day of such Interest Period (reduced by any
Civil Relief Act Interest Shortfalls for such Payment Date). The "Note Rate"
for a Payment Date will generally equal the sum of (a) LIBOR, determined as
specified herein, as of the second LIBOR Business Day prior to the immediately
preceding Payment Date (or as of two LIBOR Business Days prior to the Closing
Date, in the case of the first Payment Date) plus (b) ___% per annum.
Notwithstanding the foregoing, in no event will the amount of interest required
to be distributed in respect of the Notes on any Payment Date exceed the amount
calculated at a rate (THE "NET WAC") equal to the weighted average of the Loan
Rates (net of the Servicing Fee Rate, the fee payable to the Indenture Trustee
AND THE OWNER TRUSTEE (expressed as a rate) and the rate at which the premium
payable to the Insurer is calculated) weighted on the basis of the daily
balance of each Mortgage Loan during the CALENDAR MONTH PRECEDING the
Collection Period relating to such Payment Date or in the case of the first
Payment Date, the weighted average loan rate as of the Cut-Off Date.
Interest on the Notes in respect of any Payment Date will accrue on
the Note Principal Balance from the preceding Payment Date (or in the case of
the first Payment Date, from the date of the initial issuance of the Notes (the
"Closing Date")) through the day preceding such Payment 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 Notes will be funded from
Investor Interest Collections and, if necessary, from the Policy pursuant to
the terms thereof. Interest for any Payment Date due but not paid on such
Payment Date will be due on the next succeeding Payment Date together with
additional interest on such amount at a rate equal to the applicable Note Rate.
Calculation of the LIBOR Rate. On each Payment Date, LIBOR shall be
established by the Indenture 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 the TRANSFEROR
after consultation with the Indenture 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 the TRANSFEROR after consultation with the
Indenture Trustee) as of 11:00 A.M., London time, on the day that is two LIBOR
Business Days prior to the immediately preceding Payment 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 Notes then outstanding. The Indenture
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 two or more major banks in New York
City, selected by the TRANSFEROR after consultation with the Indenture 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 Notes then outstanding. If no such quotations
can be obtained, the rate will be LIBOR for the prior Payment 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. Interest collections allocable to the
transferor interest will be paid to the transferor on each payment date.
Principal Collections allocable to the Transferor Interest will be distributed
to the Transferor only to the extent that such payment will not reduce the
amount of the Transferor Interest as of the related Payment 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.
Payments of Principal Collections. For the period beginning on the
first Payment Date and, unless a Rapid Amortization Event shall have earlier
occurred, ending immediately after the Payment Date in December 2003 (such
period, the "Managed Amortization Period"), the amount of Principal Collections
payable to Noteholders as of each Payment Date during the Managed Amortization
Period will equal, to the extent funds are available therefor, the Scheduled
Principal Collections Payment Amount for such Payment Date. On any Payment Date
during the Managed Amortization Period, the "Scheduled Principal Collections
Payment Amount" shall equal the lesser of (i) the Maximum Principal Payment (as
defined below) and (ii) the Alternative Principal Payment (as defined herein).
With respect to any Payment Date, the "Maximum Principal Payment" will equal
the product of the Investor Fixed Allocation PERCENTAGE and Principal
Collections for such Payment Date. With respect to any Payment Date, the
"Alternative Principal Payment" will equal the amount, but not less than zero,
of Principal Collections for such Payment Date less the aggregate of Additional
Balances created during the related Collection Period. The "Rapid Amortization
Period" is the period beginning at the earlier of (i) the occurrence of a Rapid
Amortization Event and (ii) immediately following the Payment Date in
__________ and continuing until the later of when (i) the Note Principal
Balance has been reduced to zero and all amounts then due and owing to the
Insurer have been paid and (ii) the Trust is terminated. See "-- Termination;
Retirement of the Notes."
Beginning with the first Payment Date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to Noteholders
on each Payment Date will be equal to the Maximum Principal Payment.
Payments of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in payments of principal to Noteholders 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 Noteholders will be
allocated to the Transferor Interest. The aggregate payments of principal to
the Noteholders will not exceed the Original Note Principal Balance.
In addition, to the extent of funds available therefor (including
funds available under the Policy), on the Payment Date in __________,
Noteholders will be entitled to receive as a payment of principal an amount
equal to the outstanding Note Principal Balance.
The Paying Agent. The Paying Agent shall initially be the Indenture
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 Distribution Account for the purpose of making payments to the Noteholders.
THE SPREAD ACCOUNT
The sale and servicing agreement requires the master servicer to
establish in the name of the indenture trustee on the closing date and to
maintain a reserve account (the "spread account") for the benefit of the
insurer and the noteholders. On the closing date, the indenture trustee will
make a deposit to the spread account, as specified in the sale and servicing
agreement. No additional deposits will be required to be made to the spread
account.
On any payment date prior to giving effect to any draw on the policy,
amounts, if any, on deposit in the spread account will be available to make any
of the following payments on the policy in the following order of priority:
o to the noteholders, any insured payment required to be made on
such payment date;
o to noteholders, the investor loss amount for such payment date
or unreimbursed investor loss amounts from a previous payment
date;
o to reimburse the insurer for prior draws made under the policy
(with interest thereon); and
o to pay any other amounts owed to the insurer pursuant to the
insurance agreement.
The sale and servicing agreement permits reduction of the amount on
deposit in the spread account as specified in the sale and servicing agreement.
any such reduction will be dependent on the delinquency and loss performance of
the mortgage loans. The maximum amount required to be on deposit at any time in
the spread account is the "spread account requirement."
The amounts on deposit in the spread account in excess of the spread
account requirement will be distributed to the transferor. The transferor will
not be required to refund any amounts previously and properly distributed to
it, regardless of whether there are sufficient funds on a subsequent payment
date to make a full payment to the holders of the notes on such payment date.
Funds credited to the spread account may be invested in eligible investments or
certain other investments specified in the sale and servicing agreement that
are scheduled to mature on or prior to the next payment date as specified in
the sale and servicing agreement. The spread account shall be an eligible
account.
The spread account may be terminated or other assets, including
mortgage loans such as the mortgage loans or a guarantee of provident or a
letter of credit issued on behalf of provident, may be substituted for some or
all of the assets held therein, if any, provided that the insurer and the
rating agencies consent to such action and the then current ratings of the
notes assigned by the rating agencies are not lowered as a result thereof.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue
through the Payment Date in __________, unless a Rapid Amortization Event
occurs prior to such date in which case the Rapid Amortization Period will
commence prior to such date. The "Rapid Amortization Period" is the period
commencing on the earlier of (x) the end of the Managed Amortization Period and
(y) the day, if any, upon which a Rapid Amortization Event occurs and
concluding upon the later of (i) termination of the Trust and (ii) all amounts
due and owing to the Insurer and the Noteholders have been paid. "Rapid
Amortization Event" refers to any of the following events:
(a) failure on the part of the PROVIDENT (i) to make a
payment or deposit required under the Agreements or (ii) to observe or
perform in any material respect any other covenants or agreements of
the PROVIDENT set forth in the Agreements, which failure continues
unremedied for a period of 30 days after written notice;
(b) any representation or warranty made by the PROVIDENT in
the Agreements proves to have been incorrect in any material respect
when made and continues to be incorrect in any material respect for a
period of 30 days after written notice and as a result of which the
interests of the Noteholders or the Insurer are materially and
adversely affected; provided, however, that a Rapid Amortization Event
shall not be deemed to occur with respect to a breach of
representation and warranty relating to a Mortgage Loan if the
PROVIDENT 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 Indenture
Trustee and the Insurer) in accordance with the provisions of the Sale
and Servicing Agreement;
(c) the occurrence of certain events of bankruptcy,
insolvency or receivership relating to PROVIDENT,
(d) the Trust 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; or
(e) the aggregate of all draws under the Policy exceeds 1% of
the Cut-Off Date Pool Balance.
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
Indenture Trustee or Noteholders holding Notes evidencing more than 51% of the
Percentage Interests (in either case, with the consent of the Insurer) or the
Insurer (so long as there is no default by the Insurer in the performance of
its obligations under the Policy), by written notice to the Transferor and the
Master Servicer (and to the Indenture Trustee, if given by the Noteholders)
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), (d) or (e) a Rapid
Amortization Event will be deemed to have occurred without any notice or other
action on the part of the Indenture Trustee, the Insurer or the Noteholders
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 , the Transferor
will immediately cease to transfer Additional Balances to the Trust and the
Transferor will promptly give notice to the Indenture Trustee and the Insurer
of any such filing or appointment.
Notwithstanding the foregoing, if a conservator 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 OR receiver may have the power to prevent the
commencement of the Rapid Amortization Period or the sale of Mortgage Loans
described above.
THE POLICY
The following information has been supplied by the Insurer for
inclusion in this Prospectus Supplement. Accordingly, Provident does not make
any representation as to the accuracy and completeness of such information.
The 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 (AS DEFINED HEREIN) that an amount equal to each full
and complete Insured Payment will be received by the Indenture Trustee, or its
successor, as trustee for the __________, on behalf of the Owners from the
Insurer, for distribution by the Indenture Trustee to each Owner of each
Owner's proportionate share of the Insured Payment. The 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 Indenture Trustee, whether or not such funds are properly
applied by the Indenture 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 Notes, unless such acceleration is at the
sole option of the Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust or the Indenture
Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability).
The 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 Insurer that
such order is final and not subject to appeal, (iii) an assignment in such form
as is reasonably required by the Insurer, irrevocably assigning to the Insurer
all rights and claims of the Owner relating to or arising under the Notes
against the debtor that made such preference payment or otherwise with respect
to such preference payment and (iv) appropriate instruments to effect the
appointment of the Insurer as agent for such Owner in any legal proceeding,
related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
12:00 noon, New York City time, on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Notes to such
receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The 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 Payment Date on
which the related Deficiency Amount is due or the third 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 Insurer or any successor fiscal agent
appointed by the 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 Insurer or the Fiscal Agent, as the case
may be, shall promptly so advise the Indenture Trustee and the Indenture
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 Indenture 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 Indenture Trustee for the payment of such
Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the 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 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:
"Agreements" means any of the Indenture, the Trust Agreement or the
Sale and Servicing Agreement without regard to any amendment or supplement
thereto unless such amendment or modification has been approved in writing by
the Insurer.
"Business Day" means any day other than (i) a Saturday or a Sunday or
(ii) a day on which the Insurer or banking institutions in the States of New
York OR Ohio are required or authorized by law or executive order to be closed.
"Civil Relief Act Interest Shortfalls" means for any Payment Date any
shortfall in interest collections on the Mortgage Loans during the prior
Collection Period that are attributable to the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended.
"Deficiency Amount" means for any Payment Date (A) the excess, if any,
of (i) Investor Interest for such Payment Date plus any Unpaid Investor
Interest Shortfall, if any, due on the Notes over (ii) Investor Interest
Collections on deposit in the Distribution Account available to be distributed
therefor on such Payment Date and (B) the Guaranteed Principal Amount.
"Final Payment Date" means the Payment Date in __________.
"Guaranteed Principal Amount" means (a) for any Payment Date (other
than the Final Payment Date) the amount, if any, by which the Note Principal
Balance exceeds the Invested Amount as of such Payment Date (after giving
effect to all payments of principal on the Notes on such Payment Date pursuant
to the Agreements) and (b) on the Final Payment Date, the outstanding Note
Principal Balance (after giving effect to all other payments of principal on
the Notes on such Payment Date pursuant to the Agreements).
"Insured Payment" means (i) as of any Payment Date, any Deficiency
Amount and (ii) any Preference Amount.
"Investor Interest" means, with respect to any Payment Date, interest
for the related Interest Period at the applicable Note Rate on the Note
Principal Balance as of the first day of such Interest Period (after giving
effect to the payments made on the first day of such Interest Period), net of
any Civil Relief Act Interest Shortfalls for such Payment Date.
"Notice" means the telephonic or telegraphic notice, promptly
confirmed in writing 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 Indenture Trustee specifying the Insured
Payment which shall be due and owing on the applicable Payment Date.
"Owner" means each Holder (as defined in the Sale and Servicing
Agreement) who, on the applicable Payment Date, is entitled under the terms of
the applicable Notes to payment thereunder.
"Preference Amount" means any amount previously distributed to an
Owner on the Notes that is recoverable and sought to be recovered as avoidable
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.
"Unpaid Investor Shortfall" means, with respect to any Payment Date,
the aggregate amount, if any, of Investor Interest that was accrued in respect
of prior Payment Dates and has not been distributed to Noteholders.
Capitalized terms used in the Policy and not otherwise defined in the
Policy shall have the respective meanings set forth in the Sale and Servicing
Agreement as of the date of execution of the Policy, without giving effect to
any subsequent amendment or modification to the Sale and Servicing Agreement
unless such amendment or modification has been approved in writing by the
Insurer.
Any notice under the Policy or service of process on the Fiscal Agent
or the Insurer may be made at the address listed below for the Fiscal Agent or
the Insurer or such other address as the Insurer shall specify in writing to
the Indenture Trustee.
The notice address of the Fiscal Agent is 61 Broadway, 15th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or such
other address as the Fiscal Agent shall specify to the Indenture 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 Notes.
POOL FACTOR
The "pool factor" is a seven-digit decimal which the master servicer
will compute monthly expressing the note principal balance of the notes as of
each payment date (after giving effect to any payment of principal on such
payment date) as a proportion of the original note principal balance. On the
closing date, the pool factor will be 1.0000000. See "description of the
notes--payments on the notes." thereafter, the pool factor will decline to
reflect reductions in the related note principal balance resulting from
payments of principal to the notes.
Pursuant to the sale and servicing agreement, monthly reports
concerning the invested amount, the pool factor and various other items of
information will be made available to the noteholders. In addition, within 60
days after the end of each calendar year, beginning with the 1999 calendar
year, information for tax reporting purposes will be made available to each
person who has been a noteholder of record at any time during the preceding
calendar year. See "description of the notes--book-entry notes" and "--reports
to noteholders" herein.
MATURITY AND PREPAYMENT CONSIDERATIONS
The agreements, except as otherwise described herein, provides that
the noteholders will be entitled to receive on each payment date payments of
principal, in the amounts described herein, until the note principal balance is
reduced to zero. During the managed amortization period, noteholders will
receive amounts from principal collections based upon the investor fixed
allocation percentage subject to reduction as described below. During the rapid
amortization period, noteholders will receive amounts from principal
collections based solely upon the investor fixed allocation percentage. Because
prior payments of investor principal collections to noteholders reduce the
investor floating allocation percentage but do not change the fixed allocation
percentage, allocations of principal collections based on the fixed allocation
percentage may result in payments of principal to the noteholders 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 noteholders. This is especially true during the rapid
amortization period when the noteholders are entitled to receive investor
principal collections and not a lesser amount. In addition, to the extent of
losses allocable to the noteholders, noteholders may also receive as payment of
principal the investor floating allocation percentage of the amount of such
losses either from the spread account or draws under the policy. The level of
losses may therefore affect the rate of payment of principal on the notes. For
a description of the defined terms used in this section, see "Description of
the Notes."
To the extent obligors make more draws than principal payments, the
transferor interest may grow. Because during the rapid amortization period the
noteholders' share of principal collections is based upon the investor fixed
allocation percentage (without reduction), an increase in the transferor
interest due to additional draws may also result in noteholders receiving
principal at a greater rate than would otherwise occur if the investor floating
allocation percentage were used to determine the percentage of principal
collections distributed to noteholders. The sale and servicing agreement
permits the transferor, at its option, but subject to the satisfaction of
certain conditions specified in the sale and servicing agreement, including the
conditions described below, to remove certain mortgage loans from the trust at
any time during the life of the trust, 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 noteholders by reducing the overall pool balance and thus the amount of
principal collections. See "Description of the Notes--Optional Retransfers of
Mortgage Loans to the Transferor."
The prepayment experience with respect to the mortgage loans will
affect the weighted average life of the notes.
The rate of prepayment on the mortgage loans cannot be predicted.
Provident is not aware of any publicly available studies or statistics that
accurately predict or forecast the rate of prepayment of mortgage loans such as
the mortgage loans. Generally, home equity loans are not viewed by borrowers as
permanent financing. Accordingly, the mortgage loans may experience a higher
rate of prepayment than traditional first mortgage loans. Because the revolving
credit-line loans generally do not amortize during the draw period which in the
case of the one-year draw period loans may automatically renew for extended
periods as described 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 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 loans. Substantially all of the
mortgage loans contain "due-on-sale" provisions, and 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 loans--due-on-sale clauses" 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 closed-end loans with fixed
loan rates 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 loan, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing mortgage 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.
The yield to an investor who purchases the notes 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 notes 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 which, in the case of the revolving credit-line
loans may be zero, 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 but it can be expected that a portion of borrowers
will not prepay their mortgage loans to any significant degree. See
"Description of the Securities--Weighted Average Life of the Certificates" in
the Prospectus.
DESCRIPTION OF THE AGREEMENTS
The following summary describes certain terms of the sale and
servicing agreement, the trust agreement and the indenture. Such summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the respective provisions of the sale and servicing agreement,
the trust agreement and the indenture. Whenever particular defined terms in the
indenture are referred to, such defined terms are thereby incorporated herein
by reference. See "The Agreements" in the Prospectus.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the Noteholders, the Master Servicer
will forward to the Indenture Trustee for mailing to such Noteholder and the
Insurer A statement setting forth among other items:
(i) the Investor Floating Allocation Percentage for the preceding
Collection Period;
(ii) the amount being distributed to Noteholders;
(iii)the amount of interest included in such payment and the related
Note Rate;
(iv) the amount, if any, of overdue accrued interest included in such
payment;
(v) the amount, if any, of the remaining overdue accrued interest
after giving effect to such payment;
(vi) the amount, if any, of principal included in such payment;
(vii)the amount, if any, of the reimbursement of previous
Liquidation Loss Amounts included in such payment;
(viii) the amount, if any, of the aggregate unreimbursed Liquidation
Loss Amounts after giving effect to such payment;
(ix) the Servicing Fee for such Payment Date;
(x) the Invested Amount and the Note Principal Balance, each after
giving effect to such payment;
(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 to
30-59 days, 60- 89 days and 90 or more days, respectively, as of
the end of the Collection Period;
(xiii) the book value of any real estate which is acquired by the
Trust 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 (II), (III)
IN RESPECT OF THE AMOUNT OF INTEREST INCLUDED IN SUCH PAYMENT, (IV) and (viii)
above, the amounts shall be expressed as a dollar amount per Note with a $1,000
denomination.
Each year commencing in 1999, the Master Servicer will be required to
forward to the Indenture 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 Sale
and Servicing 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 Sale and Servicing 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 Master Servicer will cause to be maintained FOR EACH MORTGAGE LOAN
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 outstanding Principal Balance on the Mortgage Loan and any
related senior lien(S); and (ii) the MAXIMUM insurable value of the
IMPROVEMENTS securing the Mortgage Loan. Generally, if the Mortgaged Property
is in an area identified in the Federal Register by the Flood Emergency
Management Agency as FLOOD ZONE "A", such flood insurance has been made
available and the Master Servicer determines that such insurance is necessary
in accordance with accepted mortgage servicing practices of prudent lending
institutions, the Master Servicer will cause to be purchased a flood insurance
policy with a generally acceptable insurance carrier, in an amount representing
coverage not LESS than the lesser of (a) the outstanding Principal Balance of
the Mortgage Loan and ANY RELATED SENIOR LIEN(S), if any, or (b) the maximum
amount of insurance available under the National Flood Insurance Act of 1968,
as amended. 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 BORROWER 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 Sale and
Servicing Agreement.
In the event that the Master Servicer obtains and maintains a blanket
policy as provided in the Sale and Servicing 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 or its designee 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 Sale and Servicing 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 Noteholders or the Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
With respect to each Collection Period, the Master Servicer will
receive from interest collections in respect of the Mortgage Loans a portion of
such interest collections as a monthly Servicing Fee in the amount equal to
0.50% 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 AS
OF 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 and incurred by it in connection with its responsibilities under the
Sale and Servicing 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
Noteholders to receive any related Net Liquidation Proceeds.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides for delivery on or before
MAY 31 in each year, beginning on MAY 31, 1999, to the Indenture Trustee , the
RATING AGENCIES and the Insurer 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 Sale and Servicing Agreement throughout the
preceding fiscal year, except as specified in such statement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The Sale and Servicing 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 SUBSIDIARIES OR AFFILIATES or (ii) upon the
satisfaction of the following conditions: (a) the Master Servicer has proposed
a successor Master Servicer to the Indenture Trustee and the Insurer in writing
and such proposed successor Master Servicer is reasonably acceptable to the
Indenture Trustee; (b) the Rating Agencies have confirmed to the Indenture
Trustee and the Insurer 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 Notes; and (c) such proposed successor Master
Servicer is acceptable to the Insurer. No such resignation will become
effective until the Indenture Trustee or a successor Master Servicer has
assumed the Master Servicer's obligations and duties under the Sale and
Servicing Agreement.
The Master Servicer may perform any of its duties and obligations
under the Sale and Servicing 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
Indenture Trustee, the Owner Trustee , the Noteholders and the Insurer for the
Master Servicer's duties and obligations under the Sale and Servicing
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
Any person into which, in accordance with the Sale and Servicing
Agreement, Provident or the Master Servicer may be merged or consolidated or
any person resulting from any merger or consolidation to which Provident or the
Master Servicer is a party, or any person succeeding to the business of
Provident or the Master Servicer, will be the successor to the Master Servicer
under the Sale and Servicing Agreement.
The Sale and Servicing Agreement provides that the Master Servicer
will indemnify the Trust, the Indenture Trustee and the Owner 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 Sale and Servicing Agreement. 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 Sale and Servicing
Agreement provides that neither the Transferor nor the Master Servicer nor
their directors, officers, employees or agents will be under any other
liability to the Trust , the Indenture Trustee, the Owner Trustee, the
Noteholders or any other person for any action taken or for refraining from
taking any action pursuant to the Sale and Servicing Agreement. However,
neither 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 the Transferor or the Master Servicer in the
performance of its duties under the Sale and Servicing Agreement or by reason
of reckless disregard of its obligations thereunder. In addition, the Sale and
Servicing 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 Sale and Servicing
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 Sale and
Servicing Agreement and the rights and duties of the parties thereto and the
interest of the Noteholders and the Insurer thereunder.
EVENTS OF SERVICING TERMINATION
"Events of Servicing Termination" will consist of: (i) any failure by
the Master Servicer to deposit in the Collection Account any deposit required
to be made under the Sale and Servicing 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 Sale and Servicing Agreement which, in each
case, materially and adversely affects the interests of the Noteholders or the
Insurer and continues unremedied for 30 days after the giving of written notice
of such failure to the Master Servicer by the Indenture Trustee, or to the
Master Servicer and the Indenture Trustee by the Insurer or Noteholders
evidencing PERCENTAGE INTERESTS AGGREGATING NOT LESS THAN 25%; (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; or (iv) certain loss or delinquency tests set
forth in the Sale and Servicing Agreement are not met. Under certain other
circumstances, the Indenture Trustee shall, at the direction of the Insurer or
may, with the consent of the Insurer, or the holders of Notes evidencing an
aggregate, undivided interest in the Trust of at least 51% of the Note
Principal Balance may (with the consent of the Insurer SO LONG AS THERE IS NO
DEFAULT BY THE INSURER IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THE POLICY)
deliver written notice to the Master Servicer terminating all the rights and
obligations of the Master Servicer under the Sale and Servicing Agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (I) OR (ii) above for a period of TEN OR 30 Business
Days, RESPECTIVELY, 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 Sale and
Servicing Agreement and the Master Servicer shall provide the Indenture Trustee
and the Noteholders 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 Indenture Trustee shall at the direction of the Insurer or may, with
the consent of the Insurer, or Noteholders evidencing an aggregate, undivided
interest in the Trust of at least 51% of the Note Principal Balance with the
consent of the Insurer, may terminate all of the rights and obligations of the
Master Servicer under the Sale and Servicing Agreement and in and to the
Mortgage Loans, whereupon the Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Master Servicer under the Sale
and Servicing Agreement and will be entitled to similar compensation
arrangements. In the event that the Indenture 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 Master Servicer with all licenses and permits required to perform its
obligations under the Sale and Servicing Agreement and having a net worth of at
least $15,000,000 and acceptable to the Insurer to act as successor to the
Master Servicer under the Sale and Servicing Agreement. Pending such
appointment, the Indenture 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 Indenture 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.
EVENTS OF DEFAULT UNDER THE INDENTURE
"Events of Default" under the indenture include:
(i) a default in the payment of any interest or principal payment
when the same becomes due and payable and continuance of such
default for a period of five days;
(ii) failure on the part of the trust to perform in any material
respect any covenant or agreement under the indenture (other
than a covenant covered in clause (i) hereof) which continues
for a period of thirty days after notice thereof is given; and
(iii)certain events of bankruptcy, insolvency, receivership or
liquidation of the trust.
REMEDIES ON EVENT OF DEFAULT UNDER THE INDENTURE
If an event of default under the indenture has occurred and is
continuing, either the indenture trustee or the majority of the then
outstanding amount of the notes may declare the principal amount of the notes
due and payable immediately. Such a declaration may be rescinded by a majority
of the then outstanding amount of the notes.
If the principal of the notes has been declared due and payable as
described in the preceding paragraph, the indenture trustee may elect not to
liquidate the assets of the trust provided that the assets are generating
sufficient cash to pay interest and principal as it becomes due and payable to
the noteholders.
However, the indenture trustee may not sell or otherwise liquidate the
assets of the trust following an event of default (other than one described in
clause (i) of the definition of "event of default"), unless (a) the holders of
100% of the notes and the insurer consents to such sale, or (b) the proceeds of
such sale or liquidation are sufficient to pay all amounts due and owing to the
noteholders and the insurer, or (c) the trustee determines that the assets of
the trust would not be sufficient on an ongoing basis to make all payments on
the notes as they become due and payable and the trustee obtains the consent of
the holders of 66-2/3% of the percentage interests of the notes agree.
CERTAIN MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE
Neither the indenture trustee nor any director, officer or employee of
the indenture trustee will be under any liability to the trust of the
noteholders for taking any action or for refraining from the taking of any
action in good faith pursuant to the indenture, or for errors in judgment;
provided, that none of the indenture trustee or any director, officer or
employee thereof will be protected against any liability that would otherwise
be imposed on it by reason of willful malfeasance, bad faith or negligence in
the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the indenture. Subject to certain limitations set
forth in the indenture, the indenture trustee and any director, officer,
employee or agent thereof will be indemnified by the trust and held harmless
against any loss, liability or expense incurred in connection with
investigating, preparing to defend or defending any legal action, commenced or
threatened, relating to the indenture, other than any loss, liability or
expense incurred by reason of its own willful malfeasance, bad faith or
negligence in the performance of its duties under the indenture, or by reason
of its reckless disregard of its obligations and duties under the indenture.
All persons into which the indenture trustee may be merged or with which it may
be consolidated, or any person resulting from such merger or consolidation,
will be the successor to the indenture trustee under the indenture.
The owner trustee, the indenture trustee and any of their respective
affiliates may hold notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the master servicer,
the owner trustee and the indenture trustee acting jointly (or in some
instances, the owner trustee or the indenture trustee acting alone) will have
the power to appoint co-trustees or separate trustees of all or any part of the
trust. In the event of such an appointment, all rights, powers, duties and
obligations conferred or imposed upon the owner trustee by the sale and
servicing agreement and the trust agreement and the indenture trustee by the
indenture will be conferred or imposed upon the owner trustee and the indenture
trustee, respectively, and in each such case such separate trustee or
co-trustee jointly, or, in any jurisdiction in which the owner trustee or
indenture trustee will be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who will exercise and perform
such rights, powers, duties and obligations solely at the direction of the
owner trustee or the indenture trustee, respectively.
The indenture trustee may resign at any time, in which event the owner
trustee will be obligated to appoint a successor thereto. The owner trustee may
resign at any time, in which event the co-owner trustee will be obligated to
appoint a successor thereto. The master servicer may also remove the owner
trustee or the indenture trustee if either ceases to be eligible to continue as
such under the trust agreement or the indenture, as the case may be, or becomes
legally unable to act or becomes insolvent. Any resignation or removal of the
owner trustee or indenture trustee and appointment of a successor thereto will
not become effective until acceptance of the appointment by such successor.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the notes (other than the execution and
authentication thereof), or of any mortgage loans or related documents, and
will not be accountable for the use or application by the provident or the
master servicer of any funds paid to the provident or the master servicer in
respect of the notes, or the mortgage loans, or the investment of any monies by
the master servicer before such monies are deposited into the collection
account or the distribution account. So long as no event of default has
occurred and is continuing, the owner trustee will be required to perform only
those duties specifically required of it under the trust agreement. Generally,
those duties will be limited to the receipt of the various certificates,
reports or other instruments required to be furnished to the owner trustee
under the trust agreement, in which case it will only be required to examine
them to determine whether they conform to the requirements of the trust
agreement. The owner trustee will not be charged with knowledge of a failure by
the master servicer to perform its duties under the trust agreement or sale and
servicing agreement which failure constitutes an event of default unless the
owner trustee obtains actual knowledge of such failure as will be specified in
the trust agreement.
The indenture trustee will make no representations as to the validity
or sufficiency of the indenture, the notes (other than the execution and
authentication thereof) or of any mortgage loans or related documents, and will
not be accountable for the use or application by the provident or the master
servicer of any funds paid to the provident or the master servicer in respect
of the notes or the mortgage loans, or the use or investment of any monies by
the master servicer before such monies are deposited into the collection
account or the distribution account. So long as no event of default has
occurred and is continuing, the indenture trustee will be required to perform
only those duties specifically required of it under the indenture. Generally,
those duties will be limited to the receipt of the various certificates,
reports or other instruments required to be furnished to the indenture trustee
under the indenture, in which case it will only be required to examine them to
determine whether they conform to the requirements of the indenture. The
indenture trustee will not be charged with knowledge of a failure by the master
servicer to perform its duties under the trust agreement or sale and servicing
agreement which failure constitutes an event of default unless the indenture
trustee obtains actual knowledge of such failure as will be specified in the
indenture.
The indenture trustee will be under no obligation to exercise any of
the rights or powers vested in it by the indenture 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 noteholders, unless such noteholders have offered to the indenture trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby.
AMENDMENT
Each of the Agreements may be amended from time to time by the Master
Servicer AND the Indenture Trustee and with the consent of the Insurer, but
without the consent of the Noteholders, to cure any ambiguity, to correct or
supplement any provisions therein which may be inconsistent with any other
provisions of such Agreement, to add to the duties of the Transferor or the
Master Servicer or to add or amend any provisions of such Agreement as required
by the Rating Agencies in order to maintain or improve any rating of the Notes
(it being understood that, after obtaining the ratings in effect on the Closing
Date, neither the Trustee nor the Master Servicer is obligated to obtain,
maintain, or improve any such rating) or to add any other provisions with
respect to matters or questions arising under such Agreement which shall not be
inconsistent with the provisions of such Agreement, provided that such action
will not, as evidenced by an opinion of counsel, materially and adversely
affect the interests of any Noteholder or the Insurer; provided, that any such
amendment will not be deemed to materially and adversely affect the Noteholders
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
Notes. Each of the Agreements may also be amended from time to time by the
Master Servicer AND the Indenture Trustee , with the consent of Noteholders
evidencing an aggregate, undivided interest in the Trust of at least 51% of the
Note Principal Balance and the Insurer for the purpose of adding any provisions
to or changing in any manner or eliminating any of the provisions of the Sale
and Servicing Agreement or of modifying IN any manner the rights of the
Noteholders, provided that no such amendment will (i) reduce in any manner the
amount of, or delay the timing of, collections of payments on the Notes or
payments under the Policy which are required to be made on any Note without the
consent of the holder of such Note AND THE INSURER or (ii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of
the holders of all Notes then outstanding.
TERMINATION; RETIREMENT OF THE NOTES
The Trust will terminate on the Payment Date following the later of
(A) payment in full of all amounts owing to the Insurer and (B) the earliest of
(i) the Payment Date on which the Note Principal Balance has been reduced to
zero, (ii) the final payment (or other liquidation) of the last Mortgage Loan
in the Trust OR THE DISPOSITION OF ALL PROPERTY ACQUIRED UPON FORECLOSURE OR BY
DEED IN LIEU OF FORECLOSURE OF ANY MORTGAGE LOAN, (iii) the optional transfer
to the Transferor of the Mortgage Loans, as described below and (iv) the
Payment Date in DECEMBER 2028.
The Mortgage Loans will be subject to optional transfer to the
Transferor on any Payment Date after the Note Principal Balance is reduced to
an amount less than 5% of the Original Note Principal Balance and all amounts
due and owing to the Insurer, including 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 Note
Principal Balance and accrued and unpaid interest thereon at the Note Rate
through the day preceding the final Payment Date. In no event, however, will
the Trust created by the Trust Agreement continue for more than 21 years after
the death of certain individuals named in the Sale and Servicing Agreement.
Written notice of termination of the Sale and Servicing Agreement will be given
to each Noteholder, and the final payment will be made only upon surrender and
cancellation of the Notes at an office or agency appointed by the Indenture
Trustee which will be specified in the notice of termination.
THE INDENTURE TRUSTEE
THE CHASE MANHATTAN BANK, A NEW YORK BANKING CORPORATION with its
principal place of business in NEW YORK, has been named Indenture Trustee
pursuant to the Sale and Servicing Agreement.
The commercial bank or trust company serving as INDENTURE Trustee may
own Notes and have normal banking relationships with the Master Servicer and
the Insurer and/or their affiliates.
The Indenture Trustee may resign at any time, in which event PROVIDENT
will be obligated to appoint a successor Indenture Trustee, as approved by the
Insurer. PROVIDENT or the Insurer may also remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the Sale and
Servicing Agreement or if the Indenture Trustee becomes insolvent. Upon
becoming aware of such circumstances, PROVIDENT will be obligated to appoint a
successor Indenture Trustee, as approved by the Insurer. Any resignation or
removal of the Indenture Trustee and appointment of a successor Indenture
Trustee will not become effective until acceptance of the appointment by the
successor Indenture Trustee.
No holder of a Note will have any right under the Sale and Servicing
Agreement to institute any proceeding with respect to the Sale and Servicing
Agreement unless the Insurer has consented in writing to the institution of
such proceeding and such holder previously has given to the Indenture Trustee
written notice of default and unless Noteholders evidencing an aggregate,
undivided interest in the Trust of at least 51% of the Note Principal Balance
have made written requests upon the Indenture Trustee to institute such
proceeding in its own name as INDENTURE Trustee thereunder and have offered to
the Indenture Trustee reasonable indemnity and the Indenture Trustee for 60
days has neglected or refused to institute any such proceeding. The Indenture
Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Sale and Servicing 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 Noteholders, unless such Noteholders have offered to the Indenture Trustee
reasonable security or indemnity against the cost expenses and liabilities
which may be incurred therein or thereby.
CERTAIN ACTIVITIES
The Trust 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 Sale and Servicing Agreement, engage in the
purchase and sale (or turnover) of investments; (vi) offer securities in
exchange for property (except Notes 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 Sale and Servicing Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Notes will be
applied by Provident for its general corporate purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes certain U.S. federal income
tax aspects of the purchase, ownership and disposition of the Notes, 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 Note Owners in light of
their personal investment circumstances or to certain types of Note 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 Notes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in
the Agreements and other relevant documents and assuming compliance with the
terms of the Agreements as in effect on the date of issuance of the Notes,
Brown & Wood LLP, special tax counsel to the Trust ("TAX Counsel") and counsel
to the Underwriters, is of the opinion that (i) the Notes will be treated as
debt instruments for federal income tax purposes as of such date and (ii) the
Trust will not be characterized as an association (OR publicly traded
partnership) taxable as a corporation or as a taxable mortgage pool within the
meaning of Section 7701 (i). Accordingly, upon issuance, the Notes will be
treated as "Debt Securities" as described in the Prospectus. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
The Transferor and the Noteholders express in the Sale and Servicing
Agreement their intent that, for applicable tax purposes, the Notes will be
indebtedness secured by the Mortgage Loans. The Transferor and the Noteholders,
by accepting the Notes, and each Note Owner by its acquisition of a beneficial
interest in a Note, have agreed to treat the Notes 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
Principal 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 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 Note 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 Notes as debt or otherwise
makes the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF NOTE OWNERS
Assuming that the Note Owners are holders of debt obligations for U.S.
federal income tax purposes, the Notes generally will be taxable as Debt
Securities. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" in the Prospectus.
While it is not anticipated that the Notes will be issued at a greater
than de minimis discount, under Treasury regulations (the "OID Regulations") it
is possible that the Notes could nevertheless be deemed to have been issued
with original issue discount ("OID") if the interest were not treated as AN
unconditionally payable under the OID Regulations. If such regulations were to
apply, all of the taxable income to be recognized with respect to the Notes
would be includible in income of Note Owners as OID, but would not be
includible again when the interest is actually received. See "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS--TAXATION of Debt Securities; Interest and
Acquisition Discount" in the Prospectus for a discussion of the application of
the OID rules if the Notes 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 Notes will
be treated as Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE NOTES 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 Notes
constitutes a sale of the Mortgage Loans (or an interest therein) to the Note
Owners and that the proper classification of the legal relationship between the
Transferor and the Note Owners resulting from this transaction is that of a
partnership (including a publicly traded partnership), a publicly traded
partnership treated as a corporation, or an association taxable as a
corporation. Since Tax Counsel has advised that the Notes will be treated as
indebtedness in the hands of the Noteholders 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 as such
requirements would apply if the Notes were treated as indebtedness.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership taxable as
a corporation), the Trust 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 payment to the Note Owners. Cash
payments to the Note 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 Note 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 Note 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 Note Owner could differ if the Notes were held to
constitute partnership interests rather than indebtedness.
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. Subject
to a grandfather provision for existing entities, 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 Agreements, as in effect on
the date of issuance, are complied with, Tax Counsel is of the opinion that the
arrangement created by the Agreements 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 Agreements 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 payments to Note Owners. The amount of such a tax
would depend upon whether payments to Note Owners would be deductible as
interest expense in computing the taxable income of such an arrangement as a
taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including OID)
paid on a Note to a nonresident alien individual, foreign corporation or other
non-United States person is not subject to U.S. federal income tax, provided
that such interest is not effectively connected with a trade or business of the
recipient in the United States and the Note Owner provides the required foreign
person information certification. See "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS--TAX Treatment of Foreign Investors" in the Prospectus.
If the interests of the Note Owners were deemed to be partnership
interests, the partnership, if it were considered to be engaged in a U.S. trade
or business, 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 were taxable as a corporation, payments to foreign
persons, to the extent treated as dividends (or if the Trust were characterized
as a partnership that was not engaged in a trade or business, all interest
payments), would generally be subject to withholding at the rate of 30%, unless
such rate were reduced by an applicable tax treaty.
If, contrary to the opinion of Tax Counsel, the Notes are
recharacterized as equity interests in a partnership, or in an association or
publicly traded partnership taxable as a corporation, any taxes required to be
so withheld will be treated for all purposes of the Notes and the Policy as
having been paid to the related Noteholder.
BACKUP WITHHOLDING
Certain Note Owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the Notes if the Note Owners, upon
issuance, fail to supply the Indenture 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) property, or, under certain circumstances, fail to provide the
Indenture Trustee or his broker with a certified statement, under penalty of
perjury, that he is not subject to backup withholding.
The Indenture Trustee will be required to report annually to the IRS,
and to each Noteholder of record, the amount of interest paid (and OID accrued,
if any) on the Notes (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 "Noteholder" of record is Cede, as nominee
for DTC, Note Owners and the IRS will receive tax and other information
including the amount of interest paid on the Notes from Participants and
Indirect Participants rather than from the Indenture Trustee. (The Indenture
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 Note 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 Note 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.
TAX-EXEMPT ENTITIES
A tax-exempt Note Owner would be subject to less favorite tax
treatment because an interest in a partnership would generate "unrelated
business taxable income" and thereby subject the Note Owner to the "unrelated
business, taxable income" provisions of the Code.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Notes under the tax laws of any
state. Investors considering an investment in the Notes should consult their
own tax advisors regarding such tax consequences.
All investors should consult their own tax advisors regarding the
Federal, state, local, foreign or any other income tax consequences of the
purchase, ownership and disposition of the Notes.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") and Section 4975 of the Code impose certain restrictions on employee
benefit plans subject to ERISA or plans or arrangements subject to Section 4975
of the Code ("Plans") and on persons who are parties in interest or
disqualified persons ("parties in interest") with respect to such Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under section 410(d) of the Code), are not subject to
the restrictions of ERISA, and assets of such plans may be invested in the
Offered Securities without regard to the ERISA considerations described below,
subject to other applicable Federal and state law. However, any such
governmental or church plan which is qualified under section 401(a) of the Code
and exempt from taxation under section 501(a) of the Code is subject to the
prohibited transaction rules set forth in section 503 of the Code. Any Plan
fiduciary which proposes to cause a Plan to acquire any of the Notes should
consult with its counsel with respect to the potential consequences under
ERISA, and the Code, of the Plan's acquisition and ownership of the Notes. See
"ERISA Considerations" in the Prospectus. Investments by Plans are also subject
to ERISA's general fiduciary requirements, including the requirement of
investment prudence and diversification and the requirement that a Plan's
investments be made in accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a
Plan from engaging in certain transactions (including loans) involving a Plan
and its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in some
cases, a civil penalty may be assessed pursuant to section 502(i) of ERISA) on
parties in interest which engage in non-exempt prohibited transactions.
PLAN ASSET REGULATION
The United States Department of Labor ("Labor") has issued final
regulations concerning the definition of what constitutes the assets of a Plan
for purposes of ERISA and the prohibited transaction provisions of the Code
(the "Plan Asset Regulation"). The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a Plan invests will
be considered to be "plan assets" such that any person who exercises control
over such assets would be subject to ERISA's fiduciary standards. Under the
Plan Asset Regulation, generally when a Plan invests in another entity, the
Plan's assets do not include, solely by reason of such investment, any of the
underlying assets of the entity. However, the Plan Asset Regulation provides
that, if a Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" (as defined therein) nor a security issued by an
investment company registered under the Investment Company Act of 1940, the
assets of the entity will be treated as assets of the Plan investor unless
certain exceptions apply. If the Notes were deemed to be equity interests and
no statutory, regulatory or administrative exemption applies, the Trust could
be considered to hold plan assets by reason of a Plan's investment in the
Notes. Such plan assets would include an undivided interest in any assets held
by the Trust . In such an event, the Master Servicer and other persons, in
providing services with respect to the TRUST'S assets, may be parties in
interest with respect to such Plans, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction provisions
of Section 406 of ERISA, and Section 4975 of the Code with respect to
transactions involving the TRUST'S assets. Under the Plan Asset Regulation, the
term "equity interest" is defined as any interest in an entity other than an
instrument that is treated as indebtedness under "applicable local law" and
which has no "substantial equity features." Although the Plan Asset Regulation
is silent with respect to the question of which law constitutes "applicable
local law" for this purpose, Labor has stated that these determinations should
be made under the state law governing interpretation of the instrument in
question. In the preamble to the Plan Asset Regulation, Labor declined to
provide a precise definition of what features are equity features or the
circumstances under which such features would be considered "substantial,"
noting that the question of whether a plan's interest has substantial equity
features is an inherently factual one, but that in making a determination it
would be appropriate to take into account whether the equity features are such
that a Plan's investment would be a practical vehicle for the indirect
provision of investment management services. Brown & Wood LLP ("ERISA Counsel")
has rendered its opinion that the Notes will be classified as indebtedness
without substantial equity features for ERISA purposes. ERISA Counsel's opinion
is based upon the terms of the Notes, the opinion of Tax Counsel that the Notes
will be classified as debt instruments for Federal income tax purposes and the
ratings which have been assigned to the Notes. However, if contrary to ERISA
Counsel's opinion the Notes are deemed to be equity interests in the Trust and
no statutory, regulatory or administrative exemption applies, the Trust could
be considered to hold plan assets by reason of a Plan's investment in the
Notes.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Notes 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 Notes, a
fiduciary of a Plan should make its own determination as to whether the Trust ,
as obligor on the Notes, is a party in interest with respect to the Plan, the
availability of the exemptive relief provided in the Plan Asset Regulations and
the availability of any other prohibited transaction exemptions.
Purchasers should analyze whether the decision may have an impact with respect
to purchases of the Notes.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Notes will be rated in
the highest rating category of the Rating Agencies, the Notes 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 Notes, 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 the underwriter (the "Underwriter"), Provident has agreed to sell
to __________, and the Underwriter has agreed to purchase from Provident the
principal amount of Notes set forth below opposite its names.
Underwriter Principal Amount of Notes
[Name] $
Total $
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all the Notes offered
hereby if any of the Notes are purchased.
Provident has been advised by the Underwriter that they propose
initially to offer the Notes to the public in Europe and the United States at
the underwriting price set forth herein and to certain dealers at such, price,
less a discount not in excess of ____% of the Note denominations. The
Underwriter may allow and such dealers may reallow a discount not in excess of
___% of the Note 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 Notes 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 Notes will
develop.
Until the payment of the Notes is completed, rules of the Commission
may limit tile ability of the Underwriter and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriter
is permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
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 tile direction or magnitude of any effect that the
transactions described above may have on the prices of the Notes. 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
Securities Act of 1933, as amended.
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 Notes will be passed upon
for Provident by Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio and for
the Underwriters by Brown & Wood LLP, New York, New York. Certain legal matters
will be passed upon for the Insurer by Kutak Rock, Omaha, Nebraska.
EXPERTS
The consolidated balance sheets of [Insurer] and its subsidiaries as
of December 31, 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 December 31, 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 Notes be rated "____" by
__________ and _____ and "_____" by __________.
A securities rating addresses the likelihood of the receipt by
Noteholders of payments 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 Notes. The ratings on the Notes do
not, however, constitute statements regarding the likelihood or frequency of
prepayments on the Mortgage Loans or the possibility that Noteholders might
realize a lower than anticipated yield.
The ratings assigned to the Notes will depend primarily upon the
creditworthiness of the Insurer. Any reduction in a rating assigned to the
claims-paying ability of the Insurer below the ratings initially assigned to
the Notes may result in a reduction of one or more of the ratings assigned to
the Notes.
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.
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. 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 FEBRUARY 4, 1999
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
Risk Factors...............................................................4
The Trust Fund.............................................................6
Use of Proceeds...........................................................10
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..................................................68
ERISA Considerations......................................................68
Legal Investment..........................................................72
Method of Distribution....................................................73
Legal Matters.............................................................74
Financial Information.....................................................74
Rating....................................................................74
Index 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.
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 199_-_
--------------- ------------------ ------------------------- -----------------
LAST SCHEDULED
INITIAL CLASS DISTRIBUTION
CLASS CERTIFICATE RATE PRINCIPAL BALANCE (1) DATE(2)
----- ---------------- ------------------ -------
--------------- ------------------ ------------------------- -----------------
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 -
--------------- ------------------ ------------------------- -----------------
(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 __% 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; 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 1capitalized 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 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 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
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------
Portfolio...........
- ----------------------
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.
<TABLE>
<CAPTION>
CUT-OFF DATE LOAN GROUP 1 PRINCIPAL BALANCES
<S> <C> <C> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
MONTHS SINCE ORIGINATION
LOAN GROUP 1
<S> <C> <C> <C>
Months Since Origination Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 1 Loan Group 1
Principal Balance Principal Balance
</TABLE>
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
<TABLE>
<CAPTION>
MONTHS SINCE ORIGINATION
LOAN GROUP 2
<S> <C> <C> <C>
Months Since Origination Number of Cut-Off Date % of Cut-Off Date
Mortgage Loans Loan Group 2 Loan Group 2
Principal Balance Principal Balance
</TABLE>
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)
<S> <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
SUBJECT TO COMPLETION, DATED FEBRUARY 4, 1999
PROSPECTUS
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
----------------
CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
The securities represent obligations of the trust only and do not represent an
interest in or obligation of The Provident Bank, the master servicer or any of
their affiliates.
This prospectus may be used to offer and sell the securities only if
accompanied by a prospectus supplement.
The Provident Bank may periodically issue securities, which may be in the form
of asset-backed certificates or asset-backed notes. Each issue of securities
will have its own series designation and will evidence interests in or
obligations of a trust established by The Provident Bank.
EACH TRUST WILL CONSIST OF:
o mortgage loans secured by senior or junior liens on a one- to
four-family residential properties; and
o closed-end and/or revolving home equity loans secured by senior or
junior liens on a one- to four-family residential properties.
EACH SERIES OF SECURITIES WILL:
o either evidence beneficial ownership of a trust or be secured by the
assets of a trust;
o will be issued in one or more classes of securities. A class of
securities:
o will be entitled to anywhere from 0% to 100% of the interest
payments and principal payments on the assets of the trust;
o may be senior or subordinate in right of payment to other
classes; and
o 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 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
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
o 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.
o 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.
o 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.
o 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
o require certain disclosures to the borrowers regarding the terms
of the loans;
o 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;
o regulate the use and reporting of information related to the
borrower's credit experience; and
o 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:
(a) Interest may be payable at a fixed rate, a rate adjustable
from time to time in relation to an index (which will be specified in
the related Prospectus Supplement), a rate that is fixed for a period
of time or under certain circumstances and is followed by an
adjustable rate, a rate that otherwise varies from time to time, or a
rate that is convertible from an adjustable rate to a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of such limitations.
Accrued interest may be deferred and added to the principal of a Loan
for such periods and under such circumstances as may be specified in
the related Prospectus Supplement. Loans may provide for the payment
of interest at a rate lower than the specified interest rate borne by
such Loan (the "Loan Rate") for a period of time or for the life of
the Loan, and the amount of any difference may be contributed from
funds supplied by the seller of the Property or another source.
(b) Principal may be payable on a level debt service basis to
fully amortize the Loan over its term, may be calculated on the basis
of an assumed amortization schedule that is significantly longer than
the original term to maturity or on an interest rate that is
different from the Loan Rate or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion
of the principal may be due on maturity ("balloon payment").
Principal may include interest that has been deferred and added to
the principal balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for
the life of the Loan, may increase over a specified period of time or
may change from period to period. Loans may include limits on
periodic increases or decreases in the amount of monthly payments and
may include maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the Loan or may decline over time,
and may be prohibited for the life of the Loan or for certain periods
("Lockout Periods"). Certain Loans may permit prepayments after
expiration of the applicable Lockout Period and may require the
payment of a prepayment fee in connection with any such subsequent
prepayment. Other Loans may permit prepayments without payment of a
fee unless the prepayment occurs during specified time periods. The
Loans may include "due-on-sale" clauses which permit the mortgagee to
demand payment of the entire Loan in connection with the sale or
certain transfers of the related Property. Other Loans may be
assumable by persons meeting the then applicable standards set forth
in the Agreement.
A Trust Fund may contain certain Loans ("Buydown Loans") that include
provisions whereby a third party partially subsidizes the monthly payments of
the borrowers on such Loans during the early years of such Loans, the
difference to be made up from a fund (a "Buydown Fund") contributed by such
third party at the time of origination of the Loan. A Buydown Fund will be in
an amount equal either to the discounted value or full aggregate amount of
future payment subsidies. The underlying assumption of buydown plans is that
the income of the borrower will increase during the buydown period as a result
of normal increases in compensation and inflation, so that the borrower will be
able to meet the full loan payments at the end of the buydown period. To the
extent that this assumption as to increased income is not fulfilled, the
possibility of defaults on Buydown Loans is increased. The related Prospectus
Supplement will contain information with respect to any Buydown Loan concerning
limitations on the interest rate paid by the borrower initially, on annual
increases in the interest rate and on the length of the buydown period.
The real property which secures repayment of the Loans is referred to
as the "Mortgaged Properties". The Loans will be secured by mortgages or deeds
of trust or other similar security instruments creating a lien on a Mortgaged
Property. In the case of Home Equity Loans, such liens generally will be
subordinated to one or more senior liens on the related Mortgaged Properties as
described in the related Prospectus Supplement. The Mortgaged Properties are
referred to herein as the "Properties". The Properties relating to Loans will
consist of detached or semi-detached one- to four-family dwelling units,
townhouses, rowhouses, individual condominium units, individual units in
planned unit developments, manufactured homes and certain other dwelling units
("Single Family Properties"). Such Properties may include vacation and second
homes, investment properties, and dwellings situated on leasehold estates. In
the case of leasehold interests, the term of the leasehold will exceed the
scheduled maturity of the Loan by at least five years, unless otherwise
specified in the related Prospectus Supplement. The Properties may be located
in any one of the fifty states, the District of Columbia, Guam, Puerto Rico or
any other territory of the United States.
Loans with certain Loan-to-Value Ratios and/or certain principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies (each, a "Primary Mortgage Insurance Policy"). The
existence, extent and duration of any such coverage will be described in the
applicable Prospectus Supplement.
The aggregate principal balance of Loans secured by Properties that
are owner-occupied may be disclosed in the related Prospectus Supplement. The
basis for a representation that a given percentage of the Loans is secured by
Single Family Properties that are owner-occupied will be either (i) the making
of a representation by the borrower at origination of the Loan either that the
underlying Property will be used by the borrower for a period of at least six
months every year or that the borrower intends to use the Property as a primary
residence or (ii) a finding that the address of the underlying Property is the
borrower's mailing address.
Home Equity Loans. As more fully described in the related Prospectus
Supplement, interest on each revolving credit line loan 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:
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
PRINCIPAL TYPES
<S> <C>
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.
</TABLE>
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 ("Insured Expenses") incurred, and
unreimbursed Advances made, by the Master Servicer, if any) of the hazard
insurance policies and any Primary Mortgage Insurance Policies, to the
extent such proceeds are not applied to the restoration of the property or
released to the Mortgagor in accordance with the Master Servicer's normal
servicing procedures (collectively, "Insurance Proceeds") and all other
cash amounts (net of unreimbursed expenses incurred in connection with
liquidation or foreclosure ("Liquidation Expenses") and unreimbursed
Advances made, by the Master Servicer, if any) received and retained in
connection with the liquidation of defaulted Loans, by foreclosure or
otherwise ("Liquidation Proceeds"), together with any net proceeds
received on a monthly basis with respect to any properties acquired on
behalf of the Securityholders by foreclosure or deed in lieu of
foreclosure;
(iv) all proceeds of any Loan or property in respect thereof
purchased by Provident as described under "Loan Program--Representations
by Provident; Repurchases" or "--Assignment of Trust Fund Assets" above
and all proceeds of any Loan repurchased as described under
"--Termination; Optional Termination" below;
(v) all payments required to be deposited in the Security Account
with respect to any deductible clause in any blanket insurance policy
described under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to
be made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii) all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
(viii) 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:
(ix) 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;
(x) 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;
(xi) to reimburse the Master Servicer for any Advances previously
made which the Master Servicer has determined to be nonrecoverable;
(xii) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(xiii) 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;
(xiv) to reimburse the Master Servicer or Provident for expenses
incurred and reimbursable pursuant to the Agreement;
(xv) to withdraw any amount deposited in the Security Account and not
required to be deposited therein; and
(xvi) 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% 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 Securityholders 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.
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
Term Page
<S> <C>
Accrual Securities:..............................................................................................15
Additional Obligations:..........................................................................................71
Agreement:........................................................................................................6
Amortizable Bond Premium Regulations:............................................................................51
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:....................................................................................33
Cash Flow Bond Method:...........................................................................................57
CEDEL Participants:..............................................................................................21
CEDEL:...........................................................................................................20
CERCLA...........................................................................................................42
Class Security Balance:..........................................................................................15
Closed-End Loan...................................................................................................8
Code.............................................................................................................47
Collateral Value:.................................................................................................9
Combined Loan-to-Value Ratio:.....................................................................................9
Companion Classes:...............................................................................................19
Components:......................................................................................................18
Contingent Regulations:..........................................................................................48
Credit Enhancement:..............................................................................................69
Cut-Off Date Principal Balance:..................................................................................13
Cut-Off Date:.....................................................................................................6
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 Operator:..............................................................................................22
Euroclear Participants:..........................................................................................21
Euroclear:.......................................................................................................20
European Depositaries:...........................................................................................20
Event of Default.................................................................................................37
Excess Servicing Fees:...........................................................................................57
FASIT Ownership Security:........................................................................................65
FASIT Provisions:................................................................................................65
FASIT Qualification Test:........................................................................................65
FASIT Regular Securities:........................................................................................65
FASIT:...........................................................................................................65
FDIC:............................................................................................................12
FHLMC:...........................................................................................................12
Financial Intermediary:..........................................................................................20
Fitch:...........................................................................................................70
FNMA:............................................................................................................12
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
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:..........................................................................................................22
Mortgage Loans....................................................................................................7
Mortgage pass-through certificate:...............................................................................69
Mortgage related security:.......................................................................................72
Mortgage:........................................................................................................29
Mortgaged Properties:.............................................................................................8
NCUA:............................................................................................................72
New partnership:.................................................................................................63
Obligations:.....................................................................................................71
OID Regulations:.................................................................................................47
OID:.............................................................................................................47
Old partnership:.................................................................................................63
PACs:............................................................................................................18
Parties in Interest:.............................................................................................68
Pass-Through Securities:.........................................................................................55
Pay-Through Security:............................................................................................49
Permitted Investments:...........................................................................................25
Plans:...........................................................................................................68
Policy Statement:................................................................................................73
Pool Insurance Policy:...........................................................................................26
Pool Insurer:....................................................................................................26
Pool:.............................................................................................................6
Pooling and Servicing Agreement...................................................................................6
Pooling and Servicing Agreement:.................................................................................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
Provident.........................................................................................................6
PTE 83-1:........................................................................................................69
Purchase Price:..................................................................................................12
Rating Agencies..................................................................................................74
Rating Agency:...................................................................................................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
REMIC:...........................................................................................................65
Reserve Account..................................................................................................25
Residual Interest Security:......................................................................................53
Restricted Group:................................................................................................71
Retained Interest:...............................................................................................13
Revolving Credit Line Loans.......................................................................................8
Rules:...........................................................................................................21
S&P:.............................................................................................................70
SAIF:............................................................................................................30
Secured Creditor Exclusion:......................................................................................42
Security Account:................................................................................................30
Security Owners:.................................................................................................20
Security Register:...............................................................................................14
Securityholder:..................................................................................................20
Senior Securities:...............................................................................................23
Servicing Fees:..................................................................................................55
Short-Term Note:.................................................................................................60
Single Family Properties:.........................................................................................8
Single Family Securities:........................................................................................69
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:.........................................................................................................45
Trust Agreement:..............................................................................................6, 13
Trust Fund Assets:................................................................................................6
Trustee...........................................................................................................6
Trustee:.........................................................................................................13
Underwriter Exemptions:..........................................................................................70
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee.............................................................................. $ 379,927.85
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............................................................................................. $ 1,769,927.85
===============
</TABLE>
_______________
* 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.
<TABLE>
ITEM 16. EXHIBITS.
<CAPTION>
<S> <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 hereof).**
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (included in Exhibit 5.1).**
24.1 Power of Attorney.
</TABLE>
_______________
*Incorporated by reference from the Registrant's Registration Statement (File
No. 333-62595).
**PREVIOUSLY FILED
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 No. 2 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Cincinnati, Ohio on
the 3rd day of February, 1999.
THE PROVIDENT BANK
By: /s/ Kevin M. Shea
------------------
Name: Kevin M. Shea
Title: Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 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 February 3, 1999
- ---------------------- (Principal Executive Officer)
Robert L. Hoverson and Director
/S/ John R. Farrenkopf Senior Vice President and Chief February 3, 1999
- ---------------------- Financial Officer (Principal
John R. Farrenkopf Accounting Officer)
/s/ Jack M. Cook* Director February 3, 1999
- ----------------------
Jack M. Cook
/s/ Thomas D. Grote Jr*. Director February 3, 1999
- -----------------------
Thomas D. Grote, Jr.
/s/ Joseph A. Steger* Director February 3, 1999
- ----------------------
Joseph A. Steger
- -----------------------
/s/ Philip R. Myers* Director February 3, 1999
- ----------------------
Philip R. Myers
/s/ Joseph A. Pedoto* Director February 3, 1999
- ----------------------
Joseph A. Pedoto
/s/ Sidney A. Peerless* Director February 3, 1999
- -----------------------
Sidney A. Peerless
- -----------------------
*BY: /S/ MARK E. MAGEE
------------------
ATTORNEY-IN-FACT PURSUANT TO POWER OF ATTORNEY February 3, 1999
</TABLE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement relating
to Home Equity Loan Asset Backed Certificates.*
4.2 -- Form of Trust Agreement.*
4.3 -- Form of Indenture.*
4.4 -- Form of Master Servicing Agreement.*
5.1 -- Opinion of Keating, Muething & Klekamp, P.L.L.
as to the legality of the Securities.
8.1 -- Opinion of Brown & Wood LLP as to certain tax
matters.
23.1 -- Consent of Brown & Wood LLP (included in Exhibit 8.1).**
23.2 -- Consent of Keating, Muething & Klekamp, P.L.L.
(included in Exhibit 5.1).**
24.1 -- Power of Attorney (included on page II-3).**
- ------------
* Incorporated by reference from the Registrant's Registration Statement
(File No. 333-62595).
**PREVIOUSLY FILED.
February 4, 1999
0
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Provident Bank
Registration Statement on Form S-3
File No. 333-67593
----------------------------------
Ladies and Gentlemen:
In accordance with Rule 461 under the General Rules and Regulations
under the Securities Act of 1933, as amended (the "Act"), the undersigned, as
Registrant, hereby requests that the effective date for the above-referenced
Registration Statement be accelerated so that it will be declared effective at
12:00 p.m., on February 4, 1999 or as soon as possible thereafter.
The Registrant acknowledges that it is aware of its responsibilities
under the Act as they relate to the public offering of the securities specified
in the Registration Statement.
Very truly yours,
THE PROVIDENT BANK
By: /s/ Kevin M. Shea
------------------------
Name: Kevin M. Shea
Title: Vice President
Brown & Wood LLP
One World Trade Center
New York, New York 10048-0557
Telephone: 212-839-5300
Facsimile: 212-839-5599
February 4, 1999
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, Amendment No. 2 to the
Registration Statement on Form S-3 relating to asset backed securities of the
Company, marked to show changes from Amendment No. 1 to the Registration
Statement filed on December 11,1998. The Registrant is also filing with the
Commission via EDGAR simultaneously herewith the acceleration request for the
above referenced Registration Statement
Please note that pursuant to Rule 429 this Registration Statement also
relates to Registration Statement No. 333-62595. The appropriate Registration
Fee of $58,137.31 was wired this morning 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
