<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 333-67593
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 24, 1999)
$515,000,000 (approximate)
Provident Bank Home Equity Loan Trust 1999-2
Home Equity Loan Asset-Backed Certificates, Series 1999-2
The Provident Bank
as Seller and Master Servicer
The Trust will issue 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.
. three classes of senior Class A
Certificates, which are offered
hereby
. three classes of senior Class X
Certificates, which are not
offered hereby
This prospectus supplement may
be used to offer and sell the
certificates only if accompanied
by the prospectus.
. two classes of subordinate
Residual Certificates, which are
not offered hereby
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
three loan groups and certain other property
. currently have no trading market
. are not insured or guaranteed by any governmental agency
. are obligations of the trust only and are not obligations of the seller,
master servicer or its affiliates
Credit Enhancement
. will be provided in the form of a spread account and an irrevocable and
unconditional certificate guaranty insurance policy issued by MBIA
Insurance Corporation
The trust will make two REMIC elections for federal income tax purposes.
Review the information in Risk Factors on page S-9 and on page 5 in the
prospectus.
For complete information about the Class A Certificates, read both this
prospectus supplement and the prospectus.
Lehman Brothers, on behalf of the underwriters, will buy the Class A
Certificates from The Provident Bank at a price equal to approximately 99.70%
of their face value. The underwriters 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.
---------------
Lehman Brothers Prudential Securities
June 24, 1999
<PAGE>
For ninety days following the date of this prospectus supplement, 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
Summary.................................................................... S-3
Risk Factors............................................................... S-9
The Certificate Insurer.................................................... S-13
The Provident Bank......................................................... S-15
Description of the Mortgage Loans.......................................... S-18
Prepayment and Yield Considerations........................................ S-45
Description of the Certificates............................................ S-51
Use of Proceeds............................................................ S-78
Certain Federal Income Tax Consequences.................................... S-79
State Taxes................................................................ S-82
ERISA Considerations....................................................... S-82
Legal Investment Considerations............................................ S-83
Underwriting............................................................... S-83
Experts.................................................................... S-84
Legal Matters.............................................................. S-84
Ratings.................................................................... S-84
Index of Defined Terms..................................................... S-85
Annex I.................................................................... I-1
Prospectus
Risk Factors............................................................... 5
The Trust Fund............................................................. 7
Use of Proceeds............................................................ 11
The Provident Bank......................................................... 11
Loan Program............................................................... 12
Description of the Securities.............................................. 15
Credit Enhancement......................................................... 25
Yield and Prepayment Considerations........................................ 30
The Agreements............................................................. 33
Certain Legal Aspects of the Loans......................................... 45
Federal Income Tax Consequences............................................ 52
State Tax Considerations................................................... 75
ERISA Considerations....................................................... 75
Legal Investment........................................................... 79
Method of Distribution..................................................... 80
Legal Matters.............................................................. 81
Financial Information...................................................... 81
Rating..................................................................... 81
Index of Defined Terms..................................................... 83
</TABLE>
S-2
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SUMMARY
This summary highlights selected information from this prospectus supplement
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 1999-2
<TABLE>
<CAPTION>
Last Scheduled
Initial Class Distribution
Class Certificate Rate Principal Balance(/1/) Date(/2/)
----- ---------------- ---------------------- --------------
<S> <C> <C> <C>
Class A-1 Variable(/3/) $290,000,000 7/25/2030
Class A-2 Variable(/4/) $ 37,000,000 7/25/2030
Class A-3 Variable(/5/) $188,000,000 7/25/2030
Class X-1(/6/) Variable(/7/) 0 N/A
Class X-2(/6/) Variable(/7/) 0 N/A
Class X-3(/6/) Variable(/7/) 0 N/A
Class R-1(/6/) N/A 0 N/A
Class R-2(/6/) N/A 0 N/A
</TABLE>
------------
(/1/)This amount is subject to a variance of 5%.
(/2/)We expect the actual last distribution date for each Class A
Certificate to be significantly earlier than its last scheduled
distribution date.
(/3/)The rate on this certificate will be the lesser of (a) one-month
LIBOR plus 0.23% (or 0.46%, on or after the call option date) and
(b) 13% per annum.
(/4/)The rate on this certificate will be the lesser of (a) one-month
LIBOR plus 0.28% (or 0.56%, on or after the call option date) and
(b) 13% per annum.
(/5/)The rate on this certificate will be one-month LIBOR plus 0.26% (or
0.52%, on or after the call option date). If this rate exceeds the
weighted average of the net loan rates for loan group 3 on any
distribution date, you will receive interest at the weighted average
net loan rate for loan group 3. On future distribution dates you
will be entitled to receive interest accrued at your certificate
rate in excess of the net loan rate for loan group 3, which amounts
will not be insured under the certificate insurance policy. We refer
you to "DESCRIPTION OF THE CERTIFICATES--Certificate Rate" for
additional information.
(/6/)This class is not being offered pursuant to this prospectus
supplement and prospectus.
(/7/)We refer you to "DESCRIPTION OF THE CERTIFICATES--Priority of
Distributions" for the calculation of the certificate rate.
The Seller and Master Servicer
. The Provident Bank.
. The Provident Bank maintains its principal office at One East Fourth Street,
Cincinnati, Ohio. Its telephone number is (513) 579-2000.
. The master servicer will receive a monthly fee from the interest payments on
the mortgage loans equal to 0.50% per annum on the principal balance of each
mortgage loan.
We refer you to "THE PROVIDENT BANK" in this prospectus supplement for
additional information.
The Trust
. Provident Bank Home Equity Loan Trust 1999-2.
Trustee
. The First National Bank of Chicago.
Certificate Insurer
. MBIA Insurance Corporation, a New York stock insurance company.
We refer you to "THE CERTIFICATE INSURER" in this prospectus supplement for
additional information.
Cut-Off Date
. For any initial mortgage loan, the cut-off date is June 1, 1999. For any
subsequent mortgage loan, the cut-off date is the date of origination or
purchase of that mortgage loan, unless a subsequent mortgage loan was
originated prior to June 1, 1999, then June 30, 1999.
S-3
<PAGE>
Closing Date
. June 30, 1999.
Distribution Date
. The 25th day of each month, or if such day is not a business day, the next
business day. The first distribution date is July 26, 1999.
Due Period
. The calendar month immediately preceding a determination date or a
distribution date, as applicable.
Designations
. Offered Certificates--The Class A Certificates.
. Non-Offered Certificates--The Class R Certificates and the Class X
Certificates.
. Regular Certificates--All classes of certificates other than the Class R
Certificates.
. Class X Certificates--The Class X-1, Class X-2 and Class X-3 Certificates.
. Residual Certificates--The Class R-1 and Class R-2 Certificates.
. Class A Certificates--The Class A-1, Class A-2 and Class A-3 Certificates.
. Group 1 Certificates--The Class A-1 Certificates. These certificates will
receive their payments from loan group 1.
. Group 2 Certificates--The Class A-2 Certificates. These certificates will
receive their payments from loan group 2.
. Group 3 Certificates--The Class A-3 Certificates. These certificates will
receive their payments from loan group 3.
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 Owning Book-Entry Certificates", "DESCRIPTION OF THE CERTIFICATES--
Book-Entry Certificates" and "ANNEX I" in this prospectus supplement for
additional information.
Trust Property
The trust property is held by the trustee for the benefit of the
certificateholders. The trust property includes:
. a pool of closed-end fixed and adjustable rate mortgage loans, secured by
first and second deeds of trust or mortgages on primarily one- to four-
family residential properties;
. payments on the mortgage loans received on or after the cut-off date;
. property that secured a mortgage loan which has been acquired by foreclosure
or deed in lieu of foreclosure and the net proceeds from the sale of a
foreclosed property;
. rights under any hazard insurance policies covering the mortgaged properties;
. amounts on deposit in certain accounts described in this prospectus
supplement; and
. a certificate guaranty insurance policy for the benefit of the holders of the
Class A Certificates.
The Mortgage Loans
On the closing date, the trust will acquire an initial pool of fixed and
adjustable rate home equity loans, or "initial mortgage loans," with a current
aggregate principal balance as of the cut-off date of $322,220,356.76.
The initial mortgage loans will have the following characteristics as of the
cut-off date:
. number of mortgage loans: 4,049
S-4
<PAGE>
. aggregate principal balance: $322,220,356.76
. mortgaged property location: 48 states and the District of Columbia
. loan rates range: 6.50% to 16.00% per annum
. weighted average interest rate: 10.46% per annum (approximate)
. weighted average remaining term to stated maturity: 299 months (approximate)
. term to stated maturity range: 54 months to 360 months
. last maturity date: June 2029
. combined loan-to-value ratio range: 8.00% to 100.00% (approximate)
. weighted average combined loan-to-value ratio: 77.70%
. balloon loans--loans with amortization schedules that don't fully amortize by
their maturity date: 23.78% (approximate)
The initial mortgage loans in loan group 1 are all fixed rate mortgage loans
and will have the following characteristics as of the cut-off date:
. number of mortgage loans: 2,632
. aggregate principal balance: $175,037,303.96
. mortgaged property location: 47 states and the District of Columbia
. average principal balance: $66,503.53
. maximum principal balance: $288,887.60
. interest rates range: 6.50% to 16.00% per annum
. weighted average interest rate: 10.60% per annum (approximate)
. weighted average remaining term to stated maturity: 259 months (approximate)
. remaining term to stated maturity range: 54 months to 360 months
. combined loan-to-value ratio range: 8.00% to 100.00% (approximate)
. weighted average combined loan-to-value ratio: 76.89%
. balloon loans--loans with amortization schedules that don't fully amortize by
their maturity date: 38.77% (approximate)
The initial mortgage loans in loan group 2 are both fixed and adjustable rate
mortgage loans and will have the following characteristics as of the cut-off
date:
. number of mortgage loans: 183
. aggregate principal balance of the fixed rate mortgage loans: $21,558,460.64
. aggregate principal balance of the adjustable rate mortgage loans:
$1,323,574.67
. aggregate principal balance: $22,882,035.31
. mortgaged property location: 33 states and the District of Columbia
. average principal balance: $125,038.44
. maximum principal balance: $465,000.00
. interest rates range: 8.44% to 14.39% per annum
. weighted average interest rate: 10.75% per annum (approximate)
. weighted average remaining term to stated maturity: 274 months (approximate)
. remaining term to stated maturity range: 118 months to 360 months
. combined loan-to-value ratio range: 8.00% to 90.00% (approximate)
. weighted average combined loan-to-value ratio: 77.58% (approximate)
. weighted average initial periodic cap for adjustable rate mortgage loans
(first interest rate adjustment): 1.00%
. weighted average periodic cap for adjustable rate mortgage loans (subsequent
interest rate adjustments): 1.00%
. balloon loans--loans with amortization schedules that don't fully amortize by
their maturity date: 38.31% (approximate)
The initial mortgage loans in loan group 3 are all adjustable rate mortgage
loans and will have the following characteristics as of the cut-off date:
. number of mortgage loans: 1,234
. aggregate principal balance: $124,301,017.49
. mortgaged property location: 45 states and the District of Columbia
. average principal balance: $100,730.16
S-5
<PAGE>
. maximum principal balance: $805,000.00
. interest rates range: 7.65% to 15.25% per annum
. weighted average interest rate: 10.20% per annum (approximate)
. weighted average remaining term to stated maturity: 359 months (approximate)
. remaining term to stated maturity range: 347 months to 360 months
. combined loan-to-value ratio range: 18.97% to 100.00% (approximate)
. weighted average combined loan-to-value ratio: 78.77% (approximate)
. weighted average initial periodic cap (first interest rate adjustment): 1.35%
. weighted average periodic cap (subsequent interest rate adjustments): 1.04%
. range of periodic caps for loans: 0.50% to 3.00%.
During the funding period, the trust may purchase additional mortgage loans or
"subsequent mortgage loans." The subsequent mortgage loans will have
characteristics similar to the mortgage loans described above.
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 to cover delinquent mortgage loan
payments. The master servicer will make advances only to maintain a regular
flow of scheduled interest 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 business day immediately preceding a
distribution date, you will be entitled to receive payments on that
distribution date.
We refer you to "DESCRIPTION OF THE CERTIFICATES" in this prospectus supplement
for additional information.
2. Interest Distributions
. Interest accrues on the offered certificates from the distribution date in
the month prior to that distribution date (or in the case of the first
distribution date, from the closing 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.
. Principal payments on the group 1 mortgage loans will be distributed to the
Class A-1 Certificates.
. Principal payments on the group 2 mortgage loans will be distributed to the
Class A-2 Certificates.
. Principal payments on the group 3 mortgage loans will be distributed to the
Class A-3 Certificates.
. Shortfalls in available funds and failure of the certificate insurer to
perform its obligations under the policy will result in a class receiving
less than what is due.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Principal" in this prospectus
supplement for additional information.
S-6
<PAGE>
Credit Enhancements
1. The Certificate Insurance Policy: The certificate insurance policy
guarantees the payment of:
. accrued and unpaid interest on the Class A Certificates;
. principal losses on the mortgage loans; and
. any principal amounts owed to the certificateholders on July 25, 2030.
We refer you to "THE CERTIFICATE INSURER" 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 certain shortfalls in interest due on the Class A Certificates and to cover
principal losses on the mortgage loans prior to a draw on the certificate
insurance policy.
Pre-Funding Account
On the closing date, the trustee shall deposit up to a maximum of
$114,962,696.04 in the group 1 pre-funding account, up to a maximum of
$14,117,964.69 in the group 2 pre-funding account and up to a maximum of
$63,698,982.51 in the group 3 pre-funding account. It is expected that the
seller will have originated or acquired subsequent mortgage loans from June 1,
1999 to the closing date. Such loans will be transferred to the trust on the
closing date. The maximum amount to be deposited into the pre-funding accounts
on the closing date will be reduced by the principal balance of the subsequent
mortgage loans transferred to each loan group on the closing date. The trust
will use the amounts on deposit in the pre-funding accounts to acquire
subsequent mortgage loans for the related loan group from the seller. The
trustee may only acquire such subsequent mortgage loans until July 23, 1999.
If any amounts are left in the pre-funding accounts on July 23, 1999, holders
of the group 1 certificates will receive amounts left in the group 1 pre-
funding account, holders of the group 2 certificates will receive amounts left
in the group 2 pre-funding account and holders of the group 3 certificates will
receive amounts left in the group 3 pre-funding account on the next
distribution date as payment of principal.
We refer you to "RISK FACTORS--Risk of Prepayment Due to Subsequent Mortgage
Loans" and "DESCRIPTION OF THE CERTIFICATES--Pre-Funding Account" in this
prospectus supplement for additional information.
Capitalized Interest Account
On the closing date, the seller shall deposit with the trustee an amount
available to cover interest shortfalls on the Class A Certificates expected to
occur prior to the trust's purchase of the subsequent mortgage loans. Until the
trust purchases the subsequent mortgage loans or prepays the Class A
Certificates, interest payments on the loans may not cover the amount of
interest due on the certificates.
Any amounts left in the capitalized interest account after the distribution
date in August 1999 will be paid to the seller.
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 10% of the aggregate
principal balance of the mortgage loans as of the applicable cut-off date, then
the seller may purchase all of the mortgage loans and the related properties in
the trust. If the seller purchases all of the mortgage loans, you will receive
a final distribution and the trust 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:
. An election will be made to treat the trust (exclusive of the pre-funding
accounts, the capitalized interest accounts, the distribution account,
certain spread accounts and the net funds cap carryover reserve account) as
two "real estate mortgage investment conduits," the master REMIC and the
subsidiary REMIC.
S-7
<PAGE>
. The Class A (excluding any rights to receive LIBOR Carryover Amounts (as
defined herein)) and Class X Certificates (including each component thereof)
will be "regular interests" in the master REMIC and will be treated as debt
instruments of the trust.
. The Class R-1 Certificates will represent the "residual interest" in the
subsidiary REMIC and the Class R-2 Certificates will represent the "residual
interest" in the master REMIC.
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. 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, although pension and other employee
benefit plans will not be permitted to purchase the Class A Certificates until
after July 23, 1999, unless the amount deposited in each pre-funding account on
the closing date is 25% or less of the aggregate initial principal certificate
balance of the Class A Certificates of the related certificate group. 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 mortgage loans owned by the trust includes second mortgage loans and
because not all of the mortgage loans were originated by entities that satisfy
the requirements of the act, 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 will not issue the Class A Certificates unless they receive the
following ratings:
AAA by Standard & Poors Ratings Service, a division of The McGraw-Hill
Companies, Inc.
Aaa by Moody's Investors Service, Inc.
The ratings assigned to the Class A-3 Certificates do not address the
likelihood of the payment of any net funds cap carryover amount.
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.
S-8
<PAGE>
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 offered certificates in
book-entry form may reduce the liquidity of the offered certificates in the
secondary trading market since investors may be unwilling to purchase
certificates for which they cannot obtain physical certificates.
.Limit on Ability to Transfer or Pledge. Since transactions in the book-
entry certificates can be effected only through DTC, participating
organizations, indirect participants and certain banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do not
participate in the DTC system or otherwise to take actions in respect of such
certificates, may be limited due to lack of a physical certificate representing
the book-entry certificates.
.Delays in Distributions. You may experience some delay in the receipt of
distributions on the book-entry certificates since the distributions will be
forwarded by the trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Book-Entry Certificates"
in this prospectus supplement.
Balloon Loan Risk
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance such amount, you will suffer a loss if the
collateral for the loan is insufficient, the other forms of credit enhancement
are insufficient to cover the loss and the certificate insurer fails to perform
its obligations under the policy. Approximately 23.78% of the initial mortgage
loans (by initial pool balance as of the cut-off date) are balloon loans. The
balloon loans are in loan group 1 and loan group 2.
Early Default Risk
All of the initial mortgage loans in the pool as of the cut-off date were
originated within 13 months prior to the cut-off date. As of the cut-off date,
the weighted average remaining term to stated maturity for the initial mortgage
loans was 259 months, 274 months and 359 months for loan group 1, loan group 2
and loan group 3, respectively. Generally, borrowers default on mortgage loans
with greater frequency in the early years of the term of the mortgage loan.
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 other credit enhancements are not sufficient to cover
the loss and 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.
S-9
<PAGE>
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 in the related loan group.
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 would be the case. Approximately 68.22% of the initial mortgage loans
(by initial pool balance as of the cut-off date) have prepayment fees.
.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 Financial Strength of the Certificate
Insurer
The ratings on the offered certificates depend primarily on the financial
strength of the certificate insurer. Therefore, a reduction of the rating
assigned to the financial strength of the certificate insurer may have a
corresponding reduction on the ratings assigned to the offered certificates. A
reduction in the rating assigned to the offered 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 in the trust are secured by mortgages which are
junior in priority. Approximately 97.32% of the initial mortgage loans are
first mortgages and approximately 2.68% of the initial mortgage loans are
second mortgages (by initial pool principal balance as of the cut-off date). If
a mortgage loan secured by a second mortgage succeeds to a first lien position
after the cut-off date due to the payoff of a prior first lien, the master
servicer may consent under certain circumstances to a new first priority lien,
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, the other credit enhancements are
insufficient to cover the loss 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.
In the event of the seller's insolvency, there is a possibility that the
Federal Deposit Insurance Corporation could be appointed as a receiver or
conservator and prevent the trustee from taking any action with respect to
S-10
<PAGE>
the trust. The Federal Deposit Insurance Corporation may enforce the seller's
contracts and may have the power to cause the seller to continue to perform the
master servicer's duties. This would prevent the appointment of a successor
servicer.
The seller will deliver the mortgage notes to the trustee on the closing
date (or the date of transfer of any subsequent mortgage loan) and the
assignments of each mortgage will be delivered within 90 days of the closing
date (or date of transfer as applicable) in recordable form. However, all other
documentation relating to each mortgage loan will be held by the seller 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 Baa2 by
Moody's or BBB by S&P or upon the occurrence of certain other events. Within 30
days of any such occurrence, the seller is required to deliver the remaining
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 the 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 certain states in which the mortgaged properties are located, failure to
record the assignments of the related mortgages to the trustee will have the
result of making the sale of the mortgage loans potentially ineffective
against:
. any creditors of the seller who may have been fraudulently or
inadvertently induced to rely on the mortgage loans as assets of the
seller, or
. 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.
In such an event, the trust would be an unsecured creditor of the seller.
Interest Payments on the Mortgage Loans May Be Reduced
.Prepayments of Principal May Reduce Interest Payments. If a mortgagor
prepays a mortgage loan, 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 full
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 certificates may result. The certificate
insurer is required to cover this shortfall. If the other credit enhancements
are insufficient to cover the loss and the certificate insurer fails to perform
its obligations under the policy, you may incur a loss.
.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 Associated with the Seller's Underwriting Standards
The seller's underwriting standards are less stringent than those of FNMA or
FHLMC. Therefore, the mortgage loans may experience higher rates of
delinquencies, defaults and foreclosures than those underwritten according to
more traditional standards.
Risk of Losses as a Result of Geographic Concentration
The mortgaged properties relating to the mortgage loans are located in 48
states and the District of Columbia. However, 8.27%, 8.11%, 6.98%, 6.35% and
5.67% of the initial mortgage loans (by initial pool balance as of the cut-off
date) are secured by mortgaged properties located in Michigan, Florida, Ohio,
California and South Carolina, respectively. If these states experience 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.
S-11
<PAGE>
Risk of Prepayment Due to Subsequent Mortgage Loans
The trust will buy the subsequent mortgage loans from the seller until July
23, 1999. During this time 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 the
subsequent mortgage loans cannot be used for that purpose prior to July 23,
1999, any remaining amounts will be paid on the offered certificates as a
prepayment of principal on the July distribution date.
In addition, the subsequent mortgage loans will have different
characteristics than those described in this prospectus supplement. However,
the seller will not select any subsequent mortgage loans to adversely affect
the interests of the certificateholders or the certificate insurer.
We refer you to "DESCRIPTION OF THE MORTGAGE LOANS--Conveyance of Subsequent
Mortgage Loans" and "PREPAYMENT AND YIELD CONSIDERATIONS--Mandatory Prepayment"
in this prospectus supplement for more detail.
Yield on Group 3 Loans May Negatively Impact Yield on Group 3 Certificates
The group 3 certificates accrue interest at certificate rates based on one-
month LIBOR plus a specified margin, but are subject to a cap. The cap on
interest paid on the group 3 certificates is based on the weighted average of
the interest rates on the mortgage loans in loan group 3 net of certain trust
expenses. Substantially all of the mortgage loans in loan group 3 have interest
rates that are based on six-month LIBOR plus a specified margin. Substantially
all of the loan group 3 mortgage loans have periodic and maximum limitations on
adjustments to the mortgage loan rate. Furthermore, the majority of mortgage
loans in loan group 3 are subject to an initial fixed period during which the
loan rates do not change. The initial fixed periods range from 6 months to 4
years from the date of origination. As a result, the group 3 certificates may
accrue less interest than they would accrue if their rates were based solely on
one-month LIBOR plus the specified margin.
A variety of factors could limit the certificate rates on the group 3
certificates. Some of these factors are described below:
.The certificate rate on the group 3 certificates adjusts monthly while the
loan rates on the loan group 3 mortgage loans adjust less frequently.
Consequently, the cap on the group 3 certificates may limit increases in the
certificate rate for extended periods in a rising interest rate environment.
.The loan rate on the group 3 mortgage loans may respond to different
economic and market factors than one-month LIBOR. It is possible that interest
rates on certain of the loan group 3 mortgage loans may decline while one-month
LIBOR is stable or rising. It is also possible that interest rates on the loan
group 3 mortgage loans and one-month LIBOR may decline or increase during the
same period, but that the one-month LIBOR may decline more slowly or increase
more rapidly.
These factors may adversely affect the yields to maturity on the group 3
certificates.
We refer you to "DESCRIPTION OF THE CERTIFICATES--Net Funds Cap Carryover
Account" and "--The Certificate Rate" in this prospectus supplement for more
detail.
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 its 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.
S-12
<PAGE>
THE CERTIFICATE INSURER
The information set forth in this section and in the financial statements of
MBIA Insurance Corporation (the "Certificate Insurer") incorporated by
reference herein as described below have been provided by the Certificate
Insurer. No representation is made by the Underwriters, the Seller, the
Trustee, the Master Servicer or any of their affiliates as to the accuracy or
completeness of any such information.
The Certificate Insurer does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement 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 "THE CERTIFICATE INSURER" and "DESCRIPTION OF THE
CERTIFICATES--The Policy." Additionally, the Certificate Insurer makes no
representation regarding the Certificates or the advisability of investing in
the Certificates.
The Certificate Insurer
The Certificate Insurer is the principal operating subsidiary of MBIA Inc.,
a New York Stock Exchange listed company ("MBIA Inc."). MBIA Inc. is not
obligated to pay the debts of or claims against the Certificate Insurer. The
Certificate Insurer is domiciled in the State of New York and licensed to do
business in and is subject to regulation under the laws of 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 Certificate Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations
of investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Certificate Insurer, changes in
control and transactions among affiliates. Additionally, the Certificate
Insurer is required to maintain contingency reserves on its liabilities in
certain amounts and for certain periods of time.
Certificate Insurer Financial Information
The consolidated financial statements of the Certificate Insurer, a wholly
owned subsidiary of MBIA Inc., and its subsidiaries as of December 31, 1998 and
December 31, 1997 and for each of the three years in the period ended December
31, 1998, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1998 and the consolidated financial statements of the Certificate
Insurer and its subsidiaries as of March 31, 1999 and for the three month
periods ended March 31, 1999 and March 31, 1998 included in the Quarterly
Report on Form 10-Q of MBIA Inc. for the period ended March 31, 1999 are hereby
incorporated by reference into this Prospectus Supplement and shall be deemed
to be a part hereof. Any statement contained in a document incorporated by
reference herein shall be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus Supplement.
All financial statements of the Certificate Insurer and its subsidiaries
included in documents filed by MBIA Inc. pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date of this Prospectus Supplement and prior to the termination of the offering
of the Offered Certificates shall be deemed to be incorporated by reference
into this Prospectus Supplement and to be a part hereof from the respective
dates of filing such documents.
S-13
<PAGE>
The tables below present selected financial information of the Certificate
Insurer determined in accordance with statutory accounting practices prescribed
or permitted by insurance regulatory authorities ("SAP") and generally accepted
accounting principles ("GAAP"):
<TABLE>
<CAPTION>
SAP
--------------------------------
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Admitted Assets............................. $6,521 $6,742
Liabilities................................. 4,231 4,412
Capital and Surplus......................... 2,290 2,330
<CAPTION>
GAAP
--------------------------------
December 31, 1998 March 31, 1999
----------------- --------------
(Audited) (Unaudited)
(In millions)
<S> <C> <C>
Assets...................................... $7,488 $7,625
Liabilities................................. 3,211 3,370
Shareholder's Equity........................ 4,277 4,255
</TABLE>
Where You Can Obtain Additional Information About the Certificate Insurer
Copies of the financial statements of the Certificate Insurer incorporated
by reference herein and copies of the Certificate Insurer's 1998 year-end
audited financial statements prepared in accordance with statutory accounting
practices are available, without charge, from the Certificate Insurer. The
address of the Certificate Insurer is 113 King Street, Armonk, New York 10504.
The telephone number of the Certificate Insurer is (914) 273-4545.
Year 2000 Readiness Disclosure
MBIA Inc. is actively managing a high-priority Year 2000 (Y2K) program. MBIA
Inc. has established an independent Y2K testing lab in its Armonk headquarters,
with a committee of business unit managers overseeing the project. MBIA Inc.
has a budget of $1.13 million for its 1998-2000 Y2K efforts. Expenditures are
proceeding as anticipated, and MBIA Inc. does not expect the project budget to
materially exceed this amount. MBIA Inc. has initiated a comprehensive Y2K plan
that includes assessment, remediation, testing and contingency planning. This
plan covers "mission-critical" internally developed systems, vendor software,
hardware and certain third-party entities through which MBIA Inc. conducts its
business. Testing to date indicates that functions critical to the financial
guarantee business, both domestic and international, were Y2K ready as of
December 31, 1998. Additional testing will continue throughout 1999.
Financial Strength Ratings of the Certificate Insurer
Moody's Investors Service, Inc. rates the financial strength of the
Certificate Insurer "Aaa".
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. rates the financial strength of the Certificate Insurer "AAA".
Fitch IBCA, Inc. (formerly known as Fitch Investors Services, L.P.) rates
the financial strength 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 Class A
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 Class A
Certificates. The Certificate Insurer does not guaranty the market price of the
Class A Certificates nor does it guaranty that the ratings on the Class A
Certificates will not be revised or withdrawn.
S-14
<PAGE>
THE PROVIDENT BANK
The Provident Bank ("Provident") will be responsible for servicing the
Mortgage Loans for the Trust in accordance with the terms of the Agreement. See
"--Servicing and Collection Procedures."
Provident is the principal banking subsidiary of Provident Financial Group,
Inc., a Cincinnati based commercial banking and financial services holding
company registered under the Bank Holding Company Act. Provident Financial
Group, Inc. operates throughout Ohio, Northern Kentucky, Southeastern Indiana
and Florida. As of March 31, 1999, Provident Financial Group, Inc. had total
assets of $8.6 billion, net loans and leases of $5.9 billion, deposits of $5.6
billion and total shareholders' equity of $712.5 million. Provident Financial
Group, Inc.'s tier 1 and total risk-based capital ratios were 8.59% and 10.81%,
respectively. For the year ended December 31, 1998, Provident Financial Group,
Inc. had net earnings of $115 million. For the three months ended March 31,
1999, Provident Financial Group, Inc. had net earnings of $33.8 million.
Provident represents approximately 95% of Provident Financial Group, Inc.'s
assets.
Year 2000 Readiness Disclosure
Provident is actively engaged in a Y2K readiness program. Provident has
utilized both internal and external resources (including an off-site testing
facility) to reprogram, replace and test its computer software and hardware,
and that of its vendors and suppliers, for Y2K readiness. Provident's Y2K
readiness program has been supervised on a quarterly basis since 1998 by the
Federal Reserve Board. Testing to date indicates that functions critical to
Provident's mortgage loan origination business and the servicing of such
mortgage loans were Y2K ready as of March 31, 1999. Additional testing, and
supervision by the Federal Reserve Board, will continue throughout 1999.
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 guidelines are consistent with those utilized by home
equity lenders generally. The underwriting process is intended to assess both
the prospective borrower's ability to repay and the adequacy of the real
property security as collateral for the loan granted. In certain cases, loans
may be made outside of those guidelines with the prior approval of an
underwriting manager of Provident.
Provident generally originates or purchases loans which either fully
amortize over a period not to exceed 360 months or provide for amortization
over a 360 month schedule with a "balloon" payment required at the maturity
date, which generally will not be less than fifteen (15) years after
origination. The loan amounts generally range from a minimum of $5,000 to a
maximum of $750,000 unless a higher amount is specifically approved by
authorized officers of Provident. Provident primarily originates or purchases
non-purchase money first or second mortgage loans although Provident also
originates purchase money first mortgage loans.
The homes used for collateral to secure the loans may be either primary
residential (which includes second and vacation homes) or investor owned one-
to four-family homes, condominiums, townhouses or manufactured housing.
Generally, each home must have a minimum appraised value as described below.
Mobile housing or agricultural land are not accepted as collateral. In some
cases, the loan may be secured by the owner-occupied residence plus additional
collateral.
Each property proposed as security for a loan must be appraised within 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 90%. 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 include principal and
S-15
<PAGE>
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. 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 of work 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 stated-income 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. For Provident's non-
income verifier program, the loan is underwritten based upon the applicant's
credit report and the appraised value of the mortgaged property. The maximum
Combined Loan-to-Value ratio may not exceed 85% for the stated-income and the
non-income verifier program.
For potential borrowers with excellent credit histories, less stringent
underwriting criteria may apply for first mortgage loans.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. Credit reports usually
reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies, divorce actions and similar adverse
credit events that can be discovered by a search of public records. If a credit
report is obtained more than 60 days prior to the loan closing, Provident will
determine whether the reported information has changed. Written verification is
obtained of any first mortgage balance if not reported by the credit bureau.
Generally, an 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.
Applicants are required to obtain 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 requires that
its name and address are 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 prior written notice to Provident
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 its servicing 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 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
S-16
<PAGE>
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 from Provident's in-house legal counsel 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
servicing portfolio of home equity loans (which includes home equity loans
subserviced by others for Provident) similar to the Mortgage Loans for the
periods indicated. There can be no assurance that the delinquency experience on
the Mortgage Loans will be consistent with the historical information provided
below. Accordingly, this information should not be considered to reflect the
credit quality of the Mortgage Loans included in the Trust, or a basis of
assessing the likelihood, amount or severity of losses on the Mortgage Loans.
The statistical data in the table is based on all of the closed-end fixed and
adjustable rate home equity loans in Provident's servicing portfolio, which are
similar to the Mortgage Loans.
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. Through March
31, 1999, Provident's mortgage loan servicing portfolio had experienced
cumulative losses on liquidations of approximately $11,074,187 since home
equity loans similar to the Mortgage Loans were first originated by Provident
in September, 1995.
S-17
<PAGE>
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 March 31, 1999, December 31, 1998, September 30, 1998 and
June 30, 1998. As of March 31, 1999, there were 249 real estate owned
properties in Provident's mortgage loan servicing portfolio, and mortgages
representing $36,738,899 of Provident's mortgage loan servicing portfolio were
in bankruptcy, $23,358,881 of which were delinquent.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------
March 31, 1999 December 31, 1998 September 30, 1998 June 30, 1998
----------------------- ----------------------- ----------------------- -----------------------
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........ 29,364 $2,078,601,405 22,197 $1,688,480,838 19,301 $1,450,837,293 16,760 $1,277,681,185
Delinquency
percentage(/1/)(/2/)
30-59 days...... 1.42% 1.52% 2.01% 1.98% 2.58% 2.40% 2.39% 2.38%
60-89 days...... 0.59% 0.66% 0.72% 0.74% 0.94% 0.96% 0.91% 0.91%
90 days or
more........... 4.36% 5.09% 4.83% 5.24% 4.41% 4.99% 4.36% 5.23%
Total............ 6.37% 7.27% 7.56% 7.96% 7.93% 8.35% 7.66% 8.52%
</TABLE>
- ------------
(/1/)The delinquency percentage represents the number and principal balance of
mortgage loans with payments contractually past due.
(/2/)Includes properties in foreclosure, delinquent bankruptcies and real
estate owned.
DESCRIPTION OF THE MORTGAGE LOANS
General
The statistical information presented in this Prospectus Supplement is only
with respect to the mortgage loans (the "Initial Mortgage Loans") in the
Mortgage Pool as of June 1, 1999 and describes the Initial Mortgage Loans in
Loan Group 1, the Initial Mortgage Loans in Loan Group 2 and the Initial
Mortgage Loans in Loan Group 3 based on the characteristics of such Loan Groups
as of the Cut-Off Date. The "Cut-Off Date" (a) for any Initial Mortgage Loan is
June 1, 1999 or (b) for any Subsequent Mortgage Loan is the date of origination
or purchase of such Subsequent Mortgage Loan, unless such Subsequent Mortgage
Loan was originated prior to June 1, 1999, then June 30, 1999.
The Agreement will provide that additional closed-end, fixed and adjustable
rate mortgage loans (the "Subsequent Mortgage Loans") may be purchased by the
Trust from the Seller during the Funding Period (as defined herein). The
Initial Mortgage Loans and the Subsequent Mortgage Loans will be collectively
referred to herein as the "Mortgage Loans." The Initial Mortgage Loans and the
Subsequent Mortgage Loans, if available, to be purchased by the Trust will be
originated or purchased by Provident, and sold by Provident, as Seller, to the
Trust. The Agreement will also provide that the Mortgage Loans, following the
conveyance of the Subsequent Mortgage Loans, must in the aggregate conform to
certain specified characteristics described below under "--Conveyance of
Subsequent Mortgage Loans". The Mortgaged Properties securing the Mortgage
Loans consist primarily of one-to-four family residential properties. The
Mortgaged Properties may be owner-occupied (which includes second and vacation
homes) or non-owner occupied.
All of the Mortgage Loans bear interest at rates (the "Loan Rates") that are
either fixed or adjustable and are evidenced by promissory notes (the "Mortgage
Notes") secured by deeds of trust or mortgages on the related mortgaged
properties (the "Mortgaged Properties"). Interest will be calculated on the
Mortgage Loans on the basis of a 360-day year and twelve 30-day months. The
Mortgage Loans are divided into three loan groups (the "Loan Groups"). "Loan
Group 1" consists of Mortgage Loans with fixed interest rates. "Loan Group 2"
consists of 161 Mortgage Loans with fixed interest rates and 22 Mortgage Loans
with adjustable interest rates. "Loan Group 3" consists of Mortgage Loans with
adjustable interest rates. The Initial Mortgage Loans in each Loan Group are
"Loan Group 1 Initial Mortgage Loans", "Loan Group 2 Initial Mortgage Loans"
and "Loan Group 3 Initial Mortgage Loans." The maximum amount of Subsequent
Mortgage Loans to be transferred to the Trust during the Funding Period for
Loan Group 1 is $114,962,696.04, for Loan Group 2 is $14,117,964.69 and for
Loan Group 3 is $63,698,982.51 (the "Loan Group 1 Pre-Funded Amount", the "Loan
Group 2 Pre-Funded Amount" and the "Loan Group 3 Pre-Funded Amount,"
respectively).
S-18
<PAGE>
With respect to any date, the "Pool Principal Balance" will be equal to the
aggregate of the Principal Balances of all Mortgage Loans as of such date. The
"Principal Balance" of a Mortgage Loan (other than a Liquidated Mortgage Loan
(as defined herein)) on any day is equal to the Cut-Off Date Principal Balance
of such Mortgage Loan minus all collections applied in reduction of its Cut-Off
Date Principal Balance. The "Cut-Off Date Principal Balance" with respect to
each Mortgage Loan is the unpaid principal balance thereof as of the applicable
Cut-Off Date. With respect to any date, the "Loan Group 1 Principal Balance",
the "Loan Group 2 Principal Balance" and the "Loan Group 3 Principal Balance"
will be equal to the aggregate of the Principal Balances of all Mortgage Loans
in Loan Group 1, Loan Group 2 and Loan Group 3, respectively, as of such date.
The Loan Group 1 Principal Balance, the Loan Group 2 Principal Balance and the
Loan Group 3 Principal Balance are each sometimes referred to herein as a "Loan
Group Principal Balance."
As of the Cut-Off Date, the property of the Trust includes, among other
things, a pool of mortgage loans (the "Mortgage Pool") consisting of 4,049
Initial Mortgage Loans with an aggregate Principal Balance as of the Cut-Off
Date of $322,220,356.76 (the "Cut-Off Date Initial Pool Principal Balance").
The Mortgage Pool consists of closed-end, fixed and adjustable rate home equity
loans with remaining terms to stated maturity of not more than 360 months
(including both fully amortizing and Balloon Loans). Approximately 97.32% of
the Initial Mortgage Loans (by Cut-Off Date Initial Pool Principal Balance) are
secured by first lien mortgages on the Mortgaged Properties and 2.68% (by Cut-
Off Date Initial Pool Principal Balance) are secured by second liens on the
Mortgaged Properties. As of the Cut-Off Date, approximately 0.24% of the
Initial Mortgage Loans (by Cut-Off Date Initial Pool Principal Balance) were 30
to 59 days delinquent. No Initial Mortgage Loan was more than 59 days
delinquent as of the Cut-Off Date (assuming for purposes of the calculation
that all months have 30 days.) With respect to the Initial Mortgage Loans, the
average Cut-Off Date Principal Balance was $79,580.23, the minimum Cut-Off Date
Principal Balance was $5,693.91, the maximum Cut-Off Date Principal Balance was
$805,000.00, the minimum Loan Rate and the maximum Loan Rate on the Cut-Off
Date were 6.50% and 16.00% per annum, respectively, and the weighted average
Loan Rate as of the Cut-Off Date was 10.46% per annum. The Combined Loan-to-
Value Ratio of each Initial Mortgage Loan, computed on the date such loan was
originated, taking into account the amounts of any related senior mortgage
loans (the "Combined Loan-to-Value Ratio") did not exceed 100.00% as of the
Cut-Off Date. The weighted average Combined Loan-to-Value Ratio of the Initial
Mortgage Loans was 77.70% as of the Cut-Off Date. Approximately 23.78% of the
Initial Mortgage Loans (by Cut-Off Date Initial Pool Principal Balance) are
Balloon Loans. Each Initial Mortgage Loan made its first Monthly Payment during
or after May 1998. The remaining terms to stated maturity as of the Cut-Off
Date of the Initial Mortgage Loans range from 54 months to 360 months; the
weighted average remaining term to stated maturity of the Initial Mortgage
Loans as of the Cut-Off Date is 299 months.
The Mortgage Loans provide that interest is charged to the borrowers
thereunder, and payments are due from such borrowers, as of a scheduled day of
each month which is fixed at the time of origination. Scheduled monthly
payments ("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.
Set forth below is information as of the Cut-Off Date regarding the Loan
Group 1 Initial Mortgage Loans, Loan Group 2 Initial Mortgage Loans and Loan
Group 3 Initial Mortgage Loans. Prior to the Closing Date, Mortgage Loans may
be removed from any Loan Group and other Mortgage Loans with similar
characteristics may be substituted therefor. The Seller believes that the
information set forth herein with respect to the Initial Mortgage Loans as
presently constituted is representative of the Initial Mortgage Loans as they
will be constituted at the Closing Date, although certain characteristics of
such Mortgage Loans may vary but any such variance will not be material.
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 Initial Mortgage Loans in Loan Group 1 are
percentages of the Cut-Off Date Loan Group 1 Initial Principal Balance.
S-19
<PAGE>
As of the Cut-Off Date, the Initial Mortgage Loans in Loan Group 1 consisted
of 2,632 loans, and the related Mortgaged Properties were located in 47 states
and the District of Columbia. As of the Cut-Off Date, the Initial Mortgage
Loans in Loan Group 1 had an aggregate Principal Balance of $175,037,303.96
(the "Cut-Off Date Loan Group 1 Initial Principal Balance"), the maximum
Principal Balance of any of the Initial Mortgage Loans in Loan Group 1 was
$288,887.60, the minimum Principal Balance thereof was $5,693.91 and the
Principal Balance of such Initial Mortgage Loans averaged $66,503.53. As of the
Cut-Off Date, the Loan Rates on the Initial Mortgage Loans in Loan Group 1
ranged from 6.50% per annum to 16.00% per annum, and the weighted average Loan
Rate for the Initial Mortgage Loans in Loan Group 1 was 10.60% per annum. As of
the Cut-Off Date, the original term to stated maturity for each Initial
Mortgage Loan in Loan Group 1 ranged from 60 months to 360 months, the weighted
average original term to stated maturity was 260 months, the remaining term to
stated maturity ranged from 54 months to 360 months, the weighted average
remaining term to stated maturity was 259 months and the CLTV (as defined
herein) ranged from 8.00% to 100.00% with a weighted average CLTV of 76.89%.
Each Initial Mortgage Loan in Loan Group 1 made its first Monthly Payment
during or after July 1998. As of the Cut-Off Date, approximately 96.92% and
3.08% of the Initial Mortgage Loans in Loan Group 1 were secured by first and
second liens, respectively. With respect to each Loan Group 1 Initial Mortgage
Loan secured by a first lien, the original principal balance was no more than
$240,000 for single-family properties and $307,100 for two- to four-family
properties. No Loan Group 1 Initial Mortgage Loan secured by a second lien on
the related property had an original principal balance of more than $120,000.
With respect to each Loan Group 1 Initial Mortgage Loan secured by a second
lien as of its origination date, the sum of the principal balance of such
second lien loan and the related senior lien principal balance is not more than
$240,000 for single-family properties and $307,100 for two- to four-family
properties (unless the related senior lien loan, at the time of origination of
the second lien loan, had a principal balance greater than $240,000 for single-
family properties and $307,100 for two- to four-family properties). As of the
Cut-Off Date, 61.23% of the Initial Mortgage Loans in Loan Group 1 require
Monthly Payments that will fully amortize such Mortgage Loans by their
respective maturity dates, and 38.77% of the Initial Mortgage Loans in Loan
Group 1 are Balloon Loans. As of the Cut-Off Date, the remaining terms to
stated maturity of the Balloon Loans ranged from 54 months to 180 months and
the weighted average remaining term to maturity of the Balloon Loans was 178
months.
PRINCIPAL BALANCES
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Range of Cut-Off Date Mortgage Principal Principal
Principal Balances Loans Balance Balance
- --------------------- ------------ --------------- ---------------
<S> <C> <C> <C>
$ 0.01-$50,000.00.............. 1,107 $ 38,641,293.63 22.08%
50,000.01-100,000.00.............. 1,086 75,604,876.15 43.19
100,000.01-150,000.00.............. 317 37,839,423.18 21.62
150,000.01-200,000.00.............. 84 14,415,692.70 8.24
200,000.01-250,000.00.............. 34 7,443,652.77 4.25
250,000.01-300,000.00.............. 4 1,092,365.53 0.62
----- --------------- ------
Total............................ 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
S-20
<PAGE>
GEOGRAPHIC DISTRIBUTION BY STATE(/1/)
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama...................... 102 $ 5,677,113.08 3.24%
Arizona...................... 8 568,736.43 0.32
Arkansas..................... 50 2,918,479.24 1.67
California................... 53 5,914,639.79 3.38
Colorado..................... 49 4,268,183.68 2.44
Connecticut.................. 7 515,956.47 0.29
Delaware..................... 8 622,720.17 0.36
District of Columbia......... 4 404,379.02 0.23
Florida...................... 172 10,831,193.27 6.19
Georgia...................... 127 9,867,098.65 5.64
Idaho........................ 7 443,518.97 0.25
Illinois..................... 102 7,559,793.37 4.32
Indiana...................... 107 5,729,366.05 3.27
Iowa......................... 12 662,370.41 0.38
Kansas....................... 22 1,213,870.22 0.69
Kentucky..................... 34 2,110,982.97 1.21
Louisiana.................... 121 6,004,071.09 3.43
Maine........................ 2 132,523.96 0.08
Maryland..................... 70 6,217,250,59 3.55
Massachussetts............... 10 848,947.51 0.49
Michigan..................... 315 18,346,461.07 10.48
Minnesota.................... 21 2,008,272.50 1.15
Mississippi.................. 54 3,131,450.14 1.79
Missouri..................... 96 5,068,665.31 2.90
Montana...................... 3 140,260.34 0.08
Nebraska..................... 12 698,780.05 0.40
Nevada....................... 4 255,093.97 0.15
New Hampshire................ 3 94,044.35 0.05
New Jersey................... 65 6,789,819.48 3.88
New Mexico................... 11 856,767.13 0.49
New York..................... 46 3,849,589.68 2.20
North Carolina............... 130 8,426,627.11 4.81
Ohio......................... 198 11,709,829.01 6.69
Oklahoma..................... 4 313,653.53 0.18
Oregon....................... 9 892,457.17 0.51
Pennsylvania................. 74 5,368,628.36 3.07
Rhode Island................. 1 82,325.21 0.05
South Carolina............... 151 10,177,872.44 5.81
South Dakota................. 2 120,753.51 0.07
Tennessee.................... 170 11,549,717.25 6.60
Texas........................ 74 4,671,747.32 2.67
Utah......................... 10 576,885.05 0.33
Vermont...................... 2 195,589.67 0.11
Virginia..................... 33 2,529,190.80 1.44
Washington................... 13 914,551.81 0.52
West Virginia................ 20 1,327,607.46 0.76
Wisconsin.................... 43 2,359,106.83 1.35
Wyoming...................... 1 70,362.47 0.04
----- --------------- ------
Total........................ 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
- ------------
(/1/)Determined by property address designated as such in the related Mortgage.
S-21
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS(/1/)
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Combined Loan-to- Initial Initial Group 1 Initial
Value Ratio Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0.01%- 10.00%............ 1 $ 29,854.64 0.02%
10.01- 20.00.............. 6 207,414.10 0.12
20.01- 30.00.............. 24 767,367.02 0.44
30.01- 40.00.............. 43 1,947,833.01 1.11
40.01- 50.00.............. 73 3,290,900.28 1.88
50.01- 60.00.............. 130 6,327,118.46 3.61
60.01- 70.00.............. 345 19,178,710.75 10.96
70.01- 80.00.............. 1,395 92,487,613.63 52.84
80.01- 90.00.............. 607 50,084,706.84 28.61
90.01-100.00.............. 8 715,785.23 0.41
----- --------------- ------
Total................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
- ------------
(/1/)The Combined Loan-to-Value Ratios ("CLTV") shown above are equal, with
respect to each Initial Mortgage Loan, to (i) the sum of (a) the original
principal balance of such Initial Mortgage Loan at the date of origination plus
(b) the remaining balance of the senior lien(s), if any, at the date of
origination of such Initial Mortgage Loan divided by (ii) the lesser of (a) the
value of the related Mortgaged Property, based upon the appraisal made at the
time of origination of such Initial Mortgage Loan or (b) the purchase price of
such Mortgaged Property if the proceeds of such Initial Mortgage Loan are used
to purchase such Mortgaged Property.
LIEN POSITION
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Lien Position Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
First........................ 2,480 $169,637,765.91 96.92%
Second....................... 152 5,399,538.05 3.08
----- --------------- ------
Total...................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
S-22
<PAGE>
SECOND MORTGAGE RATIOS(/1/)
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Second Mortgage Ratio Mortgage Loans Principal Balance Principal Balance
- --------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0.01%-10.00%................ 2 $ 28,693.91 0.53%
10.01-20.00.................. 31 888,841.94 16.46
20.01-30.00.................. 57 1,841,703.78 34.11
30.01-40.00.................. 31 1,073,243.15 19.88
40.01-50.00.................. 18 807,924.77 14.96
50.01-60.00.................. 8 395,051.23 7.32
60.01-70.00.................. 2 142,962.70 2.65
70.01-80.00.................. 2 136,513.99 2.53
80.01-90.00.................. 1 84,602.58 1.57
--- ------------- ------
Total...................... 152 $5,399,538.05 100.00%
=== ============= ======
</TABLE>
- ------------
(/1/)Applies only to Initial Mortgage Loans in Loan Group 1 in a second lien
position. The Second Mortgage Ratios shown above are equal, with respect to
each such Initial Mortgage Loan in a second lien position, the original
principal balance of such Initial Mortgage Loan at the date of origination
divided by the sum of (a) the original principal balance of such Initial
Mortgage Loan at the date of origination plus (b) the remaining balance of the
senior lien at the date of origination of such Initial Mortgage Loan.
S-23
<PAGE>
LOAN RATES
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Loan Rates Mortgage Loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6.01%- 6.50%................ 1 $ 235,139.66 0.13%
6.51- 7.00.................. 12 1,977,422.00 1.13
7.01- 7.50.................. 3 404,175.61 0.23
7.51- 8.00.................. 5 376,676.89 0.22
8.01- 8.50.................. 30 2,326,196.00 1.33
8.51- 9.00.................. 92 6,545,761.10 3.74
9.01- 9.50.................. 188 13,583,605.97 7.76
9.51-10.00.................. 385 30,123,626.65 17.21
10.01-10.50.................. 407 29,131,319.82 16.64
10.51-11.00.................. 539 36,650,635.60 20.94
11.01-11.50.................. 357 21,722,074.40 12.41
11.51-12.00.................. 309 17,533,721.80 10.02
12.01-12.50.................. 132 6,716,969.43 3.84
12.51-13.00.................. 87 4,198,778.32 2.40
13.01-13.50.................. 43 1,868,894.41 1.07
13.51-14.00.................. 26 1,064,063.34 0.61
14.01-14.50.................. 7 323,486.33 0.18
14.51-15.00.................. 7 197,767.07 0.11
15.01-15.50.................. 1 28,496.12 0.02
15.51-16.00.................. 1 28,493.44 0.02
----- --------------- ------
Total:..................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
S-24
<PAGE>
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Remaining Term to Initial Initial Group 1 Initial
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
31- 60 months............... 8 $ 253,679.25 0.14%
61- 90 months............... 1 14,965.84 0.01
91-120 months............... 66 2,704,615.80 1.55
121-180 months............... 1,370 86,064,578.57 49.17
181-240 months............... 180 9,944,363.63 5.68
241-300 months............... 17 870,155.01 0.50
301-360 months............... 990 75,184,945.86 42.95
----- --------------- ------
Total...................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
MONTHS SINCE ORIGINATION
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0 months..................... 998 $ 63,631,932.80 36.35%
1-6 months................... 1,576 105,941,775.46 60.53
7-12 months.................. 58 5,463.595.70 3.12
----- --------------- ------
Total...................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
PROPERTY TYPE
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single Family.............. 2,356 $153,968,079.45 87.96%
Two-to-Four Family......... 146 11,065,428.82 6.32
Condominium................ 83 5,354,566.74 3.06
Planned Unit Development
(PUD)..................... 47 4,649,228.95 2.66
----- --------------- ------
Total.................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
S-25
<PAGE>
OCCUPANCY TYPE
LOAN GROUP 1
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 1 Loan Group 1 Date Loan
Initial Initial Group 1 Initial
Occupancy Type Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied............... 2,340 $160,926,827.36 91.94%
Non-Owner Occupied........... 292 14,110,476.60 8.06
----- --------------- ------
Total...................... 2,632 $175,037,303.96 100.00%
===== =============== ======
</TABLE>
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 Loan Group 2 Initial Mortgage Loans are
percentages of the Cut-Off Date Loan Group 2 Initial Principal Balance.
As of the Cut-Off Date, the Loan Group 2 Initial Mortgage Loans consisted of
183 loans, of which 161 are Mortgage Loans with fixed interest rates and 22 are
Mortgage Loans with adjustable interest rates, and the related Mortgaged
Properties were located in 33 states and the District of Columbia. As of the
Cut-Off Date, the Loan Group 2 Initial Mortgage Loans had an aggregate
Principal Balance of $22,882,035.31 (the "Cut-Off Date Loan Group 2 Initial
Principal Balance"), the maximum Principal Balance of any of the Loan Group 2
Initial Mortgage Loans was $465,000.00, the minimum Principal Balance thereof
was $7,635.95 and the Principal Balance of such Mortgage Loans averaged
$125,038.44. As of the Cut-Off Date, the Loan Rates on the Loan Group 2 Initial
Mortgage Loans ranged from 8.44% per annum to 14.39% per annum, and the
weighted average Loan Rate for the Loan Group 2 Initial Mortgage Loans was
10.75% per annum. As of the Cut-Off Date, the original term to stated maturity
of each Loan Group 2 Initial Mortgage Loan ranged from 120 months to 360
months, the remaining term to stated maturity ranged from 118 months to 360
months, the weighted average remaining term to stated maturity was 274 months
and the CLTV (as defined herein) ranged from 8.00% to 90.00% with a weighted
average CLTV of approximately 77.58%. Each Loan Group 2 Initial Mortgage Loan
made its first Monthly Payment during or after June 1998. As of the Cut-Off
Date, approximately 85.83% and 14.17% of the Loan Group 2 Initial Mortgage
Loans were secured by first and second liens, respectively. As of the Cut-Off
Date, approximately 38.31% of the Loan Group 2 Initial Mortgage Loans are
Balloon Loans. As of the Cut-Off Date, the remaining term to stated maturity of
the Balloon Loans ranged from 171 months to 180 months and the weighted average
remaining term to stated maturity of the Balloon Loans was 178 months.
Approximately 5.78% of the Loan Group 2 Initial Mortgage Loans have Loan
Rates which will adjust semi-annually (after an initial fixed rate period (an
"Initial Period") with respect to such Mortgage Loans of thirty-six months on
the date set forth in the related Mortgage Note (each, a "Change Date") to
equal the sum of (i) the average of the interbank offered rates for six-month
United States dollar deposits in the London market, as published in The Wall
Street Journal as of the first business day of the month immediately preceding
the month of the applicable Change Date (the "Loan Index") and (ii) the number
of basis points set forth in such Mortgage Note (the "Gross Margin"), subject
to rounding and to the effects of the Periodic Cap, the applicable Lifetime Cap
and the applicable Lifetime Floor (such Mortgage Loans, the "Loan Group 2
Initial Adjustable Rate Mortgage Loans"). The "Periodic Cap" limits changes in
the Loan Rate for each Loan Group 2 Initial Adjustable Rate Mortgage Loan on
each Change Date to 1.00%. The "Lifetime Cap" is the maximum Loan Rate that may
be borne by an adjustable rate Mortgage Loan in Loan Group 2 over its life. The
"Lifetime Floor" is the minimum Loan Rate that may be borne by an adjustable
rate Mortgage Loan in Loan Group 2 over its life. The Mortgage Loans in Loan
Group 2 do not negatively amortize. On each Change Date for an adjustable rate
Mortgage Loan in Loan Group 2, the related Monthly Payment will be adjusted to
an
S-26
<PAGE>
amount which will pay interest at the adjusted Loan Rate and fully amortize the
then outstanding principal balance of such Mortgage Loan over its remaining
term.
As of the Cut-Off Date, the weighted average Lifetime Cap of the Loan Group
2 Initial Adjustable Rate Mortgage Loans was approximately 17.93% per annum,
with a maximum Lifetime Cap of 19.63% per annum and a minimum Lifetime Cap of
16.50% per annum; the weighted average Lifetime Floor of the Loan Group 2
Initial Adjustable Rate Mortgage Loans was approximately 9.07% per annum, with
a maximum Lifetime Floor of 12.63% per annum and a minimum Lifetime Floor of
4.50% per annum; and the Loan Group 2 Initial Adjustable Rate Mortgage Loans
had a weighted average Gross Margin of approximately 5.99%. The weighted
average number of months to the next Change Date of the Loan Group 2 Initial
Adjustable Rate Mortgage Loans is approximately 35 months, with a maximum
number of months and a minimum number of months of 36 and 34, respectively.
PRINCIPAL BALANCES
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Range of Loan Group 2 Loan Group 2 Date Loan
Cut-Off Date Initial Initial Group 2 Initial
Principal Balance Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01-$ 50,000.00...... 53 $ 1,849,629.05 8.08%
50,000.01- 100,000.00...... 70 4,757,404.48 20.79
100,000.01- 150,000.00...... 10 1,216,961.79 5.32
150,000.01- 200,000.00...... 3 500,381.94 2.19
200,000.01- 250,000.00...... 9 2,224,229.24 9.72
250,000.01- 300,000.00...... 20 5,489,814.57 23.99
300,000.01- 350,000.00...... 7 2,286,367.56 9.99
350,000.01- 400,000.00...... 5 1,889,820.12 8.26
400,000.01- 450,000.00...... 4 1,740,372.59 7.61
450,000.01- 500,000.00...... 2 927,053.97 4.05
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
S-27
<PAGE>
GEOGRAPHIC DISTRIBUTION BY STATE(/1/)
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama...................... 4 $ 387,316.37 1.69%
Arkansas..................... 1 33,978.77 0.15
California................... 10 2,131,691.58 9.32
Colorado..................... 5 866,616.74 3.79
Connecticut.................. 1 124,345.29 0.54
District of Columbia......... 1 323,505.13 1.41
Florida...................... 12 1,306,503.92 5.71
Georgia...................... 9 1,406,766.40 6.15
Idaho........................ 1 50,454.70 0.22
Illinois..................... 5 744,359.17 3.25
Indiana...................... 4 466,179.49 2.04
Kansas....................... 1 36,000.00 0.16
Kentucky..................... 5 463,736.88 2.03
Louisiana.................... 3 365,423.19 1.60
Maryland..................... 6 900,507.39 3.94
Massachusetts................ 1 246,100.46 1.08
Michigan..................... 8 1,736,619.54 7.59
Minnesota.................... 1 262,500.00 1.15
Mississippi.................. 1 39,476.95 0.17
Missouri..................... 1 79,974.14 0.35
Nebraska..................... 1 28,988.16 0.13
New Jersey................... 4 874,137.31 3.82
New Mexico................... 2 162,146.54 0.71
New York..................... 4 575,003.56 2.51
North Carolina............... 28 2,203,175.03 9.63
Ohio......................... 5 556,790.56 2.43
Oregon....................... 6 585,141.14 2.56
Pennsylvania................. 3 109,927.65 0.48
South Carolina............... 23 1,947,171.87 8.51
Tennessee.................... 10 1,462,562.06 6.39
Texas........................ 2 549,868.35 2.40
Utah......................... 2 94,939.77 0.41
Virginia..................... 6 1,117,323.20 4.88
Washington................... 7 642,804.00 2.81
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
- ------------
(/1/)Determined by property address designated as such in the related mortgage.
S-28
<PAGE>
COMBINED LOAN-TO-VALUE RATIOS(/1/)
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Total %
# of Current Current
CLTV Loans Balance Balance
- ---- ----- -------------- -------
<S> <C> <C> <C>
0.01%- 10.00%.................................... 1 $ 57,872.32 0.25%
10.01- 20.00...................................... 1 14,811.65 0.06
30.01- 40.00...................................... 1 33,500.00 0.15
40.01- 50.00...................................... 2 486,351.86 2.13
50.01- 60.00...................................... 3 103,717.25 0.45
60.01- 70.00...................................... 28 2,938,276.95 12.84
70.01- 80.00...................................... 95 11,093,830.74 48.48
80.01- 90.00...................................... 52 8,153,674.54 35.63
--- -------------- ------
Total........................................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
- ------------
(/1/CLTV)shown above are equal, with respect to each Initial Mortgage Loan, to
(i) the sum of (a) the original principal balance of such Initial Mortgage
Loan at the date of origination plus (b) the remaining balance of the
senior lien(s), if any, at the date of origination of such Initial Mortgage
Loan divided by (ii) the lesser of (a) the value of the related Mortgaged
Property, based upon the appraisal made at the time of origination of such
Initial Mortgage Loan or (b) the purchase price of such Mortgaged Property
if the proceeds of such Initial Mortgage Loan are used to purchase such
Mortgaged Property.
LIEN POSITION
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Lien Position Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
First Lien................... 141 $19,639,199.28 85.83%
Second Lien.................. 42 3,242,836.03 14.17
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
S-29
<PAGE>
SECOND MORTGAGE RATIOS(/1/)
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Second Mortgage Ratio Mortgage Loans Principal Balance Principal Balance
- --------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
10.01%-20.00%................ 10 $ 531,129.58 16.38%
20.01-30.00.................. 12 841,357.69 25.95
30.01-40.00.................. 12 1,239,830.61 38.23
40.01-50.00.................. 5 507,276.08 15.64
50.01-60.00.................. 1 33,500.00 1.03
60.01-70.00.................. 1 25,492.07 0.79
80.01-90.00.................. 1 64,250.00 1.98
--- ------------- ------
Total...................... 42 $3,242,836.03 100.00%
=== ============= ======
</TABLE>
- ------------
(/1/Applies)only to Initial Mortgage Loans in a second lien position. The
Second Mortgage Ratios shown above are equal, with respect to each Initial
Mortgage Loan in a second lien position, the original principal balance of
such Initial Mortgage Loan at the date of origination divided by the sum of
(a) the original principal balance of such Initial Mortgage Loan at the
date of origination plus (b) the remaining balance of the senior lien at
the date of origination of such Initial Mortgage Loan.
LOAN RATES(/1/) AS OF THE CUT-OFF DATE
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Loan Rates Mortgage Loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
8.251%- 8.500%.............. 3 $ 629,704.14 2.75%
8.751- 9.000................ 5 451,199.65 1.97
9.001- 9.250................ 1 77,388.01 0.34
9.251- 9.500................ 9 712,748.70 3.11
9.501- 9.750................ 11 1,424,957.71 6.23
9.751-10.000................ 14 2,240,609.70 9.79
10.001-10.250................ 13 2,165,966.19 9.47
10.251-10.500................ 17 2,071,349.28 9.05
10.501-10.750................ 14 1,911,661.25 8.35
10.751-11.000................ 20 3,485,810.62 15.23
11.001-11.250................ 17 2,011,263.58 8.79
11.251-11.500................ 12 1,418,573.72 6.20
11.501-11.750................ 8 985,398.31 4.31
11.751-12.000................ 14 1,570,613.43 6.86
12.001-12.250................ 5 308,741.97 1.35
12.251-12.500................ 8 885,990.99 3.87
12.501-12.750................ 3 194,206.49 0.85
12.751-13.000................ 1 57,000.00 0.25
13.001-13.250................ 1 62,957.19 0.28
13.251-13.500................ 1 50,454.70 0.22
13.751-14.000................ 5 120,478.06 0.53
14.251-14.500................ 1 44,961.62 0.20
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
- ------------
(/1/As)of the Cut-Off Date, 22 of the Initial Mortgage Loans in Loan Group 2,
representing approximately 5.78% of the Cut-Off Date Loan Group 2 Initial
Principal Balance, are adjustable rate mortgage loans with Loan Rates which
will adjust on the next Change Date.
S-30
<PAGE>
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Remaining Term to Initial Initial Group 2 Initial
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- ----------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
61-120 months............... 1 $ 49,523.58 0.22%
121-180 months............... 99 10,251,854.50 44.80
181-240 months............... 5 669,014.15 2.92
301-360 months............... 78 11,911,643.08 52.06
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
MONTHS SINCE ORIGINATION
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0 months................ 75 $ 9,549,563.33 41.73%
1- 6 months.................. 98 12,166,535.55 53.17
7-12 months.................. 10 1,165,936.43 5.10
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
PROPERTY TYPE
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-Family.............. 65 $13,245,556.80 57.89%
Manufactured Housing....... 91 5,182,422.33 22.65
Planned Unit Development
(PUD)..................... 13 2,449,889.37 10.71
Condominium................ 4 794,182.80 3.47
Two- to Four-Family........ 2 786,053.97 3.44
Row House.................. 8 423,930.04 1.85
--- -------------- ------
Total.................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
OCCUPANCY TYPE
LOAN GROUP 2
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 2 Loan Group 2 Date Loan
Initial Initial Group 2 Initial
Occupancy Type Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied............... 178 $22,437,133.21 98.06%
Non-Owner Occupied........... 5 444,902.10 1.94
--- -------------- ------
Total...................... 183 $22,882,035.31 100.00%
=== ============== ======
</TABLE>
S-31
<PAGE>
GROSS MARGIN
LOAN GROUP 2
INITIAL ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
% of Cut-Off
Date Loan
Number of Cut-Off Date Group 2 Initial
Loan Group 2 Loan Group 2 Adjustable Rate
Initial Initial Mortgage Loan
Margin Mortgage Loans Principal Balance Principal Balance
- ------ -------------- ----------------- -----------------
<S> <C> <C> <C>
4.26%-4.50%................. 1 $ 28,988.16 2.19%
4.51 -4.75................. 1 100,000.00 7.56
4.76 -5.00................. 1 25,492.07 1.93
5.26 -5.50................. 4 298,968.81 22.59
5.51 -5.75................. 1 33,500.00 2.53
5.76 -6.00................. 4 273,725.00 20.68
6.26 -6.50................. 8 480,423.63 36.30
6.51 -6.75................. 1 55,477.00 4.19
8.26 -8.50................. 1 27,000.00 2.04
--- ------------- ------
Total...................... 22 $1,323,574.67 100.00%
=== ============= ======
</TABLE>
NEXT LOAN RATE CHANGE DATE
LOAN GROUP 2
INITIAL ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
% of Cut-Off
Date Loan
Number of Cut-Off Date Group 2 Initial
Loan Group 2 Loan Group 2 Adjustable Rate
Initial Initial Mortgage Loan
Next Change Date Mortgage Loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
April 2002................... 3 $ 206,744.73 15.62%
May 2002..................... 15 962,253.94 72.70
June 2002.................... 4 154,576.00 11.68
--- ------------- ------
Total...................... 22 $1,323,574.67 100.00%
=== ============= ======
</TABLE>
S-32
<PAGE>
LIFETIME CAP
LOAN GROUP 2
INITIAL ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
% of Cut-Off
Date Loan
Number of Cut-Off Date Group 2 Initial
Loan Group 2 Loan Group 2 Adjustable Rate
Initial Initial Mortgage Loan
Lifetime Cap Mortgage Loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
16.251%-16.500%.............. 2 $ 53,490.16 4.04%
16.501 -16.750.............. 1 108,000.00 8.16
16.751 -17.000.............. 1 100,000.00 7.56
17.001 -17.250.............. 2 179,250.00 13.54
17.251 -17.500.............. 3 128,677.93 9.72
17.501 -17.750.............. 1 25,475.00 1.92
18.001 -18.250.............. 3 199,602.08 15.08
18.251 -18.500.............. 2 129,228.65 9.76
18.501 -18.750.............. 2 101,218.65 7.65
18.751 -19.000.............. 3 217,600.00 16.44
19.251 -19.500.............. 1 25,555.20 1.93
19.501 -19.750.............. 1 55,477.00 4.19
--- ------------- ------
Total...................... 22 $1,323,574.67 100.00%
=== ============= ======
</TABLE>
LIFETIME FLOOR
LOAN GROUP 2
INITIAL ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
% of Cut-Off
Date Loan
Number of Cut-Off Date Group 2 Initial
Loan Group 2 Loan Group 2 Adjustable Rate
Initial Initial Mortgage Loan
Lifetime Floor Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
4.251%- 4.500%.............. 1 $ 28,988.16 2.19%
5.251 - 5.500.............. 2 170,978.65 12.92
5.751 - 6.000.............. 1 23,850.00 1.80
6.251 - 6.500.............. 3 224,576.58 16.97
9.251 - 9.500.............. 2 53,490.16 4.04
9.501 - 9.750.............. 1 108,000.00 8.16
9.751 -10.000.............. 1 100,000.00 7.56
10.001 -10.250.............. 1 155,400.00 11.74
10.251 -10.500.............. 1 69,000.00 5.21
10.501 -10.750.............. 1 25,475.00 1.92
11.001 -11.250.............. 3 199,602.08 15.08
11.251 -11.500.............. 1 30,689.77 2.32
11.501 -11.750.............. 1 25,492.07 1.93
11.751 -12.000.............. 1 27,000.00 2.04
12.251 -12.500.............. 1 25,555.20 1.93
12.501 -12.750.............. 1 55,477.00 4.19
--- ------------- ------
Total...................... 22 $1,323,574.67 100.00%
=== ============= ======
</TABLE>
S-33
<PAGE>
Loan Group 3 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 Loan Group 3 Initial Mortgage Loans are
percentages of the Cut-Off Date Loan Group 3 Initial Principal Balance.
As of the Cut-Off Date, the Loan Group 3 Initial Mortgage Loans consisted of
adjustable rate Mortgage Loans, and the Mortgaged Properties were located in 45
states and the District of Columbia. As of the Cut-Off Date, the Loan Group 3
Initial Mortgage Loans had an aggregate Principal Balance of $124,301,017.49
(the "Cut-Off Date Loan Group 3 Initial Principal Balance"), the maximum
Principal Balance of any of the Loan Group 3 Initial Mortgage Loans was
$805,000.00, the minimum Principal Balance thereof was $14,880.64 and the
Principal Balance of such Mortgage Loans averaged $100,730.16. As of the Cut-
Off Date, the Loan Rates on the Loan Group 3 Initial Mortgage Loans ranged from
7.65% per annum to 15.25% per annum, and the weighted average Loan Rate for the
Loan Group 3 Initial Mortgage Loans was 10.20% per annum. As of the Cut-Off
Date, the original term to stated maturity of each Loan Group 3 Initial
Mortgage Loan was 360 months, the remaining term to stated maturity ranged from
347 months to 360 months, the weighted average remaining term to stated
maturity was 359 months and the LTV (as defined herein) ranged from 18.97% to
100.00% with a weighted average LTV of approximately 78.77%. Each Loan Group 3
Initial Mortgage Loan made its first Monthly Payment during or after May 1998.
As of the Cut-Off Date, all of the Loan Group 3 Initial Mortgage Loans were
secured by first liens.
Approximately 99.91% of the Loan Group 3 Initial Mortgage Loans have Loan
Rates which will adjust semi-annually (after an initial fixed rate period (an
"Initial Period") with respect to such Mortgage Loans of either six months,
twelve months, twenty-four months, thirty-six months or forty-eight months) on
the date set forth in the related Mortgage Note (each, a "Change Date") to
equal the sum of (i) the average of the interbank offered rates for six-month
United States dollar deposits in the London market, as published in The Wall
Street Journal as of the first business day of the month immediately preceding
the month of the applicable Change Date (the "Loan Index") and (ii) the number
of basis points set forth in such Mortgage Note (the "Gross Margin"), subject
to rounding and to the effects of the Periodic Cap, the applicable Lifetime Cap
and the applicable Lifetime Floor. Approximately 0.09% of the Loan Group 3
Initial Mortgage Loans have Loan Rates which will adjust annually based on the
one year Constant Maturity Treasury Index plus the Gross Margin, subject to the
applicable Lifetime Cap and the applicable Lifetime Floor. The "Periodic Cap"
generally limits changes in the Loan Rate for each Initial Mortgage Loan on
each Change Date to 1.00% (except (a) with respect to the first Change Date for
several Mortgage Loans, the Periodic Cap may be higher and (b) for 70 Loan
Group 3 Initial Mortgage Loans representing 7.86% of the Cut-Off Date Loan
Group 3 Initial Principal Balance which have Periodic Caps ranging from 0.50%
to 3.00%.) The "Lifetime Cap" is the maximum Loan Rate that may be borne by a
Mortgage Loan in Loan Group 3 over its life. The "Lifetime Floor" is the
minimum Loan Rate that may be borne by a Mortgage Loan in Loan Group 3 over its
life. The Mortgage Loans in Loan Group 3 do not negatively amortize. On each
Change Date for a Mortgage Loan in Loan Group 3, the related Monthly Payment
will be adjusted to an amount which will pay interest at the adjusted Loan Rate
and fully amortize the then outstanding principal balance of such Mortgage Loan
over its remaining term.
As of the Cut-Off Date, the weighted average Lifetime Cap of the Loan Group
3 Initial Mortgage Loans was approximately 17.10% per annum, with a maximum
Lifetime Cap of 25.00% per annum and a minimum Lifetime Cap of 13.85% per
annum; the weighted average Lifetime Floor of the Loan Group 3 Initial Mortgage
Loans was approximately 8.77% per annum, with a maximum Lifetime Floor of
15.25% per annum and a minimum Lifetime Floor of 4.25% per annum; and the Loan
Group 3 Initial Mortgage Loans had a weighted average Gross Margin of
approximately 5.66%. As of the Cut-Off Date, 1.41% of the Loan Group 3 Initial
Mortgage Loans adjust after an Initial Period of six-months; 0.09% of the Loan
Group 3 Initial Mortgage Loans adjust after an Initial Period of one year;
12.16% of the Loan Group 3 Initial Mortgage Loans adjust after an Initial
Period of two years; 86.25% of the Loan Group 3 Initial Mortgage Loans adjust
after an Initial Period of three years; and 0.08% of the Loan Group 3 Initial
Mortgage Loans adjust after an Initial Period of
S-34
<PAGE>
four years. The weighted average number of months to the next Change Date of
the Loan Group 3 Initial Mortgage Loans is approximately 32 months, with a
maximum number of months and a minimum number of months of 47 and 1,
respectively.
PRINCIPAL BALANCES
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Range of Loan Group 3 Loan Group 3 Date Loan
Cut-Off Date Initial Initial Group 3 Initial
Principal Balances Mortgage Loans Principal Balance Principal Balance
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01- 50,000.00...... 229 $ 8,519,687.82 6.85%
50,000.01- 100,000.00...... 562 41,011,939.14 32.99
100,000.01- 150,000.00...... 246 29,876,972.49 24.04
150,000.01- 200,000.00...... 89 15,081,206.46 12.13
200,000.01- 250,000.00...... 53 11,924,407.31 9.59
250,000.01- 300,000.00...... 26 6,967,867.34 5.61
300,000.01- 350,000.00...... 15 4,881,325.52 3.93
350,000.01- 400,000.00...... 8 3,042,129.67 2.45
400,000.01- 450,000.00...... 3 1,255,481.74 1.01
450,000.01- 500,000.00...... 2 935,000.00 0.75
800,000.01- 850,000.00...... 1 805,000.00 0.65
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-35
<PAGE>
GEOGRAPHIC DISTRIBUTION BY STATE(/1/)
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
Alabama...................... 24 $ 2,432,729.65 1.96%
Arizona...................... 14 1,836,508.94 1.48
Arkansas..................... 6 414,910.54 0.33
California................... 67 12,398,976.61 9.97
Colorado..................... 38 4,320,568.12 3.48
Connecticut.................. 5 462,978.40 0.37
Delaware..................... 2 230,508.55 0.19
District of Columbia......... 3 312,960.95 0.25
Florida...................... 136 13,978,289.04 11.25
Georgia...................... 36 4,578,465.11 3.68
Idaho........................ 15 1,549,966.59 1.25
Illinois..................... 47 4,379,126.85 3.52
Indiana...................... 52 3,261,510.48 2.62
Iowa......................... 1 75,955.13 0.06
Kansas....................... 13 1,219,765.72 0.98
Kentucky..................... 20 1,843,727.86 1.48
Louisiana.................... 12 1,050,447.05 0.85
Maryland..................... 38 4,380,088.02 3.52
Massachusetts................ 2 307,153.83 0.25
Michigan..................... 94 6,551,225.54 5.27
Minnesota.................... 36 3,142,629.18 2.53
Mississippi.................. 1 30,712.26 0.02
Missouri..................... 61 3,998,022.81 3.22
Montana...................... 2 424,500.00 0.34
Nebraska..................... 17 1,192,668.30 0.96
Nevada....................... 1 75,559.02 0.06
New Hampshire................ 1 79,815.96 0.06
New Jersey................... 16 1,850,392.61 1.49
New Mexico................... 2 156,927.35 0.13
New York..................... 21 2,113,765.83 1.70
North Carolina............... 35 3,961,029.13 3.19
North Dakota................. 1 46,186.42 0.04
Ohio......................... 118 10,224,375.56 8.23
Oklahoma..................... 6 321,106.43 0.26
Oregon....................... 22 2,730,364.38 2.20
Pennsylvania................. 33 3,307,225.10 2.66
Rhode Island................. 1 128,737.97 0.10
South Carolina............... 57 6,139,721.44 4.94
South Dakota................. 1 65,916.24 0.05
Tennessee.................... 16 1,900,217.61 1.53
Texas........................ 30 2,452,212.23 1.97
Utah......................... 15 1,825,279.50 1.47
Virginia..................... 21 3,042,618.67 2.45
Washington................... 58 6,640,838.82 5.34
West Virginia................ 1 68,696.13 0.06
Wisconsin.................... 36 2,795,635.56 2.25
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
(/1/)Determined by property address designated as such in the related mortgage.
- ------------
S-36
<PAGE>
LOAN-TO-VALUE RATIOS(/1/)
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
10.01%- 20.00%............... 1 $ 21,971.99 0.02%
20.01- 30.00 ............... 3 84,967.40 0.07
30.01- 40.00 ............... 4 290,573.48 0.23
40.01- 50.00 ............... 12 635,856.13 0.51
50.01- 60.00 ............... 45 4,196,401.17 3.38
60.01- 70.00 ............... 121 11,396,541.40 9.17
70.01- 80.00 ............... 653 61,679,339.33 49.62
80.01- 90.00 ............... 390 45,390,508.39 36.52
90.01-100.00 ............... 5 604,858.20 0.49
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
- ------------
(/1/)The Loan-to-Value Ratios (each, an "LTV") shown above are equal, with
respect to each Initial Mortgage Loan, to the original principal balance of
such Initial 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 Initial Mortgage Loan or
(b) the purchase price of such Mortgaged Property if the proceeds of such
Initial Mortgage Loan are used to purchase such Mortgaged Property.
LOAN RATES AS OF THE CUT-OFF DATE
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Loan Rates Mortgage Loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
7.501%- 8.000%............. 7 $ 769,608.83 0.62%
8.001- 8.500 ............. 18 1,887,364.82 1.52
8.501- 9.000 ............. 82 10,209,897.07 8.21
9.001- 9.500 ............. 156 17,028,192.00 13.70
9.501- 10.000 ............. 269 29,216,013.05 23.50
10.001- 10.500 ............. 239 23,268,847.89 18.72
10.501- 11.000 ............. 249 22,474,425.67 18.08
11.001- 11.500 ............. 111 11,118,756.97 8.95
11.501- 12.000 ............. 76 5,926,080.29 4.77
12.001- 12.500 ............. 12 1,278,208.21 1.03
12.501- 13.000 ............. 6 693,331.69 0.56
13.001- 13.500 ............. 5 313,058.27 0.25
13.501- 14.000 ............. 1 35,707.90 0.03
14.001- 14.500 ............. 1 51,653.03 0.04
14.501- 15.000 ............. 1 14,991.16 0.01
15.001- 15.500 ............. 1 14,880.64 0.01
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-37
<PAGE>
MONTHS SINCE ORIGINATION
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
0 months..................... 698 $ 72,074,753.74 57.98%
1- 6 months.................. 498 48,189,353.84 38.77
7-12 months.................. 37 3950046.9 3.18
13+.......................... 1 86,863.01 0.07
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
PROPERTY TYPE
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Single-Family.............. 1,011 $100,776,753.30 81.07%
Two- to Four-Family........ 80 8,189,252.28 6.59
Planned Unit Development
(PUD)..................... 44 6,936,787.88 5.58
Condominium................ 69 6,264,000.19 5.04
Manufactured Housing....... 24 1,808,466.20 1.45
Row House.................. 6 325,757.64 0.26
----- --------------- ------
Total.................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
OCCUPANCY TYPE
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Occupancy Type Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
Owner Occupied............... 1,094 $115,121,370.24 92.61%
Non-Owner Occupied........... 140 9,179,647.25 7.39
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-38
<PAGE>
GROSS MARGIN
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Margin Mortgage Loans Principal Balance Principal Balance
- ------ -------------- ----------------- -----------------
<S> <C> <C> <C>
4.01%- 5.00%................ 419 $ 40,090,579.04 32.25%
5.01 - 6.00 .............. 516 56,369,989.96 45.35
6.01 - 7.00 .............. 192 19,263,971.06 15.50
7.01 - 8.00 .............. 81 6,863,576.13 5.52
8.01 - 9.00 .............. 20 1,456,919.30 1.17
9.01 -10.00 .............. 4 226,110.20 0.18
10.01 -11.00 .............. 1 14,991.16 0.01
11.01 -12.00 .............. 1 14,880.64 0.01
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
INITIAL PERIOD
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Initial Period Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
6 months.................... 13 $ 1,756,222.16 1.41%
12 months.................... 2 117,600.00 0.09
24 months.................... 150 15,111,526.56 12.16
36 months.................... 1,068 107,211,668.77 86.25
48 months.................... 1 104,000.00 0.08
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-39
<PAGE>
NEXT LOAN RATE CHANGE DATE
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Next Change Date Mortgage Loans Principal Balance Principal Balance
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
July, 1999................... 2 $ 376,094.10 0.30%
September, 1999.............. 1 42,359.18 0.03
October, 1999................ 2 459,717.86 0.37
November, 1999............... 5 616,736.99 0.50
December, 1999............... 1 106,930.00 0.09
January, 2000................ 1 134,430.09 0.11
April, 2000.................. 1 86,863.01 0.07
May, 2000.................... 1 19,953.94 0.02
July, 2000................... 3 252,910.87 0.20
August, 2000................. 3 100,305.41 0.08
September, 2000.............. 13 1,523,448.04 1.23
October, 2000................ 10 1,222,569.40 0.98
November, 2000............... 17 1,540,487.78 1.24
December, 2000............... 12 1,319,924.06 1.06
January, 2001................ 14 1,407,704.01 1.13
February, 2001............... 25 2,238,086.28 1.80
March, 2001.................. 11 1,183,867.38 0.95
April, 2001.................. 17 1,529,130.15 1.23
May, 2001.................... 22 2,352,030.17 1.89
June, 2001................... 2 354,200.00 0.28
August, 2001................. 2 262,907.71 0.21
September, 2001.............. 1 57,065.38 0.05
October, 2001................ 1 79,646.59 0.06
November, 2001............... 10 1,025,640.54 0.83
December, 2001............... 9 1,160,955.50 0.93
January, 2002................ 18 2,252,576.73 1.81
February, 2002............... 27 1,896,380.53 1.53
March, 2002.................. 51 3,785,776.39 3.05
April, 2002.................. 274 27,080,023.26 21.79
May, 2002.................... 458 47,951,495.72 38.58
June, 2002................... 216 21,506,400.42 17.30
July, 2002................... 1 152,800.00 0.12
November, 2002............... 2 117,600.00 0.09
May, 2003.................... 1 104,000.00 0.08
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-40
<PAGE>
LIFETIME CAP
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Lifetime Cap Mortgage Loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
13.501%-14.000%.............. 3 $ 236,305.51 0.19%
14.001 -14.500 ............ 3 369,600.10 0.30
14.501 -15.000 ............ 10 1,295,959.84 1.04
15.001 -15.500 ............ 32 3,121,623.32 2.51
15.501 -16.000 ............ 99 11,734,363.99 9.44
16.001 -16.500 ............ 171 18,719,665.79 15.06
16.501 -17.000 ............ 277 29,461,620.54 23.70
17.001 -17.500 ............ 225 21,785,024.74 17.53
17.501 -18.000 ............ 223 19,736,449.57 15.88
18.001 -18.500 ............ 100 10,210,262.33 8.21
18.501 -19.000 ............ 64 5,186,663.79 4.17
19.001 -19.500 ............ 12 1,222,196.28 0.98
19.501 -20.000 ............ 5 581,687.81 0.47
20.001 -20.500 ............ 4 285,324.49 0.23
21.001 -21.500 ............ 1 51,653.03 0.04
21.501 -22.000 ............ 1 14,991.16 0.01
22.001 -22.500 ............ 1 14,880.64 0.01
24.501 -25.000 ............ 3 272,744.56 0.22
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-41
<PAGE>
LIFETIME FLOOR
LOAN GROUP 3
INITIAL MORTGAGE LOANS
<TABLE>
<CAPTION>
Number of Cut-Off Date % of Cut-Off
Loan Group 3 Loan Group 3 Date Loan
Initial Initial Group 3 Initial
Lifetime Floor Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
4.001%- 4.500%.............. 18 $ 1,825,006.07 1.47%
4.501 - 5.000 ............. 97 9,988,384.80 8.04
5.001 - 5.500 ............. 97 12,038,457.69 9.68
5.501 - 6.000 ............. 58 5,503,004.00 4.43
6.001 - 6.500 ............. 36 3,530,835.62 2.84
6.501 - 7.000 ............. 34 3,176,613.04 2.56
7.001 - 7.500 ............. 16 1,059,522.08 0.85
7.501 - 8.000 ............. 7 730,245.72 0.59
8.001 - 8.500 ............. 18 1,933,355.15 1.56
8.501 - 9.000 ............. 62 7,141,981.18 5.75
9.001 - 9.500 ............. 127 14,076,955.27 11.32
9.501 -10.000 ............. 196 20,161,026.63 16.22
10.001 -10.500 ............. 173 16,734,084.43 13.46
10.501 -11.000 ............. 157 14,502,758.51 11.67
11.001 -11.500 ............. 72 6,949,139.34 5.59
11.501 -12.000 ............. 48 3,739,100.05 3.01
12.001 -12.500 ............. 6 570,578.25 0.46
12.501 -13.000 ............. 4 261,331.69 0.21
13.001 -13.500 ............. 5 313,058.27 0.25
13.501 -14.000 ............. 1 35,707.90 0.03
14.501 -15.000 ............. 1 14,991.16 0.01
15.001 -15.500 ............. 1 14,880.64 0.01
----- --------------- ------
Total...................... 1,234 $124,301,017.49 100.00%
===== =============== ======
</TABLE>
S-42
<PAGE>
Conveyance of Subsequent Mortgage Loans
The Agreement permits the Trust to acquire during the Funding Period up to
approximately $114,962,696.04, $14,117,964.69 and $63,698,982.51 aggregate
principal balance of Subsequent Mortgage Loans for Loan Group 1, Loan Group 2
and Loan Group 3, respectively. Accordingly, the statistical characteristics of
the Mortgage Loans in the Trust will vary upon the acquisition of Subsequent
Mortgage Loans.
The obligation of the Trust to purchase Subsequent Mortgage Loans during the
Funding Period is subject to the following requirements, any of which
requirements may be waived or modified in any respect by the Certificate
Insurer: (i) such Subsequent Mortgage Loan may not be 30 or more days
contractually delinquent as of the related Cut-Off Date; (ii) the remaining
term to stated maturity of such Subsequent Mortgage Loan will not exceed 30
years for fully amortizing loans or 15 years for "Balloon Loans"; (iii) such
Subsequent Mortgage Loan will be secured by a Mortgage in a first lien position
or, with respect to Loan Group 1 and Loan Group 2, a second lien position; (iv)
such Subsequent Mortgage Loan will not have a Loan Rate less than 6.50% per
annum for Loan Group 1, 7.50% per annum for Loan Group 2 and 7.65% per annum
for Loan Group 3; (v) such Subsequent Mortgage Loan will be otherwise
acceptable to the Certificate Insurer; (vi) such Subsequent Mortgage Loan shall
be secured by a mortgage on property which, at the time of the origination of
such Subsequent Mortgage Loan, has an appraised value of not more than
$1,750,000; (vii) with respect to each Subsequent Mortgage Loan in Loan Group 1
secured by a first lien, the original principal balance will be no more than
$240,000 for single-family properties and $307,100 for two- to four-family
properties, and no Subsequent Mortgage Loan in Loan Group 1 secured by a second
lien on the related property will have an original principal balance of more
than $120,000; and (viii) with respect to each Subsequent Mortgage Loan in Loan
Group 1 secured by a second lien as of its origination date, the sum of the
principal balance of such second lien loan and the related senior lien will be
no more than $240,000 for single-family properties and $307,100 for two- to
four-family properties (unless the related senior lien loan, at the time of
origination of the second lien loan, had a principal balance greater than
$240,000 for single-family properties and $307,100 for two- to four-family
properties).
Following the purchase of such Subsequent Mortgage Loans by the Trust for
Loan Group 1, the Mortgage Loans in Loan Group 1 (including such Subsequent
Mortgage Loans) as of the Closing Date: (a) will have a weighted average Loan
Rate of at least 10.60% per annum; (b) will have a weighted average remaining
term to stated maturity of less than 265 months; (c) will have a weighted
average CLTV of not more than 77.00%; (d) will not have more than 39.00% of
"Balloon Loans" (by aggregate Cut-Off Date Principal Balance for Loan Group 1);
(e) will not have a state concentration in excess of 11.00% for any one state
(by aggregate Cut-Off Date Principal Balance for Loan Group 1); (f) will have
no more than 9.00% of such Mortgage Loans relating to non-owner occupied
properties (by aggregate Cut-Off Date Principal Balance for Loan Group 1); and
(h) will not include Mortgage Loans in excess of 4.00% secured by Mortgages in
a second lien position (by aggregate Cut-Off Date Principal Balance for Loan
Group 1).
Following the purchase of such Subsequent Mortgage Loans by the Trust for
Loan Group 2, the Mortgage Loans in Loan Group 2 (including such Subsequent
Mortgage Loans) as of the Closing Date: (a) will have a weighted average Loan
Rate of at least 10.50% per annum as of such date; (b) will have a weighted
average remaining term to stated maturity of less than 280 months; (c) will
have a weighted average CLTV of not more than 78.50%; (d) will have no Mortgage
Loan with a Cut-Off Date Principal Balance in excess of $600,000; (e) will not
have a state concentration in excess of 13.00% for any one state (by aggregate
Cut-Off Date Principal Balance for Loan Group 2); (g) will have no more than
3.00% of such Mortgage Loans relating to non-owner occupied properties (by
aggregate Cut-Off Date Principal Balance for Loan Group 2); (h) will not have
more than 15.00% of the related Mortgage Loans secured by a Mortgage in a
second lien position (by aggregate Cut-Off Date Principal Balance for Loan
Group 2); (i) will not have more than 94.50% of the related Mortgage Loans that
bear interest at a fixed rate (by aggregate Cut-Off Date Principal Balance for
Loan Group 2); and (j) will not have more than 39.00% of "Balloon Loans" (by
aggregate Cut-Off Date Principal Balance for Loan Group 2).
S-43
<PAGE>
Following the purchase of such Subsequent Mortgage Loans by the Trust for
Loan Group 3, the Mortgage Loans in Loan Group 3 (including such Subsequent
Mortgage Loans) as of the Closing Date: (a) will have a weighted average Loan
Rate of at least 10.20% per annum as of such date; (b) will have a weighted
average remaining term to stated maturity of less than 360 months; (c) will
have a weighted average LTV of not more than 78.85%; (d) will have no Mortgage
Loan with a Cut-Off Date Principal Balance in excess of $805,000; (e) will not
have a state concentration in excess of 11.50% for any one state (by aggregate
Cut-Off Date Principal Balance for Loan Group 3); (g) will have no more than
7.50% of such Mortgage Loans relating to non-owner occupied properties (by
aggregate Cut-Off Date Principal Balance for Loan Group 3); and (h) will not
have any Mortgage Loans secured by a Mortgage in a second lien position.
S-44
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
General
The rate of principal payments on the Class A Certificates (the "Offered
Certificates"), the aggregate amount of distributions on the Offered
Certificates and the yield to maturity of the Offered Certificates will be
related to the rate and timing of payments of principal on the Mortgage Loans
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 68.22% of the Initial Mortgage Loans (by Cut-Off Date Initial
Pool Principal Balance) are subject to prepayment fees which vary from
jurisdiction to jurisdiction. Such prepayment fees may impact a Mortgagor's
decision to prepay a Mortgage Loan.
Prepayment Considerations
Prepayments, liquidations and purchases of the Mortgage Loans in a Loan
Group (including any optional purchase by the Seller of the remaining Mortgage
Loans in connection with the termination of the Trust and any payment under the
Policy of the Class A Principal Balance on the Final Distribution Date for the
related Class) will result in distributions on the related Offered Certificates
of principal amounts which would otherwise be distributed over the remaining
terms of such Mortgage Loans. Since the rate of payment of principal of the
Mortgage Loans will depend on future events and a variety of factors, no
assurance can be given as to such rate or the rate of principal prepayments.
The extent to which the yield to maturity of an Offered Certificate may vary
from the anticipated yield will depend upon the degree to which a Certificate
is purchased at a discount or premium, and the degree to which the timing of
payments thereon is sensitive to prepayments, liquidations and purchases of
such Mortgage Loans.
The rate of prepayment on the Mortgage Loans cannot be predicted. Provident
is not aware of any publicly available studies or statistics on the rate of
prepayment of home equity 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 purchase money first mortgage
loans. The prepayment experience of the Trust with respect to the Mortgage
Loans may be affected by a wide variety of factors, including economic
conditions, prevailing interest rate levels, the availability of alternative
financing, homeowner mobility and changes affecting the deductibility for
Federal income tax purposes of interest payments on home equity loans. All of
the Mortgage Loans contain "due-on-sale" provisions, and, with respect to the
Mortgage Loans, the Master Servicer is required by the Agreement to enforce
such provisions, unless such enforcement is not permitted by applicable law.
The enforcement of a "due-on-sale" provision will have the same effect as a
prepayment of the related Mortgage Loan. See "CERTAIN LEGAL ASPECTS OF LOANS--
Due-on-Sale Clauses in Mortgage Loans" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a pool
of mortgage loans with fixed rates such as the Mortgage Loans in Loan Group 1
and substantially all of the Mortgage Loans in Loan Group 2 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 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.
Approximately 5.78% of the Loan Group 2 Initial Mortgage Loans (by Cut-Off
Date Loan Group 2 Initial Principal Balance) and all of the Loan Group 3
Initial Mortgage Loans 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
S-45
<PAGE>
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 to "lock in" a lower fixed
interest rate. The existence of the applicable Periodic Cap, Lifetime Cap and
Lifetime Floor also may affect the likelihood of prepayments. In addition, the
delinquency and loss experience of the adjustable rate Mortgage Loans may
differ from that of the fixed rate Mortgage Loans because the amount of the
Monthly Payments on the adjustable rate Mortgage Loans are subject to
adjustment on each Change Date. If such different experience were to occur, the
prepayment experience on the Group 2 Certificates and the Group 3 Certificates
may differ from that on the Group 1 Certificates. However, no assurance can be
given as to the level of prepayments that the Mortgage Loans will experience.
The Class A-3 Certificates
The yield to investors on the Class A-3 Certificates will be sensitive to,
among other things, the level of one-month LIBOR. As described herein, the
Certificate Rate for the Class A-3 Certificates may in no event exceed the
Weighted Average Loan Rate for Loan Group 3, which depends, in large part, on
the Loan Rates in Loan Group 3 in effect on the first day of the month
preceding the month of a Distribution Date. It is possible that an increased
level of one-month LIBOR could occur simultaneously with a lower level of
prevailing interest rates, which may result in faster prepayments of Mortgage
Loans with relatively higher Loan Rates resulting in a lower Weighted Average
Loan Rate for Loan Group 3. Although substantially all of the Mortgage Loans in
Loan Group 3 bear interest at an adjustable rate based upon the Loan Index
after an Initial Period, such rate is subject to a Periodic Rate Cap and a
Lifetime Cap. If the Loan Index changes substantially between Change Dates, the
adjusted Loan Rate on the related Mortgage Loan may not equal the Loan Index
plus the related Gross Margin due to the constraint of such caps. In such
event, the related Loan Rate will be less than would have been the case in the
absence of such caps. In addition, the Loan Rate applicable to any Change Date
will be based on the Loan Index most recently announced as of the first
business day of the month immediately preceding the month of the applicable
Change Date. Thus, if the value of the Loan Index with respect to a Mortgage
Loan rises, the lag in time before the corresponding Loan Rate increases will,
all other things being equal, slow the upward adjustment of the Weighted
Average Loan Rate for Loan Group 3. Furthermore, Mortgage Loans that have not
reached their first Change Date are more likely to be subject to the Periodic
Rate Cap on their first Change Date. See "DESCRIPTION OF THE MORTGAGE LOANS"
herein.
Although the Loan Rates on the Mortgage Loans in Loan Group 3 are subject to
adjustment after an Initial Period, the Loan Rates adjust less frequently than
the Certificate Rate for the Class A-3 Certificates. Substantially all of the
Mortgage Loans in Loan Group 3 adjust by reference to the Loan Index. Changes
in the level of one-month LIBOR may not correlate with changes in the Loan
Index and may not correlate with prevailing interest rates. It is possible that
an increased level of the one-month LIBOR could occur simultaneously with a
lower level of prevailing interest rates, which would be expected to result in
faster prepayments, thereby reducing the weighted average life of the Class A-3
Certificates.
Mandatory Prepayment
During the Funding Period, it is expected that approximately
$114,962,696.04, $14,117,964.69 and $63,698,982.51 of Subsequent Mortgage Loans
will be transferred to the Trust for Loan Group 1, Loan Group 2 and Loan Group
3, respectively. In the event that less than such amounts of Subsequent
Mortgage Loans are transferred to the Trust for a Loan Group, the Classes of
the related Certificate Group then entitled to distribution of principal will
receive on the Distribution Date immediately following the end of the Funding
Period, an additional distribution allocable to principal in an amount equal to
the excess of (i) $114,962,696.04 in the case of Loan Group 1, $14,117,964.69
in the case of Loan Group 2 and $63,698,982.51 in the case of Loan Group 3 over
(ii) the aggregate Cut-Off Date Principal Balances of the related Subsequent
Mortgage Loans for such Loan Group. Although no assurances can be given,
Provident intends that the principal amount of Mortgage Loans in each Loan
Group in the Trust at the end of the Funding Period will substantially equal
the related Class A Principal Balance as of such date. Accordingly, there
should be no material principal prepayment to the Certificateholders due to a
lack of Subsequent Mortgage Loans.
S-46
<PAGE>
Weighted Average Lives
Generally, greater than anticipated prepayments of principal will increase
the yield on Offered Certificates purchased at a price less than par and will
decrease the yield on Offered Certificates purchased at a price greater than
par. The effect on an investor's yield due to principal prepayments on the
Mortgage Loans occurring at a rate that is faster (or slower) than the rate
anticipated by the investor in the period immediately following the issuance of
the Certificates will not be entirely offset by a subsequent like reduction (or
increase) in the rate of principal payments. The weighted average life of the
Offered Certificates will also be affected by the amount and timing of
delinquencies and defaults on the Mortgage Loans and the recoveries, if any, on
defaulted Mortgage Loans and foreclosed properties.
The "weighted average life" of a Certificate refers to the average amount of
time that will elapse from the date of issuance to the date each dollar in
respect of principal of such Certificate is repaid. The weighted average life
of any Class of the Class A Certificates will be influenced by, among other
factors, the rate at which principal payments are made on the Mortgage Loans,
including 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, 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 (the "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, 115%
Prepayment Assumption assumes prepayment rates equal to 115% of the Prepayment
Assumption, and so forth. The Prepayment Assumption does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans. Provident believes that no existing statistics of which it is
aware provide a reliable basis for holders of Offered Certificates to predict
the amount or the timing of receipt of prepayments on the Mortgage Loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual Mortgage Loans and the characteristics of the Mortgage Loans assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Principal Balances outstanding and weighted average lives of
the Offered Certificates set forth in the tables. In addition, since the actual
Mortgage Loans in the Trust have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on the Offered Certificates may be made earlier or later than as indicated in
the tables.
For the purpose of the tables below, it is assumed that: (i) the Mortgage
Loans consist of pools of loans with the level-pay and balloon amortization
characteristics set forth below, (ii) the amount of interest accrued on the
Mortgage Loans is reduced by amounts sufficient to pay servicing fees, trustee
fees and insurance premiums, (iii) the Closing Date for the Class A
Certificates is June 30, 1999, (iv) 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 July 1999 and are made in
accordance with the priorities described herein, (v) the scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely
delivered on the last day of each month (with no defaults), commencing in June
1999, (vi) with respect to Loan Group 1, Loan Group 2 and Loan Group 3, the
related Mortgage Loans' prepayment rates are a multiple of the Prepayment
Assumption, as set forth in the "Prepayment Scenarios" table, (vii) all
prepayments are prepayments in full received on the last day of each month
(commencing June 1999) and include 30 days of interest thereon, (viii) no
optional termination is exercised, (ix) each Class of Class A Certificates has
the
S-47
<PAGE>
respective Certificate Rate and initial Class A Principal Balance as set forth
herein, (x) the Loan Index for each Due Period will be 5.3675%, (xi) the LIBOR
Index for each Interest Period will be 5.0000%, (xii) the Loan Rate for the
Mortgage Loans in Loan Group 3 is adjusted on its next Change Date (and on
subsequent Change Dates, if necessary) to equal the sum of (a) the assumed
level of the Loan Index and (b) the respective Gross Margin (such sum being
subject to the applicable caps and floors), (xiii) the Policy covers the
remaining Class A Principal Balance on the Final Distribution Date for the
related Class with respect to each Class of Class A Certificates and (xiv) the
maximum amount of Subsequent Mortgage Loans is purchased by the Trust on the
Closing Date.
LOAN GROUP 1
<TABLE>
<CAPTION>
Original Original Remaining
Amortization Term to Term to
Loan Term Maturity Maturity Amortization
Principal Balance($) Rate(%) (in months) (in months) (in months) Methodology
- -------------------- ------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
112,440,776.96....... 10.754 360 180 178 Balloon
35,076,197.19....... 10.377 172 172 171 Level
17,917,382.95....... 10.358 245 245 243 Level
124,565,642.90....... 10.565 360 360 359 Level
</TABLE>
LOAN GROUP 2
<TABLE>
<CAPTION>
Original Original Remaining
Amortization Term to Term to
Loan Term Maturity Maturity Amortization
Principal Balance($) Rate(%) (in months) (in months) (in months) Methodology
- -------------------- ------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
14,174,830.56........ 10.688 360 180 178 Balloon
2,482,384.75........ 10.605 177 177 175 Level
20,342,784.69........ 10.802 353 353 352 Level
</TABLE>
LOAN GROUP 3
<TABLE>
<CAPTION>
Original Remaining
Current Next Initial Term to Term to
Loan Change Gross Lifetime Lifetime Periodic Periodic Maturity Maturity
Principal Balance($) Rate(%) Date Margin(%) Cap(%) Floor(%) Cap(%) Cap(%) (in months) (in months)
- -------------------- ------- -------- --------- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2,626,031.81........... 9.677 10/01/99 5.421 16.358 7.735 1.108 1.108 360 357
4,849,015.22........... 10.161 09/01/00 6.097 16.923 9.275 2.193 1.293 360 352
6,455,343.62........... 10.086 12/01/00 5.910 16.805 9.385 2.205 1.286 360 355
7,488,303.60........... 10.167 03/01/01 6.852 16.585 9.180 2.386 1.092 360 358
4,697,465.75 .......... 10.752 06/01/01 7.124 17.356 10.102 1.482 1.061 360 359
15,308,080.50........... 10.282 02/01/02 6.033 17.065 9.118 1.948 1.091 360 357
40,957,382.94........... 10.255 04/01/02 5.597 17.199 8.254 1.263 1.006 360 359
72,524,596.96........... 10.174 05/01/02 5.498 17.151 8.570 1.151 1.023 360 360
33,093,779.60........... 10.130 06/01/02 5.374 17.125 9.316 1.067 1.002 360 360
</TABLE>
Subject to the foregoing discussion and assumptions, the following tables
indicate 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 prepayment rates that are a multiple of the Prepayment
Assumption as set forth in the "Prepayment Scenarios" table.
S-48
<PAGE>
PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Prepayment Scenario
---------------------------
Scenario I II III IV V VI VII
- -------- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Prepayments on Loan
Group I Mortgage
Loans(/1/)............ 50 75 100 115 150 175 200
Prepayments on Loan
Group II Mortgage
Loans(/1/)............ 50 75 100 125 150 175 200
Prepayments on Loan
Group III Mortgage
Loans(/1/)............ 75 100 125 150 175 200 225
</TABLE>
- ------------
(/1/)As a percentage of the Prepayment Assumption
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Class A-1 Class A-2
---------------------------------- ----------------------------------
Distribution Date I II III IV V VI VII I II III IV V VI VII
- ----------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent...... 100 100 100 100 100 100 100 100 100 100 100 100 100 100
June 25, 2000........ 92 89 85 83 78 75 71 92 89 85 82 78 75 71
June 25, 2001........ 82 75 68 63 54 48 42 83 75 68 61 54 48 42
June 25, 2002........ 73 63 53 48 37 31 25 74 63 54 45 38 31 25
June 25, 2003........ 65 53 42 37 26 20 15 66 53 43 34 26 20 15
June 25, 2004........ 58 44 33 28 18 13 9 58 45 34 25 18 13 9
June 25, 2005........ 51 37 26 21 12 8 5 52 38 27 19 13 8 5
June 25, 2006........ 45 31 21 16 8 5 3 46 32 21 14 9 5 3
June 25, 2007........ 40 26 16 12 6 3 2 41 26 17 10 6 3 2
June 25, 2008........ 35 21 13 9 4 2 1 36 22 13 7 4 2 1
June 25, 2009........ 31 18 10 7 3 1 1 32 18 10 5 3 1 1
June 25, 2010........ 27 15 8 5 2 1 0 28 15 8 4 2 1 0
June 25, 2011........ 23 12 6 4 1 1 0 25 13 6 3 1 1 0
June 25, 2012........ 20 10 5 3 1 0 0 22 10 5 2 1 0 0
June 25, 2013........ 17 8 3 2 1 0 0 19 9 4 2 1 0 0
June 25, 2014........ 8 4 1 1 0 0 0 10 4 2 1 0 0 0
June 25, 2015........ 7 3 1 1 0 0 0 8 3 1 0 0 0 0
June 25, 2016........ 6 2 1 0 0 0 0 7 3 1 0 0 0 0
June 25, 2017........ 5 2 1 0 0 0 0 6 2 1 0 0 0 0
June 25, 2018........ 4 2 0 0 0 0 0 5 2 1 0 0 0 0
June 25, 2019........ 4 1 0 0 0 0 0 5 1 0 0 0 0 0
June 25, 2020........ 3 1 0 0 0 0 0 4 1 0 0 0 0 0
June 25, 2021........ 3 1 0 0 0 0 0 3 1 0 0 0 0 0
June 25, 2022........ 2 1 0 0 0 0 0 3 1 0 0 0 0 0
June 25, 2023........ 2 0 0 0 0 0 0 2 1 0 0 0 0 0
June 25, 2024........ 1 0 0 0 0 0 0 2 0 0 0 0 0 0
June 25, 2025........ 1 0 0 0 0 0 0 1 0 0 0 0 0 0
June 25, 2026........ 1 0 0 0 0 0 0 1 0 0 0 0 0 0
June 25, 2027........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2028........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0
June 25, 2029........ 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Weighted Average Life
(years)*............ 7.62 5.70 4.47 3.94 3.04 2.60 2.26 7.85 5.82 4.54 3.68 3.07 2.62 2.28
</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 original principal balance of the Certificates.
S-49
<PAGE>
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PREPAYMENT SCENARIOS
<TABLE>
<CAPTION>
Class A-3
----------------------------------------------------------
Distribution Date I II III IV V VI VII
- ----------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percent...... 100 100 100 100 100 100 100
June 25, 2000........ 90 86 83 80 76 73 69
June 25, 2001........ 76 69 62 55 49 43 38
June 25, 2002........ 64 55 46 38 32 26 21
June 25, 2003........ 54 43 34 27 21 15 11
June 25, 2004........ 46 34 26 19 13 9 6
June 25, 2005........ 38 27 19 13 9 5 3
June 25, 2006........ 32 22 14 9 5 3 2
June 25, 2007........ 27 17 10 6 4 2 1
June 25, 2008........ 23 14 8 4 2 1 1
June 25, 2009........ 19 11 6 3 1 1 0
June 25, 2010........ 16 8 4 2 1 0 0
June 25, 2011........ 13 7 3 1 1 0 0
June 25, 2012........ 11 5 2 1 0 0 0
June 25, 2013........ 9 4 2 1 0 0 0
June 25, 2014........ 8 3 1 0 0 0 0
June 25, 2015........ 6 2 1 0 0 0 0
June 25, 2016........ 5 2 1 0 0 0 0
June 25, 2017........ 4 1 0 0 0 0 0
June 25, 2018........ 3 1 0 0 0 0 0
June 25, 2019........ 3 1 0 0 0 0 0
June 25, 2020........ 2 1 0 0 0 0 0
June 25, 2021........ 2 0 0 0 0 0 0
June 25, 2022........ 1 0 0 0 0 0 0
June 25, 2023........ 1 0 0 0 0 0 0
June 25, 2024........ 1 0 0 0 0 0 0
June 25, 2025........ 1 0 0 0 0 0 0
June 25, 2026........ 0 0 0 0 0 0 0
June 25, 2027........ 0 0 0 0 0 0 0
June 25, 2028........ 0 0 0 0 0 0 0
June 25, 2029........ 0 0 0 0 0 0 0
Weighted Average Life
(years)*............ 6.10 4.68 3.76 3.13 2.67 2.32 2.05
</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 original principal balance of the Certificates.
S-50
<PAGE>
DESCRIPTION OF THE CERTIFICATES
Provident Bank Home Equity Loan Trust 1999-2 (the "Trust") will issue eight
Classes (each, a "Class") of certificates: The Class A-1 Certificates, the
Class A-2 Certificates and the Class A-3 Certificates (collectively, the "Class
A Certificates"), the Class X-1 Certificates, the Class X-2 Certificates and
the Class X-3 Certificates (collectively, the "Class X Certificates") and the
Class R-1 Certificates and the Class R-2 Certificates (collectively, the "Class
R Certificates," and together with the Class A and Class X Certificates, the
"Certificates"). The Certificates will be issued pursuant to a pooling and
servicing agreement (the "Agreement"), dated as of June 1, 1999 between The
Provident Bank, as seller, document custodian and master servicer (in such
capacities, the "Seller", "Document Custodian" and "Master Servicer") and The
First National Bank of Chicago, as trustee (the "Trustee"). 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") are 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 Class A Certificates will be issued in three Classes, Class A-1
Certificates (the "Class A-1 Certificates"), Class A-2 Certificates (the "Class
A-2 Certificates") and Class A-3 Certificates (the "Class A-3 Certificates").
Only the Class A Certificates (the "Offered Certificates") are being offered
hereby. Delivery of the Offered Certificates will be made on or about June 30,
1999 (the "Closing Date"). 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.
In addition, the Trust will issue five Classes of Certificates which are not
offered hereby: Class X-1 Certificates (the "Class X-1 Certificates"), Class X-
2 Certificates (the "Class X-2 Certificates"), Class X-3 Certificates (the
"Class X-3 Certificates"), Class R-1 Certificates (the "Class R-1
Certificates") and Class R-2 Certificates (the "Class R-2 Certificates").
The rights of the holders of the Class X-1, Class X-2 and Class X-3
Certificates to receive distributions with respect to the Mortgage Loans will
be pari passu with the rights of the holders of the Group 1 Certificates, Group
2 Certificates and Group 3 Certificates, respectively, to receive distributions
of interest. The rights of the holders of the Class R Certificates to receive
distributions with respect to the Mortgage Loans will be subordinate to the
rights of the Class A Certificates and the Class X Certificates. Distributions
to the holders of the Class R Certificates are expected to be minimal.
The Offered Certificates will be issued in denominations of $1,000 and
multiples of $1 in excess thereof and will evidence specified undivided
interests in the Trust. The property of the Trust will consist of, to the
extent provided in the Agreement: (i) the Mortgage Loans; (ii) payments on the
Mortgage Loans received on and after the applicable Cut-Off Date (exclusive of
(i) certain payments in respect of interest accrued on the Mortgage Loans
during May 1999 as described in the Agreement and (ii) payments in respect of
interest on the delinquent Mortgage Loans due prior to the applicable 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, the Net Funds Cap
Carryover Reserve Account, the Pre-Funding Accounts, the Capitalized Interest
Accounts, the Spread Account and funds on deposit therein (excluding net
earnings thereon); (v) certain other ancillary or incidental funds, rights and
properties related to the foregoing; and (vi) 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") pursuant to the terms of
an Insurance Agreement, dated as of June 1, 1999 (the "Insurance Agreement")
among the Seller, the Master Servicer, the Trustee and the Certificate Insurer
for the benefit of the holders of the Class A Certificates, pursuant to which
the Certificate Insurer will
S-51
<PAGE>
guarantee payments to such Certificateholders as described herein. Definitive
Certificates (as defined below) will be transferable and exchangeable at the
corporate trust office of the Trustee, which will initially act as Certificate
Registrar. See "--Book-Entry Certificates" below. No service charge will be
made for any registration of exchange or transfer of Certificates, but the
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Each Mortgage Loan in the Trust will be assigned to one of three mortgage
loan groups ("Loan Group 1", "Loan Group 2" and "Loan Group 3", respectively,
and each a "Loan Group"). The Class A Certificates will be divided into three
groups (each, a "Certificate Group"). The Class A-1 Certificates (the "Group 1
Certificates") will represent undivided ownership interests in the Mortgage
Loans assigned to Loan Group 1, all collections thereon (exclusive of (i)
certain payments in respect of interest accrued on such Mortgage Loans during
May 1999 as described in the Agreement and (ii) payments in respect of interest
on the delinquent Mortgage Loans in Loan Group 1 due prior to the applicable
Cut-Off Date and received thereafter) and the proceeds thereof. The Class A-2
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 (i) certain payments in respect of
interest accrued on such Mortgage Loans during May 1999 as described in the
Agreement and (ii) interest on the delinquent Mortgage Loans in Loan Group 2
due prior to the applicable Cut-Off Date and received thereafter) and the
proceeds thereof. The Class A-3 Certificates (the "Group 3 Certificates") will
represent undivided ownership interests in the Mortgage Loans assigned to Loan
Group 3, all collections thereon (exclusive of payments in respect of (i)
certain payments in respect of interest accrued on such Mortgage Loans during
May 1999 as described in the Agreement and (ii) interest on the delinquent
Mortgage Loans in Loan Group 3 due prior to the applicable 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 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.
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 such 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 Cedelbank
("Cedelbank") or 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 & Co.
("Cede"), 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 The Chase Manhattan Bank 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
S-52
<PAGE>
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 (such Financial Intermediary is referred to herein as a
"Participant") (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 (such
Financial Intermediary is referred to herein as an "Indirect Participant"), and
on the records of Cedelbank 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
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 Certificates, see
"FEDERAL INCOME TAX CONSEQUENCES--Federal Income Tax Consequences to 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.
S-53
<PAGE>
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 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.
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 certificates. 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 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.
S-54
<PAGE>
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 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 distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "FEDERAL
INCOME TAX CONSEQUENCES--Federal Income Tax Consequences to Foreign Investors"
and "Backup Withholding" herein. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-
Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates
in book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to purchase
Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as nominee
of DTC, and may be made available by Cede to beneficial owners upon request, in
accordance with the rules, regulations and procedures creating and affecting
the Depository, and to the Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by the holders of
the Book-Entry Certificates under the Agreement only at the direction of one or
more Financial Intermediaries to whose DTC accounts the Book-Entry Certificates
are credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Certificates. Cedelbank
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
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
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 Default (as
defined herein), beneficial owners representing not less than 51% of the Class
A Principal Balance of the Book-Entry Certificates advise the
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<PAGE>
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, Cedelbank and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A Certificates 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.
Neither Provident, the Certificate Insurer 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.
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
The sale of the Mortgage Loans from the Seller to the Trust will be treated
by the Seller and the Trust as a sale of the Mortgage Loans. The Seller will
warrant that such transfer is a sale of its interest in the Mortgage Loans. In
the event of an insolvency of the Seller, it is possible that a receiver or
conservator for, or a creditor of, the Seller, may argue that the sale of the
Mortgage Loans by the Seller was a pledge of such Mortgage Loans in connection
with a borrowing by the Seller rather than a true sale. Such an attempt, even
if unsuccessful, could result in delays in distributions on the Offered
Certificates.
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In the event that the FDIC were appointed receiver or conservator for the
Seller, the FDIC could exercise legal authority to prevent the Trustee from
taking any action based solely upon such appointment or insolvency of the
Seller. For example, the FDIC has the power to enforce contracts of the Seller
and may have the power to cause the Seller to continue to perform the duties of
the Master Servicer and to prevent the appointment of a successor servicer, or
to cause the sale or liquidation of the Mortgage Loans and early retirement of
the Certificates notwithstanding instructions of the Certificateholders or the
Certificate Insurer to the contrary. The FDIC as receiver may void certain
transfers determined to be fraudulent which occur prior to the appointment of a
receiver or conservator and has the power to repudiate or disaffirm any
contract of the Seller. In the event of any repudiation or disaffirmance,
damages for the repudiation or disaffirmance are limited by statute, and the
FDIC as receiver may require the Trustee to comply with certain claims
procedures. Consequently, payments on the Certificates could be delayed or
reduced. In addition, the FDIC as conservator or receiver for the Seller may
have the power to transfer to another party all of the Seller's rights and
obligations with respect to the Trust and the Certificateholders and the
related property.
To the extent that the Seller is deemed to have granted a security interest
to the Trust and (i) the agreement by which the Seller grants a security
interest to the Trust in the Mortgage Loans was undertaken in the ordinary
course of business, not in contemplation of the Seller's insolvency and with no
intent to hinder, delay or defraud the Seller or its creditors or any federal
banking regulator, (ii) the secured party is not an insider or affiliate of the
Seller, (iii) the secured obligation represents a bona fide arms' length
transaction, (iv) the grant or creation of the security interest was for
adequate consideration, (v) the security agreement is in writing, was approved
by Seller's board of directors (or loan committee), which approval is reflected
in the minutes of the board (or committee) and the agreement has been
continuously, since the time of its execution, an official record of the
Seller, and (vi) such security interest is otherwise legally perfected and
enforceable, the Seller believes that the FDIC as receiver or conservator of
the Seller would not seek to void such security interest. This conclusion
assumes that the FDIC abides by its Statement of Policy Regarding Treatment of
Security Interests After Appointment of the FDIC as Conservator or Receiver
dated March 31, 1993. If the FDIC does not void such security interest, it
still could require compliance with the claims procedures and could limit the
amount recoverable from the security property or seek to redeem or prepay the
secured obligation of the Seller (to the extent that it recognized a claim for
a secured obligation without permitting the sale of the property). To the
extent that any claim of the Trustee or the Certificateholders allowed by the
FDIC were not satisfied or were not permitted to be satisfied from the security
property, the claimant would be an unsecured creditor of the Seller, entitled
to payment on the claim, if any, in the same manner as other unsecured
creditors of the Seller, only following payment of other secured claims,
administrative expenses of the receiver and deposit liabilities of the Seller.
On the Closing Date (or, with respect to the Subsequent Mortgage Loans, the
date of transfer to the Trust), Provident will transfer to the Trust all of its
right, title and interest in and to each Mortgage Loan, the related Mortgage
Notes, Mortgages and other related documents (collectively, the "Related
Documents"), including all payments received on or with respect to each such
Mortgage Loan on or after the applicable Cut-Off Date (exclusive of (i) certain
payments in respect of interest accrued on the Mortgage Loans during May 1999
as described in the Agreement and (ii) payments in respect of interest on the
delinquent Mortgage Loans due prior to the applicable Cut-Off Date and received
thereafter). The Trustee, concurrently with such transfer, will deliver the
Certificates to Provident. Each Mortgage Loan transferred to the Trust will be
identified on a schedule (the "Mortgage Loan Schedule") delivered to the
Trustee pursuant to the Agreement. The Mortgage Loan Schedule will include
information as to the Principal Balance of each Mortgage Loan as of its
applicable 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"), other than
the Mortgage Notes, which will be delivered to the Trustee on the Closing Date
(or the date of transfer of any Subsequent Mortgage Loan), and the assignments
of each Mortgage, which will be delivered to the Trustee in recordable form
within 90 days of the Closing Date. Within 30 days of an Assignment Event,
Provident will deliver the remainder of the Mortgage File pertaining
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to each Mortgage Loan to the Trustee and either record the assignment of each
Mortgage 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. In the Agreement, the Trustee will acknowledge the assignment of
the Mortgage Loans to the Trust. Provident will agree to hold the portion of
the Mortgage File being held by it 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 (iii) the suspension, termination or withdrawal of the Seller's long-
term unsecured debt rating by Moody's or S&P.
The Trustee will review the Mortgage Notes within 60 days of the Closing
Date and the assignments of each Mortgage within 180 days of the Closing Date,
and if any Mortgage Note or assignment is found to be defective in any material
respect and such defect is not cured within 90 days following notification
thereof to the Seller, the Seller will be obligated to either (i) substitute
for such Mortgage Loan an Eligible Substitute Mortgage Loan; however, such
substitution is permitted only within two years of the Closing Date and may not
be made unless an opinion of counsel is provided to the effect that such
substitution will not disqualify the Trust as a REMIC or result in a prohibited
transaction tax under the Code or (ii) purchase such Mortgage Loan at a price
(the "Purchase Price") equal to the outstanding Principal Balance of such
Mortgage Loan as of the date of purchase, plus all accrued and unpaid interest
thereon (such accrued and unpaid interest may constitute all or a portion of a
unreimbursed Monthly Advance), computed at the Loan Rate, plus the amount of
any unreimbursed Servicing Advances made by the Master Servicer. The Purchase
Price will be deposited in the Collection Account on or prior to the next
succeeding Determination Date after such obligation arises. The obligation of
the Seller to repurchase or substitute for a Defective Mortgage Loan is the
sole remedy regarding any defects in the Mortgage Loans and Related Documents
available to the Trustee or the Certificateholders. Within 60 days of an
Assignment Event, the Trustee will review the Mortgage File (to the extent not
previously reviewed) and if any Related Document is found to be defective in
any material respect and such defect is not cured within 90 days following
notification to the Seller, the Seller will be obligated to purchase or
substitute for such Mortgage Loan in the manner described above.
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 Amount") 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 an adjustable rate Mortgage Loan in Loan Group 2 or
Loan Group 3, have a Loan Rate based on the Loan Index with the next Change
Date no later than the next Change Date of the Defective Mortgage Loan and have
a Gross Margin that is not less than the Gross Margin of the Defective Mortgage
Loan and not more than 1% higher than the Gross Margin for the Defective
Mortgage Loan; (iv) have a Mortgage of the same or higher level of priority as
the Mortgage relating to the Defective Mortgage Loan at the time such Mortgage
was transferred to the Trust; (v) have a remaining term to maturity not more
than six months earlier and not later than the remaining term to maturity of
the Defective Mortgage Loan; (vi) comply with each representation and warranty
set forth in the 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; (viii) if such Defective Mortgage Loan is an
adjustable rate Mortgage Loan in Loan Group 2 or Loan Group 3, have a Lifetime
Cap and a Periodic Cap no lower than the Lifetime Cap and Periodic 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
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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 and the Certificate Insurer 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) the
Seller has transferred and assigned all of its right, title and interest in
each Mortgage Loan and the Related Documents, free of any lien; and (ii) each
Mortgage Loan complied, at the time of origination, in all material respects
with applicable state and federal laws. Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the
interests of the Trust, the Certificateholders or the Certificate Insurer in
the related Mortgage Loan and Related Documents, the Seller will have a period
of 60 days after discovery or notice of the breach to effect a cure. If the
breach cannot be cured within the 60-day period, the Seller will be obligated
to (i) substitute for such Defective Mortgage Loan an Eligible Substitute
Mortgage Loan or (ii) purchase such Defective Mortgage Loan from the Trust. The
same procedure and limitations that are set forth above for the substitution or
purchase of Defective Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or purchase of a Defective
Mortgage Loan as a result of a breach of a representation or warranty in the
Agreement that materially and adversely affects the interests of the Trust, 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 herein.
Payments on Mortgage Loans; Deposits to Collection Account and Distribution
Account
The Master Servicer shall establish and maintain in the name of the Trustee
a separate trust account (the "Collection Account") for the benefit of the
holders of the Certificates. The Collection Account will be an Eligible Account
(as defined herein). Subject to the investment provision described in the
following paragraphs, upon receipt by the Master Servicer of amounts in respect
of the Mortgage Loans (excluding amounts representing the Master Servicing
Fee), the Master Servicer will deposit such amounts in the Collection Account.
Amounts so deposited may be invested in Eligible Investments (as described in
the Agreement) maturing no later than one Business Day 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 a segregated account that is (i) maintained with a
depository institution whose debt obligations at the time of any deposit
therein have the short-term debt rating of "A-1" by S&P or "P-1" by Moody's and
whose accounts are fully insured to the maximum extent provided 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 "A2" by Moody's and "A" by S&P, 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, and in each case of
(a)-(d), approved in writing by the Certificate Insurer, (ii) a segregated
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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 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 Certificate Insurer and the Rating
Agencies from time to time as being consistent with the then current ratings of
the Certificates. All net investment earnings on funds deposited to the
Collection Account and the Distribution Account will be for the benefit of the
Master Servicer as additional servicing compensation. The Master Servicer will
be obligated to deposit the amount of any net loss incurred in respect of an
Eligible Investment held therein.
Monthly Advances
Not later than three 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
interest due but not received on each Mortgage Loan during the related Due
Period (net of the Master Servicing Fee) (the "Monthly Advance"). With respect
to any Balloon Loan that is delinquent on its maturity date, the Master
Servicer will continue to make Monthly Advances with respect to such Balloon
Loan in an amount equal to one month's interest on the unpaid principal balance
at the Loan Rate (net of the Master Servicing Fee). Such obligation of the
Master Servicer continues with respect to each Mortgage Loan until such
Mortgage Loan becomes a Liquidated Mortgage Loan; provided, however, the Master
Servicer is not required to make any Monthly Advances, including, without
limitation, Monthly Advances with respect to Balloon Loans, which it determines
would be a Nonrecoverable Advance.
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. The Master Servicer's right to such reimbursements is prior
to the rights of the Certificateholders.
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Distribution Dates
On the eighteenth day of each month (each, a "Determination Date"), the
Master Servicer will deliver such information reasonably required by the
Trustee in order for the Trustee to calculate the amounts to be paid, as
described herein, to the Certificateholders on the next Distribution Date.
On the 25th day of each month, or if such a day is not a Business Day, then
the next succeeding Business Day, commencing in July 1999 (each such day, a
"Distribution Date"), the holders of Offered Certificates of record as of the
applicable Record Date will be entitled to receive, from amounts then on
deposit in the Distribution Account, to the extent of funds available therefor
in accordance with the priorities and in the amounts described below under "--
Priority of Distributions," an aggregate amount equal to the sum of (a) the
Class Interest Distribution for each Class of Offered Certificates and (b) the
Class A Principal Distribution for each Certificate Group. Distributions will
be made (i) in immediately available funds to holders of Offered Certificates
holding Certificates, the aggregate principal balance of which is at least
$1,000,000, by wire transfer or otherwise, to the account of such
Certificateholder at a domestic bank or other entity having appropriate
facilities therefor, if such Certificateholder has so notified the Trustee in
accordance with the Agreement, or (ii) by check mailed to the address of the
person entitled thereto as it appears as of the last Record Date on the
register (the "Certificate Register") maintained by the Trustee as registrar
(the "Certificate Registrar").
The "Record Date" is the business day immediately preceding such
Distribution Date; provided, however, that if a Certificate becomes a
Definitive Certificate, the Record Date for such Certificate will be the last
business day of the month immediately preceding the month in which the related
Distribution Date occurs.
Deposits to the Distribution Account
No later than the date specified in the Agreement 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) (a) 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, including Nonrecoverable Advances, and
the interest portion of Payaheads received during such Due Period intended for
application in subsequent Due Periods); and (b) the interest portion of
Payaheads on the Mortgage Loans in such Loan Group received in prior Due
Periods intended for application in such Due Period; (ii) Net Liquidation
Proceeds and Insurance Proceeds with respect to the Mortgage Loans in such Loan
Group (net of amounts applied to the restoration or repair of a Mortgaged
Property); (iii) the Purchase Price for repurchased Defective Mortgage Loans
with respect to the Mortgage Loans in such Loan Group and any related
Substitution Adjustment Amounts; (iv) payments from the Master Servicer in
connection with (a) Monthly Advances, (b) Prepayment Interest Shortfalls and
(c) the termination of the Trust with respect to the Mortgage Loans in such
Loan Group as provided in the Agreement; (v) any amounts withdrawn from the
Spread Account or other trust accounts, paid under the Policy or on deposit in
the Distribution Account that are available to be distributed in respect of
monthly interest, in each case in respect of the related Certificate Group; and
(vi) amounts withdrawn from the related Pre-Funding Account or Capitalized
Interest Account, if any, for the purpose of making a distribution on the
related Class A Certificates on the Distribution Date in July 1999 or August
1999.
A "Payahead" is a scheduled monthly payment received by the Master Servicer
with the scheduled monthly payment for the current Due Date, intended by the
related Mortgagor to be applied on a subsequent Due Date (for example, because
the Mortgagor intends to be on vacation the following month). The interest
portion of Payaheads will be held in the Collection Account until deposited to
the Distribution Account as part of the Available Funds for the Due Period in
which the Due Date that the Mortgagor intends the application of such scheduled
monthly payment occurs. The principal portion of each Payahead will be part of
the Available Funds for the Due Period in which such Payahead was received.
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The Spread Account
The Agreement requires the Trustee to establish on the Closing Date and to
maintain one or more reserve accounts (the "Spread Account") for the benefit of
the Certificate Insurer and the Certificateholders. On the Closing Date, the
Trustee will make a deposit to the Spread Account, as specified in the
Agreement, in respect of each Certificate Group. No additional deposits will be
required to be made to the Spread Account in respect of any Certificate Group.
On any Distribution Date, amounts, if any, on deposit in the Spread Account
in respect of a Certificate Group will be available to fund any shortfall
between (i) the sum of (a) the Class Interest Distribution for each related
Class of Offered Certificates and (b) the Class A Principal Distribution for
such Certificate Group on such date and (ii) funds on deposit in the
Distribution Account available to be distributed therefor on such Distribution
Date, prior to giving effect to any draw on the Policy on such Distribution
Date; provided, however, the Spread Account will generally not be available to
cover any interest shortfall resulting from a Certificate Rate exceeding the
Weighted Average Loan Rate of the related Loan Group. On any Distribution Date
if the amount on deposit in the Spread Account in respect of a Certificate
Group is insufficient to fund any such covered shortfall, the amount on deposit
in the Spread Account in respect of the other Certificate Groups after giving
effect to any withdrawal therefrom required to be made in respect of such
Certificate Groups on such Distribution Date, may be applied to fund such
covered shortfall. The Agreement permits reductions to the amount on deposit in
the Spread Account in respect of a Certificate Group as specified in the
Agreement. Any such reduction will be dependent on the delinquency and loss
performance of the Mortgage Loans in the related Loan Group. The maximum amount
required to be on deposit at any time in the Spread Account in respect of a
Certificate Group is referred to herein as the "Group Spread Account
Requirement".
The amounts in the Spread Account in respect of a Certificate Group in
excess of the related Group Spread Account Requirement will be distributed to
the Seller. The Seller will not be required to refund any amounts previously
and properly distributed to it, regardless of whether there are sufficient
funds on a subsequent Distribution Date to make a full distribution to holders
of the Class A Certificates on such Distribution Date. Funds credited to the
Spread Account may be invested in Eligible Investments or certain other
investments specified in the Agreement that are scheduled to mature on or prior
to the next Distribution Date as specified in the Agreement. The Spread Account
shall be an Eligible Account.
The Agreement will specify which Spread Account, if any, will be an asset of
a REMIC although all Spread Accounts will be assets of the Trust.
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 Certificate Insurer and the
Rating Agencies consent to such action and the then current ratings of the
Class A Certificates assigned by the Rating Agencies are not lowered as a
result thereof.
Net Funds Cap Carryover Reserve Account
The Agreement requires the Trustee to establish on the Closing Date and
maintain thereafter a reserve account (the "Net Funds Cap Carryover Reserve
Account"). On each Distribution Date the amount called for by clause C.(ii)(b)
will be deposited to the Net Funds Cap Carryover Reserve Account as described
below under "--Priority of Distributions".
On each Distribution Date, the Trustee shall withdraw from the Net Funds Cap
Carryover Reserve Account, to the extent funds are available therefor, the Net
Funds Cap Carryover Amount for the Group 3 Certificates and pay such amount to
the related Certificateholders on such Distribution Date. Amounts deposited to
the Net Funds Cap Carryover Reserve Account pursuant to C.(ii)(b) under "--
Priority of Distributions" will only be available to pay the Net Funds Cap
Carryover Amount in respect of the Group 3 Certificates. The Net Funds Cap
Carryover Reserve Account will be funded on the Closing Date with a
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"Reserve Account Initial Deposit" of $5,000. If the Weighted Average Loan Rate
for Loan Group 3 does not exceed the Certificate Rate on the Class A-3
Certificates by 0.20% on any Distribution Date, the amount to be held in the
Net Funds Cap Carryover Reserve Account for each Distribution Date thereafter
will equal the greater of (i) 0.50% of the outstanding Certificate Principal
Balance of such Class and (ii) $15,000, and will be funded from amounts
otherwise paid to the Class X-3 Certificates. If the Weighted Average Loan Rate
for Loan Group 3 for any Distribution Date exceeds the Certificate Rate on the
Class A-3 Certificates by 0.20% or more, the Required Reserve Amount for such
Distribution Date will be $5,000 and will be funded from amounts otherwise paid
to the Class X-3 Certificates. Any distribution by the Trustee from amounts in
the Net Funds Cap Carryover Reserve Account shall be made on the applicable
Distribution Date. The amount required to be on deposit in the Net Funds Cap
Carryover Reserve Account at any time is referred to herein as the "Required
Reserve Amount."
Amounts on deposit in the Net Funds Cap Carryover Reserve Account in excess
of the Required Reserve Amount will be released therefrom and distributed to
the holders of the Class X-3 Certificates on any Distribution Date.
The Net Funds Cap Carryover Reserve Account and the income earned thereon
will not be assets of either REMIC. The Policy does not cover any Net Funds Cap
Carryover Amount.
Pre-Funding Accounts
On the Closing Date, up to $114,962,696.04 (the "Loan Group 1 Pre-Funded
Amount") will be deposited into a segregated account (the "Group 1 Pre-Funding
Account"), up to $14,117,964.69 (the "Loan Group 2 Pre-Funded Amount") will be
deposited into a segregated account (the "Group 2 Pre-Funding Account") and up
to $63,698,982.51 (the "Loan Group 3 Pre-Funded Amount") will be deposited into
a segregated account (the "Group 3 Pre-Funding Account" and together with the
Group 1 Pre-Funding Account and the Group 2 Pre-Funding Account, the "Pre-
Funding Accounts"). The Pre-Funding Accounts shall be Eligible Accounts. It is
expected that the Seller will have originated or acquired Subsequent Mortgage
Loans from June 1, 1999 to the Closing Date. Such mortgage loans will be
transferred to the Trust on the Closing Date. The maximum amount to be
deposited into the Pre-Funding Accounts on the Closing Date will be reduced by
the Principal Balances of the Subsequent Mortgage Loans transferred to each
Loan Group on the Closing Date. Amounts on deposit in a Pre-Funding Account may
be used only (i) to acquire Subsequent Mortgage Loans for the related Loan
Group and (ii) to make accelerated payments on the related Class A Certificates
on the July 1999 Distribution Date. During the period (the "Funding Period")
beginning on the Closing Date and ending on July 23, 1999, amounts, if any,
will, from time to time, be withdrawn from the Pre-Funding Accounts to purchase
Subsequent Mortgage Loans for the related Loan Group in accordance with the
Agreement. Any Pre-Funded Amounts in a Pre-Funding Account remaining at the end
of the Funding Period will be distributed as a principal prepayment on the July
1999 Distribution Date to the Class A Certificates of the related Certificate
Group then entitled to distributions of principal. See "RISK FACTORS--Risk of
Prepayment Due to Subsequent Mortgage Loans," and "DESCRIPTION OF THE
CERTIFICATES--Priority of Distributions."
Amounts on deposit in the Pre-Funding Accounts will be invested in Eligible
Investments or certain other investments specified in the Agreement that are
scheduled to mature on or prior to the July 1999 Distribution Date, as
specified in the Agreement. The Pre-Funding Accounts will not be an asset of
any REMIC. Any interest earned on the Pre-Funding Accounts will be taxable to
the Seller.
Capitalized Interest Accounts
On the Closing Date, the amounts, if any, specified in the Agreement will be
deposited into three separate accounts (the "Capitalized Interest Accounts") in
the name of the Trustee on behalf of the Trust. The amounts on deposit in a
Capitalized Interest Account, including reinvestment income thereon, will be
used by the Trustee to fund on the July 1999 and August 1999 Distribution Dates
the excess of (x) the amount of interest accruing at the Certificate Rate for
the related Certificate Group on the amount by which the Class A Principal
Balance of the related Certificate Group as of such Distribution Date exceeds
the Principal Balance of the Mortgage Loans
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in the related Loan Group that have due dates in the related Due Period over
(y) the amount of any investment earnings on funds in the related Pre-Funding
Account that are available to pay interest on the Class A Certificates of such
Certificate Group on such Distribution Date. Any amounts remaining in the
Capitalized Interest Accounts following the August 1999 Distribution Date will
be paid to the Seller.
Amounts on deposit in the Capitalized Interest Accounts will be invested in
Eligible Investments or certain other investments specified in the Agreement
that are scheduled to mature on or prior to the next Distribution Date, as
specified in the Agreement. The Capitalized Interest Accounts will not be an
asset of any REMIC. Any reinvestment earned on the Capitalized Interest
Accounts will be taxable to the Seller.
Priority of Distributions
On each Distribution Date the Trustee shall withdraw from the Distribution
Account the sum of the Available Funds with respect to each Certificate Group
(such sum, the "Amount Available"), and make the following disbursements and
transfers as described below and to the extent of the Amount Available (except
that withdrawals from the Spread Account and amounts paid under the Policy
shall only be available for distribution to Class A Certificateholders):
A. With respect to the Group 1 Certificates, the Available Funds with
respect to such Certificate Group will be distributed in the following order of
priority:
(i) to the Trustee, the Trustee fee for Loan Group 1 and 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, in each case for such Distribution Date;
(ii) concurrently, as follows:
(a) to the holders of the Class A-1 Certificates, an amount equal to
the Class Interest Distribution for such Certificates for such
Distribution Date; and
(b) to the holders of the Class X-1 Certificates, the amount to
which they are entitled in accordance with the terms of the Agreement,
which will generally be equal to interest on a notional balance equal
to the Class A Principal Balance of the Group 1 Certificates at a rate
equal to the positive excess, if any, of the Weighted Average Loan Rate
for Loan Group 1 over the Formula Rate for the Class A-1 Certificates,
in each case for such Distribution Date, plus any interest shortfall
from previous Distribution Dates with interest thereon;
provided, however, if Available Funds with respect to the Group 1 Certificates
(prior to giving effect to withdrawals from the Spread Account, draws on the
Policy and other amounts on deposit in the Distribution Account available to be
distributed in respect of monthly interest on the Group 1 Certificates) on such
Distribution Date are insufficient to make the distributions required to be
made pursuant to this clause A.(ii), such Available Funds 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 Available Funds; and
(iii) to the holders of the Class A-1 Certificates, an amount equal to
the Class A Principal Distribution for such Certificates for such
Distribution Date.
B. With respect to the Group 2 Certificates, the Available Funds with
respect to such Certificate Group will be distributed in the following order of
priority:
(i) to the Trustee, the Trustee fee for Loan Group 2 and 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, in each case for such Distribution Date;
(ii) concurrently, as follows:
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(a) to the holders of the Class A-2 Certificates, an amount equal to
the related Class Interest Distribution for such Class for such
Distribution Date; and
(b) to the holders of the Class X-2 Certificates, the amount to
which they are entitled in accordance with the terms of the Agreement,
which will generally be equal to interest on a notional balance equal
to the Class A Principal Balance of the Group 2 Certificates at a rate
equal to the positive excess, if any, of the Weighted Average Loan Rate
for Loan Group 2 over the Formula Rate for the Class A-2 Certificates,
in each case for such Distribution Date, plus any interest shortfall
from previous Distribution Dates with interest thereon;
provided, however, if Available Funds with respect to the Group 2 Certificates
(prior to giving effect to withdrawals from the Spread Account, draws on the
Policy and other amounts on deposit in the Distribution Account available to be
distributed in respect of monthly interest on the Group 2 Certificates) on such
Distribution Date are insufficient to make the distributions required to be
made pursuant to this clause B.(ii), such Available Funds 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 Available Funds; and
(iii) to the holders of the Class A-2 Certificates, an amount equal to
the Class A Principal Distribution for such Certificates for such
Distribution Date.
C. With respect to the Group 3 Certificates, the Available Funds with
respect to such Certificate Group will be distributed in the following order of
priority:
(i) to the Trustee, the Trustee fee for Loan Group 3 and to the
Certificate Issuer, the amount owing to the Certificate Insurer under the
Insurance Agreement for the premium payable in respect of the Group 3
Certificates, in each case for such Distribution Date;
(ii) concurrently, as follows:
(a) to the holders of the Class A-3 Certificates, an amount equal to
the Class Interest Distribution for such Distribution Date; and
(b) to the holders of the Class X-3 Certificates, the amount to
which they are entitled in accordance with the terms of the Agreement,
which will generally be equal to interest on a notional balance equal
to the Class A Principal Balance of the Group 3 Certificates at a rate
equal to the excess, if any, of the Weighted Average Loan Rate (as
defined below) for Loan Group 3 over the Formula Rate for the Class A-3
Certificates, in each case for such Distribution Date, plus any
interest shortfall from previous Distribution Dates with interest
thereon, such amounts first to be deposited to the Net Funds Cap
Carryover Reserve Account, first to cover any Net Funds Cap Carryover
Amount (to the extent not covered by amounts already on deposit in the
Net Funds Cap Carryover Reserve Account) and then to cover any Required
Reserve Amount and any remainder to the holders of the Class X-3
Certificates;
provided, however, if Available Funds with respect to the Group 3 Certificates
(prior to giving effect to withdrawals from the Spread Account or draws on the
Policy) on such Distribution Date are insufficient to make the distributions
required to be made pursuant to this clause C.(ii), such Available Funds 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 Available Funds; and
(iii) to the holders of the Group 3 Certificates an amount equal to the
Class A Principal Distribution for the Group 3 Certificates for such
Distribution Date.
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;
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(ii) to the Master Servicer, the amount of Nonrecoverable Advances to
the extent not previously reimbursed;
(iii) to the Certificate Insurer, any other amounts owing to the
Certificate Insurer under the Insurance Agreement; and
(iv) to the Class R-2 Certificateholders, the balance.
"Net Funds Cap Carryover Amount" means, on any Distribution Date and with
respect to Class A-3 Certificates, the sum of (A) if on such Distribution Date
the Certificate Rate for such Class is based upon the Weighted Average Loan
Rate (as defined below) for Loan Group 3 the excess of (i) the amount of
interest such Certificates would otherwise be entitled to receive on such
Distribution Date had such rate been calculated at the related Formula Rate for
such Distribution Date over (ii) the amount of interest payable in respect of
such Certificates at the Weighted Average Loan Rate (as defined below) for Loan
Group 3 for such Distribution Date, (B) the Net Funds Cap Carryover Amount for
such Certificates for all previous Distribution Dates not previously paid, and
(C) one month's interest on the amount calculated in (B) at the related Formula
Rate for such Distribution Date. No such amounts will be payable with respect
to the Group 1 Certificates or the Group 2 Certificates. The Policy does not
cover the payment, nor do the ratings assigned to the Class A-3 Certificates
address the likelihood of the payment, of any Net Funds Cap Carryover Amounts.
The Certificate Rate
The "Certificate Rate" on any Distribution Date with respect to the Class A-
1 and Class A-2 Certificates will be a per annum rate equal to the lesser of
(A) the related Formula Rate for such Distribution Date and (B) 13% per annum.
The "Certificate Rate" on any Distribution Date with respect to the Class A-3
Certificates will be a per annum rate equal to the lesser of (A) the related
Formula Rate and (B) the Weighted Average Loan Rate (as defined below) for Loan
Group 3 for such Distribution Date. Interest in respect of any Distribution
Date and each Class A Certificate will accrue during the related Interest
Period on the basis of a 360-day year and the actual number of days elapsed.
The "Formula Rate" for the Class A-1 Certificates for any Distribution Date
is the sum of (a) the interbank offered rate for one-month United States dollar
deposits in the London market (the "LIBOR Index") as of the related LIBOR
Determination Date (as defined herein) and (b) 0.23% (or 0.46%, on or after the
Call Option Date (as defined herein)). The "Formula Rate" for the Class A-2
Certificates for any Distribution Date is the sum of (a) the LIBOR Index as of
the related LIBOR Determination Date and (b) 0.28% (or 0.56%, on or after the
Call Option Date (as defined herein)). The "Formula Rate" for the Class A-3
Certificates for any Distribution Date is the sum of (a) the LIBOR Index as of
the related LIBOR Determination Date and (b) 0.26% (or 0.52%, on or after the
Call Option Date).
The "Interest Period" means, with respect to each Distribution Date, 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.
The "Weighted Average Loan Rate" for any Distribution Date and Loan Group
shall equal the difference between (A) the average of the Loan Rates of the
Mortgage Loans in the related Loan Group as of the first day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, the Closing Date), weighted on the basis of the related
Principal Balances as of such date and (B) the sum of the Master Servicing Fee
Rate and the rates at which the Trustee fee and the premium payable to the
Certificate Insurer with respect to the related Certificate Group are
calculated. The Weighted Average Loan Rate will be computed on the basis of a
360-day year and the actual number of days elapsed during the related Interest
Period.
With respect to each Distribution Date, the LIBOR Index shall be established
by the Trustee and will equal the rate for one month United States dollar
deposits quoted on Telerate Page 3750 as of 11:00 A.M.,
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London time, on the second LIBOR Business Day prior to the first day of the
related Interest Period (or the second LIBOR Business Day prior to the Closing
Date, in the case of the first Distribution Date) (each, a "LIBOR Determination
Date"). "Telerate 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
Trustee after consultation with the Master Servicer), 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 Trustee after consultation with the
Master Servicer) 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 aggregate Class A Principal Balances of the Class A
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 the Trustee after consultation
with the Master Servicer, 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 aggregate Class A Principal Balance of
the Class A Certificates then outstanding. If no such quotations can be
obtained, the rate will be the LIBOR Index 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.
Interest
On each Distribution Date, to the extent of funds available therefor in
accordance with the priorities described above under "--Priority of
Distribution," 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) interest accrued during the related Interest Period 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 Date 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 in
respect of 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 the related Loan Group for such Distribution Date. Civil Relief Act
Interest Shortfalls will not be covered by payments under the Policy.
Principal
On each Distribution Date, to the extent of funds available therefor, 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 in an amount equal to the lesser of (A)
the related Class A Principal Balance and (B) the related Class A Principal
Distribution for such Distribution Date. The "Class A Principal Distribution"
means, with respect to any Distribution Date and Certificate Group, other than
the Final Distribution Date with respect to such Certificate Group, the sum of
the related Class A Monthly Principal Distributable Amount for such
Distribution Date and any Class A Principal Shortfall Amount for such
Distribution Date and on the Final Distribution Date, the related Class A
Principal Balance.
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"Class A Monthly Principal Distributable Amount" means, with respect to any
Distribution Date and Certificate Group, 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
during such Due Period, (iii) the portion of the Purchase Price allocable to
principal of all repurchased Defective Mortgage Loans in the related Loan Group
and the principal portion of the amount received in connection with the
termination of the Trust allocable to the related Loan Group as described
herein under "--Termination; Purchase of Mortgage Loans", in each case 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) with respect to the first
Distribution Date, the amount, if any, transferred from the related Pre-Funding
Account into the Distribution Account in respect of such Certificate Group.
"Class A Principal Shortfall Amount" 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 Shortfall Amount 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.
"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.
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, Provident does not make
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 (as described below) that an amount equal to each full
and complete Insured Payment (as described below) will be received by the
Trustee, or its successor, as trustee for the Owners (the "Trustee"), on behalf
of the Owners from the Certificate Insurer, for distribution by the Trustee to
each Owner of each Owner's proportionate share of the Insured Payment. The
Certificate Insurer's obligations under the Policy with respect to a particular
Insured Payment shall be discharged to the extent funds equal to the applicable
Insured Payment are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Payments shall be made only at the
time set forth in the Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Class A Certificates, unless such
acceleration is at the sole option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Policy does not cover
shortfalls, if any, attributable to the liability of the Trust, the Master
REMIC and Subsidiary REMIC or the Trustee for withholding taxes, if any
(including interest and penalties in respect of any such liability) or any Net
Funds Cap Carryover Amounts.
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount (as described below) on the Business Day following receipt on a Business
Day by the Fiscal Agent (as described below) of
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. a certified copy of the order requiring the return of a preference
payment,
. an opinion of counsel satisfactory to the Certificate Insurer that such
order is final and not subject to appeal,
. 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 which made such preference payment or otherwise with
respect to such preference payment, and
. appropriate instruments to effect the appointment of the Certificate
Insurer as agent for such Owner in any legal proceeding related to such
preference payment, such instruments being in a form satisfactory to the
Certificate 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 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 related 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 June
1, 1999, between Provident, 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 (i) a Saturday or a Sunday or
(ii) a day on which the Certificate Insurer or banking institutions in the
States of New York, Ohio or Illinois are required or authorized 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 for each Class of
Class A Certificates (net of any Civil Relief Act Interest Shortfalls with
respect to the related Loan Group) plus any Class Interest Carryover
Shortfall for each Class of Class A Certificates over (ii) funds on deposit
in the Distribution Account available to be distributed therefor on such
Distribution Date and (B) the Guaranteed Principal Amount.
"Final Distribution Date" means the Distribution Date in July 2030.
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"Guaranteed Principal Amount" means (a) for any Distribution Date (other
than the Final Distribution Date for a Certificate Group) the amount, if
any, by which the Class A Principal Balance of each Certificate Group
exceeds the related Loan Group Principal Balance at the end of the previous
month (after giving effect to all distributions of principal on the related
Class A Certificates on such Distribution Date) and (b) on the Distribution
Date in July 2030, with respect to the Group 1 Certificates, July 2030,
with respect to the Group 2 Certificates and July 2030, with respect to the
Group 3 Certificates (after giving effect to all other distributions of
principal on the Group 1 Certificates, the Group 2 Certificates and the
Group 3 Certificates on such Distribution Date, as applicable), an amount
equal to the applicable 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 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 thereunder.
"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 in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New York,
New York 10006 Attention: Municipal Registrar and Paying Agency 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.
Reports to Certificateholders
Concurrently with each distribution to the Certificateholders, the Trustee
will forward to each Certificateholder and the Certificate Insurer 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;
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(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 Shortfall Amount, and any remaining Class A Principal Shortfall
Amount;
(iv) the amount, if any, by which the Class A Principal Balance of a
Certificate Group exceeds the related Loan Group Principal Balance at the
end of the previous month (after giving effect to all distributions of
principal on the related Class A Certificates on such Distribution Date);
(v) the amount paid under the Policy for such Distribution Date in
respect of the Class Interest Distribution to each Class of Certificates;
(vi) the Master Servicing Fee;
(vii) the Pool Principal Balance, the Loan Group 1 Principal Balance,
the Loan Group 2 Principal Balance, the aggregate Principal Balance of the
fixed rate Mortgage Loans and the adjustable rate Mortgage Loans in Loan
Group 2 and the Loan Group 3 Principal Balance, in each case as of the
close of business on the last day of the preceding Due Period;
(viii) the Class A Principal Balance of each Certificate Group and Class
Principal Balance of each Class of Class A Certificates in such Certificate
Group, after giving effect to payments allocated to principal above;
(ix) the amount on deposit in the Spread Account in respect of each
Certificate Group on the Distribution Date, after giving effect to any
withdrawals therefrom on such Distribution Date;
(x) the number and aggregate Principal Balances of the Mortgage Loans of
each Loan Group 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;
(xi) the book value of any real estate which is acquired by the Trust
through foreclosure or grant of deed in lieu of foreclosure;
(xii) the aggregate amount of prepayments received on the Mortgage Loans
during the previous Due Period and specifying such amount for each Loan
Group;
(xiii) 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;
(xiv) the amount of any Civil Relief Act Interest Shortfalls, specifying
such amount for each Loan Group;
(xv) the amount of the Net Funds Cap Carryover Amount, if any;
(xvi) the amount of any Monthly Advances and Servicing Advances; and
(xvii) the Certificate Rate applicable to each Class of Offered
Certificates on such 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, July 25, 2030, Class A-2 Certificates,
July 25, 2030 and Class A-3 Certificates, July 25, 2030. 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".
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The last scheduled Distribution Dates for the Class A-1, Class A-2 and Class
A-3 Certificates has been calculated assuming that the Certificate Insurer
makes the payment of the outstanding Class A Principal Balance on the
Distribution Date in July 2030.
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 which generally conform to the mortgage
servicing practices of prudent mortgage lending institutions which perform
servicing functions for their own account for mortgage loans of the same type
as the Mortgage Loans in the jurisdictions in which the related Mortgage
Properties are located. 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 mortgage loans it owns or services which are similar
to the Mortgage Loans.
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. 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 combined principal
balance owing on such Mortgage Loan and any mortgage loan senior to such
mortgage loan, or (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 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
and continue in default when, in accordance with
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applicable servicing procedures under the Agreement, no satisfactory
arrangements can be made for the collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer will
follow such practices as it deems necessary or advisable and as are in keeping
with its general mortgage servicing activities, provided that the Master
Servicer will not be required to expend its own funds in connection with
foreclosure or other conversion, correction of default on a related senior
mortgage loan or restoration of any property unless, in its sole judgment, such
foreclosure, correction or restoration will increase Net Liquidation Proceeds.
The Master Servicer will be reimbursed out of Liquidation Proceeds for advances
of its own funds as liquidation expenses before any Net Liquidation Proceeds
are distributed to Certificateholders.
Servicing Compensation and Payment of Expenses
With respect to each Due Period, the Master Servicer will receive from
interest payments in respect of the Mortgage Loans a portion of such interest
payments as a monthly master servicing fee (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, prepayment penalties 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. 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. The Master Servicer's right to
such reimbursements is prior to the rights of Certificateholders.
Not later than the Determination Date, the Master Servicer is required to
remit to the Trustee, without any right of reimbursement, an amount equal to,
with respect to each Mortgage Loan as to which a principal prepayment in full
was received during the related Due Period, the lesser of (a) the excess, if
any, of 30 days' interest on the Principal Balance of such Mortgage Loan at the
Loan Rate (or at such lower rate as may be in effect for such Mortgage Loan
because of application of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "Civil Relief Act")), minus the Master Servicing Fee for such
Mortgage Loan, over the amount of interest actually paid by the related
Mortgagor in connection with such principal prepayment in full minus the Master
Servicing Fee for such Mortgage Loan (with respect to all such Mortgage Loans,
the "Prepayment Interest Shortfall") and (b) the sum of the aggregate Master
Servicer Fee received by the Master Servicer in the most recently ended Due
Period. The aggregate amount remitted by the Master Servicer each month is
referred to herein as "Compensating Interest".
Civil Relief Act Interest Shortfalls will not be covered by the Policy,
although Prepayment Interest Shortfalls, after application of the Master
Servicing Fee for the related Due Period, 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 (any such shortfall, a "Civil Relief Act Interest Shortfall"). 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
2000, to the Trustee, the Certificate Insurer and the Rating Agencies of an
annual statement signed by an officer of the Master Servicer to the effect that
the Master Servicer has
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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 2000, the Master Servicer will furnish a
report prepared by a firm of nationally recognized independent public
accountants (who may also render other services to Provident) 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 Uniform Single Attestation Program for Mortgage
Bankers and such firm's conclusion with respect thereto.
The Master Servicer's fiscal year is the calendar year.
Certain Matters Regarding the Master Servicer
The Agreement provides that the Master Servicer may not resign from its
obligations and duties thereunder, except in connection with a permitted
transfer of servicing, unless (i) such duties and obligations are no longer
permissible under applicable law as evidenced by an opinion of counsel
delivered to the Certificate Insurer or (ii) upon the satisfaction of the
following conditions: (a) the Master Servicer has proposed a successor master
servicer to the Trustee in writing and such proposed successor master servicer
is reasonably acceptable to the Trustee; (b) the Rating Agencies have confirmed
to the Trustee that the appointment of such proposed successor master servicer
as the Master Servicer will not result in the reduction or withdrawal of the
then current rating of the Certificates; and (c) such proposed successor master
servicer is reasonably acceptable to the Certificate Insurer. No such
resignation will become effective until the Trustee or a successor master
servicer has assumed the Master Servicer's obligations and duties under the
Agreement.
The Master Servicer may perform any of its duties and obligations under the
Agreement through one or more subservicers or delegates, which may be
affiliates of the Master Servicer. Notwithstanding any such arrangement, the
Master Servicer will remain liable and obligated to the Trustee and the
Certificateholders for the Master Servicer's duties and obligations under the
Agreement, without any diminution of such duties and obligations and as if the
Master Servicer itself were performing such duties and obligations.
The Master Servicer may permit the placement of a subsequent senior mortgage
on any Mortgaged Property, provided that (a) the related Mortgage succeeded to
a first lien position after the Closing Date for such Mortgage Loan and,
immediately following the placement of such senior lien, such Mortgage is in a
second lien position and the outstanding principal amount of the mortgage loan
secured by such senior lien is no greater than the outstanding principal amount
of the first mortgage loan existing as of the Closing Date and the recalculated
combined loan-to-value ratio of the Mortgage Loan is not greater than the
Combined Loan-to-Value Ratio of such Mortgage Loan as of the Closing Date; or
(b) the Mortgage relating to the Mortgage Loan was in a second lien position as
of the Closing Date, the new senior lien secures a mortgage loan that
refinances an existing first mortgage loan and the outstanding principal amount
of such refinanced mortgage loan is no greater than the outstanding principal
amount of the first mortgage loan existing as of the Closing Date and the
recalculated combined loan-to-value ratio of such Mortgage Loan is not greater
than the Combined Loan-to-Value Ratio of such Mortgage Loan as of the Closing
Date.
In addition, the Master Servicer may agree to changes in the terms of a
Mortgage Loan, provided, however, that such changes (i) will not cause the
Master and Subsidiary REMIC to fail to qualify as a REMIC (as evidenced by an
opinion of counsel, if required by the Agreement) and do not adversely affect
the interests of the Certificateholders or the Certificate Insurer and (ii) do
not change the Loan Rate of such Mortgage Loan or extend the maturity date of
such Mortgage Loan, unless the related Mortgagor 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 Master and Subsidiary REMIC 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.
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The Agreement provides that the Master Servicer will indemnify the Trust and
the Trustee from and against any loss, liability, expense, damage or injury
suffered or sustained as a result of the Master Servicer's actions or omissions
in connection with the servicing and administration of the Mortgage Loans which
are not in accordance with the provisions of the Agreement. The Agreement
provides that neither Provident nor the Master Servicer nor their directors,
officers, employees or agents will be under any other liability to the Trust,
the Trustee, the Certificateholders or any other person for any action taken or
for refraining from taking any action pursuant to the Agreement. However,
neither Provident nor the Master Servicer will be protected against any
liability which would otherwise be imposed by reason of willful misconduct, bad
faith or gross negligence of Provident or the Master Servicer, as the case may
be, in the performance of their respective duties under the Agreement or by
reason of reckless disregard of their respective 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
An "Event 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; (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"); (v) any failure by the Master Servicer to
pay when due any amount payable by it under the Agreement or the Insurance
Agreement; (vi) the loss and delinquency performance of the Mortgage Loans
exceeding certain levels specified in the Agreement or (vii) certain events
relating to the financial condition of the Master Servicer as specified in the
Agreement.
Upon the occurrence and continuation 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 Business Day following written notice to the Master Servicer of such
event, the Trustee will immediately terminate the rights and obligations of the
Master Servicer under the Agreement and the Trustee will make such Monthly
Advance as the successor Master Servicer.
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
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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 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, other than an event
described in clause (vi) above, either the Trustee, Certificateholders holding
Certificates evidencing at least 51% of the Voting Rights in the Trust, with
the consent of the Certificate Insurer, or the Certificate Insurer may
terminate all of the rights and obligations of the Master Servicer under the
Agreement and in and to the Mortgage Loans, whereupon the Trustee will succeed
to all the responsibilities, duties and liabilities of the Master Servicer
under the Agreement and will be entitled to similar compensation arrangements.
Upon the occurrence of the event described in clause (vi) above, the
Certificate Insurer may require that an audit of the Master Servicer's
servicing practices be performed. Upon review of such audit, the Certificate
Insurer may terminate all of the rights and obligations of the Master Servicer
under the Agreement if it reasonably concludes that the Master Servicer's
servicing practices have not been in accordance with the Agreement and the
condition giving rise to such default is continuing, whereupon the Trustee will
succeed to all such responsibilities, duties and liabilities of the Master
Servicer as described above. 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 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
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amendment will (i) reduce in any manner the amount of, or delay the timing of,
collections of payments on the Certificates or distributions or payments under
the Policy which are required to be made on any Certificate without the consent
of the Certificateholder or (ii) reduce the aforesaid percentage required to
consent to any such amendment, without the consent of the holders of all
Offered Certificates then outstanding.
Termination; Purchase of Mortgage Loans
The Trust will terminate on the Distribution Date following the later of (A)
payment in full of all amounts owing to the Certificate Insurer unless the
Certificate Insurer shall otherwise consent and (B) the earliest of (i) the
Distribution Date on which the aggregate Class A Principal Balance of the Class
A Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Seller of the Mortgage Loans, as described below and (iv) the
Distribution Date in July 2030.
Subject to provisions in the Agreement concerning adopting a plan of
complete liquidation, the Seller may, at its option, terminate the Agreement on
any Distribution Date following the Due Period at the end of which the Pool
Principal Balance is less than 10% of the sum of the aggregate Principal
Balance of the Initial Mortgage Loans and Subsequent Mortgage Loans as of the
applicable Cut-Off Date (the first such Distribution Date, the "Call Option
Date") by purchasing, on the next succeeding Distribution Date, all of the
outstanding Mortgage Loans at a price equal to the sum of the outstanding Pool
Principal Balance (subject to reduction as provided in the Agreement if the
purchase price is based in part on the appraised value of any REO Property
included in the Trust and such appraised value is less than the Principal
Balance of the related Mortgage Loan) and accrued and unpaid interest thereon
at the weighted average of the Loan Rates through the end of the Due Period
preceding the final Distribution Date together with all amounts due and owing
to the Certificate Insurer.
Any such purchase shall be accomplished by deposit into the Distribution
Account of the purchase price specified above.
Voting Rights
Under the Agreement, 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
The First National Bank of Chicago, a national banking association, 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 Voting
Rights in the Trust have made written requests upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have
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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 the origination or purchase of the Mortgage Loans
and for general corporate purposes.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, special counsel to the Trust and the
Underwriters, assuming compliance with the Agreement, the Trust created by the
Agreement (exclusive of the Pre-Funding Accounts, the Capitalized Interest
Accounts, the Distribution Account, certain Spread Accounts and the Net Funds
Cap Carryover Reserve Account), will be treated as two separate real estate
mortgage investment conduits (the "Master REMIC" and the "Subsidiary REMIC",
and each a "REMIC"). The Offered Certificates (excluding any rights to receive
interest in excess of the Weighted Average Loan Rate of the related Loan Group,
i.e., LIBOR Carryover Amounts (as defined herein)) and the Class X Certificates
(and each component thereof) will represent "regular interests" in the Master
REMIC and the Class R-1 and Class R-2 Certificates will represent the sole
class of "residual interest" in the Subsidiary REMIC and the Master REMIC,
respectively. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in the Prospectus.
The Offered Certificates generally will be treated as debt instruments
issued by the Master REMIC for federal income tax purposes. Income on such
Certificates must be reported under an accrual method of accounting.
The Offered Certificates (exclusive of any rights to receive interest in
excess of the Weighted Average Loan Rate of the related Loan Group, i.e., LIBOR
Carryover Amounts (as defined herein)) 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.
A reasonable application of the principles of the OID Regulations to the
Class A Certificates generally would be to report all income with respect to
such Certificates as OID for each period, computing such OID (i) by assuming
that the value of the applicable Certificate Index will remain constant for
purposes of determining the original yield to maturity of each such Class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the OID
computation rules described in the Prospectus can be applied, and (ii) by
accounting for any positive or negative variation in the actual value of the
applicable index in any period from its assumed value as a current adjustment
to OID with respect to such period.
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 115% of the Prepayment Assumption, that the
Mortgage Loans in Loan Group 2 will prepay in accordance with 125% of the
Prepayment Assumption and that the Mortgage Loans in Loan Group 3 will prepay
in accordance with 150% 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
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. See "PREPAYMENT AND YIELD CONSIDERATIONS--Weighted Average
Lives". The Prepayment Assumption does not purport to be either a 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 indicated percentage of the Prepayment Assumption. Provident
does not make any representation about the appropriateness of the Prepayment
Assumption model.
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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.
The beneficial owners of the Class A Certificates and the related rights to
receive amounts in respect of interest at a rate in excess of the related
Weighted Average Loan Rate (the "LIBOR Carryover Amounts"), will be treated for
tax purposes as owning two separate assets: (i) the respective Class A
Certificates without the rights to receive LIBOR Carryover Amounts (which
constitute regular interests in a REMIC); and (ii) the related rights to
receive LIBOR Carryover Amounts. Accordingly, a purchaser of a Class A
Certificate must allocate its purchase price between the two assets comprising
the related Certificate. In general, such allocation would be based on the
relative fair market values of such assets on the date of purchase of the
Certificates. No representation is or will be made as to the relative fair
market values. All holders of Class A Certificates are urged to consult their
tax advisors regarding the taxation of LIBOR Carryover Amounts, the taxation of
which is generally governed by the provisions of the Code and Treasury
regulations relating to notional principal contracts and possibly those
relating to straddles.
The rights to receive LIBOR Carryover Amounts will not constitute (i) a
"real estate asset" within the meaning of section 856(c)(4)(A) of the Code for
a real estate investment trust; (ii) a "qualified mortgage" or a "permitted
investment" within the meaning of section 860G(a)(3) and section 860(G)(a)(5),
respectively, of the Code if held by a REMIC; or (iii) an asset described in
section 7701(a)(19)(C)(xi) of the Code if held by domestic building and loan
association. Further, the LIBOR Carryover Amounts will not constitute income
described in section 856(c)(3)(B) of the Code for a real estate investment
trust. Moreover, other special rules may apply to certain investors, including
dealers in securities and dealers in notional principal contracts.
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, 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 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.
S-80
<PAGE>
Final regulations dealing with withholding tax on income paid to Foreign
Investors (as defined below), 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, 2000, subject to certain transition rules. Prospective
Certificate Owners are strongly urged to consult their own tax advisors with
respect to the New Withholding Regulations.
Such amounts will be deemed distributed to the affected Certificate owner
for all purposes of the Certificates, the Agreement and the Policy.
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign Investors").
The term "Foreign Investor" means any person other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership (or any entity
treated as a corporation or partnership for federal income tax purposes)
created or organized in or under the laws of the United States or 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 if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, 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 a 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 Foreign Investors are strongly urged to consult
their own tax advisors with respect to the New Withholding Regulations.
S-81
<PAGE>
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 fiduciary of a pension or other employee benefit plan (a "Plan") 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 Lehman Brothers Inc. ("Lehman
Brothers") Prohibited Transaction Exemption 91-14 (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 Lehman Brothers or any of its affiliates
is the sole underwriter or the manager or co-manager of the underwriting
syndicate; and (2) the servicing, operation and management of such asset-backed
pass-through trusts, provided that the general conditions and certain other
conditions set forth in the Exemption are satisfied. The Exemption will apply
to the acquisition, holding and resale of the Class A Certificates by a Plan,
provided that certain conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply are
the following:
(1) The acquisition of the Class A Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable
to the investing Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Class A Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from either S&P, Moody's, Fitch or Duff & Phelps Credit
Rating Co.;
(4) The sum of all payments made to and retained by an Underwriter in
connection with the distribution of the Class A Certificates represents not
more than reasonable compensation for underwriting such Certificates; the
sum of all payments made to and retained by the Seller pursuant to the sale
of the Mortgage Loans to the Trust represents not more than the fair market
value of such Mortgage Loans; the sum of all payments made to and retained
by the Master Servicer 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, or any of their
respective affiliates (the "Restricted Group"); and
(6) The Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
S-82
<PAGE>
Although the maximum amount permitted to be deposited in the Pre-Funding
Accounts on the Closing Date (the "Pre-Funded Amount") may cause any of the
Loan Group 1, the Loan Group 2 or the Loan Group 3 Pre-Funded Amounts to exceed
25% of the aggregate initial Class A Principal Balance of the related
Certificate Group (see "ERISA Considerations" in the Prospectus), it is
anticipated that a sufficient amount of Mortgage Loans will be acquired by the
Trust on the Closing Date and, as a result, the amount actually deposited to
each Pre-Funding Account will be 25% or less of such initial aggregate balance.
Provided this is the case, the Underwriters believe that the Exemption will
apply to the acquisition and holding of the Class A Certificates by Plans and
that all conditions of the Exemption other than those within the control of the
investors will be met. Any Plan fiduciary considering whether to purchase any
Class A Certificates on behalf of a Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment. Among other
things, before purchasing any Class A Certificates, a fiduciary of a Plan
subject to the fiduciary responsibility provisions of ERISA or an employee
benefit plan subject to the prohibited transaction provisions of the Code
should make its own determination as to the availability of the exemptive
relief provided in the Exemption, and also consider the availability of any
other prohibited transaction exemptions.
However, if any of the Loan Group 1, the Loan Group 2 or the Loan Group 3
Pre-Funded Amounts exceeds 25% of the aggregate initial Class A Principal
Balance of the related Certificate Group, then the Exemption will not apply to
the acquisition and holding of the Class A Certificates of any Certificate
Group until the Funding Period has ended. In such event, no Plan will be
permitted to purchase a Class A Certificate until the Funding Period has ended.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the Offered Certificates will be
rated in the highest rating category of the Rating Agencies, the Offered
Certificates will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not
all of the Mortgages securing the Mortgage Loans are first mortgages and not
all of the Mortgage Loans were originated by entities that satisfy SMMEA
originator requirements. Accordingly, many institutions with legal authority to
invest in comparably rated securities based on first mortgage loans may not be
legally authorized to invest in the Offered Certificates, which because they
evidence interests in a pool that includes junior mortgage loans are not
"mortgage related securities" under SMMEA. See "LEGAL INVESTMENT" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") between Provident and the Underwriters named
below (the "Underwriters"), Provident has agreed to sell to the Underwriters
and each of the Underwriters has severally agreed to purchase from Provident
the principal amount of Class A Certificates set forth below opposite their
respective names.
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3
Underwriter Certificates Certificates Certificates
- ----------- ------------ ------------ ------------
<S> <C> <C> <C>
Lehman Brothers Inc. ................... $180,643,000 $37,000,000 $117,107,000
Prudential Securities Incorporated...... 109,357,000 0 70,893,000
------------ ----------- ------------
Total................................. $290,000,000 $37,000,000 $188,000,000
============ =========== ============
</TABLE>
In addition, the Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Offered Certificates are
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all of the Offered Certificates if any of the Offered
Certificates are purchased.
S-83
<PAGE>
Provident has been advised by the Underwriters that they presently intend to
make a market in the Class A Certificates offered hereby; however, no
Underwriter is 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.
The Underwriting Agreement provides that Provident will indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain expenses of the Underwriters incurred in connection with this
offering will be paid by Provident.
EXPERTS
The consolidated balance sheets of MBIA Insurance Corporation and
Subsidiaries as of December 31, 1998 and December 31, 1997 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, 1998,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters with respect to the Class A Certificates will be
passed upon for Provident by Keating, Muething & Klekamp, P.L.L., Cincinnati,
Ohio. Certain federal income tax consequences with respect to the Certificates
will be passed upon for the Trust by Brown & Wood LLP, New York, New York.
Brown & Wood LLP, New York, New York will act as counsel for the Underwriters.
Certain legal matters relating to the Certificate Insurer will be passed upon
by Kutak Rock, Omaha, Nebraska.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
receive ratings of "AAA" by Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("S&P") and "Aaa" by Moody's Investors Service,
Inc. ("Moody's" and together with S&P, 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 financial strength of the Certificate Insurer. Any reduction in a rating
assigned to the financial strength 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.
The ratings assigned to the Class A-3 Certificates do not address the
likelihood of the payment of any Net Funds Cap Carryover Amount.
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.
S-84
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Terms Page
- ----- ----
<S> <C>
Agreement............................................................ S-51, S-69
Amount Available..................................................... S-64
Assignment Event..................................................... S-58
Available Funds...................................................... S-61
Balloon Loans........................................................ S-5
beneficial owner..................................................... S-52
BIF.................................................................. S-59
Book-Entry Certificates.............................................. S-52
Business Day......................................................... S-69
Call Option Date..................................................... S-77
Capitalized Interest Accounts........................................ S-63
Cede................................................................. S-52
Cedelbank............................................................ S-52
Cedelbank Participants............................................... S-54
Certificate Group.................................................... S-52
Certificate Insurer.................................................. S-13
Certificate Owners................................................... S-52
Certificate Rate..................................................... S-66
Certificate Register................................................. S-61
Certificate Registrar................................................ S-61
Certificateholder.................................................... S-52
Certificates......................................................... S-51
Change Date.......................................................... S-26
Civil Relief Act..................................................... S-73
Civil Relief Act Interest Shortfall.................................. S-73
Class................................................................ S-51
Class A Certificateholder............................................ S-80
Class A Certificates................................................. S-51
Class A Monthly Principal Distributable Amount....................... S-68
Class A Principal Balance............................................ S-52
Class A Principal Distribution....................................... S-67
Class A Principal Shortfall Amount................................... S-68
Class A-1 Certificates............................................... S-51
Class A-2 Certificates............................................... S-51
Class A-3 Certificates............................................... S-51
Class Interest Carryover Shortfall................................... S-67
Class Interest Distribution.......................................... S-67
Class Monthly Interest Distributable Amount.......................... S-67
Class R Certificates................................................. S-51
Class R-1 Certificates............................................... S-51
Class R-2 Certificates............................................... S-51
Class X Certificates................................................. S-51
Class X-1 Certificates............................................... S-51
Class X-2 Certificates............................................... S-51
Class X-3 Certificates............................................... S-51
Closing Date......................................................... S-51
CLTV................................................................. S-22
Collection Account................................................... S-59
Combined Loan-to-Value Ratio......................................... S-19
</TABLE>
S-85
<PAGE>
<TABLE>
<CAPTION>
Terms Page
- ----- ----
<S> <C>
Compensating Interest..................................................... S-73
Cooperative............................................................... S-54
CPR....................................................................... S-47
Cut-Off Date.............................................................. S-18
Cut-Off Date Initial Pool Principal Balance............................... S-19
Cut-Off Date Loan Group 1 Initial Principal Balance....................... S-20
Cut-Off Date Loan Group 2 Initial Principal Balance....................... S-26
Cut-Off Date Loan Group 3 Initial Principal Balance....................... S-34
Cut-Off Date Principal Balance............................................ S-19
Defective Mortgage Loans.................................................. S-59
Deficiency Amount......................................................... S-69
Definitive Certificate.................................................... S-52
Determination Date........................................................ S-61
Distribution Account...................................................... S-59
Distribution Date......................................................... S-61
Document Custodian........................................................ S-51
DTC....................................................................... S-52
DTC Services.............................................................. S-56
Due Period................................................................ S-68
Eligible Account.......................................................... S-59
Eligible Substitute Mortgage Loan......................................... S-58
ERISA..................................................................... S-82
Euroclear................................................................. S-52
Euroclear Operator........................................................ S-54
Euroclear Participants.................................................... S-54
European Depositaries..................................................... S-52
Event of Default.......................................................... S-75
Exemption................................................................. S-82
Final Distribution Date................................................... S-69
Financial Intermediary.................................................... S-53
Fiscal Agent.............................................................. S-69
Foreign Investors......................................................... S-81
Formula Rate.............................................................. S-67
Funding Period............................................................ S-63
GAAP...................................................................... S-14
Global Securities......................................................... I-1
Gross Margin.............................................................. S-26
Group Spread Account Requirement.......................................... S-62
Group 1 Certificates...................................................... S-52
Group 1 Pre-Funding Account............................................... S-63
Group 2 Certificates...................................................... S-52
Group 2 Pre-Funding Account............................................... S-63
Group 3 Certificates...................................................... S-52
Group 3 Pre-Funding Account............................................... S-63
Guaranteed Principal Amount............................................... S-70
Indirect Participant...................................................... S-53
Industry.................................................................. S-56
Initial Mortgage Loans.................................................... S-18
Initial Period............................................................ S-26
Insolvency Event.......................................................... S-75
Insurance Agreement....................................................... S-51
</TABLE>
S-86
<PAGE>
<TABLE>
<CAPTION>
Terms Page
- ----- ----
<S> <C>
Insured Payment...................................................... S-70
Insurer Default...................................................... S-68
Interest Period...................................................... S-66
Lehman Brothers...................................................... S-82
LIBOR Business Day................................................... S-67
LIBOR Carryover Amounts.............................................. S-80
LIBOR Determination Date............................................. S-67
LIBOR Index.......................................................... S-66
Lifetime Cap......................................................... S-26
Lifetime Floor....................................................... S-26
Liquidated Mortgage Loan............................................. S-68
Loan Group(s)........................................................ S-18, S-52
Loan Group 1......................................................... S-18, S-52
Loan Group 1 Initial Mortgage Loans.................................. S-18
Loan Group 1 Pre-Funded Amount....................................... S-18, S-63
Loan Group 1 Principal Balance....................................... S-19
Loan Group 2......................................................... S-18, S-52
Loan Group 2 Initial Adjustable Rate Mortgage Loans.................. S-26
Loan Group 2 Initial Mortgage Loans.................................. S-18
Loan Group 2 Principal Balance....................................... S-19
Loan Group 2 Pre-Funded Amount....................................... S-18, S-63
Loan Group 3......................................................... S-18, S-52
Loan Group 3 Initial Mortgage Loans.................................. S-18
Loan Group 3 Principal Balance....................................... S-19
Loan Group 3 Pre-Funded Amount....................................... S-18, S-63
Loan Group Principal Balance......................................... S-19
Loan Index........................................................... S-26
Loan Rates........................................................... S-18
LTV.................................................................. S-37
Master REMIC......................................................... S-79
Master Servicer...................................................... S-51
Master Servicing Fee................................................. S-73
Master Servicing Fee Rate............................................ S-73
MBIA Inc............................................................. S-13
Monthly Advance...................................................... S-60
Monthly Payments..................................................... S-19
Moody's.............................................................. S-84
Mortgage File........................................................ S-57
Mortgage Loan Schedule............................................... S-57
Mortgage Loans....................................................... S-18
Mortgage Notes....................................................... S-18
Mortgage Pool........................................................ S-19
Mortgaged Properties................................................. S-18
New Withholding Regulations.......................................... S-81
Nonrecoverable Advance............................................... S-60
Notice............................................................... S-70
Offered Certificates................................................. S-45, S-51
OID.................................................................. S-79
Owner................................................................ S-70
Participant.......................................................... S-53
Payahead............................................................. S-61
</TABLE>
S-87
<PAGE>
<TABLE>
<CAPTION>
Terms Page
- ----- ----
<S> <C>
Percentage Interest.................................................. S-52
Periodic Cap......................................................... S-26
Plan................................................................. S-82
Policy............................................................... S-51
Pool Principal Balance............................................... S-19
Preference Amount.................................................... S-70
Pre-Funding Accounts................................................. S-63
Prepayment Assumption................................................ S-47
Prepayment Interest Shortfall........................................ S-73
Principal Balance.................................................... S-19
Prospectus........................................................... S-51
Prospectus Supplement................................................ S-51
Provident............................................................ S-15
Purchase Price....................................................... S-58
Rating Agencies...................................................... S-84
Record Date.......................................................... S-61
Reference Bank Rate.................................................. S-67
regular interests.................................................... S-79
Related Documents.................................................... S-57
Relevant Depositary.................................................. S-52
REMIC................................................................ S-79
residual interest.................................................... S-79
Restricted Group..................................................... S-82
Rules................................................................ S-53
S&P.................................................................. S-84
SAIF................................................................. S-59
SAP.................................................................. S-14
Seller............................................................... S-51
Servicing Advance.................................................... S-60
SMMEA................................................................ S-83
Spread Account....................................................... S-62
Subsequent Mortgage Loans............................................ S-18
Subsidiary REMIC..................................................... S-79
Substitution Adjustment Amount....................................... S-58
Systems.............................................................. S-56
Telerate Page 3750................................................... S-67
Terms and Conditions................................................. S-55
Trust................................................................ S-51
Trustee.............................................................. S-51, S-68
Underwriters......................................................... S-83
Underwriting Agreement............................................... S-83
U.S. Person.......................................................... I-4
weighted average life................................................ S-47
Weighted Average Loan Rate........................................... S-66
Year 2000 problems................................................... S-56
</TABLE>
S-88
<PAGE>
ANNEX I
Global Clearance, Settlement and Tax Documentation Procedures
Except in certain limited circumstances, the globally offered Home Equity
Loan Asset-Backed Certificates, Series 1999-2 (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, Cedelbank 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 Cedelbank 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 US corporate debt obligations and prior Home Equity Loan Asset-Backed
Certificates issues.
Secondary cross-market trading between Cedelbank or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of Cedelbank and Euroclear
(in such capacity) and as DTC Participants.
Non-US 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
Participants and Indirect Participants in DTC. As a result, Cedelbank 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 Cedelbank or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Cedelbank and/or Euroclear Participants. Secondary market
trading between Cedelbank Participants or Euroclear Participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
I-1
<PAGE>
Trading between DTC seller and Cedelbank or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant
to the account of a Cedelbank Participant or a Euroclear Participant, the
purchaser will send instructions to Cedelbank or Euroclear through a Cedelbank
Participant or Euroclear Participant at least one business day prior to
settlement. Cedelbank 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 Cedelbank 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 Cedelbank or
Euroclear cash debt will be valued instead as of the actual settlement date.
Cedelbank 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 Cedelbank or Euroclear. Under
this approach, they may take on credit exposure to Cedelbank or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Cedelbank or Euroclear has extended a line of credit
to them, Cedelbank Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedelbank 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 Cedelbank 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 Cedelbank
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, Cedelbank 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 Cedelbank or Euroclear through a Cedelbank Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Cedelbank 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 Cedelbank Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in
the Cedelbank Participant's or Euroclear Participant's account would be back-
I-2
<PAGE>
valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Cedelbank 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 Cedelbank
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedelbank or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedelbank 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 Cedelbank or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedelbank 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 Cedelbank 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 Cedelbank
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.
I-3
<PAGE>
The term "U.S. Person" means a citizen or resident of the United States, a
corporation or partnership (or other entity treated as a corporation or
partnership for federal income tax purposes) created or organized in or under
the laws of the United States or 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), or an estate whose income is subject to
U.S. federal income tax regardless of its source of income, or a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in regulations, certain trusts
in existence on August 20, 1996 and treated as United States persons prior to
such date that elect to continue to be treated as United States persons shall
be considered U.S. persons as well. 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.
I-4
<PAGE>
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:
. mortgage loans secured by senior or junior liens on a one- to four-family
residential properties; and
. 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:
. either evidence beneficial ownership of a trust or be secured by the assets
of a trust;
. will be issued in one or more classes of securities. A class of securities:
. will be entitled to anywhere from 0% to 100% of the interest payments and
principal payments on the assets of the trust;
. may be senior or subordinate in right of payment to other classes; and
. may receive payments from an insurance policy, cash account or other form
of credit enhancement to cover losses on the trust assets.
No market will exist for the securities of any series before they are issued.
In addition, even after the securities of a series have been issued and sold,
there can be no assurance that a resale market will develop.
The securities may be offered to the public through different methods as
described in "Method of Distribution" in this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
June 24, 1999
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<PAGE>
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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RISK FACTORS............................................................... 5
THE TRUST FUND............................................................. 7
General................................................................... 7
The Loans................................................................. 8
Substitution of Trust Fund Assets......................................... 11
USE OF PROCEEDS............................................................ 11
THE PROVIDENT BANK......................................................... 11
General................................................................... 11
Available Information..................................................... 11
Incorporation of Certain Documents by Reference........................... 11
LOAN PROGRAM............................................................... 12
Underwriting Standards.................................................... 12
Qualifications of Provident............................................... 13
Representations by Provident; Repurchases................................. 13
DESCRIPTION OF THE SECURITIES.............................................. 15
General................................................................... 15
Distributions on Securities............................................... 16
Advances.................................................................. 18
Reports to Securityholders................................................ 19
Categories of Classes of Securities....................................... 20
Book-Entry Registration of Securities..................................... 22
CREDIT ENHANCEMENT......................................................... 25
General................................................................... 25
Subordination............................................................. 26
Letter of Credit.......................................................... 26
Insurance Policies, Surety Bonds and Guaranties........................... 27
Over-Collateralization.................................................... 27
Reserve Accounts.......................................................... 27
Pool Insurance Policies................................................... 28
Cross-Collateralization................................................... 29
YIELD AND PREPAYMENT CONSIDERATIONS........................................ 30
THE AGREEMENTS............................................................. 33
Assignment of the Trust Fund Assets....................................... 33
Payments on Loans; Deposits to Security Account........................... 34
Pre-Funding Account....................................................... 36
Sub-Servicing............................................................. 36
Collection Procedures..................................................... 36
Hazard Insurance.......................................................... 37
Realization Upon Defaulted Loans.......................................... 39
Servicing and Other Compensation and Payment of Expenses.................. 39
Evidence as to Compliance................................................. 39
Certain Matters Regarding the Master Servicer and Provident............... 40
Events of Default; Rights Upon Event of Default........................... 40
Amendment................................................................. 42
Termination; Optional Termination......................................... 43
The Trustee............................................................... 44
CERTAIN LEGAL ASPECTS OF THE LOANS......................................... 45
General................................................................... 45
Foreclosure/Repossession.................................................. 45
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Environmental Risks....................................................... 46
Rights of Redemption...................................................... 48
Anti-Deficiency Legislation; Bankruptcy Laws; Tax Liens................... 48
Due-on-Sale Clauses....................................................... 49
Enforceability of Prepayment and Late Payment Fees........................ 49
Applicability of Usury Laws............................................... 50
Soldiers' and Sailors' Civil Relief Act................................... 50
Junior Mortgages; Rights of Senior Mortgagees............................. 50
Consumer Protection Laws.................................................. 51
FEDERAL INCOME TAX CONSEQUENCES............................................ 52
General................................................................... 52
Taxation of Debt Securities............................................... 52
Taxation of the REMIC and its Holders..................................... 57
REMIC Expenses; Single Class REMICS....................................... 57
Taxation of the REMIC..................................................... 58
Taxation of Holders of Residual Interest Securities....................... 59
Administrative Matters.................................................... 61
Tax Status as a Grantor Trust............................................. 61
Sale or Exchange.......................................................... 64
Miscellaneous Tax Aspects................................................. 64
Tax Treatment of Foreign Investors........................................ 65
Tax Characterization of the Trust Fund as a Partnership................... 66
Tax Consequences to Holders of the Notes.................................. 66
Tax Consequences to Holders of the Certificates........................... 68
Taxation of Trust as a FASIT.............................................. 72
Treatment of FASIT Regular Securities..................................... 73
Treatment of High-Yield Interests......................................... 74
Tax Treatment of FASIT Ownership Securities............................... 74
STATE TAX CONSIDERATIONS................................................... 75
ERISA CONSIDERATIONS....................................................... 75
LEGAL INVESTMENT........................................................... 79
METHOD OF DISTRIBUTION..................................................... 80
LEGAL MATTERS.............................................................. 81
FINANCIAL INFORMATION...................................................... 81
RATING..................................................................... 81
INDEX OF DEFINED TERMS..................................................... 83
</TABLE>
4
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
Limited Resale Market for Securities
No market will exist for the securities of any series before they are
issued. We cannot give you any assurances that a resale market will develop
following the issuance and sale of any series of the securities. Consequently,
you may not be able to sell your securities at prices that will enable you to
realize your desired yield.
Limited Source of Payments--No Recourse to Provident or Master Servicer
The securities of each series will be payable solely from the assets of the
related trust, including any applicable credit enhancement. Moreover, at the
times specified in the related prospectus supplement, certain assets of the
trust may be released to The Provident Bank (Provident), the master servicer, a
credit enhancement provider or other person. Once released, such assets will no
longer be available to make payments to securityholders.
The securities will not represent an interest in Provident, the master
servicer or any of their respective affiliates, nor will the securities
represent an obligation of any of them. The only obligation of Provident with
respect to a trust is the obligation to repurchase a trust asset if Provident
breaches a representation and warranty concerning the related trust asset.
There will be no recourse against Provident or the master servicer if any
required distribution on the securities is not made. Consequently, if payments
on the trust assets are insufficient to make all payments required on the
securities you may incur a loss of your investment.
Limitations on the Effectiveness of Credit Enhancement
Credit enhancement is intended to reduce the effect of delinquent payments
or loan losses on those classes of securities that have the benefit of the
credit enhancement. However, the amount of any credit enhancement may decline
or be depleted before the securities are paid in full. As a result,
securityholders may suffer losses. In addition, credit enhancement may not
cover all potential sources of loss, such as a loss resulting from fraud or
negligence by a loan originator or other party.
Nature of Mortgages Securing the Loans
. Decline in Property Values May Increase Loan Losses. Because your
securities represent an interest in mortgage loans or are secured by mortgage
loans, your investment may be affected by a decline in property values. If the
outstanding balance of a mortgage loan and any secondary financing on the
underlying property is greater than the value of the property, there is an
increased risk of delinquency, foreclosure and loss. A decline in property
values could extinguish the value of a junior mortgagee's interest in a
property.
. Delays Due to Liquidation. Substantial delays may occur before defaulted
loans are liquidated and the proceeds forwarded to investors. Property
foreclosure actions are regulated by state statutes and rules and are subject
to many of the delays and expenses that characterize lawsuits if defenses or
counterclaims are made. As a result, foreclosure actions can sometimes take
several years to complete and property proceeds may not cover the defaulted
loan amount. Some states prohibit a mortgage lender from obtaining a judgment
against the borrower for amounts not covered by property proceeds if the
property is sold outside of a judicial proceeding.
We refer you to "Certain Legal Aspects of the Loans--Anti-Deficiency
Legislation; Bankruptcy Laws; Tax Liens" for additional information.
. Junior Liens Satisfied After Senior Liens. Mortgages or deeds of trust
securing junior loans will be satisfied after the claims of the senior mortgage
holders and the foreclosure costs are satisfied. In addition, a
5
<PAGE>
junior mortgage lender may only foreclose subject to any related senior
mortgage. As a result, the junior mortgage lender generally must either pay
the related senior mortgage lender in full at or before the foreclosure sale
or agree to make the regular payments on the senior mortgage. Since the trust
will not have any source of funds to satisfy any senior mortgage or to
continue making payments thereon, the trust's ability as a practical matter to
foreclose on any junior mortgage will be limited.
. Regulated by Consumer Protection Laws. Most states have laws and public
policies for the protection of consumers that prohibit unfair and deceptive
practices in the origination, servicing and collection of loans, regulate
interest rates and other loan changes and require licensing of loan
originators and servicers. Violations of these laws may limit the ability of
the master servicer to collect interest or principal on the loans and may
entitle the borrowers to a refund of amounts previously paid.
The loans may also be subject to federal laws relating to the origination
and underwriting of loans. These laws
. require certain disclosures to the borrowers regarding the terms of the
loans;
. prohibit discrimination on the basis of age, race, color, sex, religion,
marital status, national origin, receipt of public assistance or the
exercise of any right under the consumer credit protection act in the
extension of credit;
. regulate the use and reporting of information related to the borrower's
credit experience; and
. require additional application disclosures, limit changes that may be
made to the loan documents without the borrower's consent and restrict a
lender's ability to declare a default or to suspend or reduce a borrower's
credit limit to certain enumerated events.
If certain provisions of these federal laws are violated, the master
servicer may be unable to collect all or part of the principal or interest on
the loans. The trust also could be subject to damages and administrative
enforcement.
We refer you to "Certain Legal Aspects of the Loans" for additional
information.
Trust Subject to Environmental Risks
Under the laws of certain states, contamination of a property may give rise
to a lien on the property to assure the costs of cleanup. In several states,
such a lien has priority over the lien of an existing mortgage. In addition,
the holder of a mortgage, such as a trust, may be held responsible for the
costs associated with the clean up of hazardous substances released at a
property. Such costs could result in a loss to the securityholders.
We refer you to "Certain Legal Aspects of the Loans--Environmental Risks"
for additional information.
Value of Trust Assets
There is no assurance that the value of the trust assets for any series of
securities at any time will equal or exceed the principal amount of the
outstanding securities of the series. If trust assets have to be sold because
of an event of default or otherwise, providers of services to the trust
(including the trustee, the master servicer and the credit enhancer, if any)
generally will be entitled to receive the proceeds of the sale to the extent
of their unpaid fees and other amounts due them before any proceeds are paid
to investors. As a result, you may not receive the full amount of interest and
principal due on your security.
6
<PAGE>
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
7
<PAGE>
the Loans will consist principally of its contractual servicing obligations
under the related Agreement (including its obligation to enforce the
obligations of the Sub-Servicers or Provident, or both, as more fully described
herein under "Loan Program--Representations by Provident; Repurchases" and "The
Agreements--Sub-Servicing" and "--Assignment of the Trust Fund Assets") and its
obligation, if any, to make certain cash advances in the event of delinquencies
in payments on or with respect to the Loans in the amounts described herein
under "Description of the Securities--Advances". The obligations of the Master
Servicer to make advances may be subject to limitations to the extent provided
herein and in the related Prospectus Supplement.
The following is a brief description of the assets expected to be included
in the Trust Funds. If specific information respecting Trust Fund Assets is not
known at the time the related Series of Securities initially is offered, more
general information of the nature described below will be provided in the
related Prospectus Supplement, and specific information will be set forth in a
report on Form 8-K to be filed with the Securities and Exchange Commission
within fifteen days after the initial issuance of such Securities (the
"Detailed Description"). A copy of the Agreement with respect to each Series of
Securities will be available for inspection at the corporate trust office of
the Trustee specified in the related Prospectus Supplement. A schedule of the
Loans relating to such Series will be attached to the Agreement delivered to
the Trustee upon delivery of the Securities.
The Loans
General. Loans will consist of mortgage loans ("Mortgage Loans") and home
equity loans ("Home Equity Loans"). As more fully described in the related
Prospectus Supplement, the Loans will be "conventional" loans.
The Loans in a Pool will have monthly payments due on the first day of each
month or on such other day of the month specified in the related Prospectus
Supplement. The payment terms of the Loans to be included in a Trust Fund will
be described in the related Prospectus Supplement and may include any of the
following features (or combination thereof), all as described below or in the
related Prospectus Supplement:
Interest may be payable at a fixed rate, a rate adjustable from time to
time in relation to an index (which will be specified in the related
Prospectus Supplement), a rate that is fixed for a period of time or under
certain circumstances and is followed by an adjustable rate, a rate that
otherwise varies from time to time, or a rate that is convertible from an
adjustable rate to a fixed rate. Changes to an adjustable rate may be
subject to periodic limitations, maximum rates, minimum rates or a
combination of such limitations. Accrued interest may be deferred and added
to the principal of a Loan for such periods and under such circumstances as
may be specified in the related Prospectus Supplement. Loans may provide
for the payment of interest at a rate lower than the specified interest
rate borne by such Loan (the "Loan Rate") for a period of time or for the
life of the Loan, and the amount of any difference may be contributed from
funds supplied by the seller of the Property or another source.
Principal may be payable on a level debt service basis to fully amortize
the Loan over its term, may be calculated on the basis of an assumed
amortization schedule that is significantly longer than the original term
to maturity or on an interest rate that is different from the Loan Rate or
may not be amortized during all or a portion of the original term. Payment
of all or a substantial portion of the principal may be due on maturity
("balloon payment"). Principal may include interest that has been deferred
and added to the principal balance of the Loan.
Monthly payments of principal and interest may be fixed for the life of
the Loan, may increase over a specified period of time or may change from
period to period. Loans may include limits on periodic increases or
decreases in the amount of monthly payments and may include maximum or
minimum amounts of monthly payments.
Prepayments of principal may be subject to a prepayment fee, which may
be fixed for the life of the Loan or may decline over time, and may be
prohibited for the life of the Loan or for certain periods
8
<PAGE>
("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
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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
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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
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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.
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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
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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.
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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
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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.
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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.
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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
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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
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Securityholders for any Series of Securities may include additional or other
information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a) as
to the aggregate of amounts reported pursuant to (i) and (ii) above for such
calendar year or, in the event such person was a Securityholder of record only
during a portion of such calendar year, for the applicable portion of such
year and (b) such other customary information as may be deemed necessary or
desirable for Securityholders to prepare their tax returns.
Categories of Classes of Securities
The Securities of any Series may be comprised of one or more classes. Such
classes, in general, fall into different categories. The following chart
identifies and generally defines certain of the more typical categories. The
Prospectus Supplement for a Series of Securities may identify the classes
which comprise such Series by reference to the following categories:
Categories of
Classes Definition
----------------------- ----------
PRINCIPAL TYPES
Accretion Directed........... A class that receives principal payments from
the accreted interest from specified classes of
Accrual Securities. An Accretion Directed class
also may receive principal payments from
principal paid on the underlying Trust Fund
Assets for the related Series.
Component Securities......... A class consisting of "Components." The
Components of a class of Component Securities
may have different principal and/or interest
payment characteristics but together constitute
a single class. Each Component of a class of
Component Securities may be identified as
falling into one or more of the categories in
this chart.
Notional Amount Securities... A class having no principal balance and bearing
interest on the related notional amount. The
notional amount is used for purposes of the
determination of interest distributions.
Planned Principal Class
(also sometimes referred to A class that is designed to receive principal
as "PACs").................. 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
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Categories of
Classes Definition
----------------------- ----------
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 A class that receives principal payments on any
"Companion Classes")........ 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 A class that is designed to receive principal
as "TACs").................. 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
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Categories of
Classes Definition
----------------------- ----------
amount. A nominal principal balance represents
actual principal that will be paid on the
class. It is referred to as nominal since it is
extremely small compared to other classes. A
notional amount is the amount used as a
reference to calculate the amount of interest
due on an Interest Only Class that is not
entitled to any distributions in respect of
principal.
Principal Only............... A class that does not bear interest and is
entitled to receive only distributions in
respect of principal.
Partial Accrual.............. A class that accretes a portion of the amount
of accrued interest thereon, which amount will
be added to the principal balance of such class
on each applicable Distribution Date, with the
remainder of such accrued interest to be
distributed currently as interest on such
class. Such accretion may continue until a
specified event has occurred or until such
Partial Accrual Class is retired.
Accrual...................... A class that accretes the amount of accrued
interest otherwise distributable on such class,
which amount will be added as principal to the
principal balance of such class on each
applicable Distribution Date. Such accretion
may continue until some specified event has
occurred or until such Accrual Class is
retired.
Book-Entry Registration of Securities
As described in the related Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the "Book-Entry Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold their
Securities through DTC in the United States, or Cedel Bank, societe anonyme
("CEDEL"), or the Euroclear System ("Euroclear") in Europe, if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Securities will be issued in one
or more certificates which equal the aggregate principal balance of the
Securities and will initially be registered in the name of Cede & Co., the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC. Citibank, N.A., will act as depositary for CEDEL and
The Chase Manhattan Bank will act as depositary for Euroclear (in such
capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no person acquiring a
Book-Entry Security (each, a "beneficial owner") will be entitled to receive a
physical certificate representing such Security (a "Definitive Security").
Unless and until Definitive Securities are issued, it is anticipated that the
only "Securityholder" of the Securities will be Cede & Co., as nominee of DTC.
Security Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The beneficial owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial
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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
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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.
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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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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
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retained in connection with the liquidation of defaulted Loans, by
foreclosure or otherwise ("Liquidation Proceeds"), together with any net
proceeds received on a monthly basis with respect to any properties
acquired on behalf of the Securityholders by foreclosure or deed in lieu of
foreclosure;
(iv) all proceeds of any Loan or property in respect thereof purchased
by Provident as described under "Loan Program--Representations by
Provident; Repurchases" or "--Assignment of Trust Fund Assets" above and
all proceeds of any Loan repurchased as described under "--Termination;
Optional Termination" below;
(v) all payments required to be deposited in the Security Account with
respect to any deductible clause in any blanket insurance policy described
under "--Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account and, to the extent
specified in the related Prospectus Supplement, any payments required to be
made by the Master Servicer in connection with prepayment interest
shortfalls; and
(vii) all other amounts required to be deposited in the Security Account
pursuant to the Agreement.
The Master Servicer may from time to time direct the institution that
maintains the Security Account to withdraw funds from the Security Account for
the following purposes:
(i) to pay to the Master Servicer the servicing fees described in the
related Prospectus Supplement, the master servicing fees (subject to
reduction) and, as additional servicing compensation, earnings on or
investment income with respect to funds in the Security Account credited
thereto;
(ii) to reimburse the Master Servicer for Advances, such right of
reimbursement with respect to any Loan being limited to amounts received
that represent late recoveries of payments of principal and/or interest on
such Loan (or Insurance Proceeds or Liquidation Proceeds with respect
thereto) with respect to which such Advance was made;
(iii) to reimburse the Master Servicer for any Advances previously made
which the Master Servicer has determined to be nonrecoverable;
(iv) to reimburse the Master Servicer from Insurance Proceeds for
expenses incurred by the Master Servicer and covered by the related
insurance policies;
(v) to reimburse the Master Servicer for unpaid master servicing fees
and unreimbursed out-of-pocket costs and expenses incurred by the Master
Servicer in the performance of its servicing obligations, such right of
reimbursement being limited to amounts received representing late
recoveries of the payments for which such advances were made;
(vi) to reimburse the Master Servicer or Provident for expenses incurred
and reimbursable pursuant to the Agreement;
(vii) to withdraw any amount deposited in the Security Account and not
required to be deposited therein; and
(viii) to clear and terminate the Security Account upon termination of
the Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, on or prior to the business day immediately preceding each
Distribution Date, the Master Servicer shall withdraw from the Security
Account the amount of Available Funds, to the extent on deposit, for deposit
in an account maintained by the Trustee for the related Series of Securities.
The applicable Agreement may require the Master Servicer to establish and
maintain one or more escrow accounts into which mortgagors deposit amounts
sufficient to pay taxes, assessments, hazard insurance premiums or comparable
items. Withdrawals from the escrow accounts maintained for mortgagors may be
made to effect timely payment of taxes, assessments and hazard insurance
premiums or comparable items, to
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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
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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.
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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.
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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.
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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
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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.
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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
66K% 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
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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.
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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.
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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
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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.
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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
Securityholder'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
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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.
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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
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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;
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(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.
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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
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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
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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.
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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, 2000, 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
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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
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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.
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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.
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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.
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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
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"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.
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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.
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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
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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
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(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 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
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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.
(4) 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
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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.
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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.
81
<PAGE>
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 addition, adverse economic conditions (which
may or may not affect real property values) may affect the timely payment by
mortgagors of scheduled payments of principal and interest on the Loans and,
accordingly, the rates of delinquencies, foreclosures and losses with respect
to any Trust Fund. To the extent that such losses are not covered by credit
enhancement, such losses will be borne, at least in part, by the Holders of one
or more classes of the Securities of the related Series.
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<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Accrual Securities........................................................ 17
Additional Obligations.................................................... 78
Agreement................................................................. 7
Amortizable Bond Premium Regulations...................................... 56
APR....................................................................... 10
Available Funds........................................................... 17
Average Interest Rate..................................................... 78
Balloon Payment........................................................... 8
Belgian Cooperative....................................................... 24
Beneficial Owner.......................................................... 22
BIF....................................................................... 34
Book-Entry Securities..................................................... 22
Buydown Fund.............................................................. 9
Buydown Loans............................................................. 9
Capital Assets............................................................ 52
Capitalized Interest Account.............................................. 36
Cash Flow Bond Method..................................................... 63
CEDEL..................................................................... 22
CEDEL Participants........................................................ 23
CERCLA.................................................................... 46
Certificates.............................................................. 7
Certificateholders........................................................ 68
Class Security Balance.................................................... 17
Closed-End Loan........................................................... 9
Code...................................................................... 52
Collateral Value.......................................................... 10
Combined Loan-to-Value Ratio.............................................. 10
Commission................................................................ 11
Companion Classes......................................................... 21
Components................................................................ 20
Contingent Regulations.................................................... 54
Cut-Off Date.............................................................. 7
Cut-Off Date Principal Balance............................................ 15
DCR....................................................................... 77
Debt-to-Income Ratio...................................................... 13
Debt Securities........................................................... 52
Definitive Security....................................................... 22
Detailed Description...................................................... 8
Disqualified Organization................................................. 60
Distribution Date......................................................... 16
DOL....................................................................... 75
Eligible Corporations..................................................... 73
EPA....................................................................... 46
ERISA..................................................................... 75
Euroclear................................................................. 22
Euroclear Operator........................................................ 24
Euroclear Participants.................................................... 24
European Depositaries..................................................... 22
Event of Default.......................................................... 40
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Excess Servicing Fees..................................................... 63
Exchange Act.............................................................. 12
FASIT..................................................................... 72
FASIT Ownership Security.................................................. 72
FASIT Provisions.......................................................... 72
FASIT Qualification Test.................................................. 72
FASIT Regular Securities.................................................. 72
FDIC...................................................................... 13
FHLMC..................................................................... 13
Financial Intermediary.................................................... 22
Fitch..................................................................... 77
FNMA...................................................................... 13
Foreign Holder............................................................ 65
Funding Period............................................................ 36
Garn-St Germain Act....................................................... 49
High-Risk Mortgage Securities............................................. 80
High-Yield Interest....................................................... 73
Home Equity Loans......................................................... 8
Indenture................................................................. 15
Insurance Proceeds........................................................ 34
Insured Expenses.......................................................... 34
Interest Weighted Securities.............................................. 55
IO........................................................................ 72
L/C Bank.................................................................. 26
Liquidation Expenses...................................................... 34
Liquidation Proceeds...................................................... 35
Loan Rate................................................................. 8
Loan-to-Value Ratio....................................................... 10
Loans..................................................................... 7
Lockout Periods........................................................... 9
Master Servicer........................................................... 7
Master Servicing Agreement................................................ 7
Master Servicing Fee...................................................... 39
Moody's................................................................... 77
Morgan.................................................................... 24
Mortgage.................................................................. 33
Mortgage Loans............................................................ 8
Mortgage Pass-Through Certificate......................................... 76
Mortgaged Properties...................................................... 9
NCUA...................................................................... 80
New Partnership........................................................... 69
New Withholding Regulations............................................... 68
Noteholders............................................................... 66
Notes..................................................................... 7
Obligations............................................................... 78
OID....................................................................... 52
OID Regulations........................................................... 53
Old Partnership........................................................... 69
PACs...................................................................... 20
Parties in Interest....................................................... 76
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ------
<S> <C>
Pass-Through Securities.................................................. 61
Pay-Through Security..................................................... 54
Permitted Investments.................................................... 27
Plans.................................................................... 75
Policy Statement......................................................... 80
Pool..................................................................... 7
Pool Insurance Policy.................................................... 28
Pool Insurer............................................................. 28
Pooling and Servicing Agreement.......................................... 7, 15
Pre-Funded Amount........................................................ 36
Pre-Funding Account...................................................... 36
Pre-Funding Limit........................................................ 78
Prepayment Assumption.................................................... 54
Primary Mortgage Insurance Policy........................................ 9
Principal Prepayments.................................................... 18
Properties............................................................... 9
Prospectus Supplement.................................................... 7
Provident................................................................ 7
PTE 83-1................................................................. 76
Purchase Price........................................................... 14
Rating Agencies.......................................................... 81
Rating Agency............................................................ 77, 81
Ratio Strip Securities................................................... 63
RCRA..................................................................... 47
Record Date.............................................................. 16
Refinance Loan........................................................... 10
Regular Interest Securities.............................................. 52
Regular Interests........................................................ 57
Reigle Act............................................................... 51
Relevant Depositary...................................................... 22
Relief Act............................................................... 50
REMIC.................................................................... 14, 72
Reserve Account.......................................................... 27
Residual Interest Security............................................... 59
Residual Interests....................................................... 57
Restricted Group......................................................... 78
Retained Interest........................................................ 15
Revolving Credit Line Loans.............................................. 9
Rules.................................................................... 23
S&P...................................................................... 77
SAIF..................................................................... 34
Secured Creditor Exclusion............................................... 47
Securities............................................................... 7
Security Account......................................................... 34
Security Owners.......................................................... 22
Security Register........................................................ 16
Securityholder........................................................... 22
Securityholders.......................................................... 7
Senior Securities........................................................ 26
Series................................................................... 7
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- -----
<S> <C>
Servicing Fees............................................................ 62
Short-Term Note........................................................... 66
Single Family Properties.................................................. 9
Single Family Securities.................................................. 76
SMMEA..................................................................... 79
STIFS..................................................................... 28
Stripped Securities....................................................... 61
Sub-Servicer.............................................................. 36
Sub-Servicing Agreement................................................... 36
Subordinated Securities................................................... 26
Subsequent Loans.......................................................... 36
TACs...................................................................... 21
Terms and Conditions...................................................... 24
Thrift Institutions....................................................... 60
TIN....................................................................... 64
Title V................................................................... 50
Trust Agreement........................................................... 7, 15
Trust Fund................................................................ 7
Trust Fund Assets......................................................... 7
Trustee................................................................... 7, 15
Underwriter Exemptions.................................................... 77
</TABLE>
86
<PAGE>
[GRAPHIC OF WORLD MAP]
$515,000,000 (approximate)
Provident Bank Home Equity
Loan Trust 1999-2
$290,000,000 Class A-1 Variable Rate Certificates
$ 37,000,000 Class A-2 Variable Rate Certificates
$188,000,000 Class A-3 Variable Rate Certificates
Home Equity Loan
Asset-Backed Certificates
Series 1999-2
The Provident Bank,
as Seller and Master Servicer
-------------------
PROSPECTUS SUPPLEMENT
June 24, 1999
-------------------
Lehman Brothers
Prudential Securities
