AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1999
Registration No. 333-_____
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT ON FORM S-3
UNDER
THE SECURITIES ACT OF 1933
----------------------------
THE PROVIDENT BANK
(Exact name of registrant as specified in its charter)
Ohio 31-0412725
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
----------------------------
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
----------------------------
Mark E. Magee, Esq.
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
----------------------------
With a copy to:
James R. Whitaker, Esq. Michael P. Braun, Esq.
Keating, Muething & Klekamp, P.L.L. Brown & Wood LLP
1800 Provident Tower One World Trade Center
One East Fourth Street New York, New York 10048-0557
Cincinnati, Ohio 45202
----------------------------
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of the registration
statement, as determined by market conditions.
----------------------------
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. /_/
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, please check the following box. /X/
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
/_/________________________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering./_/____________
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box./_/
CALCULATION OF REGISTRATION FEE
<TABLE>
====================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Registration
Securities to Be Registered Registered Per Unit(1) Offering Price(1) Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes and Asset Backed
Certificates............................. $2,285,000,000 100% $2,285,000,000 $635,230(2)
====================================================================================================================
</TABLE>
(1) Estimated for the purpose of calculating the registration fee.
(2) $785,000,000 in securities are being carried forward and
$218,230 of the filing fee is associated with the securities
being carried forward and was previously paid with the
earlier registration statement.
Pursuant to Rule 429 of the Securities and Exchange Commission's
Rules and Regulations under the Securities Act of 1933, as amended, the
Prospectus and Prospectus Supplement contained in this Registration Statement
also relates to Registrant's registration statement No. 333-67593 as
previously filed by the Registrant on Form S-3.
- -------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus supplement and the
accompanying prospectus are not an offer to sell these securities and they are
not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 28, 1999
Prospectus Supplement
To Prospectus dated _____________________ __, 1999
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 1999-_
HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 1999-_
THE PROVIDENT BANK
as transferor and master servicer
PLEASE CONSIDER CAREFULLY THE TRUST
THE RISK FACTORS
BEGINNING ON PAGE S-10 AND o is a trust formed pursuant to a trust agreement
ON PAGE 1 IN THE between The Provident Bank and ________,
PROSPECTUS.
o will issue [___] class of senior notes, which
are offered hereby.
THE NOTES
o are principally secured by the assets of the trust, which consist of a pool
of [adjustable rate home equity revolving credit line loan agreements and
fixed rate closed-end home equity loans]
CREDIT ENHANCEMENT
o A spread account will fund shortfalls in payments due on the notes.
o The transferor interest will absorb up to a certain percentage of all
losses on the mortgage loans.
o An irrevocable and unconditional guaranty insurance policy issued by
[________] will guarantee payments on the notes.
o If _____ defaults, certain payments to the holder of the transferor
interest will only be paid after payments due on the notes are made.
[___________________________________], the underwriter, will buy the
notes from the Transferor at the price specified below.
PER $1,000 OF
NOTES TOTAL
-------------- ----------
Price to Public.................................. $ $
Underwriters Discount............................ $ $
Proceeds to the Transferor, before expenses...... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Name of Underwriter
_________________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary......................................S-3
Risk Factors................................S-10
The Financial Insurance Policy Issuer.......S-15
[Description of Financial Insurance
Policy Issuer]...........................S-15
The Trust...................................S-15
The Provident Bank..........................S-16
Description of The Mortgage Loans...........S-22
Description of The Notes....................S-35
Pool Factor.................................S-53
Maturity and Prepayment Considerations......S-53
Description of the Agreements...............S-55
Use of Proceeds.............................S-66
Federal Income Tax Consequences.............S-66
State Taxes.................................S-71
ERISA Considerations........................S-71
Legal Investment Considerations.............S-73
Underwriting................................S-73
Legal Matters...............................S-74
Experts.....................................S-74
Ratings.....................................S-75
Index of Defined Terms......................S-76
Annex I.....................................S-79
Page
----
PROSPECTUS
Risk Factors..................................4
The Trust Fund................................5
Use of Proceeds...............................9
The Provident Bank...........................10
Loan Program.................................11
Description of the Securities................13
Credit Enhancement...........................23
Yield and Prepayment
Considerations..........................27
The Agreements...............................29
Legal Aspects of the Loans...................40
Federal Income Tax Consequences..............46
State Tax Considerations.....................67
ERISA Considerations.........................68
Legal Investment.............................72
Method of Distribution.......................73
Legal Matters................................73
Financial Information........................74
Rating.......................................74
Index of Defined Terms.......................75
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the notes.
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HOME EQUITY LOAN ASSET-BACKED NOTES, SERIES 1999-_
- -------------------------------------------------------------------------------
INITIAL CLASS
CLASS/INTEREST NOTE RATE PRINCIPAL BALANCE MATURITY DATE
- -------------- -------------- ----------------- --------------
- -------------------------------------------------------------------------------
Notes LIBOR + ___% $________________ ____________
- -------------------------------------------------------------------------------
Transferor N.A. N.A. N.A.
- -------------------------------------------------------------------------------
The initial class principal balance is subject to a variance of ___%. We
expect the actual maturity date for the notes will be significantly earlier
than its stated maturity date. If the note rate exceeds the weighted average
of the net loan rates on any payment date, you will receive interest at the
weighted average net loan rate rather than the note rate in the table.
We refer you to "Description of the Notes--Payments on the Notes" for
more information regarding the weighted average net loan rate and other
limitations on the payment of interest on the Notes.
The transferor interest is not being offered pursuant to this prospectus
supplement and the prospectus.
<PAGE>
THE TRANSFEROR AND MASTER SERVICER
o The Provident Bank.
o The Provident Bank maintains its principal office at One East Fourth
Street, Cincinnati, Ohio. Its telephone number is (513) 579-2000.
o The master servicer will receive a monthly fee from the interest payments
on the mortgage loans equal to ___% per annum on the principal balance of
each mortgage loan.
We refer you to "The Provident Bank" in the prospectus and "The Master
Servicer" in this prospectus supplement for additional information.
TRUST
o Provident Bank Home Equity Loan Trust, 1999-_.
INDENTURE TRUSTEE
o [__________________________]
OWNER TRUSTEE
o [__________________________]
FINANCIAL INSURANCE POLICY ISSUER
o [________________________]
We refer you to "The Financial Insurance Policy Issuer" in this prospectus
supplement for additional information.
CUT-OFF DATE
o ______________, 1999.
CLOSING DATE
o ______________, 1999.
PAYMENT DATE
o The __th day of each month, or if that day is not a business day, the next
business day. The first payment date is ____________, 1999.
COLLECTION PERIOD
o The calendar month preceding the month of a payment date.
REGISTRATION OF NOTES
We will issue the notes in book-entry form. You will hold your interests
either through a depository in the United States or through one of two
depositories in Europe. While the notes are book-entry, they will be
registered in the name of the applicable depository, or in the name of the
depository's nominee.
Transfers within any depository system will be made in accordance with the
usual rules and operating procedures of that system. Cross-market transfers
between two different depository systems may be made through a third-party
bank or the related depositories. The limited circumstances under which
definitive notes will replace the book-entry notes are described in this
prospectus supplement.
We refer you to "Risk Factors-- Consequences on Liquidity and Payment Delay
Because of Owning Book-Entry Notes," "Description of the Notes--Book-Entry
Notes," and "Annex I" in this prospectus supplement for additional
information.
ASSETS OF THE TRUST
The trust's assets include:
o a pool of [adjustable rate home equity revolving credit line loan
agreements and fixed rate closed-end home equity loans,] secured by either
first or junior deeds of trust or mortgages on one- to four-family
residential properties;
o payments of interest due on the mortgage loans on and after the cut-off
date and principal payments received on the mortgage loans on and after the
cut-off date;
o property that secured a mortgage loan that has been acquired by foreclosure
or deed in lieu of foreclosure; and
o rights under hazard insurance policies covering the mortgaged properties.
During the life of the trust, all new advances made to mortgagors under the
applicable credit line agreement will become assets of the trust. The pool
balance will generally fluctuate and differ from day to day due to new
advances and any principal payments on the mortgage loans.
THE MORTGAGE LOANS
Mortgage Loan Statistics
On the closing date, the trust will acquire a pool of [adjustable rate home
equity revolving credit line loan agreements and fixed rate closed-end home
equity loans]. The mortgage loans will have the following characteristics at
the cut-off date:
o number of mortgage loans: _____
o number of revolving credit-line loans:
o number of closed-end loans:
o aggregate principal balance: $__________
o mortgaged property location: ___ states and the District of Columbia
o average credit limit of revolving credit-line loans: $_____
o credit limits on the revolving credit-line loans range: $____ to $____
o interest rate range: _____% to ______%
o weighted average interest rate _____% (approximate)
o loan age range: ____ to ____months
o weighted average loan age: __ months
o credit limit utilization rate range for revolving credit-line loans: ___ to
___
o weighted average credit limit utilization rate for revolving credit-line
loans: ___
o gross margin range for revolving credit-line loans: ___ to ___
o weighted average gross margin for revolving credit-line loans: __
o combined loan-to-value ratio range: ____% to _____% (approximate)
o weighted average combined loan-to-value ratio ____% (approximate)
o all of the revolving credit-line loans bear interest at an adjustable rate
based on the prime rate published in The Wall Street Journal
o balloon loans - loans with amortization schedules that don't fully amortize
by their maturity date: ____% (approximate).
Payment Terms of Mortgage Loans
Revolving Credit Line Loans
o Each borrower under a revolving credit-line loan may borrow amounts from
time to time up to the maximum amount of that borrower's line of credit. If
borrowed amounts are repaid, they may be borrowed again.
o Interest - Interest on each revolving credit-line loan is payable monthly
on the related outstanding principal balance for each day in the billing
cycle. The loan rate is variable and is equal to __________.
o Principal - The revolving credit-line loans have either: (i) a ___ year
renewable draw period during which time amounts may be borrowed under the
credit line agreement. The draw period is followed by a five year repayment
period during which the borrower must repay the outstanding principal of
the loan; or
(ii) a ten year draw period during which time amounts may be borrowed under
the credit line agreement, followed by a ten year repayment period during
which the borrower must repay the outstanding principal of the loan.
Closed-End Home Equity Loans
o The amount borrowed under a closed-end loan is fully disbursed on the date
of its origination and the borrower is not entitled to future advances of
cash under the closed-end loan.
o Interest on each closed-end loan is payable monthly on its outstanding
principal balance. The interest rate for most of the closed-end loans is
fixed at its origination. The loan rate for the remainder of the closed-end
loans is variable and is equal to [________].
Simple Interest Loans
o All of the loans compute interest based on a simple interest method. This
means that interest is computed and charged to the borrower on the
outstanding balance of the loan based on the number of days elapsed between
the date through which interest was last paid on the loan through receipt
of the borrower's most current payment. The portions of each monthly
payment that are allocated to interest and principal are adjusted based on
the actual amount interest charged on this basis.
We refer you to "Description of the Mortgage Loans" in this prospectus
supplement for additional information.
[MONTHLY ADVANCES?]
THE NOTES
General
o The notes will be secured by the assets of the trust.
o Each month, the indenture trustee will calculate the amount you are owed.
o If you hold a note on the day immediately preceding the related payment
date, you will be entitled to receive payments on that payment date.
Interest Payments
Interest on the notes accrues during the period beginning on the prior payment
date and ending on the day before the applicable payment date except that for
the first payment interest begins accruing on the closing date. The indenture
trustee will calculate interest based on the actual number of days in the
interest period and a year assumed to consist of 360 days. On each payment
date, you will be entitled to the following amounts from your portion of
interest collections on the mortgage loans:
o interest at the related note rate that accrued during the interest period
on your invested amount; and
o any interest that was due on a prior payment date and not paid. In
addition, interest will have accrued on the amount of interest which was
previously due and not paid.
Principal Payments
From the first payment date and ending on the payment date in __________ and
if specified events causing an acceleration of payment of principal do not
occur, you will be entitled to either (a) or (b), whichever is the lesser
amount:
o ___% of the principal collected during the prior collection period; or
o the amount of principal collected during the prior collection period minus
advances made to the borrowers under the credit line agreements during that
collection period.
On the payment date following ___________, or if specified events causing an
acceleration of principal occur, you will be entitled to receive the amount
described in (a) above.
We refer you to "Description of the Notes--Payments on the Notes" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENT
The Insurance Policy
[_______________] will issue an insurance policy that unconditionally
guarantees the payment of:
o accrued and unpaid interest due on the notes;
o principal losses on the mortgage loans; and
o any principal amounts owed to noteholders on the maturity date.
We refer you to "Description of the Notes--The Policy" in this prospectus
supplement for additional information.
The Spread Account
Amounts on deposit in the spread account will be available to the indenture
trustee to pay interest due on the notes and to cover principal losses on the
mortgage loans before a draw on the insurance policy.]
We refer you to "Description of the Notes--The Spread Account" in this
prospectus supplement for additional information.
Limited Subordination of Transferor Interest
After the spread account is depleted and before a draw on the policy, losses
on the mortgage loans will be allocable to the transferor interest up to
specified levels. In addition, if the financial insurance policy issuer
defaults, some payments to the holder of the transferor interest will be made
after payments to the notes.
We refer you to "Description of the Notes--Overcollateralization" in this
prospectus supplement for additional information.
OPTIONAL TERMINATION
The mortgage loans will be subject to an optional transfer to the owner of the
transferor interest on any payment date after:
o the principal balance of the notes is reduced to any amount less than or
equal to _% of the original principal balance of the notes; and
o all amounts due and owing to the financial insurance policy issuer and
unreimbursed draws on the insurance policy have been paid with interest.
We refer you to "Description of the Notes--Termination; Retirement of the
Notes" in this prospectus supplement for additional information.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o Tax counsel is of the opinion that the notes will be treated as debt
instruments.
o You must agree to treat your note as indebtedness for federal, state, and
local income and franchise tax purposes.
We refer you to "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 some pension and
other employee benefit plans. Pension and other employee benefit plans should
be able to purchase investments like the notes so long as they are treated as
debt under applicable state law and have no substantial equity features. Any
plan fiduciary considering whether to purchase the notes on behalf of a plan
should consult with its counsel regarding the applicability of the provisions
of ERISA and the internal revenue code and the availability of any exemptions.
We refer you to "ERISA Considerations" in this prospectus supplement and the
prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines mortgage related
securities to include only first mortgages and not second mortgages. Because
the pool of mortgage loans owned by the trust includes junior mortgage loans,
the notes will not be mortgage related securities under that definition. Some
institutions may be limited in their legal investment authority to only first
mortgages or mortgage related securities and will be unable to invest in the
Notes.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the prospectus for additional
information.
NOTE RATING
The trust will not issue the notes unless they receive the following ratings:
o ____ by ___________________________.
o ___ by ____________________________.
A rating is not a recommendation to buy, sell, or hold securities and may be
subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Note Rating Based Primarily on
Claims-Paying Ability of the Financial Insurance Policy Issuer" in this
prospectus supplement for additional information.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE ANY
PURCHASE OF NOTES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION UNDER
"RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY NOTES
o Limit on Liquidity of Notes. Issuance of notes in book-entry form may
reduce their liquidity in the secondary trading market since investors may
be unwilling to purchase notes for which they cannot obtain physical notes.
o Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry notes can be effected only through DTC, participating
organizations, indirect participants, and some banks, your ability to
transfer or pledge a book-entry note to persons or entities that do not
participate in the DTC system or otherwise do things with your notes, may
be limited because you do not have a physical note representing the
book-entry notes.
o Delays in Payments. You may experience some delay in the receipt of
payments on the book-entry notes since the payments will be forwarded by
the indenture trustee to DTC for DTC to credit the accounts of its
participants, which will then credit them to your account either directly
or indirectly through indirect participants, as applicable.
We refer you to "Description Of Notes--Book-Entry Notes" in this
prospectus supplement.
BALLOON LOAN RISK
Balloon loans pose a risk because a borrower must pay a large lump sum
payment of principal at the end of the loan term. If the borrower is unable to
pay the lump sum or refinance it, you will suffer a loss if the financial
insurance policy issuer fails to perform its obligations under the policy and
the other forms of credit enhancement are insufficient to cover the loss.
Approximately ___% of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS
THAN MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes, and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the financial insurance policy issuer fails
to perform its obligations under the insurance policy.
We refer you to "Legal Aspects of Loans--Foreclosure" in the prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your notes will be directly related to the rate
of principal payments on the mortgage loans. Please consider the following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. However, some mortgage loans require that the mortgagor pay a
fee with any prepayments in full within five years of origination,
except that generally no fee is required for any prepayment in full
made within twelve months of a loan's maturity date. This may result
in the rate of prepayments being slower than would otherwise be the
case.
o During the period that a borrower may borrow money under a revolving
credit-line loan, the borrower may make monthly payments only for
the accrued interest or may also repay some or all of the amounts
previously borrowed. In addition, borrowers may borrow additional
amounts up to the maximum amounts of their lines of credit. As a
result, the amount the trust receives in any month may change
significantly and in turn the amount of principal paid to you may
change significantly.
o All of the mortgage loans compute interest due on a simple interest
method. This means that the principal amount of each monthly payment
will vary each month if the monthly payment is not received on its
scheduled due date.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when
the mortgaged property is sold. Generally, the master servicer will
enforce the due-on-sale provision unless prohibited by applicable
law.
o The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic
conditions, interest rates, the availability of alternative
financing, and homeowner mobility.
o Home equity loans generally are not viewed by borrowers as permanent
financing. Accordingly, the mortgage loans may experience a higher
rate of prepayment than purchase money first lien mortgage loans.
o We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies
or statistics on the rate of prepayment of mortgage loans similar to
the mortgage loans in the pool.
o If you purchased your note at a premium and you receive your
principal faster than expected, your yield to maturity will be lower
than you anticipated. If you purchased your note at a discount and
you receive your principal slower than expected, your yield to
maturity will be lower than you anticipated.
We refer you to "Prepayment and Yield Considerations" in the
prospectus.
NOTE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE FINANCIAL
INSURANCE POLICY ISSUER
The rating on the notes depends primarily on an assessment by the rating
agencies of the mortgage loans and upon the claims-paying ability of the
financial insurance policy issuer. Any reduction of the rating assigned to the
claims-paying ability of the financial insurance policy issuer may cause a
corresponding reduction on the ratings assigned to the notes. A reduction in
the rating assigned to the notes will reduce the market value of the notes and
may affect your ability to sell them. In general, the rating on your notes
addresses credit risk and does not address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Most of the mortgage loans are secured by mortgages that are junior in
priority. For mortgage loans in the trust secured by first mortgages, the
master servicer may consent under some circumstances to a new first priority
lien on the mortgaged property regardless of the principal amount, which has
the effect of making the first mortgage a junior mortgage. Mortgage loans that
are secured by junior mortgages will receive proceeds from a sale of the
related mortgaged property only after any senior mortgage loans and prior
statutory liens have been paid. If the remaining proceeds are insufficient to
satisfy the mortgage loan in the trust and the financial insurance policy
issuer fails to perform its obligations under the policy and the other forms
of credit enhancement are insufficient to cover the loss, then:
o there will be a delay in payments to you while a deficiency judgment
against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained or
is not realized upon.
We refer you to "Legal Aspects of the Loans" in the prospectus.
PAYMENTS TO AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF
TRANSFEROR
The sale of the mortgage loans from the transferor to the trust will be
treated by the transferor and the trust as a sale of the mortgage loans. If
the transferor were to become insolvent, a receiver or conservator for, or a
creditor of, the transferor, may argue that the transaction between the
transferor and the trust is a pledge of mortgage loans as security for a
borrowing rather than a sale. Such an attempt, even if unsuccessful, could
result in delays in payments to you.
Upon the transferor's insolvency, the Federal Deposit Insurance
Corporation might be appointed as a receiver or conservator and prevent the
indenture trustee from taking any action with respect to the trust. The
Federal Deposit Insurance Corporation may enforce the transferor's contracts
and may have the power to cause the transferor to continue to perform the
master servicer's duties. This would prevent the appointment of a successor
servicer and prevent the liquidation of the mortgage loans or the early
retirement of the notes.
The transferor will deliver to the indenture trustee the mortgage notes
relating to the closed-end loans on the date of initial issuance of the notes
and the assignments of each mortgage relating to the close-end loans within
ninety days of the initial issuance of the notes. However, the transferor will
maintain possession of all other documentation relating to the mortgage loans
and no assignment of any mortgage is required to be recorded in the name of
the indenture trustee, unless the transferor's long-term debt rating is
reduced below [______ by ________________ or ______________ by ________].
Within 30 days of either occurrence, the transferor is required to deliver the
mortgage documents to the indenture trustee and to either record the
assignments or deliver a legal opinion to the effect that recording the
assignments is not necessary to perfect the interest of the trust in the
mortgages. Before delivery and recording, the interest of the indenture
trustee in the mortgages, the mortgage notes, and any proceeds from the
mortgage loans may be subject to the claims of creditors or to sale to a third
party, as well as to a receiver or conservator appointed upon the insolvency
of the transferor.
In some states in which the mortgaged properties are located, failure to
record the assignments of the related mortgages to the indenture trustee will
have the result of making the sale of the mortgage loans potentially
ineffective against:
o any creditors of the transferor who may have been fraudulently or
inadvertently induced to rely on the mortgage loans as assets of the
transferor, or
o any purchaser of a mortgage loan who had no notice of the prior
conveyance to the trust if the purchaser perfects his interest in
the mortgage loan by taking possession of the related documents or
other evidence of indebtedness or otherwise.
In that case, the trust would be an unsecured creditor of the transferor.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
Prepayments of Principal May Reduce Interest Payments. If a mortgagor prepays
a mortgage loan in full, the mortgagor is charged interest only up to the date
of the prepayment, instead of a full month. The master servicer is obligated
to reduce its servicing fee in the month of such prepayment so that one
month's interest is paid with such prepayment in full. If the servicing fee is
insufficient to pay the interest shortfalls attributed to prepayments, a
shortfall in interest due on the notes may result. The financial insurance
policy issuer is required to cover this shortfall. If the financial insurance
policy issuer fails to perform its obligations under the policy, you may incur
a loss.
Some Interest Shortfalls Are Not Covered by the Master Servicer or the
Insurance Policy. The Soldiers' and Sailors' Civil Relief Act of 1940 permits
modifications to the payment terms for mortgage loans, including a reduction
in the amount of interest paid by the borrower under some circumstances.
Neither the master servicer nor the financial insurance policy issuer will pay
for any interest shortfalls created by the Soldiers' and Sailors' Civil Relief
Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
The mortgaged properties relating to the mortgage loans are located in __
states and the District of Columbia. However, __% of the mortgaged properties
by principal balance as of the cut-off date are located in Ohio. If in the
future Ohio experiences weaker economic conditions or greater rates of decline
in real estate values than the United States generally, then the mortgage
loans may experience higher rates of delinquencies, defaults, and foreclosures
than would otherwise be the case.
NOTEHOLDERS COULD BE ADVERSELY AFFECTED IN THE ABSENCE OF YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The
year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers, or agents do not successfully and timely achieve year 2000
compliance, the performance of obligations of the master servicer could be
materially adversely affected. This could result in delays in processing
payments on the mortgage loans and cause a related delay in payments to you.
RISK OF INCREASED DELINQUENCY, DEFAULT, AND FORECLOSURE EXPERIENCE DUE TO LESS
STRINGENT UNDERWRITING STANDARDS
The seller's underwriting standards are generally less stringent than
those of Fannie Mae or the Freddie Mac with respect to credit history and
other items. If a borrower has a poor credit history, the seller may still
make a loan to the borrower. This approach to underwriting may result in
higher rates of delinquencies, defaults, and foreclosures than for mortgage
loans underwritten in a more traditional manner.
<PAGE>
THE FINANCIAL INSURANCE POLICY ISSUER
The information in this section has been provided by [________], the
financial insurance policy issuer. No representation is made by the
underwriters, the Transferor, the master servicer or any of their affiliates
as to the accuracy of completeness of any such information.
[DESCRIPTION OF FINANCIAL INSURANCE POLICY ISSUER]
THE TRUST
GENERAL
Provident Bank Home Equity Loan Trust 1999-_ is a business trust formed
under the laws of the State of Delaware pursuant to a trust agreement for the
transactions described in this prospectus supplement. After its formation, the
trust will not engage in any activity other than:
o acquiring, holding, and managing the mortgage loans and the other
assets of the trust and their proceeds,
o issuing the notes and the transferor interest,
o making payments on the notes and the transferor interest, and
o engaging in other activities that are appropriate to accomplish the
foregoing or are incidental to them.
The notes and the transferor interest will be delivered by the trust to
the Transferor as consideration for the mortgage loans pursuant to the sale
and servicing agreement.
On the Closing Date, the trust will purchase mortgage loans having an
aggregate principal balance of approximately $___________ as of the Cut-Off
Date from the Transferor pursuant to a sale and servicing agreement dated as
of __________, between the trust, the Transferor, the master servicer, the
owner trustee, and the indenture trustee.
The assets of the trust will consist primarily of the mortgage loans,
which will be secured by first- or junior-lien mortgages on the mortgaged
properties. See "Description of the Mortgage Loans." The assets of the trust
will also include:
o payments on the mortgage loans received on or after the Cut-Off
Date, exclusive of payments of interest accrued on the mortgage
loans during ______, and payments of interest that was due before
and received after the Cut-Off Date),
o amounts on deposit in the collection account for the mortgage loan
proceeds, in the distribution account, and in the Spread Account,
and
o other ancillary or incidental funds, rights, and properties.
The trust will include the unpaid principal balance of each mortgage loan
as of the opening of business on the Cut-Off Date. The pool principal balance
on any date will be equal to the aggregate principal balances of all the
mortgage loans on that date.
The assets of the trust will be pledged to the indenture trustee as
security for the notes pursuant to the indenture, dated as of _________ ,
between the trust and the indenture trustee.
The master servicer is obligated to service the mortgage loans pursuant
to the sale and servicing agreement and will be compensated for its services
as described under "--Servicing Compensation and Payment of Expenses."
The trust's principal offices are located in __________________, in care
of [____________________], as owner trustee, at [_____________________].
THE OWNER TRUSTEE AND CO-OWNER TRUSTEE
[__________________] will act as the owner trustee under the trust
agreement. [_________________] is a ____________________________ banking
corporation.
Some functions of the owner trustee under the trust agreement and the
sale and servicing agreement will be performed by [______________], in its
capacity as co-owner trustee under the trust agreement and the sale and
servicing agreement, including maintaining the distribution account and making
distributions from it.
THE PROVIDENT BANK
GENERAL
The Provident Bank ("Provident" or the "Transferor") will sell the
mortgage loans to the trust pursuant to the sale and servicing agreement.
Provident, acting as master servicer, will service the mortgage loans in
accordance with the sale and servicing agreement. As of the Closing Date, the
master servicer will service the mortgage loans without subservicing
arrangements. The master servicer may perform any of its obligations under the
sale and servicing agreement through one or more subservicers and is permitted
under the sale and servicing agreement to transfer servicing to affiliates, if
the affiliate meets the required standards specified in the sale and servicing
agreement. See "Description of the Notes -- Matters Regarding the Master
Servicer and the Transferor." Notwithstanding any subservicing arrangements,
the master servicer will remain liable for its servicing obligations under the
sale and servicing agreement as if the master servicer alone were servicing
the mortgage loans.
Provident is the principal banking subsidiary of Provident Financial
Group, Inc. (formerly known as Provident Bancorp, Inc.) a Cincinnati based
bank holding company registered under the Bank Holding Company Act. Provident
Financial Group, Inc. operates throughout Ohio, Northern Kentucky,
Southeastern Indiana, and Florida. As of _______________, 199_, Provident
Financial Group, Inc. had total assets of $[__] billion, net loans and leases
of $[__] billion, deposits of $[__] billion, and total shareholders' equity of
$[__] million. Provident Financial Group, Inc.'s tier l and total capital
ratios were [__]% and [__]%, respectively. For the fiscal year ended
______________ __, 199_, Provident Financial Group, Inc. had net earnings of
$[__] million. For the period ended _________________, 199_, Provident
Financial Group, Inc. had net earnings of $[__] million. Provident represents
approximately [__]% of Provident Financial Group, Inc.'s assets.
CREDIT AND UNDERWRITING GUIDELINES
Approximately [__]% of the mortgage loans were originated by Provident
and [__]% were originated by [__], in each case, by Cut-Off Date pool
principal balance. The following is a description of the underwriting
guidelines customarily employed by Provident with respect to its retail
originations of non-purchase money mortgage loans. Provident believes its
underwriting guidelines are consistent with those used by home equity lenders
generally.
Provident performs underwriting procedures intended to assess a
prospective borrower's credit standing and repayment ability, and the value
and adequacy of the mortgaged property as collateral. Exceptions to the
underwriting guidelines are made when compensating factors are present. These
factors include the quality and location of the property, the length of
employment, credit history, current and pending debt obligations, payment
habits, and status of past and currently existing mortgages. Each prospective
borrower is required to complete an application which lists assets,
liabilities, income, credit and employment history, and other demographic and
personal information. If the information in the application demonstrates that
the mortgage loan would be supported by sufficient income and equity in the
real property, Provident will conduct a further credit investigation,
including obtaining and reviewing an independent credit bureau report to
evaluate the applicant's ability to repay.
Provident has historically used a debt-to-income ratio to determine
whether a prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the home equity loan in
addition to any senior mortgage loan payments (including any escrows for
property taxes and hazard insurance premiums) and other monthly credit
obligations. The debt-to-income ratio is the ratio of a borrower's total
monthly payments to the borrower's gross monthly income. The monthly
debt-to-income ratio, in general, does not exceed 45% when the combined
loan-to-value ratio does not exceed 80%. For mortgage loans with combined
loan-to-value ratios in excess of 80%, the monthly debt-to-income ratio
generally does not exceed 40%. These combined loan-to-value ratio and
debt-to-income limitations may be exceeded if one or more of the compensating
factors we mentioned are present. In addition, these limitations may be
exceeded if specific approval is obtained from an authorized officer of
Provident.
In addition to these guidelines, beginning in December, 1996, Provident
instituted a credit scoring procedure as an additional guideline in evaluating
applications for mortgage loans. Generally, applicants must meet a minimum
score predetermined by Provident. Scores are calculated on the basis of a
scoring model developed by Fair-Isaacs Inc. and used by financial institutions
that originate home equity loans.
The maximum amount permitted to be under the credit line agreements
generally ranges from a minimum of $5,000 to a maximum of $250,000. For
combined loan-to-value ratios in excess of 80%, the credit limit is generally
limited to $50,000 and mortgage loans secured by third mortgages are limited
to a combined loan-to-loan value ratio of 80%. These limitations may be
exceeded if approval is obtained from a senior officer of Provident.
Provident requires a valuation on all mortgaged property that is security
for a loan. The mortgaged property used as collateral to secure the mortgage
loans may be either primary residential, including second and vacation homes,
or investor owned one- to four-family homes, planned unit developments, and
condominiums. Mobile housing, commercial, and agricultural land are not
accepted as collateral. In some cases, the mortgage loan may be secured by the
owner-occupied residence plus additional collateral.
Provident personnel decide whether property value will be determined by a
full appraisal, a drive-by appraisal, or an appraisal based on tax assessment
valuation. A drive-by appraisal consists of the appraiser reviewing
appropriate records concerning the tax valuation of the mortgaged property and
the recent sale prices of homes in the same neighborhood and an inspection of
the exterior of the mortgaged property. If the exterior inspection indicates
that the mortgaged property is well-maintained, the appraiser determines a
market value based upon the available records. If the exterior inspection
reveals signs of improper maintenance, Provident requires a full appraisal,
which includes an interior inspection of the mortgaged property. A
current-owner title search of the mortgaged property is also obtained by
Provident in addition to an appraisal. In connection with originating a
mortgage loan that is in a junior lien position, Provident typically assumes
that the first mortgage lender has obtained an ALTA title insurance policy
although Provident does not independently verify whether such title insurance
policy has been obtained. Provident generally does not require borrowers to
obtain title insurance.
Applicants are required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of any
outstanding first mortgage and the mortgage loan originated by Provident
exceeds replacement value, insurance equal to replacement value may be
accepted. Provident ensures that its name and address is properly added to the
mortgage clause of the insurance policy. If Provident's name is added to a
loss payee clause and the policy does not provide for written notice of policy
changes or cancellation, an endorsement adding that provision is obtained.
As a part of Provident's loan application process, each mortgage
applicant is typically required to provide personal financial information.
Applicants who are salaried employees may be required to provide current
employment information in addition to two recent years of employment history
and Provident may verify this information. Verifications are based on the two
most recent pay stubs, the two most recent years' W-2 tax forms, or the two
most recent years' complete federal income tax returns including schedules.
Self-employed applicants should be self-employed in the same field for a
minimum of two years. Self-employed applicants are typically required to
provide signed copies of complete federal income tax returns including
schedules filed for the most recent two years.
Credit reports are obtained from independent credit reporting agencies
reflecting each applicant's credit history. Credit reports should reflect all
delinquencies of 30 days or more, repossessions, judgements, foreclosures,
garnishments, bankruptcies, divorce actions, and other adverse credit events
that can be discovered by a search of public records. If the report is
obtained more than 60 days before the loan closing, Provident may obtain an
updated credit report to verify that the reported information has not changed.
Verification is obtained of any first mortgage balance if not reported in the
credit report.
Generally, applicants are required to have an acceptable credit history,
satisfactory employment history, and the level of income to debt obligations
to support the amount of the mortgage loan applied for taking into account the
value of the equity in the mortgaged property. The rescission period must have
expired before funding a loan. The rescission period may not be waived by the
applicant except as permitted by law.
[SERVICING OF THE MORTGAGE LOANS
The master servicer has established standard policies for the servicing
and collection of the home equity loans. Servicing includes:
o the collection and aggregation of payments relating to the
mortgage loans;
o the supervision of delinquent mortgage loans, loss mitigation
efforts, foreclosure proceedings, and, if applicable, the
disposition of mortgaged properties; and
o the preparation of tax related information in connection with the
mortgage loans.
Billing statements are mailed monthly by the master servicer. The
statement details all debits and credits and specifies the minimum payment due
and the available credit line. Notice of changes in the applicable loan rate
are provided by the master servicer to the mortgagor with the statements. All
payments are due by the fifteenth day of the month.
The general policy of the master servicer is to initiate foreclosure in
the underlying property after a mortgage loan is 75 days or more delinquent
and satisfactory arrangements cannot be made with the mortgagor or if a notice
of default on a senior lien is received by the master servicer. Foreclosure
proceedings may be terminated if the delinquency is cured. mortgage loans to
borrowers in bankruptcy proceedings may be restructured in accordance with law
and with a view to maximizing recovery on the mortgage loans, including any
deficiencies.
Once foreclosure is initiated by the master servicer, the foreclosure is
out-sourced to a law firm specializing in handling foreclosures. The
out-source agreement includes specific parameters to monitor whether
proceedings are progressing within the time frame typical for the state in
which the property is located. During the foreclosure proceeding, the master
servicer determines the amount of the foreclosure bid and whether to liquidate
the mortgage loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the master servicer may liquidate the mortgaged property and charge off
the home equity loan balance that was not recovered through liquidation
proceeds. If the mortgaged property was subject to a senior lien, the master
servicer will either directly manage the foreclosure sale of the property and
satisfy the senior lien at the time of sale or take other action deemed
necessary to protect the interest in the mortgaged property. If in the
judgment of the master servicer the cost of maintaining or purchasing the
senior lien position exceeds the economic benefit of doing that, the master
servicer will generally charge off the entire home equity loan and may seek a
money judgment against the borrower.
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the master servicer's
business judgment, changes in the portfolio, and applicable laws and
regulations.]
DELINQUENCY AND CHARGE-OFF EXPERIENCE
The following tables set forth Provident's delinquency and charge-off
experience on its servicing portfolio of home equity lines of credit similar
to and including the mortgage loans for the periods indicated. Provident has
serviced all of the mortgage loans, except for the Hunter mortgage loans,
since their origination. [The Hunter mortgage loans have been serviced by
Provident at all times since Provident's acquisition of Hunter in December
1991.] We cannot assure you that the delinquency and charge-off experience on
the mortgage loans will be consistent with the historical information provided
below. Accordingly, this information should not be considered to reflect the
credit quality of the mortgage loans included in the trust, or a basis of
assessing the likelihood, amount, or severity of losses on the mortgage loans.
The statistical data in the following tables are based on all of the [mortgage
loans][home equity lines of credit] in Provident's servicing portfolio.
Delinquency is calculated as a percentage of aggregate principal balance of
mortgage loans serviced for each period and would be higher than those shown
if a group of mortgage loans were artificially isolated at a point in time and
the information showed the activity only for that isolated group.
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the mortgage loans for
the ___ months ended _________, 199_, and the years ended December 31, 199_,
December 31, 199_, and December 31, 199_. The delinquency percentage in the
table represents the number and principal balance of mortgage loans with
monthly payments that are contractually past due. Mortgage loans for which the
related borrower has declared bankruptcy are not included in the delinquent
loans until they are delinquent pursuant to their repayment terms. And the
principal balance of loans currently in the process of foreclosure and loans
acquired through foreclosure or deed in lieu of foreclosure are included.
[All information to be updated]
DELINQUENCY EXPERIENCE OF THE MASTER SERVICER'S
PORTFOLIO OF HOME EQUITY LINES OF CREDIT
<TABLE>
<CAPTION>
YEAR ENDED ____ MONTHS ENDED
--------------------------------------------------------------------------------------- -------------------
(DOLLAR AMOUNTS IN 1,000S)
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ 30, 199_
------------------- ------------------- ------------------- ------------------- -------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
--------- ------- --------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio..... $ $ $ $
Delinquency
Percentage % % % %
30-59 days...
60-89........ % % % %
90 days or % % % %
more.........
TOTAL......... % % % % % %
</TABLE>
The following table sets forth information relating to the loan
charge-off experience of mortgage loans similar to and including the mortgage
loans for the ____ months ended ____________, 199_, and the years ended
December 31, 199_, December 31, 199_, and December 31, 199_. The average
portfolio balance during the period is the arithmetic average of the principal
balances of the mortgage loans outstanding on the first and last days of each
period, and has been rounded to the nearest $1,000. Charge-offs are amounts
that have been determined by Provident to be uncollectible relating to the
mortgage loans for each respective period and do not include any amount of
collections or recoveries received by Provident after charge-off dates.
Provident's policy regarding charge-offs provides that mortgaged properties
are reappraised when a mortgage loan has been delinquent for 180 days and
based upon those appraisals, a decision is then made concerning the amounts
determined to be uncollectible.
CHARGE-OFF EXPERIENCE OF THE MASTER SERVICER'S
PORTFOLIO OF HOME EQUITY LINES OF CREDIT
<TABLE>
<CAPTION>
YEAR ENDED ____ MONTHS ENDED
----------------------------------------------------------------------------- -----------------
DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ DECEMBER 31, 199_ ___________, 199_
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Average Portfolio $ $ $ $
Balance .......
Charge-Offs ........ $ $ $ $
Charge-Offs as a % % % % %
of Average
Portfolio
Balance............
</TABLE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
All statistical information concerning the mortgage loans is based on all
of the mortgage loans included in the trust. All weighted averages and
percentages of totals are weighted or based on the basis of the Cut-Off Date
pool principal balance included in the trust unless otherwise indicated.
Approximately ____% of the mortgage loans are fixed rate closed-end home
equity loans evidenced by promissory notes. Approximately ____% of the
mortgage loans are adjustable rate revolving home equity lines of credit.
All mortgage loans were originated between _________ and ____________.
The aggregate Cut-Off Date principal balance of the mortgage loans was
$___________, which is equal to the aggregate principal balances of the
mortgage loans as of the close of business on December 1, 1998 (the Cut-Off
Date). Approximately ____% of the mortgage loans were secured by a first
mortgage on the related mortgaged property, ____% of the mortgage loans were
secured by second mortgages, and ___% of the mortgage loans were secured by
third mortgages. No mortgage loan had a combined loan-to-value ratio greater
than 100%.
As of the Cut-Off Date, all of the mortgage loans were secured by
mortgaged properties that are one- to four-family residences. As of the
Cut-Off Date, ___% of the mortgage loans were secured by mortgaged properties
that are owner-occupied, and ___% of the mortgage loans were secured by
non-owner occupied mortgaged properties. Approximately ____%, ____%, and ____%
of the mortgage loans were secured by mortgaged properties in Ohio, Kentucky,
and New Hampshire, respectively. Approximately ____% of the mortgage loans
were contractually delinquent 30 days or more. No mortgage loan was delinquent
more than 60 days.
The minimum principal balance of the revolving credit-line loans as of
the Cut-Off Date was $_______, the maximum principal balance of the revolving
credit-line loans as of the Cut-Off Date was $__________, and the average
principal balance of the revolving credit-line loans as of the Cut-Off Date
was $________. As of the Cut-Off Date, the rate at which interest accrues on
the revolving credit-line loans ranged from ______% per annum to _____% per
annum, and the weighted average interest rate on the mortgage loan was ____%
per annum. The average Credit Limit Utilization Rate of the revolving
credit-line loans was ____% as of the Cut-Off Date. The weighted average
combined loan-to-value ratio of the revolving credit-line loans was ___% as of
the Cut-Off Date and the weighted average junior mortgage ratio of the
revolving credit-line loans was approximately ____%. This last weighted
average is computed by dividing the sum of the greater of the credit limit and
the Cut-Off Date principal balance for each revolving credit-line loan secured
by a junior lien by the sum of that sum of junior mortgage amounts plus the
outstanding balances at the time the revolving credit-line loan was originated
of all senior mortgage loans affecting each mortgaged property.
The combined loan-to-value ratio of each revolving credit-line loan is
the ratio of:
o the sum of;
o the greater of the credit limit and the current balance as of
the Cut-Off Date and
o the principal balance of any senior mortgage loan at the
origination of the mortgage loan, over
o the value of the related mortgaged property determined in the
origination of the mortgage loan determined on the basis of an
appraised value or other acceptable valuation method.
The combined loan-to-value ratio of each closed-end loan is the
ratio of:
o the sum of:
o the original principal balance of the closed-end loan at the
date of origination plus
o the remaining principal balance of any senior liens at the date
of origination of the closed-end loan
o divided by the value of the related mortgaged property, based on the
appraisal made at origination of the closed-end loan or other
acceptable valuation method.
The average "Credit Limit Utilization Rate" for the mortgage loans as of
the Cut-Off Date is determined by dividing the sum of the Cut-Off Date
principal balances of the mortgage loans by the sum of their credit limits.
MORTGAGE LOAN TERMS
Revolving Credit-Line Loans. The revolving credit-line loans were
originated pursuant to credit line agreements. Under the credit line
agreements, the borrowers may receive advances at any time during the draw
period. The minimum amount of any credit line draw that a borrower may receive
is $100. The maximum amount of each credit line draw on any revolving
credit-line loan is equal to the excess of its credit limit over its
outstanding principal balance at the time of the draw.
Approximately ____% of the mortgage loans have original terms of six
years, consisting of a draw period of one year and an amortization period of
five years. These are called one-year draw period loans. However, the draw
period under each credit line agreement for the one-year draw period loans
automatically renews for an unlimited number of successive terms of one year
each unless Provident notifies the borrower of its election to terminate its
obligation to make credit line draws. After the draw period has so ended, the
five-year amortization period begins, during which the borrower is obligated
to make equal monthly payments sufficient to amortize the mortgage loan fully
over its remaining term. Minimal monthly principal payments may be required
from the borrowers during the draw period, but those payments will not be
sufficient to amortize the mortgage loan fully during the draw period.
Provident has agreed in the sale and servicing agreement not to terminate its
obligation to fund credit line draws against any mortgage loan during the
48-month period beginning on the Closing Date, unless the borrower is in
default of any material obligation under its credit line agreement, the
appraised value of the related mortgaged property has declined significantly,
or Provident reasonably believes the borrower will be unable to fulfill its
payment obligations under the credit line agreement because of a material
change in the borrower's financial circumstances.
Approximately ___% of the mortgage loans have original terms of 20 years,
consisting of a draw period of 10 years and an amortization period of 10
years. These are called ten-year draw period loans. During the amortization
period, the borrower is obligated to make monthly payments equal to the sum of
1/120 of the unpaid balance of the mortgage loan at the end of the draw period
plus accrued finance charges. The interest rate on the mortgage loan for each
ten-year draw period loan adjusts monthly. Minimal monthly principal payments
may be required from the borrowers during the draw period, but those payments
will not be sufficient to amortize the mortgage loan fully during the draw
period.
The borrower's right to make a credit line draw under a revolving
credit-line loan may be suspended, or the credit limit may be reduced under a
number of circumstances, including a material adverse change in the borrower's
financial circumstances, a significant decline in the appraised value of the
mortgaged property, or a default by the borrower of any material obligation
under the credit line agreement. Generally, a suspension or reduction will not
affect the payment terms for previously drawn balances. If a default occurs
under a revolving credit-line loan, the right of the borrower to make a credit
line draw may be terminated and the entire outstanding principal balance of
the revolving credit-line loan may be declared immediately due and payable. A
default includes the borrower's failure to make any payment as required, any
action or inaction by the borrower that adversely affects the mortgaged
property or the rights in the mortgaged property, or any fraud or material
misrepresentation by the borrower in connection with the revolving credit-line
loan. The credit limit may also be increased on completion of a satisfactory
underwriting review.
Interest, or the finance charge, accrues on each revolving credit-line
loan, payable monthly, on the related average daily outstanding principal
balance for each billing cycle at the stated interest rate on the mortgage
loan. The interest rate on the mortgage loan for each billing cycle is
adjusted quarterly except for the ten-year draw period loans which are
adjusted monthly. The interest rate is equal to the prime rate based index on
the last day of the most recently ended March, June, September, or December
(or, for the ten-year draw period loans, the twentieth day of the prior month)
plus a fixed percentage amount. The fixed percentage amount is the interest
rate spread specified in the related credit line agreement, computed on the
basis of a 365 day year times actual days elapsed. The billing cycle for each
revolving credit-line loan is the calendar month preceding each payment due
date. The payment due date under each revolving credit-line loan is the
twentieth day of each month.
The finance charge accrued each month on each revolving credit-line loan
is an index rate calculated based on the prime rate as published in the "Money
Rates" table in The Wall Street Journal on the related interest rate
adjustment date. The interest rate spread for the revolving credit-line loans
as of the Cut-Off Date ranged from ___% to ____%. The weighted average
interest rate spread as of the Cut-Off Date for the revolving credit-line
loans was ___%. Substantially all of the revolving credit-line loans are
subject to a maximum interest rate on the mortgage loan of at least __% per
annum. The revolving credit-line loans have a minimum interest rate on the
mortgage loan equal to the greater of zero and the interest rate spread. No
revolving credit-line loan is subject to a periodic rate cap.
Payments on each revolving credit-line loan are generally required to be
applied first, to any unpaid finance charges and second, to the principal
balance outstanding on the mortgage loan.
Revolving credit-line loans originated in August 1994 or later are
subject to a $250 termination fee to the extent the related borrower prepays
the loan within either a two or five year period following origination, as
indicated in the related credit line agreement.
Closed-End Loans. All of the closed-end loans bear interest at rates that
are fixed and are evidenced by promissory notes secured by deeds of trust or
mortgages on the related mortgaged properties. The closed-end loans provide
that interest is charged to the borrowers, and payments are due from the
borrowers, on a scheduled day of each month, which is fixed at the time of
origination. Interest is computed on the simple interest basis and charged to
the borrower on the outstanding principal balance of the related closed-end
loan based on the number of days elapsed between the date through which
interest was last paid, through receipt of the borrower's most current monthly
payment. The portions of each monthly payment that are allocated to interest
and principal are adjusted based on the actual amount of interest charged on
that basis. Interest accrues during the calendar month preceding each payment
due date, computed on the basis of a 365 day year times actual days elapsed if
the closed-end loan is an adjustable loan, or a 360 day year of twelve 30-day
months if the closed-end loan is a fixed-rate loan.
Approximately __% of the closed-end loans bear interest at an interest
rate based on the index rate plus an interest rate spread, adjusted quarterly.
The interest rate adjustment date for those loans is the twentieth day of
March, June, September, or December. The monthly payment is adjusted on each
interest rate adjustment date to an amount sufficient to amortize the mortgage
loan fully over its remaining term. The interest rate spread for the
adjustable rate closed-end loans as of the Cut-Off Date ranged from ___% to
___%. The weighted average interest rate spread as of the Cut-Off Date for the
adjustable rate closed-end loans was __%. Substantially all of the adjustable
rate closed-end loans are subject to a maximum interest rate on the mortgage
loan of at least ___% per annum. The adjustable rate closed-end loans have a
minimum interest rate on the mortgage loan equal to the interest rate spread.
No adjustable rate closed-end loan is subject to a periodic rate cap.
MORTGAGE LOAN POOL STATISTICS
Provident has computed the following additional information as of the
Cut-Off Date with respect to the mortgage loans to be included in the trust.
The following tables are based on the Cut-Off Date principal balances of all
mortgage loans.
COMBINED LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
Percent of
Pool by Cut-Off
Combined Number of Cut-Off Date Date
Loan -to-Value Ratios Mortgage Loans Principal Balance Principal Balance
--------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
0.000% ......................................
0.001 to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
______ to ______................................
Total........................................... $ 100.00%
=== =========== ======
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
PERCENT OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
LIEN PRIORITY MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1..........................................
2..........................................
3..........................................
Unknown....................................
Total................................. $ 100.00%
=== ====== ======
</TABLE>
PROPERTY TYPE
<TABLE>
<CAPTION>
PERCENT OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
1- to 4-Family............................. ___ $______ %
--- -------
Total................................. ___ $______ 100.00%
=== ======= ======
</TABLE>
OWNER OCCUPANCY STATUS
<TABLE>
<CAPTION>
PERCENT OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
OWNER OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
Owner Occupied.............................
Non-Owner Occupied.........................
Unknown.................................... __ ______ __
Total................................. ___ $_________ 100.00%
=== ========== ======
</TABLE>
<PAGE>
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
PERCENT OF POOL BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
OWNER OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
_________________..........................
_________________..........................
_________________..........................
Total................................. ___ $_____ 100.00%
=== ====== ======
</TABLE>
Geographic location is determined by the address of mortgaged property
securing each mortgage loan.
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
PERCENT
NUMBER OF CUT-OFF DATE BY CUT-OFF DATE
PRINCIPAL BALANCES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
$ 0.01 - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ - _________ ......................
_________ and greater .....................
Total............................. ___ $__________ 100.00%
=== =========== ======
</TABLE>
<PAGE>
REVOLVING CREDIT-LINE LOANS
CREDIT LIMITS
<TABLE>
<CAPTION>
NUMBER PERCENT
OF REVOLVING CUT-OFF DATE BY CUT-OFF DATE
CREDIT LIMITS CREDIT-LINE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
0.01 - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ - _________ ....................
_________ and greater ....................
Total............................... ____ $__________ 100.00%
==== =========== ======
</TABLE>
<PAGE>
REVOLVING CREDIT-LINE LOANS
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
NUMBER PERCENT
OF REVOLVING CUT-OFF DATE BY CUT-OFF DATE
CREDIT LIMIT UTILIZATION RATES CREDIT-LINE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
<_________%................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
Total......................... ____ $___________ 100.00%
</TABLE>
<PAGE>
LOAN AGE
<TABLE>
<CAPTION>
PERCENT
NUMBER OF CUT-OFF DATE BY CUT-OFF DATE
LOAN AGE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- -------- -------------- ----------------- -----------------
<S> <C> <C> <C>
0 months.............................
1- 12.................................
13-24.................................
25-36.................................
37-48.................................
49-60.................................
61-72.................................
73-84 ................................
85-96 ................................
97-108................................
109-120...............................
121-132 ..............................
Total............................ ____ $_________ 100.00%
==== ========== ======
</TABLE>
<PAGE>
LOAN RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENT BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
LOAN RATES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
_________ - _________%................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
Total........................... ____ $__________ 100.00%
</TABLE>
Each adjustable rate mortgage loan is subject to a minimum interest rate
on the mortgage loan equal to the greater of zero and the interest rate
spread.
<PAGE>
GROSS MARGIN FOR ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER PERCENT BY
OF REVOLVING CUT-OFF DATE CUT-OFF DATE
GROSS MARGIN CREDIT-LINE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
_________ - _________%................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
_________ - _________ ................
Total........................... ____ $________ 100.00%
==== ========= ======
</TABLE>
<PAGE>
MAXIMUM RATES FOR ADJUSTABLE RATE MORTGAGE LOANS
<TABLE>
<CAPTION>
NUMBER PERCENT BY
OF REVOLVING CUT-OFF DATE CUT-OFF DATE
MAXIMUM RATES CREDIT-LINE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
_____%.......................
_____ .......................
Total ................... _____ $_________ 100.00%
===== ======
</TABLE>
ORIGINATION YEAR
<TABLE>
<CAPTION>
PERCENT BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
ORIGINATION YEAR MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
198__ .......................
198__ .......................
198__ .......................
198__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
199__ .......................
Total................... ____ $_________ 100.00%
==== ========== ======
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
PERCENT BY
NUMBER OF CUT-OFF DATE CUT-OFF DATE
NUMBER OF DAYS DELINQUENT MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Current.......................
30 to 59......................
Total...................... _____ $_______ 100.00%
===== ======
</TABLE>
DESCRIPTION OF THE NOTES
The Provident Bank Home Equity Loan Trust 1999-__ will issue one class of
Home Equity Loan Asset-Backed Notes pursuant to the indenture to be dated as
of _________ __, 1999, between the trust and ________, as indenture trustee.
The trust will also issue the transferor interest pursuant to the terms of a
trust agreement to be dated as of _________ __, 1999, between the trust and
__________, as owner trustee. The notes will be secured by the assets of the
trust pursuant to the indenture. In addition, The Provident Bank, as
transferor, will enter into a sale and servicing agreement to be dated as of
_________ __, 1999 between The Provident Bank, as transferor, the trust, the
indenture trustee, and the master servicer. The indenture, the trust
agreement, and the sale and servicing agreement are sometimes collectively
referred to as the basic agreements. The forms of the basic agreements have
been filed as exhibits to the registration statement of which this prospectus
supplement and the prospectus are a part. The following summaries describe
various provisions of the basic agreements. The summaries do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the basic agreements. Wherever particular
sections or defined terms of the basic agreements are referred to, those
sections or defined terms are hereby incorporated by reference.
GENERAL
The notes will be issued in minimum denominations of $1,000 and multiples
of $1 in excess of $1,000, and will evidence specified undivided interests in
the trust. The property of the trust will consist of:
o each of the mortgage loans that from time to time are subject to the
sale and servicing agreement, including any credit line draws after
the Cut-Off Date;
o the mortgage files;
o collections on the mortgage loans received on and after the Cut-Off
Date, exclusive of payments of interest accrued on the mortgage
loans during ______, and payments to interest that were loans due
before and received after the Cut-Off Date;
o mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
o the collection account for the mortgage loan proceeds, the
distribution account, and the Spread Account; and
o the trust fund's limited financial guaranty insurance policy.
Definitive notes, if issued, will be transferable and exchangeable at the
corporate trust office of the indenture trustee, which will initially act as
note registrar. See "Book-Entry Notes." No service charge will be made for any
registration of exchange or transfer of notes, but the indenture trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge.
The aggregate undivided interest in the trust represented by the notes as
of the Closing Date will equal $____________ , which represents ___% of the
Cut-Off Date pool principal balance. The original note principal balance will
equal $__________ , subject to a permitted variance in the aggregate of plus
or minus 5%. Following the Closing Date, the Invested Amount for any payment
date will be an amount equal to the original invested amount minus the amount
of Principal Collections previously distributed to noteholders, and minus an
amount equal to the product of the Investor Floating Allocation Percentage and
the Liquidation Loss Amounts [not allocated to the transferor interest]. The
principal amount of the outstanding notes on any payment date is equal to the
original note principal balance minus the aggregate of amounts actually
distributed as principal to the noteholders. See "-- Payments on the Notes."
Each note represents the right to receive payments of interest at the [note
rate] and payments of principal.
The Transferor will own the remaining undivided interest in the mortgage
loans-the transferor interest-which is equal to the pool principal balance
less the Invested Amount. The transferor interest will initially equal
$_________, which represents approximately __% of the Cut-Off Date pool
principal balance. The Transferor as of any date is whoever is the owner of
the transferor interest, which initially will be Provident. In general, the
pool principal balance will vary each day as principal is paid on the mortgage
loans, liquidation losses are incurred, credit line draws are drawn down by
borrowers, and mortgage loans are transferred to the trust.
The Transferor has the right to sell or pledge the transferor interest at
any time, if the rating agencies have notified the Transferor, the financial
insurance policy issuer, and the indenture trustee in writing that that action
will not result in the reduction or withdrawal of the ratings assigned to the
notes, the financial insurance policy issuer has consented in writing to the
transfer, and other conditions specified in the sale and servicing agreement
are satisfied.
BOOK-ENTRY NOTES
The notes will be book-entry notes. Persons acquiring beneficial
ownership interests in the notes may elect to hold their notes through The
Depository Trust Company in the United States, or Cedel or the Euroclear
System in Europe if they are participants of those systems, or indirectly
through organizations that are participants in those systems. Investors may
hold such beneficial interests in the book-entry notes in minimum
denominations representing note principal balances of $1,000 and in multiples
of $1 in excess thereof. Note owners will not be noteholders as that term is
used in the indenture. Note owners are only permitted to exercise their rights
indirectly through participants and DTC.
For information with respect to tax documentation procedures relating to
the notes, see "Federal Income Tax Consequences - Foreign Investors" and "--
Backup Withholding" and "Global Clearance, Settlement, and Tax Documentation
Procedures -- U.S. Federal Income Tax Documentation Requirements" in Annex I
to this prospectus supplement.
Payments on the book-entry notes will be made on each payment date by the
indenture trustee to DTC. DTC will be responsible for crediting the amount of
those payments to the accounts of the applicable DTC participants in
accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing those payments to the beneficial owners of the
book-entry notes that it represents and to each financial intermediary for
which it acts as agent. Each financial intermediary will be responsible for
disbursing funds to the beneficial owners of the book-entry notes that it
represents.
For further discussion about DTC, the European depositaries, and
book-entry procedures see "Description of the Securities--Book-Entry
Registration of Securities" in the prospectus.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the notes, Provident will transfer to the
trust fund all of its interests in each mortgage loan plus any additional
balances, the related credit line agreements, mortgages, and other related
documents, including all collections received on each mortgage loan after the
Cut-Off Date, exclusive of interest accrued on the mortgage loans in _____,
and of payments of accrued interest due on or before the Cut-Off Date. The
trust, concurrently with the transfer, will deliver or cause to be delivered
the notes to Provident and the transferor interest to the Transferor. Each
mortgage loan transferred to the trust will be identified on a schedule that
will be attached as an exhibit to the indenture. The loan schedule will
include information as to the Cut-Off Date principal balance of each mortgage
loan, as well as information about the interest rate on each mortgage loan.
If the Federal Deposit Insurance Company determines that the transfer of
the mortgage loans from Provident to the trust is fraudulent, it may avoid
that transfer even if the transfer occurred before the Federal Deposit
Insurance Company's appointment. The Federal Deposit Insurance Company may
also disaffirm or repudiate any of Provident's contracts. Because damages for
the repudiation or disaffirmance is limited by statute, the Federal Deposit
Insurance Company may require the indenture trustee to comply with its claims
procedures. Consequently, you may experience delays in or reductions on the
payments of your certificates. In addition, the Federal Deposit Insurance
Company may transfer Provident's rights and obligations under the sale and
servicing agreement and the property of the trust to a third party.
If the Federal Deposit Insurance Company abides by its statement in the
Statement of Policy Regarding the Treatment of Security Interests After
Appointment of the FDIC as Conservator or Receiver (dated March 31, 1993) and
if Provident meets other conditions, the Federal Deposit Insurance Company
will not avoid the security interest granted to the trust by Provident.
However, the Federal Deposit Insurance Company may require compliance with its
claims procedures and thus limit the amount recoverable from Provident. The
trust and the noteholders may become an unsecured creditor of Provident to the
extent that any claims allowed by the Federal Deposit Insurance Company were
not satisfied from the security property.
The basic agreements will permit Provident to maintain possession of the
related documents and some of the other documents relating to the mortgage
loans other than the mortgage notes and the assignments of each mortgage
securing a closed-end loan. Assignments of the related mortgages to the owner
trustee will not be required to be recorded for so long as the long-term
senior unsecured debt of Provident is rated at least _____ by each of
____________ and _____ and _____ by __________. If Provident's long-term
senior unsecured debt is not so rated, Provident will have 90 days to record
assignments of the mortgages for each mortgage loan in favor of the indenture
trustee and will have 60 days to deliver the part of the mortgage file it has
pertaining to each mortgage loan to the indenture trustee. However, the
recording of the assignments and delivery of the mortgage file will not be
required if opinions of counsel are delivered to and satisfactory to the
rating agencies and the financial insurance policy issuer to the effect that
recording the assignments or delivery of the mortgage file is not required in
the relevant jurisdiction to protect the interest of Provident and the trust
in the mortgage loans. In lieu of delivery of original documentation and only
to the extent the original documentation is unavailable, Provident may deliver
documents that have been imaged optically upon delivery of an opinion of
counsel to the rating agencies and the financial insurance policy issuer,
satisfactory to each, that failure to deliver those documents does not impair
the enforceability of the transfer to the trust of the mortgage loans and the
optical image of those documents are enforceable in the relevant jurisdictions
to the same extent as the original documents.
With respect to each closed-end loan, the indenture trustee will review
or cause to be reviewed the mortgage notes within 60 days of the Closing Date
and the assignments of each mortgage within 180 days of the Closing Date. If
mortgage assignments are required to be filed, then the indenture trustee will
review or cause to be reviewed the revolving credit-line loan mortgage files
within 60 days. If any [related document] is found to be defective in any
material respect and the defect is not cured within 90 days following
notification of the defect to Provident by the owner trustee, the trust, or
the financial insurance policy issuer, Provident will be obligated to accept
the transfer of the related mortgage loan from the trust. Upon that transfer,
the principal balance of the mortgage loan will be deducted from the pool
principal balance, thus reducing the amount of the transferor interest. If the
deduction would cause the transferor interest to become less than the Minimum
Transferor Interest at that time (a "Transfer Deficiency"), Provident will be
obligated either to substitute an eligible substitute mortgage loan or to
deposit (the "Transfer Deposit Amount") into the collection account for the
mortgage loan proceeds an amount equal to the Transfer Deficiency. Any such
deduction, substitution, or deposit, will be considered for the purposes of
the sale and servicing agreement a payment in full of the mortgage loan. Any
Transfer Deposit Amount will be treated as a Principal Collection. No such
transfer shall be considered to have occurred until the required deposit to
the collection account for the mortgage loan proceeds is actually made. The
obligation of Provident to accept a transfer of a defective mortgage loan is
the sole remedy regarding any defects in the mortgage file and related
documents available to the owner trustee, the indenture trustee, or the
noteholders.
Eligible substitute mortgage loans are mortgage loans substituted by
Provident for a defective mortgage loan that must, on the date of
substitution:
o have an aggregate outstanding principal balance not more than __%
more or less than the transfer deficiency of the defective mortgage
loan;
o have a weighted average interest rate not less than the interest
rate of the defective mortgage loan and not more than _% in excess
of the interest rate of the defective mortgage loan;
o have interest rates based on the same index with adjustments to the
interest rates made on the same interest rate adjustment date as
that of the defective mortgage loan;
o have an interest rate spread that is not less than the interest rate
spread of the defective mortgage loan and not more than ___ basis
points higher than the interest rate spread for the defective
mortgage loan;
o have a mortgage of the same or higher level of priority as the
mortgage relating to the defective mortgage loan;
o have a remaining term to maturity not more than ___ months earlier
and not more than __ months later than the remaining term to
maturity of the defective mortgage loan;
o comply with each representation and warranty as to the mortgage
loans in the pooling and servicing agreement as of the date of
substitution;
o in general, have an original combined loan-to-value ratio not
greater than that of the defective mortgage loan; and
o satisfy the other conditions specified in the sale and servicing
agreement.
To the extent the principal balance of an eligible substitute mortgage loan is
less than the related Transfer Deficiency, Provident will be required to
deposit to the collection account for the mortgage loan proceeds an amount
equal to the difference. Those deposits will be treated as Principal
Collections.
Provident will make representations and warranties as to the accuracy in
all material respects of information furnished to the owner trustee with
respect to each mortgage loan, e.g., Cut-Off Date principal balance and the
interest rate on the mortgage loan. In addition, Provident will represent and
warrant on the Closing Date that, among other things: at the time of transfer
to the trust, Provident has transferred or assigned all of its interest in or
granted a security interest in each mortgage loan and the related documents,
free of any lien (subject to specified exceptions) and 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 of those
representations and warranties that materially and adversely affects the
interests of the noteholders or the financial insurance policy issuer in the
related mortgage loan and its related documents, Provident will have a period
of 60 days after discovery or notice of the breach to effect a cure. If the
breach cannot be cured within the 60-day period, Provident will be obligated
to accept a transfer of the defective mortgage loan from the trust. The same
procedure and limitations that apply to the transfer of defective mortgage
loans will apply to the transfer of a mortgage loan that is required to be
transferred because of a breach of a representation or warranty in the sale
and servicing agreement that materially and adversely affects the interests of
the noteholders.
Mortgage loans required to be transferred to Provident as described in
the preceding paragraphs are referred to as defective mortgage loans.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the master servicer may change the terms of
the credit line agreements at any time if the changes do not adversely affect
the interest of the noteholders or the financial insurance policy issuer, and
are consistent with prudent business practice. In addition, the sale and
servicing agreement permits the master servicer, within specified limitations,
to increase or reduce the credit limit relating to a mortgage loan and to
reduce its interest rate spread.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
Subject to the conditions specified in the sale and servicing agreement,
on any payment date (the "Transfer Date") the Transferor may, but shall not be
obligated to, remove mortgage loans from the trust without notice to the
noteholders. The Transferor is permitted to randomly designate the mortgage
loans to be removed. Mortgage loans so designated will only be removed if the
conditions specified in the sale and servicing agreement are satisfied,
including:
(1) the transferor interest as of the Transfer Date after giving effect to
the removal exceeds the Minimum Transferor Interest;
(2) the Transferor has delivered to the indenture trustee and the financial
insurance policy issuer a mortgage loan schedule containing a list of all
mortgage loans remaining in the trust after the removal;
(3) the Transferor represents and warrants that no selection procedures that
the Transferor reasonably believes are adverse to the interests of the
noteholders or the financial insurance policy issuer were used by the
Transferor in selecting the mortgage loans;
(4) in connection with each retransfer of mortgage loans, the rating agencies
have been notified of the proposed transfer and before the Transfer Date
the rating agencies have notified the Transferor, the indenture trustee,
and the financial insurance policy issuer in writing that the transfer
will not result in a reduction or withdrawal of the ratings assigned to
the notes without regard to the trust fund's limited financial guaranty
insurance policy; and
(5) the Transferor has delivered to the indenture trustee and the financial
insurance policy issuer an officer's certificate confirming the
satisfaction of the conditions in clauses (1) through (3) above.
As of any date of determination, the Minimum Transferor Interest is an
amount equal to the lesser of 5% of the pool principal balance on that date
and the transferor interest as of the Closing Date.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND DISTRIBUTION
ACCOUNT
The master servicer shall establish and maintain in the name of the
indenture trustee a separate trust account for the benefit of the noteholders,
the financial insurance policy issuer, and the Transferor, as their interests
may appear. The collection account for the mortgage loan proceeds must satisfy
the conditions to be an eligible account. On their receipt by the master
servicer, the master servicer will deposit in the collection account all
amounts collected on the mortgage loans except amounts representing the
servicing fee. Not later than the eighteenth day of the calendar month of each
payment date, the master servicer will notify the indenture trustee of the
amount to be transferred to the distribution account. Amounts deposited in the
collection account may be invested in permitted investments maturing no later
than one business day before the date on which they are required to be
deposited in the distribution account.
The indenture trustee will establish the distribution account into which
will be deposited amounts withdrawn from the collection account for payment to
noteholders on a payment date. The distribution account will be an eligible
account. Amounts on deposit in it may be invested in permitted investments
maturing on or before the business day before their payment date. Net
investment earnings on the funds in the distribution account will be paid to
____________.
An eligible account is:
o an account that is maintained with a depository institution whose
debt obligations at the time of any deposit have the highest
short-term debt rating by the rating agencies,
o one or more accounts with a depository institution having a minimum
long-term unsecured debt rating of ____ by _______ and ____ by ___,
which accounts are fully insured by either the Savings Association
Insurance Fund or the Bank Insurance Fund of the Federal Deposit
Insurance Corporation,
o a segregated trust account maintained with the trustee or an
affiliate of the trustee in its fiduciary capacity, or
o otherwise acceptable to the financial insurance policy issuer and
each rating agency without reduction or withdrawal of their then
current ratings of the certificates as evidenced by a letter from
the financial insurance policy issuer and each rating agency to the
trustee.
Permitted investments are specified in the sale and servicing agreement
and are limited to investments that are acceptable to the financial insurance
policy issuer and meet the criteria of the rating agency from time to time as
being consistent with their then current ratings of the notes.
SIMPLE INTEREST EXCESS SUB-ACCOUNT
The sale and servicing agreement requires that the master servicer
establish and maintain in the name of the indenture trustee a sub-account of
the collection account for the mortgage loan proceeds (the "Simple Interest
Excess Sub-Account"), which must be an eligible account. The indenture trustee
will transfer to the Simple Interest Excess Sub-Account all Net Simple
Interest Excess.
"Net Simple Interest Excess" means as of any payment date, any excess of
the aggregate amount of Simple Interest Excess over the amount of Simple
Interest Shortfall. "Net Simple Interest Shortfall" means as of any payment
date, any excess of the aggregate amount of Simple Interest Shortfall over the
amount Simple Interest Excess.
"Simple Interest Shortfall" means, as of any payment date, any excess of
30 days' interest on the principal balance of all Simple Interest Qualifying
Loans at the interest rate on the mortgage loans, over the portion of the
monthly payment received on those mortgage loans allocable to interest for the
related collection period.
"Simple Interest Excess" means, as of any payment date, the excess of the
portion of the monthly payment received on all the Simple Interest Qualifying
Loans allocable to interest for the related collection period, over 30 days'
interest on the principal balance of those mortgage loans at the interest rate
on the mortgage loans.
A "Simple Interest Qualifying Loan" as of any determination date is any
mortgage loan that was not prepaid in full during the related collection
period and is not delinquent with respect to a payment that became due during
the related collection period as of the close of business on the determination
date following the related collection period.
The master servicer will withdraw amounts on deposit in the Simple
Interest Excess Sub-Account for deposit to the collection account for the
mortgage loan proceeds before each payment date to pay Net Simple Interest
Shortfalls.
All funds in the Simple Interest Excess Sub-Account may be invested in
permitted investments. So long as no event of servicing termination has
occurred and is continuing, any investment earnings on funds held in the
Simple Interest Excess Sub-Account are for the account of the master servicer.
Upon receipt of notification of a loss on investment in the Simple Interest
Excess Sub-Account, the master servicer that directed the investments shall
promptly remit the amount of the loss from its own funds to the Simple
Interest Excess Sub-Account.
ALLOCATIONS AND COLLECTIONS
All collections on the mortgage loans will generally be allocated in
accordance with the credit line agreements or the mortgage notes, as
applicable, between collections of interest and of principal. "Interest
Collections" for any payment date will be equal to the interest collected
during the related collection period, including the portion of net liquidation
proceeds allocated to interest under the credit line agreements or the
mortgage notes, as applicable, less servicing fees for the related collection
period and as adjusted for Simple Interest Shortfalls and Simple Interest
Excess. See "--Simple Interest Excess Sub-Account."
"Principal Collections" for any payment date will be equal to the sum of
any Transfer Deposit Amounts and the principal collected during the related
collection period, including the portion of net liquidation proceeds allocated
to principal under the credit line agreements or mortgage notes, as
applicable.
Liquidation proceeds are the proceeds received in the liquidation of any
mortgage loan, whether through trustee's sale, foreclosure sale, or otherwise.
But liquidation proceeds do not include any amounts drawn on the trust fund's
limited financial guaranty insurance policy. Net liquidation proceeds of a
mortgage loan are equal to the liquidation proceeds, reduced by related
expenses. But they do not include any portion of that amount that exceeds the
sum of the principal balance of the mortgage loan plus its accrued and unpaid
interest to the end of the collection period during which the mortgage loan
became a liquidated mortgage loan.
The portion of Interest Collections allocable to the notes ("Investor
Interest Collections") on any payment date will equal the product of Interest
Collections for that payment date and the Investor Floating Allocation
Percentage. The "Investor Floating Allocation Percentage" on any payment date
is a fraction determined by dividing the Invested Amount at the close of
business on the preceding payment date, or the Closing Date in the case of the
first payment date, by the pool principal balance at the beginning of the
related collection period. The remaining amount of Interest Collections will
be allocated to the transferor interest.
The indenture trustee will deposit any amounts withdrawn from the Spread
Account or drawn under the trust fund's limited financial guaranty insurance
policy into the distribution account.
The pool principal balance on any date is equal to the aggregate of the
principal balances of all mortgage loans as of that date. The principal
balance of a liquidated mortgage loan after final recovery of related
liquidation proceeds is zero. The principal balance of all other mortgage
loans on any day is equal to its Cut-Off Date principal balance plus any
credit line draws on it minus all collections credited against its principal
balance before that day.
The "Liquidation Loss Amount" on any liquidated mortgage loan is its
unrecovered principal balance during the collection period in which it became
a liquidated mortgage loan, after giving effect to the net liquidation
proceeds received on it. The "Investor Loss Amount" is the product of the
Investor Floating Allocation Percentage and the aggregate of the Liquidation
Loss Amounts for a payment date. A liquidated mortgage loan is any mortgage
loan in respect of which the master servicer has determined, based on the
servicing procedures specified in the sale and servicing agreement, as of the
end of the preceding collection period that all liquidation proceeds that it
expects to recover in the disposition of the related mortgaged property have
been recovered.
The collection period for any payment date is the calendar month
preceding it.
PAYMENTS ON THE NOTES
The first payment date will occur on _________ __, 1999. Beginning with
the first payment date, payments on the notes will be made by the indenture
trustee or the paying agent based upon aggregate information provided by the
master servicer on each payment date to the persons in whose names the notes
are registered at the close of business on the day before the payment date.
But if the notes are no longer book-entry notes, payment will be made to the
persons in whose names the notes are registered at the close of business on
the last day of the month preceding the payment date. The term payment date
means the twenty-fifth day of each month or the next business day if it is not
a business day. Payments will be made by check or money order mailed (or upon
the request of a noteholder owning notes having denominations aggregating at
least $1,000,000, by wire transfer or otherwise) to the address of the person
entitled to them (which, in the case of book-entry notes, will be DTC or its
nominee) as it appears on the note register. However, the final payment on the
notes will be made only upon their presentation and surrender at the office or
the agency of the indenture trustee specified in the notice to noteholders of
the final payment. For purposes of the basic agreements, a business day is any
day other than a Saturday or Sunday or a day on which the financial insurance
policy issuer or banking institutions in the States of Ohio, California or New
York are required or authorized by law to be closed.
Application of Interest Collections. On each payment date, the indenture
trustee or the paying agent will apply the Investor Interest Collections in
the following manner and order of priority:
(1) as payment to the indenture trustee for its fee for services
rendered pursuant to the sale and servicing agreement and as payment
to the owner trustee for its fee for services rendered pursuant to
the trust agreement;
(2) as payment for the premium for the trust fund's limited financial
guaranty insurance policy, and
(3) concurrently, as follows:
o to the noteholders, as payment for the accrued interest due on
the principal balance of the notes, and any overdue accrued
interest, with interest on overdue interest to the extent
permitted by law; and
o to the holder of the transferor interest, the amount to which
it is entitled in accordance with the sale and servicing
agreement, which will generally be equal to the amount accrued
on a notional balance equal to the note principal balance at a
rate equal to the excess of the Net WAC over the note rate;
However, if before giving effect to withdrawals from the Spread Account or
draws on the trust fund's limited financial guaranty insurance policy Investor
Interest Collections on a payment date are insufficient to make the payments
required to be made pursuant to clause (3), then Investor Interest Collections
will be allocated between its subclauses, pro rata, based on the amount
required to be paid pursuant to each subclause without giving effect to any
shortfall in Investor Interest Collections. If the amount on deposit in the
Spread Account has been depleted and the financial insurance policy issuer
fails to pay under the trust fund's limited financial guaranty insurance
policy, the amount payable pursuant to clause (2) above on any payment date
thereafter will be paid to the holder of the transferor interest after payment
of principal and interest due on the notes are made on that payment date.
Calculation of the Note Rate. Interest will be distributed on each
payment date at the note rate for the related interest period on the note
principal balance as of the first day of the interest period, reduced by any
shortfalls attributable to the Soldiers' and Sailors' Civil Relief Act of 1940
for the payment date. The note rate for a payment date will generally equal
the sum of LIBOR as of the second LIBOR business day before the preceding
payment date (or as of two LIBOR business days before the Closing Date, in the
case of the first payment date) plus ___% per annum. Notwithstanding the
foregoing, in no event will the amount of interest required to be distributed
on the notes on any payment date exceed the amount calculated at a rate (the
"Net WAC") equal to the weighted average of the interest rate on the mortgage
loans (net of the servicing fee rate, the fee payable to the indenture trustee
and the owner trustee (expressed as a rate), and the rate at which the premium
payable to the financial insurance policy issuer is calculated) weighted on
the basis of the daily balance of each mortgage loan during the calendar month
preceding the collection period relating to the payment date, or in the case
of the first payment date, the weighted average loan rate as of the Cut-Off
Date.
Interest on the notes for any payment date will accrue on the note
principal balance from the preceding payment date (or in the case of the first
payment date, from the date of the initial issuance of the notes (the "Closing
Date")) through the day preceding the payment date on the basis of the actual
number of days in the interest period and a 360-day year. Interest payments on
the notes will be funded from Investor Interest Collections and, if necessary,
from the trust fund's limited financial guaranty insurance policy pursuant to
its terms. Interest for any payment date due but not paid on the payment date
will be due on the next payment date together with additional interest on the
unpaid interest at a rate equal to the applicable note rate.
Calculation of the LIBOR Rate. On each distribution date, "LIBOR" shall
be established by the trustee and as to any interest period, LIBOR will equal
the rate for United States dollar deposits for one month that appears on
telerate screen page 3750 as of 11:00 A.M., London time, on the second LIBOR
business day before the first day of the interest period. Telerate screen page
3750 is the display designated as page 3750 on Bridge Telerate, Inc. (or any
other page that replaces page 3750 on that service for the purpose of
displaying London interbank offered rates of major banks). If that rate does
not so appear, or appear on a replacement service for displaying LIBOR or
comparable rates selected by Provident, 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 as of 11:00
A.M., London time, on the day that is two LIBOR business days before the
immediately preceding distribution date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the
principal amount of the certificates then outstanding. The reference banks
will be three major banks that are engaged in transactions in the London
interbank market, selected by Provident. 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 fewer than two quotations are
provided on that date as requested, the rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by
Provident as of 11:00 A.M., New York City time, on that date for loans in U.S.
Dollars to leading European banks for a period of one month in amounts
approximately equal to the principal amount of the certificates then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the prior distribution date. A LIBOR business day is any day other than a
Saturday or a Sunday or a day on which banking institutions in the State of
New York or in the city of London, England are required or authorized by law
to be closed.
Transferor Collections. Interest Collections allocable to the transferor
interest will be paid to the Transferor on each payment date. Principal
Collections allocable to the transferor interest will be distributed to the
Transferor only to the extent that the payment will not reduce the amount of
the transferor interest as of the related payment date below the Minimum
Transferor Interest. Amounts not distributed to the Transferor because of that
limitation will be retained in the collection account for the mortgage loan
proceeds until the transferor interest exceeds the Minimum Transferor
Interest, at which time the excess shall be released to the Transferor.
Payments of Principal Collections. For the period beginning on the first
payment date and, unless a Rapid Amortization Event has earlier occurred,
ending immediately after the payment date in ________, 200_ (the "Managed
Amortization Period"), the amount of Principal Collections payable to
noteholders as of each payment date during the Managed Amortization Period
will equal, to the extent funds are available therefor, the Scheduled
Principal Collections Payment Amount for the payment date. On any payment date
during the Managed Amortization Period, the "Scheduled Principal Collections
Payment Amount" shall equal the lesser of the Maximum Principal Payment and
the Alternative Principal Payment. The "Maximum Principal Payment" for any
payment date is equal to the product of the Investor Fixed Allocation
Percentage and Principal Collections for the payment date. The "Alternative
Principal Payment" for any payment date is equal to the amount of Principal
Collections for the payment date less the aggregate of credit line draws
created during the related collection period, but not less than zero. See
"--Termination; Retirement of the Notes."
Beginning with the first payment date following the end of the Managed
Amortization Period, the amount of Principal Collections payable to
noteholders on each payment date will be equal to the Maximum Principal
Payment.
Payments of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in payments of principal to noteholders in
amounts that are greater relative to the declining pool principal balance than
would be the case if the Investor Floating Allocation Percentage were used to
determine the percentage of Principal Collections distributed in respect of
the Invested Amount. Principal Collections not allocated to the noteholders
will be allocated to the transferor interest. The aggregate payments of
principal to the noteholders will not exceed the original note principal
balance.
In addition, to the extent of funds available therefor including funds
available under the trust fund's limited financial guaranty insurance policy,
on the payment date in __________, noteholders will be entitled to receive as
a payment of principal an amount equal to the outstanding note principal
balance.
The Paying Agent. Initially the paying agent is the indenture trustee.
The paying agent has the revocable power to withdraw funds from the
distribution account for the purpose of making payments to the noteholders.
THE SPREAD ACCOUNT
The sale and servicing agreement requires the master servicer to
establish in the name of the indenture trustee on the Closing Date and to
maintain a reserve account (the "Spread Account") for the benefit of the
financial insurance policy issuer and the noteholders. On the Closing Date,
the indenture trustee will make a deposit to the Spread Account, as specified
in the sale and servicing agreement. No additional deposits will be required
to be made to the Spread Account.
On any payment date before giving effect to any draw on the trust fund's
limited financial guaranty insurance policy, amounts on deposit in the Spread
Account will be available to make any of the following payments on the trust
fund's limited financial guaranty insurance policy in the following order of
priority:
o to the noteholders, any Insured Payment required to be made on the
payment date;
o to the noteholders, the Investor Loss Amount for the payment date or
unreimbursed Investor Loss Amounts from a previous payment date;
o to reimburse the financial insurance policy issuer for prior draws
made under the trust fund's limited financial guaranty insurance
policy, with interest; and
o to pay any other amounts owed to the financial insurance policy
issuer pursuant to the insurance agreement.
The sale and servicing agreement permits reduction of the amount on
deposit in the Spread Account. Any reduction in the Spread Account will be
dependent on the delinquency and loss performance of the mortgage loans. The
maximum amount required to be on deposit at any time in the Spread Account is
the "Spread Account Requirement."
The amounts on deposit in the Spread Account in excess of the Spread
Account Requirement will be distributed to the Transferor. The Transferor will
not be required to refund any amounts previously and properly distributed to
it, regardless of whether there are sufficient funds on a subsequent payment
date to make a full payment to the holders of the notes on that payment date.
Funds credited to the Spread Account may be invested in permitted investments
or other investments specified in the sale and servicing agreement that are
scheduled to mature on or before the next payment date. The Spread Account
shall be an eligible account.
The Spread Account may be terminated or other assets, including mortgage
loans such as the mortgage loans or a guarantee of Provident or a letter of
credit issued on behalf of Provident, may be substituted for some or all of
the assets held in the Spread Account if the financial insurance policy issuer
and the rating agencies consent to such action and the then current ratings of
the notes assigned by the rating agencies are not lowered as a result.
RAPID AMORTIZATION EVENTS
The Managed Amortization Period will continue through the payment date in
__________, unless a Rapid Amortization Event occurs before that date, in
which case the Rapid Amortization Period will commence before that date. The
"Rapid Amortization Period" is the period commencing on the earlier of the end
of the Managed Amortization Period and the day on which a Rapid Amortization
Event occurs and concluding on the later of termination of the trust and all
amounts due and owing to the financial insurance policy issuer and the
noteholders have been paid. "Rapid Amortization Event" refers to any of the
following events:
(1) failure on the part of Provident to make a payment or deposit required
under the basic agreements or to observe or perform in any material
respect any other covenants or agreements of Provident in the basic
agreements, which failure continues unremedied for a period of 30 days
after written notice;
(2) any representation or warranty made by Provident in the basic agreements
proves to have been incorrect in any material respect when made and
continues to be incorrect in any material respect for a period of 30 days
after written notice and as a result of which the interests of the
noteholders or the financial insurance policy issuer are materially and
adversely affected; however, a Rapid Amortization Event shall not occur
with respect to a breach of representation and warranty relating to a
mortgage loan if Provident has purchased or made a substitution for the
related mortgage loans during the 30-day period (or within an additional
60 days, with the consent of the indenture trustee and the financial
insurance policy issuer) in accordance with the sale and servicing
agreement;
(3) the occurrence of events of bankruptcy, insolvency, or receivership
relating to Provident;
(4) the trust becomes subject to regulation by the Securities and Exchange
Commission as an investment company within the meaning of the Investment
Company Act, of 1940, as amended; or
(5) the aggregate of all draws under the trust fund's limited financial
guaranty insurance policy exceeds 1% of the Cut-Off Date pool principal
balance.
In the case of any event described in clause (1) or (2), a Rapid
Amortization Event will occur only if, after the applicable grace period,
either the indenture trustee or noteholders holding notes evidencing more than
51% of the percentage interests, in either case, with the consent of the
financial insurance policy issuer, or the financial insurance policy issuer
(so long as there is no default by the financial insurance policy issuer in
the performance of its obligations under the trust fund's limited financial
guaranty insurance policy) by written notice to the Transferor and the master
servicer (and to the indenture trustee, if given by the noteholders) declare
that a Rapid Amortization Event has occurred as of the date of the notice. In
the case of any event described in clause (c), (d), or (e) a Rapid
Amortization Event will occur without any notice or other action on the part
of the indenture trustee, the financial insurance policy issuer, or the
noteholders immediately on the occurrence of the event.
In addition, if the Transferor voluntarily files a bankruptcy petition or
goes into liquidation or any person is appointed a receiver or bankruptcy
trustee of the Transferor, on the day of any such filing or appointment no
further credit line draws will be transferred to the trust, the Transferor
will immediately cease to transfer credit line draws to the trust, and the
Transferor will promptly give notice to the indenture trustee and the
financial insurance policy issuer of any such filing or appointment.
Notwithstanding the foregoing, if a conservator or trustee-in-bankruptcy
is appointed for the Transferor and no Rapid Amortization Event exists other
than the conservatorship, receivership, or insolvency of the Transferor, the
conservator or receiver may have the power to prevent the commencement of the
Rapid Amortization Period or the sale of mortgage loans.
THE POLICY
The following information has been supplied by the financial insurance
policy issuer for inclusion in this prospectus supplement. Accordingly,
Provident does not make any representation as to the accuracy and completeness
of this information.
The financial insurance policy issuer, in consideration of the payment of
the premium and subject to the terms of the trust fund's limited financial
guaranty insurance policy, thereby unconditionally and irrevocably guarantees
to any owner that an amount equal to each full and complete Insured Payment
will be received by the indenture trustee, or its successor, as trustee for
the __________, on behalf of the owners from the financial insurance policy
issuer, for distribution by the indenture trustee to each owner of each
owner's proportionate share of the Insured Payment. The financial insurance
policy issuer's obligations under the trust fund's limited financial guaranty
insurance policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the indenture trustee, whether or not they are properly applied by
the indenture trustee. Insured Payments shall be made only at the time set
forth in the trust fund's limited financial guaranty insurance policy and no
accelerated Insured Payments shall be made regardless of any acceleration of
the notes, unless the acceleration is at the sole option of the financial
insurance policy issuer.
Notwithstanding the foregoing paragraph, the trust fund's limited
financial guaranty insurance policy does not cover any shortfalls attributable
to the liability of the trust or the indenture trustee for any withholding
taxes, including interest and penalties regarding them.
The financial insurance policy issuer will pay any Insured Payment that
is a preference amount on the business day following receipt on a business day
by the fiscal agent of:
o a certified copy of the order requiring the return of a preference
payment,
o an opinion of counsel satisfactory to the financial insurance policy
issuer that the order is final and not subject to appeal,
o an assignment in the form reasonably required by the financial
insurance policy issuer, irrevocably assigning to the financial
insurance policy issuer all rights of the owner relating to the
notes against the debtor that made the preference payment or
otherwise with respect to the preference payment, and
o appropriate instruments to effect the appointment of the financial
insurance policy issuer as agent for the owner in any legal
proceeding related to the preference payment, those instruments
being in a form satisfactory to the financial insurance policy
issuer.
If these documents are received after 12:00 NOON, New York City time, on a
business day, they will be considered to be received on the following business
day. The payments will 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 the owner has returned principal or
interest paid on the notes to the receiver or trustee in bankruptcy, in which
case the payment shall be disbursed to the owner.
The financial insurance policy issuer will pay any other amount payable
under the trust fund's limited financial guaranty insurance policy no later
than 12:00 NOON, New York City time, on the later of the payment date on which
the related Deficiency Amount is due or the third business day following
receipt in New York, New York on a business day by State Street Bank and Trust
Company, N.A., as fiscal agent for the financial insurance policy issuer or
any successor fiscal agent appointed by the financial insurance policy issuer
of a notice. If the notice is received after 12:00 NOON, New York City time,
on a business day, it will be considered to be received on the following
business day. If any notice received by the fiscal agent is not in proper form
or is otherwise insufficient for the purpose of making a claim under the trust
fund's limited financial guaranty insurance policy, it shall be considered not
to have been received by the fiscal agent for purposes of this paragraph, and
the financial insurance policy issuer or the fiscal agent, as the case may be,
shall promptly so advise the indenture trustee, and the indenture trustee may
submit an amended notice.
Insured Payments due under the trust fund's limited financial guaranty
insurance policy will be disbursed by the fiscal agent to the indenture
trustee on behalf of the owners by wire transfer of immediately available
funds in the amount of the Insured Payment less, in respect of Insured
Payments related to preference amounts, any amount held by the indenture
trustee for the payment of such Insured Payment and legally available
therefor.
The fiscal agent is the agent of the financial insurance policy issuer
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 financial insurance policy
issuer to deposit or cause to be deposited, sufficient funds to make payments
due under the trust fund's limited financial guaranty insurance policy.
As used in the trust fund's limited financial guaranty insurance policy,
the following terms shall have the following meanings:
"Deficiency Amount" means for any payment date the sum of the Guaranteed
Principal Amount plus the excess of Investor Interest for the payment date
plus any Investor Interest due on the notes from prior periods over Investor
Interest Collections on deposit in the distribution account available to be
distributed on the payment date.
"Guaranteed Principal Amount" means on [the final payment date], the
outstanding note principal balance after giving effect to all other payments
made that day, and on any other payment date the amount by which the note
principal balance exceeds the Invested Amount as of that payment date after
giving effect to all payments made that day.
"Insured Payment" means any Deficiency Amount on any payment date and
also at any time any amount previously distributed to an owner on the notes
that is recoverable and sought to be recovered as an avoidable preference by a
trustee in bankruptcy pursuant to the United States Bankruptcy Code (11
U.S.C.), as amended from time to time in accordance with a final nonappealable
order of a court having competent jurisdiction.
"Investor Interest" means, for any payment date, interest for the related
interest period at the applicable note rate on the note principal balance as
of the first day of the interest period after any payments made on that first
day, net of any interest shortfalls attributable to the Soldiers' and Sailors'
Civil Relief Act of 1940.
Any notice under the trust fund's limited financial guaranty insurance
policy or service of process on the fiscal agent or the financial insurance
policy issuer may be made at the fiscal agent's address or the financial
insurance policy issuer's address or any other address the financial insurance
policy issuer specifies in writing to the indenture trustee.
The notice address of the fiscal agent is 61 Broadway, 15th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or any
other address the fiscal agent specifies to the indenture trustee in writing.
The trust fund's limited financial guaranty insurance policy is not
cancelable for any reason. The premium on the trust fund's limited financial
guaranty insurance policy is not refundable for any reason including payment,
or provision being made for payment, before the maturity of the notes. The
insurance provided by the trust fund's limited financial guaranty insurance
policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
POOL FACTOR
The pool factor is a seven-digit decimal representing the proportion of
the note principal balance remaining outstanding, which the master servicer
computes monthly. On the Closing Date, the pool factor will be 1.0000000. See
"Description of the Notes--Payments on the Notes." Thereafter, the pool factor
will decline to reflect reductions in the related note principal balance
resulting from payments of principal on the notes.
Pursuant to the sale and servicing agreement, monthly reports concerning
the Invested Amount, the pool factor, and various other items of information
will be made available to the noteholders. In addition, within 60 days after
the end of each calendar year, beginning with the 1999 calendar year,
information for tax reporting purposes will be made available to each person
who has been a noteholder of record at any time during the preceding calendar
year. See "Description of the Notes--Book-Entry Notes" and "--Reports to
Noteholders."
MATURITY AND PREPAYMENT CONSIDERATIONS
The basic agreements, except as otherwise described in this prospectus
supplement, provide that the noteholders will be entitled to receive on each
payment date payments of principal, in the amounts described herein, until the
note principal balance is reduced to zero. During the Managed Amortization
Period, noteholders will receive amounts from Principal Collections based upon
the Investor Fixed Allocation Percentage subject to reduction. During the
Rapid Amortization Period, noteholders will receive amounts from Principal
Collections based solely on the Investor Fixed Allocation Percentage. Because
prior payments of Principal Collections to noteholders reduce the Investor
Floating Allocation Percentage but do not change the Fixed Allocation
Percentage, allocations of Principal Collections based on the Fixed Allocation
Percentage may result in payments of principal to the noteholders in amounts
that are, in most cases, greater relative to the declining balance of the
mortgage loans than would be the case if the Investor Floating Allocation
Percentage were used to determine the percentage of Principal Collections
distributed to noteholders. This is especially true during the Rapid
Amortization Period when the noteholders are entitled to receive Maximum
Principal Payment. In addition, to the extent of losses allocable to the
noteholders, noteholders may also receive as payment of principal the Investor
Floating Allocation Percentage of the amount of the losses either from the
Spread Account or draws under the trust fund's limited financial guaranty
insurance policy. The level of losses may therefore affect the rate of payment
of principal on the notes.
To the extent obligors make more draws than principal payments, the
transferor interest may grow. Because during the Rapid Amortization Period the
noteholders' share of Principal Collections is based upon the Investor Fixed
Allocation Percentage (without reduction), an increase in the transferor
interest due to additional draws may also result in noteholders receiving
principal at a greater rate than would otherwise occur if the Investor
Floating Allocation Percentage were used to determine the percentage of
Principal Collections distributed to noteholders. The sale and servicing
agreement permits the Transferor, at its option, but subject to the
satisfaction of conditions specified in the sale and servicing agreement, to
remove mortgage loans from the trust at any time during the life of the trust,
so long as after giving effect to the removal the transferor interest is not
less than the Minimum Transferor Interest. These removals may affect the rate
at which principal is distributed to noteholders by reducing the overall pool
principal balance and thus the amount of Principal Collections. See
"Description of the Notes--Optional Retransfers of Mortgage Loans to the
Transferor."
The prepayment experience of the mortgage loans will affect the weighted
average life of the notes.
We cannot predict the rate of prepayment on the mortgage loans. Provident
is not aware of any publicly available studies or statistics on the rate of
prepayment of this type of mortgage loans. Generally, home equity loans are
not viewed by borrowers as permanent financing. Accordingly, the mortgage
loans may experience a higher rate of prepayment than traditional first
mortgage loans. Because the revolving credit-line loans generally do not
amortize during the draw period, which in the case of the one-year draw period
loans may automatically renew for extended periods as described herein, rates
of principal payment on the mortgage loans will generally be slower than those
of traditional fully-amortizing first mortgages in the absence of prepayments
on the mortgage loans. The prepayment experience of the trust with respect to
the mortgage loans may be affected by a wide variety of factors, including
general economic conditions, prevailing interest rate levels, the availability
of alternative financing, homeowner mobility, the frequency and amount of any
future draws on the credit line agreements, and changes affecting the
deductibility for federal income tax purposes of interest payments on home
equity loans. Substantially all of the mortgage loans contain due-on-sale
provisions, and the master servicer intends to enforce those provisions,
unless 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 "Legal Aspects of Loans--Due-on-Sale Clauses" in the
prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the closed-end loans with
fixed interest rates is affected by prevailing market rates for mortgage loans
of a comparable term and risk level. When the market interest rate is below
the interest rate on a mortgage loan, mortgagors may have an increased
incentive to refinance their mortgage loans. Depending on prevailing mortgage
rates, the future outlook for market rates and economic conditions generally,
some mortgagors may sell or refinance mortgaged properties to realize their
equity in the mortgaged properties, to meet cash flow needs, or to make other
investments.
The yield to an investor who purchases the notes in the secondary market
at a price other than par will vary from the anticipated yield if the rate of
prepayment on the mortgage loans is actually different than the rate
anticipated by the investor at the time its notes were purchased.
Collections on the mortgage loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for the month, which, in the case of the revolving credit-line loans
may be zero, or as high as the entire outstanding principal balance plus
accrued interest and any fees and charges. Borrowers could fail to make
scheduled payments. Collections on the mortgage loans may vary due to seasonal
purchasing and payment habits of borrowers.
We cannot assure you about the level of prepayments that will be
experienced by the trust and you can expect that a portion of borrowers will
not prepay their mortgage loans to any significant degree. See "Description of
the Securities--Weighted Average Life of the Certificates" in the prospectus.
DESCRIPTION OF THE AGREEMENTS
The following summarizes some of the terms of the sale and servicing
agreement, the trust agreement, and the indenture. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the respective provisions of the sale and servicing agreement,
the trust agreement, and the indenture. Whenever particular defined terms in
the indenture are referred to, they are incorporated by reference into this
discussion. See "The Agreements" in the prospectus.
REPORTS TO NOTEHOLDERS
Concurrently with each payment to the noteholders, the master servicer
will forward to the indenture trustee for mailing to the noteholder and the
financial insurance policy issuer a statement setting forth among other items:
(1) the Investor Floating Allocation Percentage for the preceding
collection period;
(2) the amount being distributed to noteholders;
(3) the amount of interest included in the payment and the related note
rate;
(4) the amount, if any, of overdue accrued interest included in the
payment;
(5) the amount, if any, of the remaining overdue accrued interest after
giving effect to the payment;
(6) the amount, if any, of principal included in the payment;
(7) the amount, if any, of the reimbursement of previous Liquidation
Loss Amounts included in the payment;
(8) the amount, if any, of the aggregate unreimbursed Liquidation Loss
Amounts after giving effect to the payment;
(9) the servicing fee for the payment date;
(10) the Invested Amount and the note principal balance, each after
giving effect to the payment;
(11) the principal balance of the mortgages in the mortgage pool as of
the end of the preceding collection period;
(12) the number and aggregate principal balances of the mortgage loans as
to which the minimum monthly payment is delinquent for 30-59 days,
60-89 days, and 90 or more days, respectively, as of the end of the
collection period;
(13) the book value of any real estate that is acquired by the trust
through foreclosure or grant of deed in lieu of foreclosure; and
(14) the amount of any draws on the trust fund's limited financial
guaranty insurance policy.
In the case of information furnished pursuant to clauses (3) to (8) above
and the amount of interest included in (2), the amounts shall be expressed as
a dollar amount per note with a $1,000 denomination.
Each year commencing in 1999, the master servicer will be required to
forward to the indenture trustee a statement containing the information in
clauses (3), (4), and (6) above aggregated for the calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The master servicer will make reasonable efforts to collect all payments
called for under the mortgage loans and will, consistent with the sale and
servicing agreement, follow the collection procedures it follows from time to
time with respect to the home equity loans in its servicing portfolio
comparable to the mortgage loans. Consistent with this, 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,
if the arrangement is consistent with the master servicer's policies with
respect to the home equity mortgage loans it owns or services. In accordance
with the terms of the sale and servicing agreement, the master servicer may
consent under specified circumstances to the placing of a subsequent senior
lien on the property covered by a mortgage loan.
HAZARD INSURANCE
The master servicer shall maintain fire and hazard insurance with
extended coverage customary in the area where the mortgaged property is
located on the mortgaged properties relating to mortgage loans in an amount
that is at least equal to the lesser of the outstanding principal balance on
the mortgage loan and any related senior liens and the maximum insurable value
of the improvements securing the mortgage loan. Generally, if the mortgaged
property is in an area identified in the federal register by the Flood
Emergency Management Agency as Flood Zone A and the master servicer determines
that flood insurance is necessary in accordance with accepted mortgage
servicing practices of prudent lending institutions, the master servicer will
cause a flood insurance policy to be purchased with a generally acceptable
insurance carrier, in an amount representing coverage not less than the lesser
of the outstanding principal balance of the mortgage loan and any related
senior liens or the maximum amount of insurance available under the National
Flood Insurance Act of 1968, as amended. Any amounts collected by the master
servicer under any flood policies, other than amounts to be applied to the
restoration or repair of the mortgaged property, or to be released to the
borrower in accordance with customary mortgage servicing procedures, will be
deposited in the collection account for the mortgage loan proceeds, subject to
retention by the master servicer to the extent the amounts constitute
servicing compensation or to withdrawal pursuant to the sale and servicing
agreement.
If the master servicer obtains and maintains a blanket policy as provided
in the sale and servicing agreement insuring against fire and hazards of
extended coverage on all of the mortgage loans then, to the extent the 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 have satisfied
its obligations with respect to fire and hazard insurance coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The master servicer will foreclose on or otherwise comparably convert to
ownership mortgaged properties securing any mortgage loans that come into
default when, in accordance with applicable servicing procedures under the
sale and servicing agreement, no satisfactory arrangements can be made for the
collection of delinquent payments. In connection with foreclosure or other
conversion, the master servicer will follow the practices it deems appropriate
and as are in keeping with its general subordinate mortgage servicing
activities. 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, the foreclosure, correction, or restoration will increase net
liquidation proceeds. The master servicer will be reimbursed out of
liquidation proceeds for advances of its own funds as liquidation expenses
before any net liquidation proceeds are distributed to noteholders or the
Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The master servicer will receive from interest collections on mortgage
loans in each collection period a portion of the interest collections as a
monthly servicing fee in the amount equal to ____% per annum on the aggregate
principal balances of the mortgage loans as of the first day of the related
collection period, or as of the Cut-Off Date for the first collection period.
All assumption fees, late payment charges, and other fees and charges, to the
extent collected from borrowers, will be retained by the master servicer as
additional servicing compensation.
The master servicer will pay some ongoing expenses associated with the
trust and incurred by it in connection with its responsibilities under the
sale and servicing agreement. In addition, the master servicer will be
entitled to reimbursement for some of the expenses incurred by it in
connection with defaulted mortgage loans and in connection with the
restoration of mortgaged properties, such right of reimbursement being before
the rights of noteholders to receive any related net liquidation proceeds.
EVIDENCE AS TO COMPLIANCE
The sale and servicing agreement provides for delivery on or before May
31 in each year, beginning on May 31, 2000, to the indenture trustee, the
rating agencies, and the financial insurance policy issuer of an annual
statement signed by an officer of the master servicer to the effect that the
master servicer has fulfilled its material obligations under the sale and
servicing agreement throughout the preceding fiscal year, except as specified
in the statement.
MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The sale and servicing agreement provides that the master servicer may
not resign from its obligations under it, except in connection with a
permitted transfer of servicing, unless its obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently
carried on by it or its subsidiaries or affiliates or on the satisfaction of
the following conditions:
o the master servicer has proposed a successor master servicer to the
indenture trustee and the financial insurance policy issuer in
writing and the proposed successor master servicer is reasonably
acceptable to the indenture trustee;
o the rating agencies have confirmed to the indenture trustee and the
financial insurance policy issuer that the appointment of the
proposed successor master servicer as the master servicer will not
result in the reduction or withdrawal of the then current rating of
the notes; and
o the proposed successor master servicer is acceptable to the
financial insurance policy issuer.
No resignation will become effective until the indenture trustee or a
successor master servicer has assumed the master servicer's obligations under
the sale and servicing agreement.
The master servicer may perform any of its obligations under the sale and
servicing agreement through one or more subservicers or delegates, which may
be affiliates of the master servicer. Notwithstanding any such arrangement,
the master servicer will remain obligated to the indenture trustee, the owner
trustee, the noteholders, and the financial insurance policy issuer for the
master servicer's obligations under the sale and servicing agreement, without
any diminution of its obligations and as if the master servicer itself were
performing those obligations.
Any person into which, in accordance with the sale and servicing
agreement, Provident or the master servicer may be merged or consolidated or
any person resulting from any merger or consolidation to which Provident or
the master servicer is a party, or any person succeeding to the business of
Provident or the master servicer, will be the successor to the master servicer
under the sale and servicing agreement.
The sale and servicing agreement provides that the master servicer will
indemnify the trust, the indenture trustee, and the owner trustee against any
loss, liability, expense, damage, or injury suffered as a result of the master
servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans that are not in accordance with the sale
and servicing agreement. Upon an event of servicing termination resulting in
the assumption of servicing obligations by a successor master servicer, the
successor master servicer will indemnify the Transferor for any losses,
claims, damages, and liabilities of the Transferor as described in this
paragraph arising from the successor master servicer's actions or omissions.
The sale and servicing agreement provides that neither the Transferor nor the
master servicer nor their directors, officers, employees, or agents will be
under any other liability to the trust, the indenture trustee, the owner
trustee, the noteholders, or any other person for any action taken or for
refraining from taking any action pursuant to the sale and servicing
agreement. However, neither the Transferor nor the master servicer will be
protected against any liability that would otherwise be imposed by reason of
willful misconduct, bad faith, or gross negligence of the Transferor or the
master servicer in the performance of its duties under the sale and servicing
agreement or by reason of reckless disregard of its obligations under the sale
and servicing agreement. In addition, the sale and servicing agreement
provides that the master servicer will not be under any obligation to appear
in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under the sale and servicing agreement and that in
its opinion may expose it to any expense or liability. The master servicer
may, in its sole discretion, undertake any legal action that it deems
appropriate with respect to the sale and servicing agreement and the rights
and duties of the parties thereto and the interest of the noteholders and the
financial insurance policy issuer thereunder.
EVENTS OF SERVICING TERMINATION
Events of Servicing Termination will consist of:
(1) any failure by the master servicer to deposit in the collection
account for the mortgage loan proceeds any deposit required to be
made under the sale and servicing agreement;
(2) any failure by the master servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
sale and servicing agreement that, in each case, materially and
adversely affects the interests of the noteholders or the financial
insurance policy issuer and continues unremedied for 30 days after
the giving of written notice of that failure to the master servicer
by the indenture trustee, or to the master servicer and the
indenture trustee by the financial insurance policy issuer or
noteholders evidencing percentage interests aggregating not less
than 25%;
(3) events of insolvency, readjustment of debt, marshalling of assets
and liabilities, or similar proceedings relating to the master
servicer and actions by the master servicer indicating insolvency,
reorganization, or inability to pay its obligations; or
(4) the loss or delinquency tests in the sale and servicing agreement
are not met.
Under other circumstances, the indenture trustee shall, at the direction of
the financial insurance policy issuer, or may, with the consent of the
financial insurance policy issuer, or the holders of notes evidencing
percentage interests aggregating at least 51% of the note principal balance
may (with the consent of the financial insurance policy issuer so long as
there is no default by the financial insurance policy issuer in the
performance of its obligations under the trust fund's limited financial
guaranty insurance policy) deliver written notice to the master servicer
terminating all the rights and obligations of the master servicer under the
sale and servicing agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (1) or (2) above for a period of ten or 30 business
days, respectively, shall not constitute an event of servicing termination if
the delay or failure could not be prevented by the exercise of reasonable
diligence by the master servicer and the 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 sale and servicing
agreement and the master servicer shall provide the indenture trustee and the
noteholders prompt notice of its failure or delay, together with a description
of its efforts to perform its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an event of servicing termination remains unremedied, either
the indenture trustee shall at the direction of the financial insurance policy
issuer or may, with the consent of the financial insurance policy issuer, or
noteholders evidencing percentage interests aggregating at least 51% of the
note principal balance with the consent of the financial insurance policy
issuer, may terminate all of the rights and obligations of the master servicer
under the sale and servicing agreement and in the mortgage loans, whereupon
the indenture trustee will succeed to all the rights and obligations of the
master servicer under the sale and servicing agreement and will be entitled to
similar compensation arrangements. If the indenture trustee would be obligated
to succeed the master servicer but is unwilling or unable so to act, it may
appoint, or petition a court of competent jurisdiction for the appointment of,
a housing and home finance institution or other mortgage loan or home equity
loan master servicer with all licenses and permits required to perform its
obligations under the sale and servicing agreement and having a net worth of
at least $___________ and acceptable to the financial insurance policy issuer
to act as successor to the master servicer under the sale and servicing
agreement. Pending that appointment, the indenture trustee will be obligated
to act as master servicer unless prohibited by law. The successor will be
entitled to receive the same compensation that the master servicer would
otherwise have received, or such lesser compensation as the indenture trustee
and the successor may agree. A receiver or conservator for the master servicer
may be empowered to prevent the termination and replacement of the master
servicer where the only event of servicing termination that has occurred is an
insolvency event.
EVENTS OF DEFAULT UNDER THE INDENTURE
Events of default under the indenture include:
(1) a default in the payment of any interest or principal payment when
the same becomes due and payable and continuance of the default for
a period of five days;
(2) failure on the part of the trust to perform in any material respect
any covenant or agreement under the indenture not covered in clause
(1) that continues for a period of thirty days after notice of it is
given; and
(3) events of bankruptcy, insolvency, receivership, or liquidation of
the trust.
REMEDIES ON EVENT OF DEFAULT UNDER THE INDENTURE
If an event of default under the indenture has occurred and is
continuing, either the indenture trustee or the majority of the then
outstanding amount of the notes may declare the principal amount of the notes
due and payable immediately. The declaration of acceleration may be rescinded
by a majority of the then outstanding amount of the notes.
If the principal of the notes has been declared due and payable as
described in the preceding paragraph, the indenture trustee may elect not to
liquidate the assets of the trust if the assets are generating sufficient cash
to pay interest and principal as it becomes due and payable to the
noteholders.
However, the indenture trustee may not sell or otherwise liquidate the
assets of the trust following an event of default other than default for five
days in the payment of principal or interest, unless
o the holders of 100% of the notes and the financial insurance policy
issuer consent to the sale, or
o the proceeds of the sale or liquidation are sufficient to pay all
amounts due and owing to the noteholders and the financial insurance
policy issuer, or
o the trustee determines that the assets of the trust would not be
sufficient on an ongoing basis to make all payments on the notes as
they become due and payable and the trustee obtains the consent of
the holders of 66-2/3% of the percentage interests of the notes.
MATTERS REGARDING THE INDENTURE TRUSTEE AND THE OWNER TRUSTEE
Neither the indenture trustee nor any director, officer, or employee of
the indenture trustee will be under any liability to the trust or the
noteholders for taking any action or for refraining from the taking of any
action in good faith pursuant to the indenture, or for errors in judgment.
None of the indenture trustee or any of its directors, officers, or employees
will be protected against any liability that would otherwise be imposed on it
for willful malfeasance, bad faith, or negligence in the performance of its
duties or for its reckless disregard of its obligations under the indenture.
Subject to limitations in the indenture, the indenture trustee and any of its
directors, officers, employees, or agents will be indemnified by the trust
against any loss, liability, or expense incurred in connection with
investigating, preparing to defend, or defending any legal action, commenced
or threatened, relating to the indenture, other than any loss, liability, or
expense incurred due to its own willful malfeasance, bad faith, or negligence
in the performance of its duties under the indenture, or for its reckless
disregard of its obligations under the indenture. All persons into which the
indenture trustee may be merged or with which it may be consolidated, or any
person resulting from a merger or consolidation with it, will be the successor
to the indenture trustee under the indenture.
The owner trustee, the indenture trustee, and any of their respective
affiliates may hold notes in their own names or as pledgees. For the purpose
of meeting the legal requirements of jurisdictions, the master servicer, the
owner trustee, and the indenture trustee acting jointly (or in some instances,
the owner trustee or the indenture trustee acting alone) will have the power
to appoint co-trustees or separate trustees of all or any part of the trust.
Upon that appointment, all rights and obligations conferred or imposed on the
owner trustee by the sale and servicing agreement and the trust agreement and
the indenture trustee by the indenture will be conferred or imposed on the
owner trustee and the indenture trustee, respectively, and in each case the
separate trustee or co-trustee jointly, or, in any jurisdiction in which the
owner trustee or indenture trustee will be incompetent or unqualified to
perform acts, singly upon the separate trustee or co-trustee who will exercise
and perform the rights and obligations solely at the direction of the owner
trustee or the indenture trustee, respectively.
The indenture trustee may resign at any time, in which case the owner
trustee must appoint its successor. The owner trustee may resign at any time,
in which case the co-owner trustee must appoint a successor. The master
servicer may also remove the owner trustee or the indenture trustee if either
ceases to be eligible to continue as such under the trust agreement or the
indenture, as the case may be, or becomes legally unable to act or becomes
insolvent. Any resignation or removal of the owner trustee or indenture
trustee and appointment of its successor will not become effective until
acceptance of the appointment by the successor.
DUTIES OF THE OWNER TRUSTEE AND INDENTURE TRUSTEE
The owner trustee will make no representations as to the validity or
sufficiency of the trust agreement, the notes (other than their execution and
authentication), or of any mortgage loans or related documents, and will not
be accountable for the use or application by Provident or the master servicer
of any funds paid to Provident or the master servicer in respect of the notes,
or the mortgage loans, or the investment of any monies by the master servicer
before such monies are deposited into the collection account for the mortgage
loan proceeds or the distribution account. So long as no event of default has
occurred and is continuing, the owner trustee will be required to perform only
those duties specifically required of it under the trust agreement. Generally,
those duties will be limited to the receipt of the various certificates,
reports, or other instruments required to be furnished to the owner trustee
under the trust agreement, in which case it will only be required to examine
them to determine whether they conform to the requirements of the trust
agreement. The owner trustee will not be charged with knowledge of a failure
by the master servicer to perform its duties under the trust agreement or sale
and servicing agreement constituting an event of default unless the owner
trustee obtains actual knowledge of the failure.
The indenture trustee will make no representations as to the validity or
sufficiency of the indenture, the notes (other than their execution and
authentication), or of any mortgage loans or related documents, and will not
be accountable for the use or application by Provident or the master servicer
of any funds paid to Provident or the master servicer in respect of the notes
or the mortgage loans, or the use or investment of any monies by the master
servicer before such monies are deposited into the collection account for the
mortgage loan proceeds or the distribution account. So long as no event of
default has occurred and is continuing, the indenture trustee will be required
to perform only those duties specifically required of it under the indenture.
Generally, those duties will be limited to the receipt of the various
certificates, reports, or other instruments required to be furnished to the
indenture trustee under the indenture, in which case it will only be required
to examine them to determine whether they conform to the requirements of the
indenture. The indenture trustee will not be charged with knowledge of a
failure by the master servicer to perform its duties under the trust agreement
or sale and servicing agreement constituting an event of default unless the
indenture trustee obtains actual knowledge of the failure.
The indenture trustee will be under no obligation to exercise any of the
rights or powers vested in it by the indenture or to make any investigation of
matters arising under the indenture or to institute, conduct, or defend any
litigation under the indenture at the request, order, or direction of any of
the noteholders, unless the noteholders have offered to the indenture trustee
reasonable security or indemnity against the costs, expenses, and liabilities
that may be incurred therein or thereby.
AMENDMENT
Each of the basic agreements may be amended from time to time by the
master servicer and the indenture trustee and with the consent of the
financial insurance policy issuer, but without the consent of the noteholders,
to cure any ambiguity, to correct or supplement any of its provisions that may
be inconsistent with any of its other provisions, to add to the duties of the
Transferor or the master servicer, or to add or amend any provisions of the
basic agreement as required by the rating agencies to maintain or improve any
rating of the notes (it being understood that, after obtaining the ratings in
effect on the Closing Date, neither the trustee nor the master servicer is
obligated to obtain, maintain, or improve any such rating) or to add any other
provisions with respect to matters or questions arising under the basic
agreement that is not inconsistent with the provisions of the basic agreement
if the action will not, as evidenced by an opinion of counsel, materially and
adversely affect the interests of any noteholder or the financial insurance
policy issuer. An amendment will not be considered to materially and adversely
affect the noteholders and no opinion will be required to be delivered if the
person requesting the amendment obtains a letter from the rating agencies
stating that the amendment would not result in a downgrading of the then
current rating of the notes. Each of the basic agreements may also be amended
from time to time by the master servicer and the indenture trustee, with the
consent of noteholders evidencing percentage interests aggregating at least
51% of the note principal balance and the financial insurance policy issuer
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the sale and servicing agreement or of
modifying in any manner the rights of the noteholders, if the amendment will
not reduce in any manner the amount of, or delay the timing of, collections of
payments on the notes or payments under the trust fund's limited financial
guaranty insurance policy that are required to be made on any note without the
consent of the holder of the note and the financial insurance policy issuer or
reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the holders of all notes then outstanding.
TERMINATION; RETIREMENT OF THE NOTES
The trust will terminate on the payment date following the later of
payment in full of all amounts owing to the financial insurance policy issuer
and the earliest of:
o the payment date on which the note principal balance has been
reduced to zero,
o the final payment or other liquidation of the last mortgage loan in
the trust or the disposition of all property acquired upon
foreclosure or by deed in lieu of foreclosure of any mortgage loan,
o the optional transfer to the Transferor of the mortgage loans, and
o the payment date in ____________ 20___.
The mortgage loans will be subject to optional transfer to the Transferor
on any payment date after the note principal balance is reduced to an amount
less than 5% of the original note principal balance and all amounts due and
owing to the financial insurance policy issuer, including unreimbursed draws
on the trust fund's limited financial guaranty insurance policy, together with
interest on them, have been paid. The transfer price will be equal to the sum
of the outstanding note principal balance and its accrued and unpaid interest
at the note rate through the day preceding the final payment date. In no
event, however, will the trust created by the trust agreement continue for
more than 21 years after the death of the individuals named in the sale and
servicing agreement. Written notice of termination of the sale and servicing
agreement will be given to each noteholder, and the final payment will be made
only on surrender and cancellation of the notes at an office or agency
appointed by the indenture trustee that will be specified in the notice of
termination.
THE INDENTURE TRUSTEE
The Chase Manhattan Bank, a New York banking corporation with its
principal place of business in New York, has been named indenture trustee
pursuant to the sale and servicing agreement.
The commercial bank or trust company serving as indenture trustee may own
notes and have normal banking relationships with the master servicer and the
financial insurance policy issuer and their affiliates.
The indenture trustee may resign at any time, in which case Provident
will be obligated to appoint a successor indenture trustee, as approved by the
financial insurance policy issuer. Provident or the financial insurance policy
issuer may also remove the indenture trustee if the indenture trustee ceases
to be eligible to continue as such under the sale and servicing agreement or
if the indenture trustee becomes insolvent. On becoming aware of such
circumstances, Provident will be obligated to appoint a successor indenture
trustee, as approved by the financial insurance policy issuer. Any resignation
or removal of the indenture trustee and appointment of a successor indenture
trustee will not become effective until acceptance of the appointment by the
successor indenture trustee.
No holder of a note will have any right under the sale and servicing
agreement to institute any proceeding with respect to the sale and servicing
agreement unless the financial insurance policy issuer has consented in
writing to the institution of the proceeding and the holder previously has
given to the indenture trustee written notice of default and unless
noteholders evidencing percentage interests aggregating at least 51% of the
note principal balance have made written requests upon the indenture trustee
to institute the proceeding in its own name as indenture trustee under the
indenture and have offered to the indenture trustee reasonable indemnity and
the indenture trustee for 60 days has neglected or refused to institute the
proceeding. The indenture trustee will be under no obligation to exercise any
of the trusts or powers vested in it by the sale and servicing agreement or to
make any investigation of matters arising under it or to institute, conduct,
or defend any litigation under it at the request, order, or direction of any
of the noteholders, unless the noteholders have offered to the indenture
trustee reasonable security or indemnity against the costs, expenses, and
liabilities that may be incurred.
PROHIBITED ACTIVITIES
The trust will not:
o borrow money;
o make loans;
o invest in securities for the purpose of exercising control;
o underwrite securities;
o except as provided in the sale and servicing agreement, engage in
the purchase and sale or turnover of investments;
o offer securities in exchange for property, except notes for the
mortgage loans; or
o repurchase or otherwise reacquire its securities.
See "--Evidence as to Compliance" for information regarding reports as to
the compliance by the master servicer with the sale and servicing agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the notes will be
applied by Provident for its general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes some of the U.S. federal
income tax aspects of the purchase, ownership, and disposition of the notes,
is based on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury Regulations under the Code, and published rulings
and court decisions in effect as of the date of this prospectus supplement,
all of which are subject to change, possibly retroactively. This discussion
does not address every aspect of the U.S. federal income tax laws that may be
relevant to note owners in light of their personal investment circumstances or
to certain types of note owners subject to special treatment under the U.S.
federal income tax laws, for example, banks and life insurance companies.
Accordingly, investors are encouraged to consult their tax advisors regarding
U.S. federal, state, local, foreign, and any other tax consequences to them of
investing in the notes.
CHARACTERIZATION OF THE NOTES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
basic agreements and other relevant documents and assuming compliance with the
terms of the basic agreements as in effect on the date of issuance of the
notes, Brown & Wood LLP, special tax counsel to the trust ("Tax Counsel") and
counsel to the underwriters, is of the opinion that the notes will be treated
as debt instruments for federal income tax purposes as of that date and the
trust will not be characterized as an association (or publicly traded
partnership) taxable as a corporation or as a taxable mortgage pool within the
meaning of Section 7701 (i). Accordingly, on issuance, the notes will be
treated as "Debt Securities" as described in the prospectus. See "Federal
Income Tax Considerations" in the prospectus.
The Transferor and the noteholders express in the sale and servicing
agreement their intent that, for applicable tax purposes, the notes will be
indebtedness secured by the mortgage loans. The Transferor and the
noteholders, by accepting the notes, and each note owner by its acquisition of
a beneficial interest in a note, have agreed to treat the notes as
indebtedness for U.S. federal income tax purposes. However, because different
criteria are used to determine the non-tax accounting characterization of the
transaction, the Transferor intends to treat this transaction as a sale of an
interest in the principal balances of the mortgage loans for financial
accounting and certain regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service and the courts have
set forth several factors to be taken into account in determining whether the
substance of a transaction is a sale of property or a secured loan, the
primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property
and has obtained the benefits of its ownership. Tax Counsel has analyzed and
relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the mortgage loans has been retained by
the Transferor and has not been transferred to the note owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the notes as debt or otherwise
makes the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF NOTE OWNERS
Assuming that the note owners are holders of debt obligations for U.S.
federal income tax purposes, the notes generally will be taxable as Debt
Securities. See "Federal Income Tax Considerations" in the prospectus.
While it is not anticipated that the notes will be issued at a greater
than de minimis discount, under Treasury regulations (the "OID Regulations")
it is possible that the notes could nevertheless be deemed to have been issued
with original issue discount ("OID") if the interest were not treated as
unconditionally payable under the OID Regulations. If those regulations were
to apply, all of the taxable income to be recognized with respect to the notes
would be includible in income of note owners as OID, but would not be
includible again when the interest is actually received. See "Federal Income
Tax Considerations--Taxation of Debt Securities; Interest and Acquisition
Discount" in the prospectus for a discussion of the application of the OID
rules if the notes are in fact issued at a greater than de minimis discount or
are treated as having been issued with OID under the OID Regulations. For
purposes of calculating OID, it is likely that the notes will be treated as
Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE NOTES AS A PARTNERSHIP OR ASSOCIATION TAXABLE
AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that for purposes of the Code, the
transaction contemplated by this prospectus with respect to the notes
constitutes a sale of the mortgage loans, or an interest in them, to the note
owners and that the proper classification of the legal relationship between
the Transferor and the note owners resulting from this transaction is that of
a partnership (including a publicly traded partnership), a publicly traded
partnership treated as a corporation, or an association taxable as a
corporation. Since Tax Counsel has advised that the notes will be treated as
indebtedness in the hands of the noteholders for U.S. federal income tax
purposes, the Transferor will not attempt to comply with U.S. federal income
tax reporting requirements applicable to partnerships or corporations as those
requirements would apply if the notes were treated as indebtedness.
If it were determined that this transaction created an entity classified
as a corporation (including a publicly traded partnership taxable as a
corporation), the trust would be subject to U.S. federal income tax at
corporate income tax rates on the income it derives from the mortgage loans,
which would reduce the amounts available for payment to the note owners. Cash
payments to the note owners generally would be treated as dividends for tax
purposes to the extent of the corporation's earnings and profits. If the
transaction were treated as creating a partnership between the note owners and
the Transferor, the partnership itself would not be subject to U.S. federal
income tax, unless it were to be characterized as a publicly traded
partnership taxable as a corporation. Rather, the Transferor and each note
owner would be taxed individually on their respective distributive shares of
the partnership's income, gain, loss, deductions, and credits. The amount and
timing of items of income and deductions of the note owner could differ if the
notes were held to constitute partnership interests rather than indebtedness.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701 (i) of the Code provides that any entity,
or a portion of an entity, that is a taxable mortgage pool will be classified
as a taxable corporation and will not be permitted to file a consolidated U.S.
federal income tax return with another corporation. Subject to a grandfather
provision for existing entities, any entity, or a portion of any entity, will
be a taxable mortgage pool if:
o substantially all of its assets consist of debt instruments, more
than 50% of which are real estate mortgages,
o the entity is the obligor under debt obligations with two or more
maturities, and
o under the terms of the entity's debt obligations, or an underlying
arrangement, payments on the debt obligations bear a relationship to
the debt instruments held by the entity.
Assuming that all of the provisions of the basic agreements, as in effect
on the date of issuance, are complied with, Tax Counsel is of the opinion that
the arrangement created by the basic agreements will not be a taxable mortgage
pool under Section 7701 (i) of the Code because only one class of indebtedness
secured by the mortgage loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully, or future regulations were to provide,
that the arrangement created by the basic agreements is a taxable mortgage
pool, that arrangement would be subject to U.S. federal corporate income tax
on its taxable income generated by ownership of the mortgage loans. Such a tax
might reduce amounts available for payments to note owners. The amount of such
a tax would depend upon whether payments to note owners would be deductible as
interest expense in computing the taxable income of such an arrangement as a
taxable mortgage pool.
FOREIGN INVESTORS
In general, subject to exceptions, interest, including OID, paid on a
note to a nonresident alien individual, foreign corporation, or other
non-United States person is not subject to U.S. federal income tax, if the
interest is not effectively connected with a trade or business of the
recipient in the United States and the note owner provides the required
foreign person information certification. See "Federal Income Tax
Considerations--Tax Treatment of Foreign Investors" in the prospectus.
If the interests of the note owners were considered to be partnership
interests, the partnership, if it were considered to be engaged in a U.S.
trade or business, would be required, on a quarterly basis, to pay withholding
tax equal to the product, for each foreign partner, of the foreign partner's
distributive share of effectively connected income of the partnership
multiplied by the highest rate of tax applicable to that foreign partner. In
addition, the foreign partner would be subject to branch profits tax. Each
non-foreign partner would be required to certify to the partnership that it is
not a foreign person. The tax withheld from each foreign partner would be
credited against the foreign partner's U.S. income tax liability.
If the trust were taxable as a corporation, payments to foreign persons,
to the extent treated as dividends (or if the trust were characterized as a
partnership that was not engaged in a trade or business, all interest
payments), would generally be subject to withholding at the rate of 30%,
unless that rate were reduced by an applicable tax treaty.
If, contrary to the opinion of Tax Counsel, the notes are recharacterized
as equity interests in a partnership, or in an association or publicly traded
partnership taxable as a corporation, any taxes required to be so withheld
will be treated for all purposes of the notes and the trust fund's limited
financial guaranty insurance policy as having been paid to the related
noteholder.
BACKUP WITHHOLDING
Some note owners may be subject to backup withholding at the rate of 31%
with respect to interest paid on the notes if the note owners, upon issuance,
fail to supply the indenture trustee or their brokers with their taxpayer
identification numbers, furnish incorrect taxpayer identification numbers,
fail to report interest, dividends, or other reportable payments (as defined
in the Code) property, or, under some circumstances, fail to provide the
indenture trustee or their brokers with a certified statement, under penalty
of perjury, that they are not subject to backup withholding.
The indenture trustee will be required to report annually to the IRS, and
to each noteholder of record, the amount of interest paid (and OID accrued, if
any) on the notes (and the amount of interest withheld for U.S. federal income
taxes, if any) for each calendar year, except as to exempt holders. Exempt
holders generally are holders that are corporations, some tax-exempt
organizations, or nonresident aliens who provide certification as to their
status as nonresidents. As long as the only noteholder of record is Cede, as
nominee for DTC, note owners and the IRS will receive tax and other
information including the amount of interest paid on the notes from
participants and indirect participants rather than from the indenture trustee.
The indenture trustee, however, will respond to requests for necessary
information to enable participants, indirect participants, and certain other
persons to complete their reports. Each non-exempt note owner will be required
to provide, under penalty of perjury, a certificate on IRS Form W-9 containing
his or her name, address, correct federal taxpayer identification number, and
a statement that he or she is not subject to backup withholding. Should a
nonexempt note owner fail to provide the required certification, the
participants or indirect participants (or the paying agent) will be required
to withhold 31% of the interest and principal otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
Federal income tax liability.
TAX-EXEMPT ENTITIES
A tax-exempt note owner would be subject to less favorable tax treatment
because an interest in a partnership would generate unrelated business taxable
income and thereby subject the note owner to the unrelated business taxable
income provisions of the Code.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership, or disposition of the notes under the tax laws of any
state. Investors considering an investment in the notes are encouraged to
consult their own tax advisors regarding those tax consequences.
All investors are encouraged to consult their own tax advisors regarding
the federal, state, local, foreign, or any other income tax consequences of
the purchase, ownership, and disposition of the notes.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended and
Section 4975 of the Code impose restrictions on employee benefit plans subject
to ERISA or plans or arrangements subject to Section 4975 of the Code
("Plans") and on persons who are parties in interest or disqualified persons
("parties in interest") with respect to Plans. Some employee benefit plans,
such as governmental plans and church plans (if no election has been made
under section 410(d) of the Code), are not subject to the restrictions of
ERISA, and assets of those plans may be invested in the notes without regard
to the ERISA considerations described below, subject to other applicable
federal and state law. However, any such governmental or church plan that is
qualified under section 401(a) of the Code and exempt from taxation under
section 501(a) of the Code is subject to the prohibited transaction rules in
section 503 of the Code. Any Plan fiduciary that proposes to cause a Plan to
acquire any of the notes is encouraged to consult with its counsel with
respect to the potential consequences under ERISA and the Code of the Plan's
acquisition and ownership of the notes. See "ERISA Considerations" in the
prospectus. Investments by Plans are also subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to a Plan
from engaging in certain transactions (including loans) involving a Plan and
its assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (or, in
some cases, a civil penalty may be assessed pursuant to section 502(i) of
ERISA) on parties in interest that engage in non-exempt prohibited
transactions.
PLAN ASSET REGULATION
The United States Department of Labor has issued final regulations
concerning the definition of what constitutes the assets of a Plan for
purposes of ERISA and the prohibited transaction provisions of the Code (the
"Plan Asset Regulation"). The Plan Asset Regulation describes the
circumstances under which the assets of an entity in which a Plan invests will
be considered to be "plan assets" such that any person who exercises control
over those assets would be subject to ERISA's fiduciary standards. Under the
Plan Asset Regulation, generally when a Plan invests in another entity, the
Plan's assets do not include, solely because of the investment, any of the
underlying assets of the entity. However, the Plan Asset Regulation provides
that, if a Plan acquires an "equity interest" in an entity that is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the assets of the entity
will be treated as assets of the Plan investor unless exceptions apply. If the
notes were deemed to be equity interests and no statutory, regulatory, or
administrative exemption applies, the trust could be considered to hold plan
assets because of a Plan's investment in the notes. Those plan assets would
include an undivided interest in any assets held by the trust. In that case,
the master servicer and other persons, in providing services with respect to
the trust's assets, may be parties in interest with respect to those Plans,
subject to the fiduciary responsibility provisions of Title I of ERISA,
including the prohibited transaction provisions of Section 406 of ERISA, and
Section 4975 of the Code with respect to transactions involving the trust's
assets. Under the Plan Asset Regulation, the term equity interest is defined
as any interest in an entity other than an instrument that is treated as
indebtedness under applicable local law and that has no substantial equity
features. Although the Plan Asset Regulation is silent with respect to the
question of which law constitutes applicable local law for this purpose, DOL
has stated that these determinations should be made under the state law
governing interpretation of the instrument in question. In the preamble to the
Plan Asset Regulation, DOL declined to provide a precise definition of what
features are equity features or the circumstances under which those features
would be considered substantial, noting that the question of whether a plan's
interest has substantial equity features is an inherently factual one, but
that in making a determination it would be appropriate to take into account
whether the equity features are such that a Plan's investment would be a
practical vehicle for the indirect provision of investment management
services. Brown & Wood LLP ("ERISA Counsel") has rendered its opinion that the
notes will be classified as indebtedness without substantial equity features
for ERISA purposes. ERISA Counsel's opinion is based on the terms of the
notes, the opinion of Tax Counsel that the notes will be classified as debt
instruments for federal income tax purposes and the ratings that have been
assigned to the notes. However, if contrary to ERISA Counsel's opinion the
notes are deemed to be equity interests in the trust and no statutory,
regulatory, or administrative exemption applies, the trust could be considered
to hold plan assets because of a Plan's investment in the notes.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any notes on behalf of
a Plan is encouraged to consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to the investment. Among other things, before purchasing any
notes, a fiduciary of a Plan should make its own determination as to whether
the trust, as obligor on the notes, is a party in interest with respect to the
Plan, the availability of the exemptive relief provided in the Plan Asset
Regulations, and the availability of any other prohibited transaction
exemptions. Purchasers should analyze whether the decision may have an impact
with respect to purchases of the notes.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the notes will be rated in
the highest rating category of the rating agencies, the notes will not
constitute mortgage related securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"), because not all of the mortgages
securing the mortgage loans are first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities
based on first mortgage loans may not be legally authorized to invest in the
notes, which because they evidence interests in a pool that includes junior
mortgage loans are not mortgage related securities under SMMEA. See "Legal
Investment" in the prospectus.
UNDERWRITING
Subject to the terms of the underwriting agreement, dated _________ __,
1999, between Provident and the underwriter, Provident has agreed to sell to
__________, and the underwriter has agreed to purchase from Provident the
principal amount of notes set forth below opposite its names.
- -------------------------------------------------------------------------------
Underwriter Principal Amount of Notes
- ----------- -------------------------
- -------------------------------------------------------------------------------
[Name] $
- -------------------------------------------------------------------------------
Total $
- -------------------------------------------------------------------------------
In the underwriting agreement, the underwriter has agreed, subject to its
terms, to purchase all the offered notes if any of the notes are purchased.
Provident has been advised by the underwriter that it proposes initially
to offer the notes to the public in Europe and the United States at the
underwriting price on the cover page of this prospectus supplement and to
certain dealers at that price, less a discount not in excess of ____% of the
note denominations. The underwriter may allow and the dealers may reallow a
discount not in excess of ___% of the note denominations to other dealers.
After the initial public offering, the public offering price, the concessions,
and the discounts may be changed.
Provident has been advised by the underwriter that it presently intends
to make a market in the notes. However, the underwriter is not obligated to do
so, any market-making may be discontinued at any time, and we cannot assure
you that an active public market for the notes will develop.
Until the payment of the notes is completed, rules of the SEC may limit
the ability of the underwriter and some selling group members to bid for and
purchase the notes. As an exception to these rules, the underwriter is
permitted to engage in transactions that stabilize the price of the notes.
These transactions consist of bids or purchases for the purpose of pegging,
fixing, or maintaining the price of the notes. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence
of those purchases.
Neither Provident nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
stabilization transactions may have on the prices of the notes. In addition,
neither Provident nor the underwriter makes any representation that the
underwriter will engage in those transactions or that those transactions, once
commenced, will not be discontinued without notice.
The underwriting agreement provides that Provident will indemnify the
underwriter against specified civil liabilities, including liabilities under
the Securities Act of 1933.
Specified expenses of the underwriter incurred in connection with this
offering will be paid by Provident.
LEGAL MATTERS
Legal matters with respect to the notes will be passed upon for Provident
by Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio and for the
underwriters by Brown & Wood LLP, New York, New York. Legal matters will be
passed upon for the financial insurance policy issuer by Kutak Rock, Omaha,
Nebraska.
EXPERTS
The consolidated balance sheets of [financial insurance policy issuer]
and its subsidiaries as of December 31, 199__ and 199__ and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 199__,
incorporated by reference in this prospectus supplement, have been
incorporated in reliance on the report of _________________, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
RATINGS
It is a condition to issuance that the notes be rated _________by
__________ and _____ and _____ by __________.
A securities rating addresses the likelihood of the receipt by
noteholders of payments on the mortgage loans. The rating takes into
consideration the characteristics of the mortgage loans and the structural,
legal, and tax aspects associated with the notes. The ratings on the notes do
not, however, constitute statements regarding the likelihood or frequency of
prepayments on the mortgage loans or the possibility that noteholders might
realize a lower than anticipated yield.
The ratings assigned to the notes will depend primarily upon the
creditworthiness of the financial insurance policy issuer. Any reduction in a
rating assigned to the claims-paying ability of the financial insurance policy
issuer below the ratings initially assigned to the notes may result in a
reduction of one or more of the ratings assigned to the notes.
A securities rating is not a recommendation to buy, sell, or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
Alternative Principal Payment.........48
Closing Date..........................47
Credit Limit Utilization Rate.........23
Cut-Off Date..........................22
Deficiency Amount.....................53
Guaranteed Principal Amount...........53
Insured Payment.......................53
Interest Collections..................44
Investor Floating Allocation
Percentage.........................44
Investor Interest.................53, 54
Investor Loss Amount..................45
Managed Amortization Period...........48
Maximum Principal Payment.............48
Net Simple Interest Excess............43
Net Simple Interest Shortfall.........43
Net WAC...............................46
OID...................................69
OID Regulations.......................69
parties in interest...................73
Plan Asset Regulation.................73
Plans.................................73
Principal Collections.................44
Provident.............................16
Rapid Amortization Event..............50
Rapid Amortization Period.........48, 50
Scheduled Principal Collections
Payment Amount.....................48
Simple Interest Excess................43
Simple Interest Excess Sub-Account....43
Simple Interest Qualifying Loan.......43
Simple Interest Shortfall.............43
SMMEA.................................75
Spread Account........................49
Spread Account Requirement............49
Transfer Date.........................40
Transfer Deficiency...................39
Transfer Deposit Amount...............39
Transferor............................16
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus supplement and the
accompanying prospectus are not an offer to sell these securities and they are
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 28, 1999
Prospectus Supplement
To Prospectus dated _________, 1999
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 1999-_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1999-__
THE PROVIDENT BANK
as transferor and master servicer
CONSIDER CAREFULLY THE THE TRUST
RISK FACTORS BEGINNING
ON PAGE S-9 AND ON o will issue one class of senior Class A Certificates
PAGE 1 IN THE and
PROSPECTUS o will issue a single Transferor Interest.
THE CERTIFICATES
o represent the entire beneficial interest in a trust, whose assets are
a pool of [adjustable rate] home equity revolving credit line loan
agreements.
CREDIT ENHANCEMENT
o will be provided in the form of overcollateralization and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [the financial insurance policy issuer]
[____________], the underwriter, will buy the Class A Certificates from the
transferor at a price equal to ________ of their face value. The underwriter
will sell the Class A Certificates from time to time in negotiated
transactions.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE CERTIFICATES OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Name of Underwriter
__________, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary................................S-3
Risk Factors...........................S-8
The Financial Insurance
Policy Issuer.....................S-11
The Master Servicer...................S-11
The Home Equity Loan
Program...........................S-11
Description of the
Mortgage Loans....................S-14
Maturity and Prepayment
Considerations....................S-23
Pool Factor and Trading
Information.......................S-24
Description of the Certificates.......S-25
Use of Proceeds.......................S-44
Federal Income Tax
Consequences......................S-44
State Taxes...........................S-47
ERISA Considerations..................S-47
Legal Investment
Considerations....................S-48
Underwriting..........................S-49
Legal Matters.........................S-49
Experts...............................S-49
Ratings...............................S-50
Index of Defined Terms................S-51
Annex I...............................S-54
Page
----
PROSPECTUS
Risk Factors...........................4
The Trust Fund.........................5
Use of Proceeds........................9
The Provident Bank....................10
Loan Program..........................11
Description of the Securities.........13
Credit Enhancement....................23
Yield and Prepayment
Considerations....................27
The Agreements........................29
Legal Aspects of
the Loans.........................40
Federal Income Tax
Consequences......................46
State Tax Considerations..............67
ERISA Considerations..................68
Legal Investment......................72
Method of Distribution................73
Legal Matters.........................73
Financial Information.................74
Rating................................74
Index of Defined Terms................75
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the Class A
Certificates.
- -------------------------------------------------------------------------------
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1999-__
- -------------------------------------------------------------------------------
CERTIFICATE INITIAL CLASS LAST SCHEDULED
CLASS/INTEREST RATE PRINCIPAL BALANCE DISTRIBUTION DATE
- -------------- ----------- ----------------- -----------------
- -------------------------------------------------------------------------------
Class A % $________________ ____________
- -------------------------------------------------------------------------------
Transferor N.A. 0 N.A.
- -------------------------------------------------------------------------------
THE TRANSFEROR AND MASTER SERVICER
o The Provident Bank.
o The Provident Bank maintains its principal office at One East Fourth
Street, Cincinnati, Ohio. Its telephone number is (513)579-2000.
o The master servicer will receive a monthly fee from the interest payments
on the mortgage loans equal to ___% per annum on the principal balance of
each mortgage loan.
We refer you to "The Provident Bank" in the prospectus and "The Master
Servicer" in this prospectus supplement for additional information.
TRUST FUND
o Provident Bank Home Equity Loan Trust, 1999 -_.
TRUSTEE
o [__________________________]
FINANCIAL INSURANCE POLICY ISSUER
o [__________________________]
We refer you to "The Financial Insurance Policy Issuer" in this prospectus
supplement for additional information.
CUT-OFF DATE
o ___________, 1999
CLOSING DATE
o ___________, 1999
DISTRIBUTION DATE
o The [15]th day of each month, or if that day is not a business day, the next
business day. The first distribution date is _____________, 1999
DUE PERIOD
o The calendar month immediately preceding a distribution date.
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 or the related depositories. The limited circumstances under which
definitive certificates will replace the book-entry certificates are described
in this prospectus supplement.
We refer you to "Risk Factors--Consequences on Liquidity and Payment Delay
Because of Owning Book-Entry Certificates," "Description of the
Certificates--Book-Entry Certificates," and "Annex I" in this prospectus
supplement for additional information.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the
certificateholders. The trust fund property includes:
o a pool of [adjustable rate] home equity revolving credit line loan
agreements secured by either first or second deeds of trust or mortgages
on one- to four-family residential properties plus any additions to the
mortgage loans as a result of new advances made on the applicable credit
line agreement during the life of the trust fund;
o payments of interest due on the mortgage loans on and after the cut-off
date and principal payments received on the mortgage loans on and after
the cut-off date;
o property that secured a mortgage loan that has been acquired by foreclosure
or deed in lieu of foreclosure; and
o rights under hazard insurance policies covering the mortgaged properties.
During the life of the trust fund, all new advances made to mortgagors under
the applicable credit line agreement will be transferred and become property
of the trust fund. The principal balance of the mortgages in the mortgage pool
will generally fluctuate and differ from day to day due to new advances and
any principal payments on the mortgage loans.
THE MORTGAGE LOANS
Mortgage Loan Statistics
On the closing date, the trust fund will acquire a pool of [adjustable rate]
home equity revolving credit line loan agreements. Each borrower may borrow
amounts from time to time up to the maximum amount of that borrower's line of
credit. If borrowed amounts are repaid, they may be borrowed again. The
mortgage loans will have the following characteristics at the cut-off date:
o number of mortgage loans: _____
o aggregate principal balance: $__________
o mortgaged property location: ___ states and the District of Columbia
o average credit limit: $_____
o credit limits on the mortgage loans range: $____ to $____
o interest rate range: _____% to ______%
o weighted average interest rate: _____% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ____months (approximate)
o term to stated maturity range: ___ months to ___ months
o last maturity date: ________
o combined loan-to-value ratio range: ____% to _____% (approximate)
o weighted average combined loan-to-value ratio ____% (approximate)
o all of the mortgage loans bear interest at a [adjustable] [fixed rate]
o balloon loans - loans with amortization schedules that don't fully amortize
by their maturity date: ____% (approximate).
Payment Terms of Mortgage Loans
o Interest - Interest on each mortgage loan is payable monthly on the related
outstanding principal balance for each day in the billing cycle. The loan
rate is variable and is equal to [describe rate].
o Principal - The loans have a ___ year draw period during which time amounts
may be borrowed under the credit line agreement. The draw period is
followed by a ___ year repayment period during which the loan must be
repaid.
We refer you to "Description of the Mortgage Loans" in this prospectus
supplement for additional information.
MONTHLY ADVANCES
During any due period, the master servicer may receive less than the amount
due on each mortgage loan.
If the master servicer reasonably believes that cash advances can be recovered
from future payments or collections on the mortgage loans, the master servicer
will make cash advances to the trust fund to cover delinquent mortgage loan
payments. The master servicer will make advances only to maintain a regular
flow of scheduled interest and principal payments on the certificates, not to
guarantee or insure against losses.
We refer you to "Description of the Certificates--Monthly Advances" in this
prospectus supplement for additional information.
THE CERTIFICATES
General
o Each month, the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you will be
entitled to receive payments on the distribution date in the next month.
Interest Distributions
Interest on the certificates accrues during the period beginning on the prior
distribution date and ending on the day before the applicable distribution
date except that the first distribution interest begins accruing on the
closing date. The trustee will calculate interest based on the actual number
of days in the interest period and a year assumed to consist of 360 days. On
each distribution date, you will be entitled to the following:
o interest at the related certificate rate that accrued during the interest
period; and
o any interest that was due on a prior distribution date and not paid. In
addition, interest will have accrued on the amount of interest that was
previously due and not paid.
Principal Distributions
From the first distribution date and ending on the distribution date in
__________ and if specified events causing an acceleration of payment of
principal do not occur, you will be entitled to either (a) or (b), whichever
is the lesser amount:
(a) ___% of the principal collected during the prior due period; or
(b) the amount of principal collected during the prior due period minus
advances made by the borrowers under the credit line agreements during
that due period.
On the distribution date following ___________, or if specified events causing
an acceleration of principal occur, you will be entitled to receive the amount
described in (a) above.
We refer you to "Description of the Certificates" in this prospectus
supplement for additional information.
CREDIT ENHANCEMENTS
The Certificate Insurance Policy
The certificate insurance policy unconditionally guarantees the payment of:
o accrued and unpaid interest due on the Class A Certificates;
o principal losses on the mortgage loans; and
o any principal amounts owed to certificateholders on the last scheduled
distribution date.
We refer you to "Description of the Certificates--The Policy" in this
prospectus supplement for additional information.
[The Spread Account
Amounts on deposit in the spread account will be available to the trustee to
pay principal and interest due and payable on the Class A Certificates before
a draw on the certificate insurance policy.]
[Excess Interest Collections; Overcollateralization
You will receive a specified amount of excess interest collections on the
mortgage loans as part of your principal distribution. These payments will
compensate you for mortgage loan losses not otherwise absorbed by the
overcollateralization. If no losses have occurred, the payment of the excess
interest collections will cause your interest in the pool to be
overcollateralizatized.
We refer you to "Description of the Certificates--Overcollateralization" in
this prospectus supplement for additional information.]
PRE-FUNDING ACCOUNT
On the closing date, the trustee will deposit $_______________ in the
pre-funding account. The trust will use the amounts on deposit in the
pre-funding account to acquire additional mortgage loans from the transferor.
The trustee may acquire additional mortgage loans until _________________.
If any amounts are left in the pre-funding account on ___________________, you
will receive these amounts on the following distribution date as payment of
principal.
We refer you to "Description of the Certificates--Pre-Funding Account" in
this prospectus supplement for additional information.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee will deposit $_______________ in the
capitalized interest account. The trust will use the amounts on deposit in the
capitalized interest account to cover interest shortfalls on the certificates
expected to occur until the trust purchases the additional mortgage loans.
Until the trust purchases the additional mortgage loans or prepays the
certificates, interest payments on the loans will not cover the amount of
interest due on the certificates.
Any amounts left in the capitalized interest account after _______________
will be paid to Provident.
We refer you to "Description of the Certificates--Capitalized Interest
Account" in this prospectus supplement for additional information.
OPTIONAL TERMINATION
The mortgage loans will be subject to an optional transfer to the owner of the
transferor interest on any distribution date after:
o the principal balance of the certificates is reduced to any amount less
than or equal to __% of the original principal balance of the certificates;
and
o all amounts due and owing to the financial insurance policy issuer and
unreimbursed draws on the certificate insurance policy have been paid with
interest.
We refer you to "Description of the Certificates--Termination; Retirement
of the Certificates" in this prospectus supplement for additional
information.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o Tax counsel is of the opinion that the certificates will be treated as debt
instruments.
o You must agree to treat your certificate as indebtedness for federal,
state, and local income and franchise tax purposes.
We refer you to "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 some pension and
other employee benefit plans. For example, the acquisition of some
certificates may be considered a "prohibited transaction" under ERISA. Some
exemptions from the prohibited transaction rules could be applicable to the
acquisition of the Class A Certificates. If you are a fiduciary of a pension
or other employee benefit plan that is subject to ERISA, you should consult
with your counsel regarding the applicability of the provisions of ERISA and
the tax code before purchasing a Class A Certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines mortgage related
securities to include only first mortgages and not second mortgages. Because
the pool of mortgage loans owned by the trust fund includes junior mortgage
loans, the certificates will not be mortgage related securities under that
definition. Some institutions may be limited in their legal investment
authority to only first mortgages or mortgage related securities and will be
unable to invest in the Class A Certificates.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the prospectus for additional
information.
CERTIFICATE RATING
The trust fund will not issue the Class A Certificates unless they receive the
following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell, or hold securities and may be
subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Certificate Rating Based
Primarily on Claims-Paying Ability of the Financial Insurance Policy
Issuer" in this prospectus supplement for additional information.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION
UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY
CERTIFICATES
o Limit on Liquidity of Certificates. Issuance of certificates in
book-entry form may reduce their liquidity in the secondary trading market
since investors may be unwilling to purchase certificates for which they
cannot obtain physical certificates.
o Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry certificates can be effected only through DTC, participating
organizations, indirect participants, and participating 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 do things with your
certificates, may be limited because you do not have a physical certificate
representing the book-entry certificates.
o Delays in Distributions. You may experience some delay in the receipt
of distributions on the book-entry certificates since the distributions will
be forwarded by the trustee to DTC for DTC to credit the accounts of its
participants, which will then 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 it, you will suffer a loss if the financial
insurance policy issuer fails to perform its obligations under the policy and
the other forms of credit enhancement are insufficient to cover the loss.
Approximately ___% of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS
THAN MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes, and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the financial insurance policy issuer fails
to perform its obligations under the certificate insurance policy.
We refer you to "Legal Aspects of Loans--Foreclosure" in the prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. However, some mortgage loans require that the mortgagor pay a
fee with any prepayment. This may result in the rate of prepayments
being slower than would otherwise be the case.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when
the mortgaged property is sold. Generally, the master servicer will
enforce the due-on-sale provision unless prohibited by applicable
law.
o The rate of principal payments on pools of mortgage loans is
influenced by a variety of factors, including general economic
conditions, interest rates, the availability of alternative
financing, and homeowner mobility.
o We cannot predict the rate at which borrowers will repay their
mortgage loans, nor are we aware of any publicly available studies
or statistics on the rate of prepayment of mortgage loans similar to
the mortgage loans in the pool.
We refer you to "Prepayment and Yield Considerations" in the prospectus.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE FINANCIAL
INSURANCE POLICY ISSUER
The rating on the certificates depends primarily on the claims-paying
ability of the financial insurance policy issuer. Therefore, a reduction of
the rating assigned to the claims-paying ability of the financial insurance
policy issuer may have a corresponding reduction on the ratings assigned to
the certificates. A reduction in the rating assigned to the certificates will
reduce the market value of the certificates and may affect your ability to
sell them. In general, the rating on your certificate addresses credit risk
and does not address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Most of the mortgage loans are secured by mortgages that are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under some circumstances to a new first priority
lien regardless of the principal amount, which has the effect of making the
first mortgage a junior mortgage. Mortgage loans that are secured by junior
mortgages will receive proceeds from a sale of the related mortgaged property
only after any senior mortgage loans and prior statutory liens have been paid.
If the remaining proceeds are insufficient to satisfy the mortgage loan in the
trust fund and the financial insurance policy issuer fails to perform its
obligations under the policy, then:
o there will be a delay in distributions to you while a deficiency
judgment against the borrower is sought; and
o you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY
OF TRANSFEROR
The sale of the mortgage loans from the transferor to the trust will be
treated by the transferor and the trust as a sale of the mortgage loans. If
the transferor were to become insolvent, a receiver or conservator for, or a
creditor of, the transferor, may argue that the transaction between the
transferor and the trust is a pledge of mortgage loans as security for a
borrowing rather than a sale. Such an attempt, even if unsuccessful, could
result in delays in distributions to you.
[The transferor will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the transferor's long-term debt rating is
reduced below [describe]. Within 30 days of that, the transferor is required
to deliver the mortgage documents to the trustee and either to record the
assignments or to deliver a legal opinion to the effect that recording the
assignments is not necessary to perfect the interest of trust in the
mortgages. Before 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 upon the insolvency of the transferor.
In an insolvency proceeding of the transferor, if the mortgage notes have
not been delivered to the trustee and the mortgages have not been assigned of
record in the real property recording office to the trustee, the trust may be
a general unsecured creditor of the transferor. If the trust were determined
to be a general unsecured creditor of the transferor, the mortgages, the
mortgage notes, and their proceeds would not be available to make payments on
the certificates.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o Prepayments of Principal May Reduce Interest Payments. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only up to
the date of the prepayment, instead of a full month. This may result in an
interest shortfall. The master servicer is obligated to pay that interest
shortfall, without any right of reimbursement, up to the amount of its
servicing fee for that month. If the servicing fee is insufficient to pay the
interest shortfalls attributed to prepayments, they will be covered by the
certificate insurance policy.
o Some Interest Shortfalls Are Not Covered by the Master Servicer or the
Certificate Insurance Policy. The Soldiers' and SAILORS' Civil Relief Act of
1940 permits modifications to the payment terms for mortgage loans, including
a reduction in the amount of interest paid by the borrower under some
circumstances. Neither the master servicer nor the financial insurance policy
issuer will pay for any interest shortfalls created by the Soldiers' and
Sailors' Civil Relief Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
[The mortgaged properties relating to the mortgage loans are located in
__ states and the District of Columbia. However, __% of the mortgaged
properties by principal balance as of the cut-off date are located in Ohio. If
in the future Ohio experiences weaker economic conditions or greater rates of
decline in real estate values than the United States generally, then the
mortgage loans may experience higher rates of delinquencies, defaults, and
foreclosures than would otherwise be the case.]
[RISK OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the transferor until
_______. The transferor will sell mortgage loans to the trust if it has
mortgage loans to sell. The ability of the transferor to originate and acquire
additional mortgage loans is affected by a variety of factors, including
interest rates, unemployment levels, the rate of inflation, and consumer
perception of economic conditions generally. If the full amount deposited in
the pre-funding account for the purpose of purchasing additional mortgage
loans cannot be used for that purpose within [three] months from the closing
date, any remaining amounts will be paid to you as a prepayment.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The
year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers, or agents do not successfully and timely achieve year 2000
compliance, the performance of obligations of the master servicer could be
materially adversely affected. This could result in delays in processing
payments on the mortgage loans and cause a related delay in distributions to
you.
<PAGE>
THE FINANCIAL INSURANCE POLICY ISSUER
The following information set forth in this section has been provided by
[____________], the financial insurance policy issuer. Accordingly, neither
The Provident Bank ("Provident") nor the master servicer makes any
representation as to the accuracy and completeness of this information.
[Description of Financial Insurance Policy Issuer]
THE MASTER SERVICER
GENERAL
Provident, as master servicer, will service the mortgage loans in
accordance with the pooling and servicing agreement to be dated as of
_________, 1999 (the "Cut-Off Date"), between Provident as transferor and
master servicer, and _________, as trustee. The master servicer may perform
any of its obligations under the pooling and servicing agreement through one
or more subservicers. Notwithstanding any subservicing arrangement, the master
servicer will remain liable for its servicing obligations under the pooling
and servicing agreement as if it alone were servicing the mortgage loans.
THE MASTER SERVICER
Provident will be responsible for servicing the mortgage loans for the
trust fund in accordance with the terms of the pooling and servicing
agreement. [Beginning on __________, _____________ will service the mortgage
loans for Provident pursuant to a subservicing agreement, to be dated as of
[______________], between Provident and the subservicer. The terms of the
subservicing agreement are consistent with the terms of the pooling and
servicing agreement. This subservicing agreement does not relieve Provident
from any of its obligations to service the mortgage loans in accordance with
the terms of the pooling and servicing agreement.]
Provident is the principal banking subsidiary of Provident Financial
Group, Inc., a Cincinnati-based bank holding company registered under the Bank
Holding Company Act. Provident Financial Group, Inc. operates throughout Ohio,
Northern Kentucky, Southeastern Indiana, and Florida. As of ____________,
Provident Financial Group, Inc. had total assets of $____ billion, net loans
of $___ billion, deposits of $____ billion, and total shareholders' equity of
$____ million. Provident Financial Group's tier 1 and total capital ratios
were ____% and _____%, respectively. For the [___] months ended
______________, Provident Financial Group had net earnings of $____ million.
As of _______________, Provident Financial Group had total assets of $____
billion, net loans of $___ billion, deposits of $___ billion, and total
shareholders' equity of $___ million. Provident Financial Group's tier I and
total capital ratios were ____% and ____%, respectively. For the fiscal year
ended __________________, Provident Financial Group, Inc. had net earnings of
$___ million. Provident represents approximately ___% of Provident Financial
Group, Inc.'s assets.
THE HOME EQUITY LOAN PROGRAM
CREDIT AND UNDERWRITING GUIDELINES
A description of the underwriting guidelines customarily employed by
Provident with respect to its retail originations of non-purchase money
mortgage loans follows. Provident believes its underwriting guidelines are
consistent with those used by home equity lenders generally.
Provident performs underwriting procedures intended to assess a
prospective borrower's credit standing and repayment ability, and the value
and adequacy of the mortgaged property as collateral. Exceptions to the
underwriting guidelines are made when compensating factors are present. These
factors include the quality and location of the property, the length of
employment, credit history, current and pending debt obligations, payment
habits, and status of past and currently existing mortgages. Each prospective
borrower is required to complete an application which lists assets,
liabilities, income, credit and employment history, and other demographic and
personal information. If the information in the application demonstrates that
the mortgage loan would be supported by sufficient income and equity in the
real property, Provident will conduct a further credit investigation,
including obtaining and reviewing an independent credit bureau report to
evaluate the applicant's ability to repay.
Provident has historically used a debt-to-income ratio to determine
whether a prospective borrower has sufficient monthly income available to
support the payments of principal and interest on the home equity loan in
addition to any senior mortgage loan payments (including any escrows for
property taxes and hazard insurance premiums) and other monthly credit
obligations. The debt-to-income ratio is the ratio of a borrower's total
monthly payments to the borrower's gross monthly income. The monthly
debt-to-income ratio, in general, does not exceed 45% when the combined
loan-to-value ratio does not exceed 80%. For mortgage loans with combined
loan-to-value ratios in excess of 80%, the monthly debt-to-income ratio
generally does not exceed 40%. These combined loan-to-value ratio and
debt-to-income limitations may be exceeded if one or more of the compensating
factors we mentioned are present. In addition, these limitations may be
exceeded if specific approval is obtained from an authorized officer of
Provident.
In addition to these guidelines, beginning in December, 1996, Provident
instituted a credit scoring procedure as an additional guideline in evaluating
applications for mortgage loans. Generally, applicants must meet a minimum
score predetermined by Provident. Scores are calculated on the basis of a
scoring model developed by Fair-Isaacs Inc. and used by financial institutions
that originate home equity loans.
The maximum amount permitted to be under the credit line agreements
generally ranges from a minimum of $5,000 to a maximum of $250,000. For
combined loan-to-value ratios in excess of 80%, the credit limit is generally
limited to $50,000 and mortgage loans secured by third mortgages are limited
to a combined loan-to-loan value ratio of 80%. These limitations may be
exceeded if approval is obtained from a senior officer of Provident.
Provident requires a valuation on all mortgaged property that is security
for a loan. The mortgaged property used as collateral to secure the mortgage
loans may be either primary residential, including second and vacation homes,
or investor owned one- to four-family homes, planned unit developments, and
condominiums. Mobile housing, commercial, and agricultural land are not
accepted as collateral. In some cases, the mortgage loan may be secured by the
owner-occupied residence plus additional collateral.
Provident personnel decide whether property value will be determined by a
full appraisal, a drive-by appraisal, or an appraisal based on tax assessment
valuation. A drive-by appraisal consists of the appraiser reviewing
appropriate records concerning the tax valuation of the mortgaged property and
the recent sale prices of homes in the same neighborhood and an inspection of
the exterior of the mortgaged property. If the exterior inspection indicates
that the mortgaged property is well-maintained, the appraiser determines a
market value based upon the available records. If the exterior inspection
reveals signs of improper maintenance, Provident requires a full appraisal,
which includes an interior inspection of the mortgaged property. A
current-owner title search of the mortgaged property is also obtained by
Provident in addition to an appraisal. In connection with originating a
mortgage loan that is in a junior lien position, Provident typically assumes
that the first mortgage lender has obtained an ALTA title insurance policy
although Provident does not independently verify whether such title insurance
policy has been obtained. Provident generally does not require borrowers to
obtain title insurance.
Applicants are required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of any
outstanding first mortgage and the mortgage loan originated by Provident
exceeds replacement value, insurance equal to replacement value may be
accepted. Provident ensures that its name and address is properly added to the
mortgage clause of the insurance policy. If Provident's name is added to a
loss payee clause and the policy does not provide for written notice of policy
changes or cancellation, an endorsement adding that provision is obtained.
As a part of Provident's loan application process, each mortgage
applicant is typically required to provide personal financial information.
Applicants who are salaried employees may be required to provide current
employment information in addition to two recent years of employment history
and Provident may verify this information. Verifications are based on the two
most recent pay stubs, the two most recent years' W-2 tax forms, or the two
most recent years' complete federal income tax returns including schedules.
Self-employed applicants should be self-employed in the same field for a
minimum of two years. Self-employed applicants are typically required to
provide signed copies of complete federal income tax returns including
schedules filed for the most recent two years.
Credit reports are obtained from independent credit reporting agencies
reflecting each applicant's credit history. Credit reports should reflect all
delinquencies of 30 days or more, repossessions, judgements, foreclosures,
garnishments, bankruptcies, divorce actions, and other adverse credit events
that can be discovered by a search of public records. If the report is
obtained more than 60 days before the loan closing, Provident may obtain an
updated credit report to verify that the reported information has not changed.
Verification is obtained of any first mortgage balance if not reported in the
credit report.
Generally, applicants are required to have an acceptable credit history,
satisfactory employment history, and the level of income to debt obligations
to support the amount of the mortgage loan applied for taking into account the
value of the equity in the mortgaged property. The rescission period must have
expired before funding a loan. The rescission period may not be waived by the
applicant except as permitted by law.
SERVICING OF THE MORTGAGE LOANS
The master servicer has established standard policies for the servicing
and collection of the home equity loans. Servicing includes
o the collection and aggregation of payments relating to the mortgage
loans;
o the supervision of delinquent mortgage loans, loss mitigation
efforts, foreclosure proceedings, and, if applicable, the
disposition of mortgaged properties; and
o the preparation of tax related information in connection with the
mortgage loans.
Billing statements are mailed monthly by the master servicer. The
statement details all debits and credits and specifies the minimum payment due
and the available credit line. Notice of changes in the applicable loan rate
are provided by the master servicer to the mortgagor with the statements. All
payments are due by the fifteenth day of the month.
The general policy of the master servicer is to initiate foreclosure in
the underlying property after a mortgage loan is 75 days or more delinquent
and satisfactory arrangements cannot be made with the Mortgagor or if a notice
of default on a senior lien is received by the master servicer. Foreclosure
proceedings may be terminated if the delinquency is cured. mortgage loans to
borrowers in bankruptcy proceedings may be restructured in accordance with law
and with a view to maximizing recovery on the mortgage loans, including any
deficiencies.
Once foreclosure is initiated by the master servicer, the foreclosure is
out-sourced to a law firm specializing in handling foreclosures. The
out-source agreement includes specific parameters to monitor whether
proceedings are progressing within the time frame typical for the state in
which the property is located. During the foreclosure proceeding, the master
servicer determines the amount of the foreclosure bid and whether to liquidate
the mortgage loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the master servicer may liquidate the mortgaged property and charge off
the home equity loan balance that was not recovered through liquidation
proceeds. If the mortgaged property was subject to a senior lien, the master
servicer will either directly manage the foreclosure sale of the property and
satisfy the senior lien at the time of sale or take other action deemed
necessary to protect the interest in the mortgaged property. If in the
judgment of the master servicer the cost of maintaining or purchasing the
senior lien position exceeds the economic benefit of doing that, the master
servicer will generally charge off the entire home equity loan and may seek a
money judgment against the borrower.
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the master servicer's
business judgment, changes in the portfolio, and applicable laws and
regulations.
DELINQUENCY AND CHARGE-OFF EXPERIENCE
The following tables set forth Provident's delinquency and charge-off
experience on its servicing portfolio of home equity lines of credit similar
to and including the mortgage loans for the periods indicated. We cannot
assure you that the delinquency and charge-off experience on the mortgage
loans will be consistent with the historical information provided below.
Accordingly, this information should not be considered to reflect the credit
quality of the mortgage loans included in the trust, or a basis of assessing
the likelihood, amount, or severity of losses on the mortgage loans. The
statistical data in the tables are based on all of the home equity lines of
credit in Provident's servicing portfolio.
The information in the tables below has not been adjusted to eliminate
the effect of the significant growth in the size of Provident's mortgage loan
portfolio during the periods shown. Accordingly, delinquency as a percentage
of aggregate principal balance of mortgage loans serviced for each period
would be higher than those shown if a group of mortgage loans were
artificially isolated at a point in time and the information showed the
activity only in that isolated group. However, since most of the mortgage
loans in Provident's mortgage loan portfolio are not fully seasoned, the
delinquency information for an isolated group would also be distorted to some
degree. As of ________, 1999, there have been no losses on Provident's
mortgage loan servicing portfolio.
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the mortgage loans for
[the ____ months ended _________, 1999] and the years ended [December 31,
1998] [December 31, 1997 [December 31, 1996] and [December 31, 1995]. The
delinquency percentage in the table represents the number and principal
balance of mortgage loans with monthly payments that are contractually past
due. Mortgage loans for which the related borrower has declared bankruptcy are
not included until those loans are delinquent pursuant to their repayment
terms. Loans 90 days or more delinquent in the table include the principal
balance of loans currently in process of foreclosure and loans acquired
through foreclosure or deed in lieu of foreclosure.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
---------------------------------------------------------------------------------------- --------------------
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997 June 30, 1998
-------------------- -------------------- -------------------- -------------------- --------------------
Number Dollar Number Dollar Number Dollar Number Dollar Number Dollar
of Amount of Amount of Amount of Amount of Amount
Loans Loans Loans Loans Loans
------- ---------- ----- --------- -------- --------- ------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(dollar amounts in thousands)
Portfolio....
Delinquency
percentage
30-59 days..
60-89 days..
90 days or
more.........
TOTAL........
</TABLE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The mortgage loans were originated pursuant to loan agreements and
disclosure statements and are secured by mortgages or deeds of trust that are
either first or second mortgages or deeds of trust, on mortgaged properties
located in ____ states. The mortgaged properties securing the mortgage loans
consist of residential properties that are one- to four-family properties. See
"--Mortgage Loan Terms" below.
The Cut-Off Date principal balance of the mortgages in the mortgage pool
is $_____________, which is equal to the aggregate principal balances of the
mortgage loans as of the Cut-Off Date. The principal balance of a mortgage
loan, other than a liquidated mortgage loan on any day is equal to its Cut-Off
Date principal balance, plus any additions to it from new advances made
pursuant to the applicable credit line agreement during the life of the trust
fund, minus all collections credited against the principal balance of the
mortgage loan in accordance with the related credit line agreement before that
day. The Cut-Off Date principal balance is the unpaid principal balance of
each mortgage loan as of the Cut-Off Date. As of the Cut-Off Date, the
mortgage loans were not more than 89 days delinquent.
The average Cut-Off Date principal balance was approximately $___, the
minimum Cut-Off Date principal balance was zero, the maximum Cut-Off Date
principal balance was $___. The minimum interest rates applicable to the
mortgage loans and the maximum interest rates applicable to the mortgage loans
as of the Cut-Off Date were ___% and ___% per annum, respectively, and the
weighted average interest rates applicable to the mortgage loans as of the
Cut-Off Date was approximately ____% per annum. As of the Cut-Off Date, the
weighted average credit limit utilization rate was approximately ____%, the
minimum credit limit utilization rate was zero and the maximum credit limit
utilization rate was 100%. The credit limit utilization rate is determined by
dividing the Cut-Off Date principal balance of a mortgage loan by the credit
limit of the related credit line agreement.
The remaining term to scheduled maturity for the mortgage loans as of the
Cut-Off Date ranged from ____ months to ____ months and the weighted average
remaining term to scheduled maturity was approximately ____ months. As of the
Cut-Off Date, the combined loan-to-value ratio of the mortgage loans ranged
from ____% to ______%, and the weighted average combined loan-to-value ratio
was approximately ____%. The combined loan-to-value ratio for a mortgage loan
is the ratio of
o the sum of
o the credit limit of the mortgage loan and
o any outstanding principal balances of mortgage loans senior to this
mortgage loan, calculated at the date of origination of the mortgage
loan, to
o the lesser of
o the appraised value of the related mortgaged property in the loan
files at the date of origination or
o in the case of a mortgaged property purchased within one year of the
origination of the related mortgage loan, the purchase price of the
mortgaged property.
Credit limits under the mortgage loans as of the Cut-Off Date ranged from
$_____ to $_____ and averaged approximately $ ____. The weighted average second
mortgage ratio was approximately ____%. The computation of the weighted
average second mortgage ratio is the credit limit for the related mortgage
loan, if the mortgage loan is a second lien, divided by the sum of the credit
limit and the outstanding principal balance of any mortgage loan senior to
this mortgage loan. As of the Cut-Off Date, approximately ___% by Cut-Off Date
principal balance of the mortgage loans represented first liens on the related
mortgaged properties, while approximately ___% of the mortgage loans
represented second liens. As of the Cut-Off Date, approximately ___% of the
mortgage loans are secured by mortgaged properties that are single-family
residences and ___% were owner-occupied. As of the Cut-Off Date, approximately
____%, ____%, ____%, ____%, ____% and ____% by Cut-Off Date principal balance
are located in __________, ________, __________, _______, ______ and
________], respectively. In no event will more than 5% of the Cut-Off Date
Pool principal balance of the mortgage pool deviate from the characteristics
of the mortgage loans described in this prospectus supplement.
MORTGAGE LOAN TERMS
[A borrower may access a mortgage loan by writing a check in a minimum
amount of $100. The mortgage loans bear interest at a variable rate that
changes monthly on the first business day of the related month with changes in
the applicable prime rate based index. The mortgage loans are subject to a
maximum per annum interest rate ranging from [_____% to _____%] per annum and
subject to applicable usury limitations. As of the Cut-Off Date, the weighted
average applicable maximum rate was approximately ____%. See "Legal Aspects of
the Loans--Applicability of Usury Laws" in the prospectus. The daily periodic
rate on the mortgage loans is the sum of the prime rate based index plus a
spread. The spread generally ranges between ____% and ____% and had a weighted
average, as of the Cut-Off Date, of approximately ____%, divided by 365 days.
The prime rate based index is based on the highest prime rate published in the
"Money Rates" table of The Wall Street Journal as of the first business day of
each calendar month.]
The following tables provide some of the characteristics of the mortgage
loans as of the Cut-Off Date:
PRINCIPAL BALANCES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
RANGE OF PRINCIPAL BALANCES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
$_______ to $_________............................. $ %
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ to $_________.............................
$_______ and over..................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
<PAGE>
The geographic location distribution in the following table is determined
by the address of the mortgaged property securing the related mortgage loan.
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
STATE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
$ %
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
<PAGE>
The combined loan-to-value ratios in the following table are computed as
the ratio of
o the sum of
o the credit limit of the mortgage loans and
o any outstanding principal balances of mortgage loans senior to the
mortgage loans, calculated at the date of origination of the
mortgage loans to
o the lesser of
o the appraised value of the related mortgaged property in loan files
at the date of origination or
o in the case of a mortgaged property purchased within one year of the
origination of the related mortgage loan, the purchase price of the
mortgaged property.
COMBINED LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
RANGE OF COMBINED MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
LOAN-TO-VALUE RATIOS LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
______% to ______%................................. $ %
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
______% to ______%.................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
PROPERTY TYPE
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
PROPERTY TYPE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- --------------- -------------------- ------------------
<S> <C> <C> <C>
Single Family...................................... $ %
Two- to Four-Family................................
Condominium........................................
PUD................................................
--------------- -------------------- ------------------
Total......................................... $ 100.00%
=============== ==================== ==================
</TABLE>
LIEN PRIORITY
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
LIEN PRIORITY LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ---------------- -------------------- ------------------
<S> <C> <C> <C>
First Lien......................................... $ %
Second Lien........................................
---------------- -------------------- ------------------
Total......................................... $ 100.00%
================ ==================== ==================
</TABLE>
MORTGAGE LOAN INTEREST RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
RANGE OF MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
LOAN RATES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- --------------- -------------------- ------------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
--------------- -------------------- ------------------
Total......................................... $ 100.00%
=============== ==================== ==================
</TABLE>
MARGIN
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
RANGE OF MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
MARGINS LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
<PAGE>
CREDIT LIMIT UTILIZATION RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
RANGE OF CREDIT LIMIT MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
UTILIZATION RATES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ---------------- -------------------- ------------------
<S> <C> <C> <C>
_____% to _____%................................... $ %
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
_____% to _____%...................................
---------------- -------------------- ------------------
Total......................................... $ 100.00%
================ ==================== ==================
</TABLE>
CREDIT LIMITS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
RANGE OF CREDIT LIMITS LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
$__________to $_________........................... $ %
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ to $_________...........................
$_________ and over................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
MAXIMUM RATES
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
MAXIMUM RATES LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- -------------- -------------------- ------------------
<S> <C> <C> <C>
_____%............................................. $ %
_____%.............................................
_____%.............................................
_____%.............................................
-------------- -------------------- ------------------
Total......................................... $ 100.00%
============== ==================== ==================
</TABLE>
The months remaining to scheduled maturity in the following table assumes
that the revolving credit period for mortgage loans with five year revolving
credit periods will be extended for an additional five years.
MONTHS REMAINING TO SCHEDULED MATURITY
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
RANGE OF MONTHS MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
REMAINING TO SCHEDULED MATURITY LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
___ to ___......................................... $ %
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
___ to ___.........................................
------------- -------------------- ------------------
Total......................................... $ 100.00%
============= ==================== ==================
</TABLE>
<PAGE>
ORIGINATION YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
ORIGINATION YEAR LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
____............................................... $ %
____...............................................
------------- -------------------- ------------------
Total............................................. $ 100.00%
============= ==================== ==================
</TABLE>
DELINQUENCY STATUS
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POOL
MORTGAGE CUT-OFF DATE BY CUT-OFF DATE
NUMBER OF DAYS DELINQUENT LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------------------------- ------------- -------------------- ------------------
<S> <C> <C> <C>
0 to 29............................................ $ %
30 to 59...........................................
------------- -------------------- ------------------
60 to 89...........................................
------------- -------------------- ------------------
Total............................................. $ 100.00%
============= ==================== ==================
</TABLE>
[CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The pooling and servicing agreement permits the trust fund to purchase
from Provident, after the date of this prospectus supplement and before
_______, 19__, mortgage loans to be added to the trust fund after the initial
closing in an amount not to exceed approximately $________ in aggregate
principal balance for inclusion in the trust fund. Each mortgage loan to be
added to the trust fund after the initial closing will have been originated or
purchased by Provident in accordance with the underwriting guidelines
described under "The Home Equity Loan Program--Credit and Underwriting
Guidelines." Accordingly, the statistical characteristics of the mortgage pool
in the preceding tables are based exclusively on the initial mortgage loans
and the statistical characteristics of the mortgage pool after giving effect
to the acquisition of any mortgage loans to be added to the trust fund after
the initial closing will likely differ from the information in this prospectus
supplement. The date on which Provident transfers a mortgage loan to be added
to the trust fund after the initial closing to the trust fund shall be
referred to in this prospectus supplement as the subsequent transfer date.
Each conveyance of mortgage loans to be added to the trust fund after the
initial closing will be subject to, among other things, the following
conditions:
o the mortgage loans to be added to the trust fund after the initial
closing must:
o satisfy the eligibility criteria in the prospectus under "The
Loan Program--Representations by Provident; Repurchases" and
o comply with each representation and warranty as to the mortgage
loans in the pooling and servicing agreement;
o the mortgage loans to be added to the trust fund after the initial
closing must not have been selected by Provident in a manner that it
believes is adverse to the interests of the certificateholders,
o no mortgage loans to be added to the trust fund after the initial
closing may be ___ or more days contractually delinquent as of the
applicable Cut-Off Date;
o no mortgage loans to be added to the trust fund after the initial
closing may have a remaining term to maturity in excess of ___
years;
o no mortgage loans to be added to the trust fund after the initial
closing may have an interest rate less than ____%;
o following the purchase of the mortgage loans to be added to the
trust fund after the initial closing by the trust fund, the mortgage
loans:
o will have a weighted average interest rate of at least ____%;
o will have a weighted average combined loan-to-value ratio of
not more than ____%;
o will not have a weighted average remaining term to stated
maturity of more than ____ months; and
o will, in each case, have a principal balance in excess of
$_______ as of the Cut-Off Date;
o Provident [and the trustee shall not have been notified by either
rating agency that the conveyance of the mortgage loans to be added
to the trust fund after the initial closing will result in a
qualification, modification, or withdrawal of its then-current
rating of any class of certificates] [shall have notified each
rating agency of the conveyance as required by the pooling and
servicing agreement]; and
o the trustee shall have received opinions of counsel as to, among
other things, the enforceability and validity of the transfer
agreements relating to the conveyance of the mortgage loans to be
added to the trust fund after the initial closing.]
MATURITY AND PREPAYMENT CONSIDERATIONS
The pooling and servicing agreement, except as otherwise described in
this prospectus supplement, provides that the certificateholders will be
entitled to receive on the [15th] day of each month, or the next succeeding
business day if that day is not a business day, distributions of principal, in
the amounts described under "Description of the Certificates--Distributions on
the Certificates," until the principal balance of the certificates is reduced
to zero. During the Managed Amortization Period, certificateholders will
receive amounts from Principal Collections based on their Fixed Allocation
Percentage, subject to reduction. During the Rapid Amortization Period,
certificateholders will receive amounts from Principal Collections based
solely on their Fixed Allocation Percentage. Because prior distributions of
Principal Collections to certificateholders serve to reduce the Investor
Floating Allocation Percentage but do not change their Fixed Allocation
Percentage, allocations of Principal Collections based on the Fixed Allocation
Percentage may result in distributions of principal to the certificateholders
in amounts that are, in most cases, greater relative to the declining balance
of the mortgage loans than would be the case if the Investor Floating
Allocation Percentage were used to determine the percentage of Principal
Collections distributed to certificateholders. This is especially true during
the Rapid Amortization Period when the certificateholders are entitled to
receive Investor Principal Collections and not a lesser amount. In addition,
Investor Interest Collections may be distributed as principal to
certificateholders in connection with the Accelerated Principal Distribution
Amount, if any. Moreover, certificateholders may also receive as payment of
principal the amount of losses allocable to the certificateholders, either
from Investor Interest Collections or, in some instances, draws under the
trust fund's limited financial guaranty insurance policy. The level of losses
may therefore affect the rate of payment of principal on the certificates.
To the extent obligors make more draws than principal payments, the
interest of the Transferor in the mortgage pool may grow. Because during the
Rapid Amortization Period the certificateholders share of Principal
Collections is based upon its Fixed Allocation Percentage (without reduction),
an increase in the interest of the Transferor in the mortgage pool due to
additional draws may also result in certificateholders receiving principal at
a greater rate. The pooling and servicing agreement permits the Transferor, at
its option, but subject to the satisfaction of conditions specified in the
pooling and servicing agreement, to remove mortgage loans from the trust fund
at any time during the life of the trust fund, so long as after giving effect
to the removal, the interest of the Transferor in the mortgage pool is not
less than the Minimum Transferor Interest. These removals may affect the rate
at which principal is distributed to certificateholders by reducing the
overall principal balance of the mortgages in the mortgage pool and thus the
amount of Principal Collections. See "Description of the
Certificates--Optional Retransfers of Mortgage Loans to the Transferor."
All of the mortgage loans may be prepaid in full or in part at any time.
The prepayment experience of the mortgage loans will affect the weighted
average life of the certificates.
We cannot predict the rate of prepayment on the mortgage loans. Provident
is not aware of any publicly available studies or statistics on the rate of
prepayment of this type of mortgage loans. Generally, home equity revolving
credit lines are not viewed by borrowers as permanent financing. Accordingly,
the mortgage loans may experience a higher rate of prepayment than traditional
first mortgage loans. On the other hand, because the mortgage loans amortize
as described under "Description of the Mortgage Loans--Mortgage Loan Terms,"
rates of principal payment on the mortgage loans will generally be slower than
those of traditional fully-amortizing first mortgages in the absence of
prepayments on the mortgage loans. The prepayment experience of the trust fund
with respect to the mortgage loans may be affected by a wide variety of
factors, including general economic conditions, prevailing interest rate
levels, the availability of alternative financing, homeowner mobility, the
frequency and amount of any future draws on the credit line agreements, and
changes affecting the deductibility for federal income tax purposes of
interest payments on home equity credit lines. Substantially all of the
mortgage loans contain due-on-sale provisions, and the master servicer intends
to enforce those provisions, unless 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 "Legal Aspects of The
Loans--Due-on-Sale Clauses" in the prospectus.
The yield to an investor who purchases the certificates in the secondary
market at a price other than par will vary from the anticipated yield if the
rate of prepayment on the mortgage loans is actually different than the rate
anticipated by the investor at the time its certificates were purchased.
Collections on the mortgage loans may vary because, among other things,
borrowers may make payments during any month as low as the minimum monthly
payment for the month or as high as the entire outstanding principal balance
plus accrued interest and any fees and charges. Borrowers could fail to make
scheduled payments. Collections on the mortgage loans may vary due to seasonal
purchasing and payment habits of borrowers.
We cannot assure you about the level of prepayments that will be
experienced by the trust fund and you can expect that a portion of borrowers
will not prepay their mortgage loans to any significant degree. See "Yield and
Prepayment Considerations" in the prospectus.
POOL FACTOR AND TRADING INFORMATION
The pool factor is a seven-digit decimal representing the proportion of
the certificates remaining unpaid that the master servicer computes monthly as
the aggregate certificate principal balance of the certificates as of that
distribution date, divided by the original aggregate certificate principal
balance, after giving effect to any distribution of principal on that
distribution date. On the Closing Date, the pool factor will be 1.0000000. See
"Description of the Certificates--Distributions on the Certificates."
Thereafter, the pool factor will decline to reflect reductions in the
aggregate certificate principal balance resulting from distributions of
principal to the certificates and the Invested Amount of any unreimbursed
liquidation loss amounts.
Pursuant to the pooling and servicing agreement, monthly reports
concerning the Invested Amount, the pool factor, and various other items of
information will be made available to the certificateholders. In addition,
within 60 days after the end of each calendar year, beginning with the 1999
calendar year, information for tax reporting purposes will be made available
to each person who has been a certificateholder of record at any time during
the preceding calendar year. See "Description of the Certificates--Book-Entry
Certificates" and "--Reports to Certificateholders."
DESCRIPTION OF THE CERTIFICATES
The Home Equity Loan Asset-Backed Certificates, Series 1999-__ will be
issued pursuant to the pooling and servicing agreement. The form of the
pooling and servicing agreement has been filed as an exhibit to the
registration statement of which this prospectus supplement and the prospectus
is a part. The following is a description of the material provisions of the
pooling and servicing agreement. Wherever particular sections or defined terms
of the pooling and servicing agreement are referred to, those sections or
defined terms are incorporated by reference into this discussion.
GENERAL
The certificates will be issued in denominations of $1,000 and multiples
of $1 in excess of $1,000 and will evidence specified undivided interests in
the trust fund. The property of the trust fund will consist of, to the extent
provided in the pooling and servicing agreement:
o each of the mortgage loans that from time to time are subject to the
pooling and servicing agreement;
o collections on the mortgage loans received after the Cut-Off Date,
exclusive of payments of accrued interest due on or before the
Cut-Off Date;
o mortgaged properties relating to the mortgage loans that are
acquired by foreclosure or deed in lieu of foreclosure;
o the collection account for the mortgage loan proceeds and the
Distribution Account for the certificates, excluding net earnings on
amounts in it;
o the trust fund's limited financial guaranty insurance policy; and
o the spread account for the benefit of the financial insurance policy
issuer and the certificateholders.
Definitive certificates, if issued, will be transferable and exchangeable
at the corporate trust office of the trustee, which will initially maintain
the security register for the certificates. See "--Book-Entry Certificates."
No service charge will be made for any registration of exchange or transfer of
certificates, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
The aggregate undivided interest in the trust fund represented by the
certificates as of the Closing Date will equal $_______ (the original invested
amount), which represents ___% of the Cut-Off Date principal balance of the
mortgages in the mortgage pool. The original aggregate certificate principal
balance will equal $_______. Following the Closing Date, the "Invested
Amount" with respect to any distribution date will be an amount equal to the
original invested amount minus (i) the amount of Investor Principal
Collections previously distributed to certificateholders, and minus (ii) an
amount equal to the product of the Investor Floating Allocation Percentage and
the liquidation loss amounts. The principal amount of the outstanding
certificates on any distribution date is equal to the original aggregate
certificate principal balance minus the aggregate of amounts actually
distributed as principal to the certificateholders. Each certificate
represents the right to receive payments of interest at the Certificate Rate
and payments of principal. See "--Distributions on the Certificates."
The Transferor will own the remaining undivided interest in the mortgage
loans, which is equal to the principal balance of the mortgages in the
mortgage pool less the Invested Amount. The interest of the Transferor in the
mortgage pool will initially equal $______, which represents ___% of the
Cut-Off Date pool balance. The Transferor is whoever the owner of the interest
of the Transferor in the mortgage pool on any particular date, and initially
will be Provident. In general, the principal balance of the mortgages in the
mortgage pool will vary each day as principal is paid on the mortgage loans,
liquidation losses are incurred, additional balances are drawn down by
borrowers, and mortgage loans are transferred to the trust fund.
The Transferor has the right to sell or pledge the interest of the
Transferor in the mortgage pool at any time, if the rating agencies have
notified the Transferor and the trustee in writing that the sale or pledge
will not result in the reduction or withdrawal of the ratings assigned to the
certificates, and other conditions specified in the pooling and servicing
agreement are satisfied.
A certificate's percentage interest in the trust fund is equal to the
percentage derived by dividing its original principal balance by the original
aggregate certificate principal balance.
The certificates will not be listed on any securities exchange.
BOOK-ENTRY CERTIFICATES
The certificates will be book-entry certificates. Persons acquiring
beneficial ownership interests in the certificates may elect to hold their
certificates through the Depository Trust Company in the United States, or
Cedel Bank or the Euroclear System in Europe if they are participants in those
systems, or indirectly through organizations that are participants in those
systems. Investors may hold beneficial interests in the book-entry
certificates in minimum denominations representing certificate principal
balances of $1,000 and in multiples of $1 in excess of $1,000. Certificate
owners will not be certificateholders as that term is used in the pooling and
servicing agreement. Certificate owners are only permitted to exercise their
rights indirectly through the participating organizations that utilize the
services of DTC, including securities brokers and dealers, banks and trust
companies, and clearing corporations and other participants in DTC, and DTC.
For information with respect to tax documentation procedures relating to
the certificates, see "Federal Income Tax Consequences--Foreign Investors" and
"--Backup Withholding" herein and "Global, Clearance, Settlement And Tax
Documentation Procedures--U.S. Federal Income Tax Documentation Requirements"
in Annex I to this prospectus supplement.
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 those payments to the accounts of the applicable DTC
participants in accordance with DTC's normal procedures. Each DTC participant
will be responsible for disbursing those 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 financial intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
certificates that it represents.
For further discussion about DTC, the European depositaries, and
book-entry procedures see "Description of the Securities--Book-Entry
Registration of Securities" in the prospectus.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the certificates, Provident will transfer to
the trust fund all of its interests in each mortgage loan plus any additional
balances, related credit line agreements, mortgages, and other related
documents, including all collections received with respect to each mortgage
loan after the Cut-Off Date, exclusive of payments of accrued interest due on
or before the Cut-Off Date. Concurrently with the transfer, the trustee will
deliver the certificates to Provident and the transferor certificate to the
Transferor. Each mortgage loan transferred to the trust fund will be
identified on a mortgage loan schedule delivered to the trustee pursuant to
the pooling and servicing agreement. That schedule will include information as
to the Cut-Off Date principal balance, the interest rates applicable to the
mortgage loans, and other information.
Within 90 days of the Closing Date, the trustee will review the mortgage
loans and the related documents and if any mortgage loan or related document
is found to be defective in any material respect and the defect is not cured
within 90 days following notice of it to Provident by the trustee, the
Transferor will be obligated to accept the transfer of the mortgage loan from
the trust fund. Upon that transfer, the principal balance of that defective
mortgage loan will be deducted from the principal balance of the mortgages in
the mortgage pool, thus reducing the amount of the interest of the Transferor
in the mortgage pool. If the deduction would cause the interest of the
Transferor in the mortgage pool to become less than the minimum Transferor
Interest at that time (a "Transfer Deficiency"), Provident will be obligated
either to substitute an Eligible Substitute Mortgage Loan or make a deposit
into the collection account for mortgage loan proceeds in the amount (the
"Transfer Deposit Amount") equal to the amount by which the interest of the
Transferor in the mortgage pool would be reduced to less than the minimum
Transferor Interest at that time. Any proper deduction, substitution, or
deposit will be considered a payment in full of the defective mortgage loan,
but no transfer shall be considered to have occurred unless the deposit is
actually made. Any Transfer Deposit Amount will be treated as a Principal
Collection. The obligation of the Transferor to accept a transfer of a
defective mortgage loan is the sole remedy regarding any defects in the
mortgage loans and related documents available to the trustee or the
certificateholders.
Eligible substitute mortgage loans are mortgage loans substituted by
Provident for a defective mortgage loan that must, on the date of
substitution,
o have an aggregate outstanding principal balance not __% more or less
than the transfer deficiency of the defective mortgage loan;
o have a weighted average interest rate not less than the interest
rate of the defective mortgage loan and not more than _% in excess
of the interest rate of the defective mortgage loan;
o have interest rates based on the same index with adjustments to the
interest rates made on the same interest rate adjustment date as
that of the defective mortgage loan;
o have an interest rate spread that is not less than the interest rate
spread of the defective mortgage loan and not more than ___ basis
points higher than the interest rate spread for the defective
mortgage loan;
o have a mortgage of the same or higher level of priority as the
mortgage relating to the defective mortgage loan;
o have a remaining term to maturity not more than ___ months earlier
and not more than __ months later than the remaining term to
maturity of the defective mortgage loan;
o comply with each representation and warranty as to the mortgage
loans in the pooling and servicing agreement as of the date of
substitution;
o in general, have an original combined loan-to-value ratio not
greater than that of the defective mortgage loan; and
o satisfy the other conditions specified in the pooling and servicing
agreement.
To the extent the aggregate principal balance of the eligible substitute
mortgage loans is less than the principal balance of the related defective
mortgage loan and to the extent that the interest of the Transferor in the
mortgage pool would be reduced below the Minimum Transferor Interest, the
Transferor will be required to deposit an amount equal to the difference to
the collection account for mortgage loan proceeds.
Provident will make representations and warranties as to the accuracy in
all material respects of some of the information furnished to the trustee with
respect to each mortgage loan, e.g., Cut-Off Date principal balance and the
interest rates applicable to the mortgage loans. In addition, Provident will
represent and warrant on the Closing Date that at the time of transfer to the
trust fund, Provident has transferred or assigned all of its interests in each
mortgage loan and the related documents, free of any lien, subject to
specified exceptions. Upon discovery of a breach of any of its representations
and warranties that materially and adversely affect the interests of the
certificateholders or the financial insurance policy issuer in the related
mortgage loan and related documents, Provident will have a period of 90 days
after discovery or notice of the breach to effect a cure. If the breach cannot
be cured within the 90-day period, the Transferor will be obligated to accept
a transfer of the defective mortgage loan from the trust fund. The procedure
and limitations in the second preceding paragraph for the transfer of
defective mortgage loans will apply to the transfer of a mortgage loan that is
required to be transferred because of a breach of a representation or warranty
in the pooling and servicing agreement that materially and adversely affects
the interests of the certificateholders.
AMENDMENTS TO CREDIT LINE AGREEMENTS
Subject to applicable law, the master servicer may change the terms of
the credit line agreements at any time if the changes do not adversely affect
the interest of the certificateholders or the financial insurance policy
insurer, and are consistent with prudent business practice. In addition, the
pooling and servicing agreement permits the master servicer, within specified
limitations, to increase the credit limit of a mortgage loan or reduce its
interest rate spread.
OPTIONAL TRANSFERS OF MORTGAGE LOANS TO THE TRANSFEROR
To permit the Transferor to remove mortgage loans from the trust fund
when overcollateralization exceeds the level required to maintain the ratings
on the certificates, on any distribution date (the "Transfer Date") the
Transferor may, but shall not be obligated to, remove mortgage loans from the
trust fund without notice to the certificateholders. The Transferor is
permitted to designate the mortgage loans to be removed. Mortgage loans so
designated will only be removed if the following conditions are satisfied:
o the Rapid Amortization Period has not commenced;
o the interest of the Transferor in the mortgage pool as of the
Transfer Date after giving effect to the removal exceeds the Minimum
Transferor Interest;
o the transfer of any mortgage loans on any Transfer Date during the
Managed Amortization Period will not, in the reasonable belief of
the Transferor, cause a Rapid Amortization Event to occur or an
event that with notice or lapse of time or both would constitute a
Rapid Amortization Event;
o the Transferor has delivered to the trustee the mortgage loan
schedule containing a list of all mortgage loans remaining in the
trust fund after the removal;
o the Transferor represents and warrants that no selection procedures
that the Transferor reasonably believes are adverse to the interests
of the certificateholders or the financial insurance policy insurer
were used by the Transferor in selecting the mortgage loans;
o in connection with the first retransfer of mortgage loans, the
rating agencies have been notified of the proposed transfer and
before the Transfer Date have not notified the Transferor in writing
that the transfer would result in a reduction or withdrawal of the
ratings assigned to the certificates without regard to the trust
fund's limited financial guaranty insurance policy; and
o the Transferor shall have delivered to the trustee and the financial
insurance policy insurer an officer's certificate confirming all of
these conditions.
As of any date of determination, the "Minimum Transferor Interest" is an
amount equal to the lesser of (a) _% of the principal balance of the mortgages
in the mortgage pool on that date and (b) the interest of the Transferor in
the mortgage pool as of the Closing Date.
PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT
The trustee shall establish and maintain on behalf of the master servicer
a collection account for the benefit of the certificateholders and the
Transferor, as their interests may appear. The collection account must satisfy
the conditions to be an eligible account. Within two days of their receipt by
the master servicer, the master servicer will deposit in the collection
account all amounts collected on the mortgage loans that are required to be so
deposited. All collections on the mortgage loans are required to be deposited
in the collection account except amounts representing administrative charges,
annual fees, taxes, assessments, credit insurance charges, insurance proceeds
to be applied to the restoration or repair of a mortgaged property, or similar
items. Amounts so deposited may be invested in permitted investments maturing
no later than one business day before the date on which they are required to
be deposited in the distribution account. Permitted investments are those
described as such in the prospectus under "Credit Enhancement-- Reserve
Account." Not later than the third business day before each distribution date,
the master servicer will notify the trustee of the amount to be transferred to
the distribution account.
The Trustee will establish a 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 in it may be invested in eligible
investments maturing on or before the business day before their distribution
date.
An eligible account is
o an account that is maintained with a depository institution whose
debt obligations at the time of any deposit have the highest
short-term debt rating by the rating agencies,
o one or more accounts with a depository institution having a minimum
long-term unsecured debt rating of ____ by _______ and ____ by ___,
which accounts are fully insured by either the Savings Association
Insurance Fund or the Bank Insurance Fund of the Federal Deposit
Insurance Corporation,
o a segregated trust account maintained with the trustee or an
affiliate of the trustee in its fiduciary capacity, or
o otherwise acceptable to the financial insurance policy issuer and
each rating agency without reduction or withdrawal of their then
current ratings of the certificates as evidenced by a letter from
the financial insurance policy issuer and each rating agency to the
trustee.
ALLOCATIONS AND COLLECTIONS
All collections on the mortgage loans will generally be allocated in
accordance with the credit line agreements between amounts collected in
respect of interest and amounts collected in respect of principal. Interest
collections for any distribution date will be equal to the amounts collected
during the related due period, including the portion of net liquidation
proceeds allocated to interest pursuant to the terms of the credit line
agreements, less servicing fees for the related due period.
"Principal Collections" for any distribution date will be equal to the
sum of any Transfer Deposit Amounts and the amounts collected during the
related due period, including the portion of net liquidation proceeds
allocated to principal pursuant to the terms of the credit line agreements.
Net liquidation proceeds with respect to a mortgage loan are equal to the
liquidation proceeds, reduced by related expenses, but not including any
amount that exceeds the principal balance of the mortgage loan plus accrued
and unpaid interest on it to the end of the due period during which the
mortgage loan became a liquidated mortgage loan. Liquidation proceeds are the
proceeds received in connection with the liquidation of any mortgage loan,
whether through trustee's sale, foreclosure sale, or otherwise, but excluding
any amounts drawn on the trust fund's limited financial guaranty insurance
policy.
The portion of interest collections allocable to the certificates
("Investor Interest Collections") for any distribution date will equal the
product of interest collections for the distribution date and the Investor
Floating Allocation Percentage. The "Investor Floating Allocation Percentage"
for any distribution date is a fraction determined by dividing the Invested
Amount at the close of business on the preceding distribution date (or the
Closing Date in the case of the first distribution date) by the principal
balance of the mortgages in the mortgage pool at the beginning of the related
due period. The remaining amount of interest collections will be allocated to
the interest of the Transferor in the mortgage pool.
Principal Collections will be allocated between the certificateholders
and the Transferor ("Investor Principal Collections" and "Transferor Principal
Collections," respectively) as described.
The trustee will deposit any amounts drawn under the trust fund's limited
financial guaranty insurance policy into the collection account for mortgage
loan proceeds.
The principal balance of a mortgage loan other than a liquidated mortgage
loan on any day is equal to its Cut-Off Date principal balance, plus any
additional principal balances in respect of the mortgage loan minus all
collections credited against the principal balance of the mortgage loan in
accordance with the related credit line agreement before that day. The
principal balance of a liquidated mortgage loan after final recovery of
related liquidation proceeds shall be zero.
DISTRIBUTIONS ON THE CERTIFICATES
Beginning with the first distribution date on __________, 1999,
distributions on the certificates will be made by the trustee or the paying
agent on each distribution date to the persons in whose names the certificates
are registered at the close of business on the day before each distribution
date or, if the certificates are no longer book-entry certificates, at the
close of business on the last day of the month preceding the distribution
date. The term distribution date is the [fifteenth] day of each month or the
next business day if that is not a business day. Distributions will be made by
check or money order mailed to the address of the person entitled to it except
that upon the request of a certificateholder owning certificates having
denominations aggregating at least $_________, distribution will be by wire
transfer or otherwise, in the case of book-entry certificates, the person
entitled to distributions will be DTC or its nominee, as it appears on the
certificate register in amounts calculated as described in this prospectus
supplement on the third business day before the distribution date. However,
the final distribution on the certificates will be made only upon their
presentation and surrender at the office or the agency of the trustee
specified in the notice to certificateholders of the final distribution. For
purposes of the pooling and servicing agreement, a business day is any day
other than a Saturday or Sunday or a day on which banking institutions in the
State of _________ are required or authorized by law to be closed.
Application of Interest Collections. On each distribution date, the
trustee or the paying agent will apply the Investor Interest Collections in
the following manner and order of priority:
(1) as payment to the trustee for its fee for services rendered pursuant
to the pooling and servicing agreement;
(2) as payment for the premium for the trust fund's limited financial
guaranty insurance policy;
(3) as payment for the accrued interest due on the aggregate certificate
principal balance of the certificates and any overdue accrued
interest, with interest on any overdue interest to the extent
permitted by law;
(4) to pay certificateholders the Investor Loss Amount for that
distribution date;
(5) as payment for any Investor Loss Amount for a previous distribution
date that was not previously funded by Investor Interest
Collections, absorbed by the Overcollateralization Amount, funded by
amounts on deposit in the Spread Account, or funded by draws on the
trust fund's limited financial guaranty insurance policy;
(6) to reimburse prior draws made from the trust fund's limited
financial guaranty insurance policy, with interest on them;
(7) to pay principal on the certificates until the Invested Amount
exceeds the aggregate certificate principal balance by the Required
Overcollateralization Amount (the amount so paid, the "Accelerated
Principal Distribution Amount");
(8) any other amounts required to be deposited in an account for the
benefit of the financial insurance policy issuer and the
certificateholders or owed to the financial insurance policy issuer
pursuant to the limited financial guaranty insurance policy
agreement;
(9) amounts that may be required to be paid to the master servicer
pursuant to the pooling and servicing agreement; and
(10) to the Transferor to the extent permitted as described in this
prospectus supplement.
Payments to certificateholders pursuant to clause (3) will be interest
payments on the certificates. Payments to certificateholders pursuant to
clauses (4), (5), and (7) will be principal payments on the certificates and
will therefore reduce the aggregate certificate principal balance. However,
payments pursuant to clause (7) will not reduce the Invested Amount. The
Accelerated Principal Distribution Amount is not guaranteed by the trust
fund's limited financial guaranty insurance policy.
To the extent that Investor Interest Collections are applied to pay the
interest on the certificates, Investor Interest Collections may be
insufficient to cover Investor Loss Amounts. If that insufficiency results in
the aggregate certificate principal balance exceeding the Invested Amount, a
draw will be made on the trust fund's limited financial guaranty insurance
policy in accordance with the terms of the trust fund's limited financial
guaranty insurance policy.
The "Required Overcollateralization Amount" is the amount set forth in
the pooling and servicing agreement. Liquidation loss amount means with
respect to any liquidated mortgage loan, its unrecovered principal balance
during the due period in which the mortgage loan became a liquidated mortgage
loan, after giving effect to its net liquidation proceeds. The "Investor Loss
Amount" is the product of the Investor Floating Allocation Percentage and the
liquidation loss amount for the distribution date.
A liquidated mortgage loan is, for any distribution date, any mortgage
loan that the master servicer has determined that all liquidation proceeds
that it expects to recover in the disposition of the related mortgaged
property have been recovered as of the end of the preceding due period. The
pooling and servicing agreement specifies the procedures the master servicer
will use to determine that a mortgage loan has become a liquidated mortgage
loan. The Investor Loss Amount will be allocated to the certificateholders.
The due period is the calendar month preceding each distribution date for
any distribution date other than the first distribution date. For the first
distribution date, the due period begins after the Cut-Off Date and ends on
the last day of _______________ 1999.
Interest will be distributed on each distribution date at the Certificate
Rate for the related interest period. The "Certificate Rate" for a
distribution date will generally equal the sum of [(a) the London interbank
offered rate for one-month United States dollar deposits ("LIBOR") as of the
second LIBOR business day before the preceding distribution date (or as of two
LIBOR business days before the Closing Date, in the case of the first
distribution date) plus (b) ____% per annum.] Notwithstanding the foregoing,
in no event will the amount of interest required to be distributed on the
certificates on any distribution date exceed a rate equal to the net weighted
average of the interest rates applicable to the mortgage loans weighted on the
basis of the daily balance of each mortgage loan during the related billing
cycle before the due period relating to the distribution date. The net
weighted average of the interest rates is computed net of the servicing fee
rate, the fee payable to the trustee, and the rate at which the premium
payable to the financial insurance policy issuer is calculated.
Interest on the certificates in respect of any distribution date will
accrue on the aggregate certificate principal balance during the interest
period, which is from the preceding distribution date (or in the case of the
first distribution date, from the date of the initial issuance of the
certificates (the "Closing Date")) through the day preceding the distribution
date on the basis of the actual number of days in the interest period and a
360-day year. Interest payments on the certificates will be funded from
Investor Interest Collections and, if necessary, from draws on the trust
fund's limited financial guaranty insurance policy.
[Calculation of the LIBOR Rate. On each distribution date, LIBOR shall be
established by the trustee and as to any interest period, LIBOR will equal the
rate for United States dollar deposits for one month that appears on telerate
screen page 3750 as of 11:00 A.M., London time, on the second LIBOR business
day before the first day of the interest period. Telerate screen page 3750 is
the display designated as page 3750 on Bridge Telerate, Inc. (or any other
page that replaces page 3750 on that service for the purpose of displaying
London interbank offered rates of major banks). If that rate does not so
appear, or appear on a replacement service for displaying LIBOR or comparable
rates selected by Provident, 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 as of 11:00
A.M., London time, on the day that is two LIBOR business days before the
immediately preceding distribution date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the
principal amount of the certificates then outstanding. The reference banks
will be three major banks that are engaged in transactions in the London
interbank market, selected by Provident. 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 fewer than two quotations are
provided on that date as requested, the rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by
Provident as of 11:00 A.M., New York City time, on that date for loans in U.S.
Dollars to leading European banks for a period of one month in amounts
approximately equal to the principal amount of the certificates then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the prior distribution date. A LIBOR business day is any day other than a
Saturday or a Sunday or a day on which banking institutions in the State of
New York or in the city of London, England are required or authorized by law
to be closed.]
Transferor Collections. Collections allocable to the interest of the
Transferor in the mortgage pool that are not distributed to certificateholders
will be distributed to the Transferor only to the extent that the distribution
will not reduce the amount of the interest of the Transferor in the mortgage
pool as of the related distribution date below the Minimum Transferor
Interest. Amounts not distributed to the Transferor because of this limitation
will be retained in the collection account for mortgage loan proceeds until
the interest of the Transferor in the mortgage pool exceeds the Minimum
Transferor Interest, at which time the excess shall be released to the
Transferor. If any such amounts are still retained in the collection account
for mortgage loan proceeds upon the commencement of the Rapid Amortization
Period, they will be paid to the certificateholders as a reduction of the
aggregate certificate principal balance.
Overcollateralization. The distribution of any aggregate Accelerated
Principal Distribution Amount to certificateholders may result in the Invested
Amount being greater than the aggregate certificate principal balance, thereby
creating overcollateralization. Any Overcollateralization Amount will be
available to absorb any Investor Loss Amount that is not covered by Investor
Interest Collections. The "Overcollateralization Amount" on any date of
determination is the amount by which the Invested Amount exceeds the aggregate
certificate principal balance on that day.
Distributions of Principal Collections. Principal Collections will be
allocated between the Investor Principal Collections and Transferor Principal
Collections in accordance with their percentage interests in the mortgage
loans of __% and __%, respectively, as of the Cut-Off Date (the "Fixed
Allocation Percentage"), but a lesser amount of Principal Collection may be
distributed during the Managed Amortization Period. The "Investor Fixed
Allocation Percentage" is __%. The "Managed Amortization Period" is the period
beginning on the first distribution date and, unless a Rapid Amortization
Event has occurred earlier, ending on the distribution date in _________, 20__.
During the Managed Amortization Period the amount of Principal Collections
payable to certificateholders as of each distribution date will equal, to the
extent funds are available therefor, the Scheduled Principal Collections
Distribution Amount for such distribution date. On any distribution date
during the Managed Amortization Period, the "Scheduled Principal Collections
Distribution Amount" is the lesser of the Maximum Principal Payment and the
Alternative Principal Payment. With respect to any distribution date, the
"Maximum Principal Payment" is the product of the Investor Fixed Allocation
Percentage and principal collections for that distribution date. With respect
to any distribution date, the "Alternative Principal Payment" is the greater
of ___% of the aggregate certificate principal balance before that
distribution date and the amount of Principal Collections for that
distribution date less the aggregate of additional balances created during the
related due period.
Beginning with the first distribution date following the end of the
Managed Amortization Period, the amount of Principal Collections payable to
certificateholders on each distribution date will be equal to the Maximum
Principal Payment.
The amount of Principal Collections to be distributed to
certificateholders on the first distribution date will reflect Principal
Collections and additional balances during the first due period, which is the
period beginning after the Cut-Off Date through the last day of __________
1999.
Distributions of Principal Collections based upon the Investor Fixed
Allocation Percentage may result in distributions of principal to
certificateholders in amounts that are greater relative to the declining
principal balance of the mortgages in the mortgage pool than would be the case
if the Investor Floating Allocation Percentage were used to determine the
percentage of Principal Collections distributed in respect of the Invested
Amount. Principal Collections not allocated to the certificateholders will be
allocated to the interest of the Transferor in the mortgage pool. The
aggregate distributions of principal to the certificateholders will not exceed
the original aggregate certificate principal balance.
On the distribution date in ____________ 20__, certificateholders will be
entitled to receive as a payment of principal an amount equal to the
outstanding aggregate certificate principal balance to the extent of funds
available therefor, including funds available under the trust fund's limited
financial guaranty insurance policy.
The Paying Agent. The paying agent shall initially be the trustee. The
paying agent shall have the revocable power to withdraw funds from the
collection account for mortgage loan proceeds for the purpose of making
distributions to the certificateholders.
RAPID AMORTIZATION EVENTS
As described above, the Managed Amortization Period will continue through
the distribution date in ___________, 20__, unless a Rapid Amortization Event
occurs before that date, in which case the Rapid Amortization Period will
commence earlier. "Rapid Amortization Event" refers to any of the following
events:
(1) failure on the part of the Transferor
o to make a payment or deposit required under the pooling and
servicing agreement within three business days after the date
such payment or deposit is required to be made or
o to observe or perform in any material respect any other
covenants or agreements of the Transferor in the pooling and
servicing agreement, which failure continues unremedied for a
period of 60 days after written notice;
(2) any representation or warranty made by the Transferor in the
pooling and servicing agreement proves to have been incorrect in any
material respect when made and continues to be incorrect in any material
respect for a period of 60 days after written notice and as a result of
which the interests of the certificateholders are materially and
adversely affected; but a Rapid Amortization Event shall not occur if the
Transferor has purchased or made a substitution for the related mortgage
loans during the 60-day period (or within an additional 60 days with the
consent of the trustee) in accordance with the pooling and servicing
agreement;
(3) the occurrence of specified events of bankruptcy, insolvency, or
receivership relating to the Transferor; or
(4) the trust fund becomes subject to regulation by the SEC as an
investment company within the meaning of the Investment Company Act of
1940, as amended.
In the case of any event described in clause (1) or (2), a Rapid
Amortization Event will occur only if after any applicable grace period either
the trustee or certificateholders holding certificates evidencing more than
51% of the percentage interests or the financial insurance policy issuer (so
long as it has not defaulted under the trust fund's limited financial guaranty
insurance policy), by written notice to Provident and the master servicer (and
to the trustee, if given by the certificateholders) declare that a Rapid
Amortization Event has occurred as of the date of the notice. In the case of
any event described in clause (3) or (4), a Rapid Amortization Event will
occur without any notice or other action on the part of the trustee or the
certificateholders immediately upon the occurrence of the event.
In addition to the consequences of a Rapid Amortization Event discussed
above, if the Transferor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Transferor, on the day of any such filing or appointment no further additional
balances will be transferred to the trust fund, the Transferor will
immediately cease to transfer additional balances to the trust fund and the
Transferor will promptly give notice to the trustee of the filing or
appointment. Within 15 days, the trustee will publish a notice of the
liquidation or the filing or appointment stating that the trustee intends to
sell, dispose of, or otherwise liquidate the mortgage loans in a commercially
reasonable manner and to the best of its ability. Unless otherwise instructed
within a specified period by certificateholders representing undivided
interests aggregating more than 51% of the aggregate principal amount of the
certificates, the trustee will sell, dispose of, or otherwise liquidate the
mortgage loans in a commercially reasonable manner and on commercially
reasonable terms. Any proceeds will be treated as collections allocable to the
certificateholders and the Investor Fixed Allocation Percentage of the
remaining proceeds will be distributed to the certificateholders on the date
the proceeds are received (the "Dissolution Distribution Date"). [If the
portion of those proceeds allocable to the certificateholders is not
sufficient to pay in full the remaining amount due on the certificates, the
trust fund's limited financial guaranty insurance policy will cover the
shortfall.]
Notwithstanding the foregoing, if a conservator, receiver, or
trustee-in-bankruptcy is appointed for the Transferor and no Rapid
Amortization Event exists other than the conservatorship, receivership, or
insolvency of the Transferor, the conservator, receiver, or
trustee-in-bankruptcy may have the power to prevent the commencement of the
Rapid Amortization Period and the sale of mortgage loans.
THE POLICY
[On or before the Closing Date, an irrevocable and unconditional limited
financial guaranty insurance policy will be issued by the financial insurance
policy issuer pursuant to the provisions of the pooling and servicing
agreement and the Insurance and Indemnity Agreement to be dated as of
____________, 1999, between Provident, [the trustee] and the financial
insurance policy issuer.
The trust fund's limited financial guaranty insurance policy will
irrevocably and unconditionally guarantee payment on each distribution date to
the trustee for the benefit of the certificateholders of the guaranteed
distributions comprised of the full and complete payment of the guaranteed
principal distribution amount with respect to the certificates for the
distribution date and accrued and unpaid interest due on the certificates. The
guaranteed distributions will be calculated in accordance with the original
terms of the certificates or the pooling and servicing agreement except for
amendments or modifications to which the financial insurance policy issuer has
given its prior written consent. The effect of the trust fund's limited
financial guaranty insurance policy is to guarantee the timely payment of
interest on, and the ultimate payment of the principal amount of, all of the
certificates.
The guaranteed principal distribution amount is the amount, if any, by
which the aggregate certificate principal balance exceeds the Invested Amount
as of the distribution date, each after giving effect to all other amounts
distributable and allocable to principal on the certificates for the
distribution date. In addition, the trust fund's limited financial guaranty
insurance policy will guarantee the payment of the outstanding aggregate
certificate principal balance on the distribution date in ______________ 20__,
after giving effect to all other amounts distributable and allocable to
principal on the distribution date.
In accordance with the pooling and servicing agreement, the trustee will
be required to establish and maintain an account (the "Spread Account") for
the benefit of the financial insurance policy issuer and the
certificateholders. The trustee shall deposit the amounts into the Spread
Account as required by the pooling and servicing agreement.
Payment of claims on the trust fund's limited financial guaranty
insurance policy will be made by the financial insurance policy issuer
following actual receipt by the financial insurance policy issuer of the
appropriate notice for payment on the later to occur of 12:00 NOON, New York
City time, on the second business day following actual receipt by the
financial insurance policy issuer of the notice for payment and 12:00 NOON,
New York City time, on the relevant distribution date.
If payment of any amount guaranteed by the financial insurance policy
issuer pursuant to the trust fund's limited financial guaranty insurance
policy is avoided as a preference payment under applicable bankruptcy,
insolvency, receivership, or similar law, the financial insurance policy
issuer will pay that amount out of the funds of the financial insurance policy
issuer on the later of the date when due to be repaid to the trust fund
pursuant to the order of the court ordering the repayment or the first to
occur of
o the fourth business day following actual receipt by the financial
insurance policy issuer from the trustee of
(1) a certified copy of the order of the court or other
governmental body that exercised jurisdiction to the effect
that the certificateholder is required to return the amount of
any guaranteed distributions distributed with respect to the
certificates during the term of the related trust fund's
limited financial guaranty insurance policy because they were
avoidable preference payments under applicable bankruptcy law,
(2) a certificate of the certificateholder that the court order has
been entered and is not subject to any stay, and
(3) an assignment duly executed and delivered by the
certificateholder, in the form reasonably required by the
financial insurance policy issuer and provided to the
certificateholder by the financial insurance policy issuer,
irrevocably assigning to the financial insurance policy issuer
all rights and claims of the certificateholder relating to or
arising under the certificates against the debtor which made
such preference payment or otherwise with respect to such
preference payment, or
o the date of actual receipt by the financial insurance policy issuer
from the trustee of the items referred to in clauses (1), (2), and
(3) above if, at least four business days before the date of
receipt, the financial insurance policy issuer has actually received
written notice from the trustee that those items were to be
delivered on that date and that date was specified in the notice.
The payment shall be disbursed to the receiver, conservator,
debtor-in-possession, or trustee in bankruptcy named in the court
order requiring repayment and not to the trustee or any
certificateholder directly, unless a certificateholder has
previously paid the amount to the receiver, conservator,
debtor-in-possession, or trustee in bankruptcy named in the court
order requiring repayment, in which case the payment shall be
disbursed to the trustee for distribution to that certificateholder
upon proof of payment reasonably satisfactory to the financial
insurance policy issuer.
Receipt of requests or notices under the trust fund's limited financial
guaranty insurance policy, means actual delivery to the financial insurance
policy issuer and to any fiscal agent appointed by it at its option before
12:00 NOON, New York City time, on a business day. Delivery either on a day
that is not a business day or after 12:00 NOON, New York City time, is
considered receipt on the next business day. If any notice or certificate
given under the trust fund's limited financial guaranty insurance policy by
the trustee is not in proper form or is not properly completed, executed, or
delivered it will not be considered to have been received, and the financial
insurance policy issuer or its fiscal agent shall promptly so advise the
trustee and the trustee may submit an amended notice.
Under the trust fund's limited financial guaranty insurance policy, a
business day is any day other than a Saturday or Sunday or a day on which
banking institutions in The City of New York, New York are authorized or
obligated by law or executive order to be closed.
The financial insurance policy issuer's obligations under the trust
fund's limited financial guaranty insurance policy in respect of guaranteed
distributions shall be discharged to the extent funds are transferred to the
trustee as provided in the trust fund's limited financial guaranty insurance
policy, whether or not the funds are properly applied by the trustee.
The financial insurance policy issuer shall be subrogated to the rights
of each certificateholder to receive payments of principal and interest, as
applicable, with respect to distributions on the certificates to the extent of
any payment by the financial insurance policy issuer under the trust fund's
limited financial guaranty insurance policy. To the extent the financial
insurance policy issuer makes guaranteed distributions, either directly or
indirectly, to the certificateholders, the financial insurance policy issuer
will be subrogated to the rights of the certificateholders, as applicable,
with respect to such guaranteed distributions, shall be considered to the
extent of the payments so made to be a registered certificateholder for
purposes of payment, and shall receive all future guaranteed distributions
until all guaranteed distributions by the financial insurance policy issuer
have been fully reimbursed, if the certificateholders have received the full
amount of the guaranteed distributions.
The terms of the trust fund's limited financial guaranty insurance policy
cannot be modified, altered, or affected by any other pooling and servicing
agreement or instrument, or by the merger, consolidation, or dissolution of
the Transferor. The trust fund's limited financial guaranty insurance policy
by its terms may not be cancelled or revoked. The trust fund's limited
financial guaranty insurance policy is governed by the laws of the State of
________.
The trust fund's limited financial guaranty insurance policy is not
covered by the Property/Casualty Insurance Security fund specified in Article
76 of the New York Insurance Law. The trust fund's limited financial guaranty
insurance policy is not covered by the Florida Insurance Guaranty Association
created under Part II of Chapter 631 of the Florida Insurance Code. If the
financial insurance policy issuer were to become insolvent, any claims arising
under the trust fund's limited financial guaranty insurance policy are
excluded from coverage by the California Insurance Guaranty Association,
established pursuant to Article 14.2 of Chapter 1 of part 2 of Division 1 of
the California Insurance Code.
Pursuant to the pooling and servicing agreement, unless a financial
insurance policy issuer default exists, the financial insurance policy issuer
shall be considered to be the Holder of the certificates for specified
purposes other than with respect to payment on the certificates, will be
entitled to exercise all rights of the certificateholders under them without
the consent of the Holders, and the Holders of the certificates may exercise
their rights only with the prior written consent of the financial insurance
policy issuer. In addition, the financial insurance policy issuer will have
additional rights as third party beneficiary to the pooling and servicing
agreement.
In the absence of payments under the trust fund's limited financial
guaranty insurance policy, certificateholders will bear directly the credit
and other risks associated with their undivided interest in the trust fund.]
[PRE-FUNDING ACCOUNT
On the Closing Date, $___________ will be deposited in the pre-funding
account, which account will be in the name of and maintained by the trustee
and will be part of the trust fund and will be used to acquire mortgage loans
to be added to the trust fund after the initial closing. During the funding
period beginning on the Closing Date and terminating on _____________, 1999,
the pre-funded amount will be reduced by the amount thereof used to purchase
mortgage loans to be added to the trust fund after the initial closing in
accordance with the pooling and servicing agreement. Any pre-funded amount
remaining at the end of the funding period will be distributed to holders of
the classes of certificates entitled to receive principal on the distribution
date in ______________, 1999 in reduction of the related aggregate certificate
principal balances, thus resulting in a partial principal prepayment of the
related certificates on that date.
Amounts on deposit in the pre-funding account will be invested in
permitted investments. All interest and any other investment earnings on
amounts on deposit in the pre-funding account will be deposited in the
capitalized interest account.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date there will be deposited in the capitalized interest
account maintained with and in the name of the trustee on behalf of the trust
fund a portion of the proceeds of the sale of the certificates. The amount
deposited therein will be used by the trustee on the distribution dates in
__________________ 1999, _____________ 1999, and ______________, 1999 to cover
shortfalls in interest on the certificates that may arise as a result of the
utilization of the pre-funding account for the purchase by the trust fund of
mortgage loans to be added to the trust fund after the initial closing after
the Closing Date. Any amounts remaining in the capitalized interest account at
the end of the funding period which are not needed to cover shortfalls on the
distribution date in ___________ 19__ are required to be paid directly to
Provident.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the certificateholders, the master
servicer will forward to the trustee for mailing to the certificateholder a
statement setting forth among other items:
(1) the Investor Floating Allocation Percentage for the preceding
due period;
(2) the amount being distributed to certificateholders;
(3) the amount of interest included in the distribution and the
related Certificate Rate;
(4) the amount, if any, of overdue accrued interest included in the
distribution, and the amount of interest on it;
(5) the amount, if any, of the remaining overdue accrued interest
after giving effect to the distribution;
(6) the amount, if any, of principal included in the distribution;
(7) the amount, if any, of the reimbursement of previous
liquidation loss amounts included in the distribution;
(8) the amount, if any, of the aggregate unreimbursed liquidation
loss amounts after giving effect to the distribution;
(9) the servicing fee for the distribution date;
(10) the Invested Amount and the aggregate certificate principal
balance, each after giving effect to the distribution;
(11) the principal balance of the mortgages in the mortgage pool as
of the end of the preceding due period;
(12) the number and aggregate principal balances of the mortgage
loans as to which the minimum monthly payment is delinquent for
30-59 days, 60-89 days, and 90 or more days, respectively, as
of the end of the preceding due period;
(13) the book value of any real estate that is acquired by the trust
fund through foreclosure or grant of deed in lieu of
foreclosure; and
(14) the amount of any draws on the trust fund's limited financial
guaranty insurance policy.
In the case of information furnished pursuant to clauses (3), (4), (5),
(6), (7), and (8) above, the amounts shall be expressed as a dollar amount per
certificate with a $1,000 denomination.
Within 60 days after the end of each calendar year commencing in 1999,
the master servicer will be required to forward to the trustee a statement
containing the information in clauses (3) and (4) above aggregated for the
calendar year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The master servicer will make reasonable efforts to collect all payments
called for under the mortgage loans and will, consistent with the pooling and
servicing agreement, follow the collection procedures it follows from time to
time with respect to the home equity loans in its servicing portfolio
comparable to the mortgage loans. Consistent with this, 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,
if the arrangement is consistent with the master servicer's policies with
respect to the home equity mortgage loans it owns or services. In accordance
with the terms of the pooling and servicing agreement, the master servicer may
consent under specified circumstances to the placing of a subsequent senior
lien on the property covered by a mortgage loan.
HAZARD INSURANCE
The pooling and servicing agreement provides that the master servicer
shall maintain hazard insurance on the mortgaged properties relating to the
mortgage loans. While the related credit line agreements generally require
borrowers to maintain hazard insurance, the master servicer will not monitor
that. The master servicer will deposit any net proceeds from hazard insurance
in the collection account for mortgage loan proceeds. For a further discussion
of hazard insurance, see "The Agreements--Hazard Insurance" in the prospectus.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The master servicer will foreclose on or otherwise comparably convert to
ownership mortgaged properties securing any mortgage loans that come into
default when, in accordance with applicable servicing procedures under the
pooling and servicing agreement, no satisfactory arrangements can be made for
the collection of delinquent payments. In connection with foreclosure or other
conversion, the master servicer will follow the practices it deems appropriate
and that are in keeping with its general subordinate mortgage servicing
activities. 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, the foreclosure, correction, or restoration will increase net
liquidation proceeds. The master servicer will be reimbursed out of
liquidation proceeds for advances of its own funds as liquidation expenses
before any net liquidation proceeds are distributed to certificateholders or
the Transferor.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The master servicer will receive from interest collections on the
mortgage loans in each due period a portion of the interest collections as a
monthly servicing fee in the amount equal to approximately ____% per annum on
the aggregate principal balances of the mortgage loans as of the first day of
the related due period, or at the Cut-Off Date for the first due period. All
assumption fees, late payment charges, and other fees and charges, to the
extent collected from borrowers, will be retained by the master servicer as
additional servicing compensation.
The master servicer will pay some ongoing expenses associated with the
trust fund and incurred by it in connection with its responsibilities under
the pooling and servicing agreement. In addition, the master servicer will be
entitled to reimbursement for some expenses incurred by it in connection with
defaulted mortgage loans and in connection with the restoration of mortgaged
properties, such right of reimbursement being before the rights of
certificateholders to receive any related net liquidation proceeds.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement provides for delivery on or before
___________ in each year, beginning in ___________, 1999, to the trustee of an
annual statement signed by an officer of the master servicer to the effect
that the master servicer has fulfilled its material obligations under the
pooling and servicing agreement throughout the preceding fiscal year, except
as specified in the statement.
On or before _____________ of each year, beginning ___________, 1999, the
master servicer will furnish a report prepared by a firm of nationally
recognized independent public accountants, who may also render other services
to the master servicer or the Transferor, to the trustee, the financial
insurance policy issuer, and the rating agencies to the effect that the firm
has examined specified documents and the records relating to servicing of the
mortgage loans under the pooling and servicing agreement and that, on the
basis of that examination, the firm believes that the servicing was conducted
in compliance with the pooling and servicing agreement except for exceptions
the firm believes to be immaterial and any other exceptions set forth in the
report.
MATTERS REGARDING THE MASTER SERVICER AND THE TRANSFEROR
The pooling and servicing agreement provides that the master servicer may
not resign from its obligations under it, except in connection with a
permitted transfer of servicing, unless its obligations are no longer
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities of a type and nature presently
carried on by it or its affiliate or upon the satisfaction of the following
conditions:
o the master servicer has proposed a successor servicer to the trustee
in writing and such proposed successor servicer is reasonably
acceptable to the trustee;
o the rating agencies have confirmed to the trustee that the
appointment of the proposed successor servicer as the master
servicer will not result in the reduction or withdrawal of the then
current rating of the certificates; and
o the proposed successor servicer is reasonably acceptable to the
financial insurance policy issuer.
No resignation will become effective until the trustee or a successor servicer
has assumed the master servicer's obligations under the pooling and servicing
agreement.
The master servicer may perform any of its obligations under the pooling
and servicing agreement through one or more subservicers or delegates, which
may be affiliates of the master servicer. Notwithstanding any such
arrangement, the master servicer will remain obligated to the trustee and the
certificateholders for the master servicer's obligations under the pooling and
servicing agreement, without any diminution of its obligations and as if the
master servicer itself were performing those obligations.
The pooling and servicing agreement provides that the master servicer
will indemnify the trust fund and the trustee from and against any loss,
liability, expense, damage, or injury suffered as a result of the master
servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans that are not in accordance with the
pooling and servicing agreement. Under the pooling and servicing agreement,
the Transferor will indemnify an injured party for the entire amount of any
losses, claims, damages, or liabilities arising out of the pooling and
servicing agreement other than losses resulting from defaults under the
mortgage loans. Upon an event of servicing termination resulting in the
assumption of servicing obligations by a successor master servicer, the
successor master servicer will indemnify the Transferor for any losses,
claims, damages, and liabilities of the Transferor as described in this
paragraph arising from the successor master servicer's actions or omissions.
The pooling and servicing agreement provides that neither Provident, the
Transferor, nor the master servicer nor their directors, officers, employees,
or agents will be under any other liability to the trust fund, the trustee,
the certificateholders, or any other person for any action taken or for
refraining from taking any action pursuant to the pooling and servicing
agreement. However, neither Provident, the Transferor, nor the master servicer
will be protected against any liability that would otherwise be imposed for
willful misconduct, bad faith, or gross negligence of Provident, the
Transferor, or the master servicer in the performance of its duties under the
pooling and servicing agreement or for reckless disregard of its obligations
under the pooling and servicing agreement. In addition, the pooling and
servicing agreement provides that the master servicer will not be under any
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under the pooling and servicing
agreement and that in its opinion may expose it to any expense or liability.
The master servicer may, in its sole discretion, undertake any legal action
that it deems appropriate with respect to the pooling and servicing 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 is a party, or any corporation
succeeding to the business of the master servicer will be the successor of the
master servicer under the pooling and servicing agreement, without the
execution or filing of any paper or any further act on the part of any of the
parties to the pooling and servicing agreement, anything in the pooling and
servicing agreement to the contrary notwithstanding.
EVENTS OF SERVICING TERMINATION
Events of servicing termination will consist of:
o any failure of the master servicer to deposit in the collection
account for mortgage loan proceeds any deposit required to be made
under the pooling and servicing agreement;
o any failure by the master servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
pooling and servicing agreement that, in each case, materially and
adversely affects the interests of the certificateholders or the
financial insurance policy issuer and continues unremedied for 30
days after the giving of written notice of that failure to the
master servicer by the trustee, or to the master servicer and the
trustee by the financial insurance policy issuer or
certificateholders evidencing an aggregate, undivided interest in
the trust fund of at least 25% of the aggregate certificate
principal balance; or
o events of insolvency, readjustment of debt, marshalling of assets
and liabilities, or similar proceedings relating to the master
servicer and actions by the master servicer indicating insolvency,
reorganization or inability to pay its obligations.
Under other circumstances, the financial insurance policy issuer with the
consent of holders of certificates evidencing an aggregate, undivided interest
in the trust fund of at least 51% of the aggregate certificate principal
balance may deliver written notice to the master servicer terminating all the
rights and obligations of the master servicer under the pooling and servicing
agreement.
Notwithstanding the foregoing, a delay in or failure of performance
referred to in the first item above for a period of ten business days or
referred to in the second item above for a period of 60 business days, will
not constitute an event of servicing termination if the delay or failure could
not be prevented by the exercise of reasonable diligence by the master
servicer and the 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 pooling and servicing agreement and the
master servicer shall provide the trustee, Provident, the Transferor, the
financial insurance policy issuer, and the certificateholders prompt notice of
its failure or delay, together with a description of its efforts to perform
its obligations.
RIGHTS UPON AN EVENT OF SERVICING TERMINATION
So long as an event of servicing termination remains unremedied, either
the trustee, or certificateholders evidencing at least 51% of the aggregate
certificate principal balance or the financial insurance policy issuer, may
terminate all of the rights and obligations of the master servicer under the
pooling and servicing agreement and in the mortgage loans, whereupon the
trustee will succeed to all the rights and obligations of the master servicer
under the pooling and servicing agreement and will be entitled to similar
compensation arrangements. If the trustee would be obligated to succeed the
master servicer but is unwilling or unable to do so, 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 pooling and servicing agreement and having a net worth of at least
$__________ and acceptable to the financial insurance policy issuer to act as
successor to the master servicer under the pooling and servicing agreement.
Pending that appointment, the trustee will be obligated to act as master
servicer unless prohibited by law. The 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 the successor may agree. A
receiver or conservator for the master servicer may be empowered to prevent
the termination and replacement of the master servicer where the only event of
servicing termination that has occurred is an insolvency event.
AMENDMENT
The pooling and servicing agreement may be amended from time to time by
Provident, the master servicer, and the trustee and with the consent of the
financial insurance policy issuer, but without the consent of the
certificateholders, to cure any ambiguity, to correct or supplement any of its
provisions that may be inconsistent with any of its other provisions, to add
to the duties of Provident or the master servicer, to comply with any
requirements imposed by the Internal Revenue Code or any regulation
thereunder, or to add any other provisions with respect to matters or
questions arising under the pooling and servicing agreement that are not
inconsistent with the provisions of the pooling and servicing agreement, if
the action will not, as evidenced by an opinion of counsel, materially and
adversely affect the interests of any certificateholder or the financial
insurance policy issuer. No amendment will be considered to materially and
adversely affect the certificateholders and no such opinion will be required
to be delivered if the person requesting the amendment obtains a letter from
the rating agencies stating that the amendment would not result in a
downgrading of the then current rating of the certificates. The pooling and
servicing agreement may also be amended from time to time by Provident, the
master servicer, and the trustee, with the consent of certificateholders
evidencing an aggregate certificate principal balance of not less than 51% and
the consent of the financial insurance policy issuer for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the pooling and servicing agreement or of modifying in any
manner the rights of the certificateholders, but no such amendment may reduce
in any manner the amount of, or delay the timing of, collections of payments
on the certificates or distributions or payments under the trust fund's
limited financial guaranty insurance policy that are required to be made on
any certificate without the consent of the holder of the certificate or reduce
the aforesaid percentage required to consent to any amendment, without the
consent of the holders of all certificates then outstanding.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The trust fund will terminate on the distribution date following the
later of payment in full of all amounts owing to the financial insurance
policy issuer and the earliest of
o the distribution date on which the aggregate certificate principal
balance has been reduced to zero,
o the final payment or other liquidation of the last mortgage loan in
the trust fund,
o the optional transfer to the Transferor of the certificates, and
o the distribution date in ____________ 20__.
The certificates will be subject to optional transfer to the Transferor
on any distribution date after the aggregate certificate principal balance is
reduced to an amount less than or equal to 5% of the original aggregate
certificate principal balance and all amounts due and owing to the financial
insurance policy issuer and unreimbursed draws on the trust fund's limited
financial guaranty insurance policy, together with interest on them have been
paid. The transfer price will be equal to the sum of the outstanding aggregate
certificate principal balance and accrued and unpaid interest on the
certificates at the Certificate Rate through the day preceding the final
distribution date. In no event, however, will the trust fund created by the
pooling and servicing agreement continue for more than 21 years after the
death of individuals named in the pooling and servicing agreement. Written
notice of termination of the pooling and servicing agreement will be given to
each certificateholder, and the final distribution will be made only upon
surrender and cancellation of the certificates at an office or agency
appointed by the trustee that will be specified in the notice of termination.
In addition, the trust fund may be liquidated as a result of specified
events of bankruptcy, insolvency, or receivership relating to the Transferor.
See "--Rapid Amortization Events."
THE TRUSTEE
[_____________________], a ____________________________ with its
principal place of business in ________, has been named trustee pursuant to
the pooling and servicing agreement.
The commercial bank or trust company serving as trustee may own
certificates and have normal banking relationships with Provident and the
financial insurance policy issuer and their affiliates.
The trustee may resign at any time, in which event Provident will be
obligated to appoint a successor trustee, as approved by the financial
insurance policy issuer. Provident may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. On becoming aware of such
circumstances, Provident will be obligated to appoint a successor trustee, as
approved by the financial insurance policy issuer. 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 pooling and
servicing agreement to institute any proceeding with respect to the pooling
and servicing agreement unless the holder previously has given to the trustee
written notice of default and unless certificateholders evidencing an
aggregate, undivided interest in the trust fund of at least 51% of the
aggregate certificate principal balance have made written requests upon the
trustee to institute the 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 the proceeding. The trustee will be
under no obligation to exercise any of the trusts or powers vested in it by
the pooling and servicing agreement or to make any investigation of matters
arising thereunder or to institute, conduct, or defend any litigation
thereunder or in relation thereto at the request, order, or direction of any
of the certificateholders, unless the certificateholders have offered to the
trustee reasonable security or indemnity against the cost, expenses, and
liabilities that may be incurred.
PROHIBITED ACTIVITIES
The trust fund will not:
o borrow money;
o make loans;
o invest in securities for the purpose of exercising control;
o underwrite securities;
o except as provided in the pooling and servicing agreement, engage in
the purchase and sale or turnover of investments;
o offer securities in exchange for property, except certificates for
the mortgage loans; or
o repurchase or otherwise reacquire its securities.
See "--Evidence as to Compliance" above for information regarding reports
as to the compliance by the master servicer with the terms of the pooling and
servicing agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will be
applied by Provident towards general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion, which summarizes the material U.S. federal
income tax aspects of the purchase, ownership, and disposition of the
certificates, is based on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury regulations under the Code, and
published rulings and court decisions in effect as of the date of this
prospectus supplement, all of which are subject to change, possibly
retroactively. This discussion does not address every aspect of the U.S.
federal income tax laws that may be relevant to certificate owners in light of
their personal investment circumstances or to various types of certificate
owners subject to special treatment under the U.S. federal income tax laws,
for example, banks and life insurance companies. Accordingly, investors are
encouraged to consult their tax advisors regarding U.S. federal, state, local,
foreign, and any other tax consequences to them of investing in the
certificates.
CHARACTERIZATION OF THE CERTIFICATES AS INDEBTEDNESS
Based on the application of existing law to the facts as set forth in the
pooling and servicing agreement and other relevant documents and assuming
compliance with the terms of the pooling and servicing agreement as in effect
on the date of issuance of the certificates, Brown & Wood LLP, special tax
counsel to the trust fund ("Tax Counsel"), is of the opinion that the
certificates will be treated as debt instruments for federal income tax
purposes as of that date. Accordingly, upon issuance, the certificates will be
treated as "Debt Securities" as described in the prospectus. See "Federal
Income Tax Consequences" in the prospectus.
The Transferor and the certificateholders express in the pooling and
servicing agreement their intent that, for all tax purposes, the certificates
will be indebtedness secured by the mortgage loans. The Transferor, Provident,
and the certificateholders, by accepting the certificates, and each
certificate owner by its acquisition of a beneficial interest in a
certificate, have agreed to treat the certificates as indebtedness for U.S.
federal income tax purposes. However, because different criteria are used to
determine the non-tax accounting characterization of the transaction, the
Transferor intends to treat this transaction as a sale of an interest in the
principal balances of the mortgage loans for financial accounting and some
regulatory purposes.
In general, whether for U.S. federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the Internal Revenue Service and the courts have
set forth several factors to be taken into account in determining whether the
substance of a transaction is a sale of property or a secured loan, the
primary factor in making this determination is whether the transferee has
assumed the risk of loss or other economic burdens relating to the property
and has obtained the benefits of its ownership. Tax Counsel has analyzed and
relied on several factors in reaching its opinion that the weight of the
benefits and burdens of ownership of the mortgage loans has been retained by
the Transferor and has not been transferred to the certificate owners.
In some instances, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel has advised that the
rationale of those cases will not apply to this transaction, because the form
of the transaction as reflected in the operative provisions of the documents
either accords with the characterization of the certificates as debt or
otherwise makes the rationale of those cases inapplicable to this situation.
TAXATION OF INTEREST INCOME OF CERTIFICATE OWNERS
Assuming that the certificate owners are holders of debt obligations for
U.S. federal income tax purposes, the certificates generally will be taxable
as Debt Securities. See "Federal Income Tax Consequences" in the prospectus.
While it is not anticipated that the certificates will be issued at a
greater than de minimis discount, under Treasury regulations (the "OID
Regulations") it is possible that the certificates could nevertheless be
deemed to have been issued with original issue discount ("OID") if the
interest were not treated as "unconditionally payable" under the OID
Regulations. If those regulations were to apply, all of the taxable income to
be recognized with respect to the certificates would be includible in income
of certificate owners as OID, but would not be includible again when the
interest is actually received. See "Federal Income Tax Consequences--Taxation
of Debt Securities; Interest and Acquisition Discount" in the prospectus for a
discussion of the application of the OID rules if the certificates are in fact
issued at a greater than de minimis discount or are treated as having been
issued with OID under the OID Regulations. For purposes of calculating OID, it
is likely that the certificates will be treated as Pay-Through Securities.
POSSIBLE CLASSIFICATION OF THE CERTIFICATES AS A
PARTNERSHIP OR ASSOCIATION TAXABLE AS A CORPORATION
The opinion of Tax Counsel is not binding on the courts or the IRS. It is
possible that the IRS could assert that, for purposes of the Code, the
transaction contemplated by this prospectus supplement with respect to the
certificates constitutes a sale of the mortgage loans, or an interest in them,
to the certificate owners and that the proper classification of the legal
relationship between the Transferor and the certificate owners resulting from
this transaction is that of a partnership or a publicly traded partnership
treated as a corporation. Since Tax Counsel has opined that the certificates
will be treated as indebtedness in the hands of the certificateholders for
U.S. federal income tax purposes, the Transferor will not attempt to comply
with U.S. federal income tax reporting requirements applicable to partnerships
or corporations.
If it were determined that this transaction created an entity classified
as a publicly traded partnership taxable as a corporation, the trust fund
would be subject to U.S. federal income tax at corporate income tax rates on
the income it derives from the mortgage loans, which would reduce the amounts
available for distribution to the certificate owners. Cash distributions to
the certificate owners generally would be treated as dividends for tax
purposes to the extent of the corporation's earnings and profits.
If the transaction were treated as creating a partnership between the
certificate owners and the Transferor, the partnership itself would not be
subject to U.S. federal income tax, unless it were to be characterized as a
publicly traded partnership taxable as a corporation. Rather, the Transferor
and each certificate owner would be taxed individually on their respective
distributive shares of the partnership's income, gain, loss, deductions and
credits. The amount and timing of items of income and deductions of the
certificate owner could differ if the certificates were held to constitute
partnership interests rather than indebtedness. Assuming that all of the
provisions of the pooling and servicing agreement, as in effect on the date of
issuance, are complied with, it is the opinion of Tax Counsel that the trust
fund will not be treated as either an association or a partnership taxable as
a corporation.
POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity,
or a portion of an entity, that is a "taxable mortgage pool" will be
classified as a taxable corporation and will not be permitted to file a
consolidated U.S. federal income tax return with another corporation. Any
entity, or a portion of any entity, will be a taxable mortgage pool if
o substantially all of its assets consist of debt instruments, more
than 50% of which are real estate mortgages,
o the entity is the obligor under debt obligations with two or more
maturities, and
o under the terms of the entity's debt obligations or an underlying
arrangement, payments on the debt obligations bear a relationship to
the debt instruments held by the entity.
Assuming that all of the provisions of the pooling and servicing
agreement, as in effect on the date of issuance, are complied with, Tax
Counsel is of the opinion that the arrangement created by the pooling and
servicing agreement will not be a taxable mortgage pool under Section 7701(i)
of the Code because only one class of indebtedness secured by the mortgage
loans is being issued.
The opinion of Tax Counsel is not binding on the IRS or the courts. If
the IRS were to contend successfully, or future regulations were to provide,
that the arrangement created by the pooling and servicing agreement is a
taxable mortgage pool, that arrangement would be subject to U.S. federal
corporate income tax on its taxable income generated by ownership of the
mortgage loans. Such a tax might reduce amounts available for distributions to
certificate owners. The amount of such a tax would depend upon whether
distributions to certificate owners would be deductible as interest expense in
computing the taxable income of such an arrangement as a taxable mortgage
pool.
FOREIGN INVESTORS
In general, subject to exceptions, Tax Counsel is of the opinion that
interest, including OID, paid on a certificate to a Foreign Investor is not
subject to U.S. federal income tax, if the interest is not effectively
connected with a trade or business of the recipient in the United States and
the certificate owner provides the required foreign person information
certification. See "Federal Income Tax Consequences--Tax Treatment of Foreign
Investors" in the prospectus. For purposes of this section, a "Foreign
Investor" is defined for United States federal income tax purposes as any
individual or entity other than
o any individual who is a citizen or resident of the United States,
o 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 of its states or the District of Columbia unless, in the
case of a partnership, Treasury regulations provide otherwise,
o an estate the income of which is subject to United States federal
income tax regardless of its source,
o 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
o some trusts in existence on August 20, 1996, and treated as United
States persons (as defined in Code Section 7701(a)(30)) before that
date that elect to continue to be so treated.
If the interests of the certificate owners were considered to be
partnership interests, the partnership would be required, on a quarterly
basis, to pay withholding tax equal to the product, for each foreign partner,
of the foreign partner's distributive share of "effectively connected" income
of the partnership multiplied by the highest rate of tax applicable to that
foreign partner. In addition, that foreign partner would be subject to branch
profits tax. Each non-foreign partner would be required to certify to the
partnership that it is not a foreign person. The tax withheld from each
foreign partner would be credited against the foreign partner's U.S. income
tax liability.
If the trust fund were taxable as a corporation, distributions to foreign
persons, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30%, unless that rate were reduced by an applicable
tax treaty.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding, and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made
after December 31, 1999, subject to transition rules. Prospective U.S. Holders
are strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
BACKUP WITHHOLDING
Some certificate owners may be subject to backup withholding at the rate
of 31% with respect to interest paid on the certificates if the certificate
owners, upon issuance, fail to supply the trustee or their brokers with their
taxpayer identification numbers, furnish incorrect taxpayer identification
numbers, fail to report interest, dividends, or other "reportable payments"
(as defined in the Code) properly, or, under some 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
certificateholder of record, the amount of interest paid (and OID accrued, if
any) on the certificates (and the amount of interest withheld for U.S. federal
income taxes, if any) for each calendar year, except as to exempt holders.
Exempt holders generally are holders that are corporations, some tax-exempt
organizations, or nonresident aliens who provide certification as to their
status as nonresidents. As long as the only certificateholder of record is
Cede, as nominee for DTC, certificate owners and the IRS will receive tax and
other information including the amount of interest paid on the certificates
owned from participants and indirect participants rather than from the
trustee. The trustee, however, will respond to requests for necessary
information to enable participants, indirect participants, and some other
persons to complete their reports. Each non-exempt certificate owner will be
required to provide, under penalty of perjury, a certificate on IRS Form W-9
or a similar form containing his or her name, address, correct federal
taxpayer identification number, and a statement that he or she is not subject
to backup withholding. Should a nonexempt certificate owner fail to provide
the required certification, the participants or indirect participants (or the
paying agent) will be required to withhold 31% of the interest and principal
otherwise payable to the holder, and remit the withheld amount to the IRS as a
credit against the holder's federal income tax liability.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership, or disposition of the certificates under the tax laws of
any state. Investors considering an investment in the certificates are
encouraged to consult their own tax advisors regarding those tax consequences.
ALL INVESTORS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL, OR FOREIGN INCOME TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP, AND DISPOSITION OF THE CERTIFICATES.
ERISA CONSIDERATIONS
Any fiduciary of a pension or other employee benefit plan ("Plan") that
proposes to cause a Plan to acquire any of the certificates is encouraged to
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 certificates. See "ERISA
Considerations" in the prospectus.
The U.S. Department of Labor has granted to _________________
(underwriter) Prohibited Transaction Exemption _____ (the "Exemption"), which
exempts from the application of the prohibited transaction rules transactions
relating to the acquisition, sale, and holding by Plans of specified
certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which the underwriter or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and the servicing, operation, and management of those
asset-backed pass-through trusts, if the general conditions and other
conditions in the Exemption are satisfied. The Exemption will apply to the
acquisition, holding, and resale of the certificates by a Plan if specified
conditions are met.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
o The acquisition of the certificates by a Plan is on terms that are
at least as favorable to the investing Plan as they would be in an
arm's-length transaction with an unrelated party, including the
price for the certificates;
o 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;
o The certificates acquired by the Plan have received a rating at the
time of acquisition by the Plan that is in one of the three highest
generic rating categories from S&P, Moody's, Duff & Phelps Credit
Rating Co., or Fitch IBCA, Inc.;
o The sum of all payments made to and retained by the underwriter in
connection with the distribution of the certificates represents not
more than reasonable compensation for underwriting the certificates;
o the sum of all payments made to and retained by the Transferor
pursuant to the sale of the mortgage loans to the trust fund
represents not more than the fair market value of the mortgage
loans;
o 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 pooling and servicing agreement and
reimbursement of the master servicer's reasonable expenses in
connection with it;
o The trustee is not an affiliate of the underwriter, the Transferor,
the master servicer, the financial insurance policy issuer, any
borrower whose obligations under one or more mortgage loans
constitute more than 5% of the aggregate unamortized principal
balance of the assets in the trust fund, or any of their respective
affiliates; and
o The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933, as amended.
The underwriter believes that the Exemption as amended will apply to the
acquisition and holding of the certificates by Plans and that all conditions
of the Exemption other than those within the control of the investors will be
met.
Any Plan fiduciary considering whether to purchase any certificates on
behalf of a Plan is encouraged to consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to the investment. Among other things, before
purchasing any certificates, a fiduciary of a Plan subject to the fiduciary
responsibility provisions of ERISA and to the prohibited transaction
provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
Although, as a condition to their issuance, the certificates will be
rated in the highest rating category of the rating agencies, the certificates
will not constitute mortgage related securities for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA"), because not all of the
mortgages securing the mortgage loans are first mortgages. Accordingly, many
institutions with legal authority to invest in comparably rated securities
based on first mortgage loans may not be legally authorized to invest in the
certificates, which because they evidence interests in a pool that includes
junior mortgage loans are not mortgage related securities under SMMEA. See
"Legal Investment" in the prospectus.
UNDERWRITING
Subject to the terms of the underwriting agreement, dated ___________,
1999, between Provident and [underwriter], Provident has agreed to sell to the
underwriter, and the underwriter has agreed to purchase from Provident all the
certificates.
In the underwriting agreement, the underwriter has agreed, subject to the
terms of the underwriting agreement, to purchase all the offered certificates
if any of the certificates are purchased.
Provident has been advised by the underwriter that it proposes initially
to offer the certificates to the public in Europe and the United States at the
offering price on the cover page of this prospectus supplement and to dealers
at that price less a discount not in excess of ____% of the certificate
denominations. The underwriter may allow and the dealers may reallow a
discount not in excess of _____% of the certificate denominations to other
dealers. After the initial public offering, the public offering price, the
concessions, and the discounts may be changed.
Provident has been advised by the underwriter that it presently intends
to make a market in the Class A Certificates. However, the underwriter is not
obligated to do so, any market-making may be discontinued at any time, and we
cannot assure you that an active public market for the Class A Certificates
will develop.
Until the distribution of the Class A Certificates is completed, rules of
the SEC may limit the ability of the underwriter and some selling group
members to bid for and purchase the Class A Certificates. As an exception to
these rules, the underwriter is permitted to engage in transactions that
stabilize the price of the Class A Certificates. These transactions consist of
bids or purchases for the purpose of pegging, fixing, or maintaining the price
of the Class A Certificates. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of those
purchases.
Neither Provident nor the underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
stabilization transactions may have on the prices of the Class A Certificates.
In addition, neither Provident nor the underwriter makes any representation
that the underwriter will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
The underwriting agreement provides that Provident will indemnify the
underwriter against specified civil liabilities, including liabilities under
the Securities Act of 1933. Specified expenses of the underwriter incurred in
connection with this offering will be paid by Provident.
LEGAL MATTERS
Legal matters with respect to the certificates will be passed upon for
Provident by Brown & Wood LLP, New York, New York and Keating, Muething &
Klekamp, P.P.L. Cincinnati, Ohio and for the underwriter by
[__________________________].
EXPERTS
The consolidated balance sheets of [Insurer] and Subsidiaries as of
___________, 199_ and 199_ and the related consolidated statements of income,
changes in shareholder's equity, and cash flows for each of the three years in
the period ended ___________, 199_, incorporated by reference in this
prospectus supplement, have been incorporated in reliance on the report of
________________________, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
RATINGS
It is a condition to issuance that the certificates be rated "___" by
_____ and "___" by _________ (each, a rating agency and together, the rating
agencies).
A securities rating addresses the likelihood of the receipt by
certificateholders of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural, legal, and tax aspects associated with the certificates. The
ratings on the certificates do not, however, constitute statements regarding
the likelihood or frequency of prepayments on the mortgage loans or the
possibility that certificateholders might realize a lower than anticipated
yield.
The ratings assigned to the certificates will depend primarily upon the
creditworthiness of the financial insurance policy issuer. Any reduction in a
rating assigned to the claims-paying ability of the financial insurance policy
issuer below the ratings initially assigned to the certificates may result in
a reduction of one or more of the ratings assigned to the certificates.
A securities rating is not a recommendation to buy, sell, or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
Provident has not requested a rating of the certificates by any rating
agency other than the rating agencies. However, we cannot assure you
whether any other rating agency will rate the certificates or, if it does,
what rating it would assign. The rating assigned by another rating agency to
the certificates could be lower than the respective ratings assigned by the
rating agencies.
<PAGE>
INDEX OF DEFINED TERMS
Accelerated Principal Distribution Amount:.........41
Alternative Principal Payment:.....................44
Certificate Rate:..................................42
Closing Date:......................................42
Code:..............................................58
Cut-Off Date.......................................13
Dissolution Distribution Date:.....................46
due period:........................................42
Exemption:.........................................64
Invested Amount:...................................34
Investor Floating Allocation Percentage:...........40
Investor Interest Collections:.....................40
Investor Loss Amount:..............................42
Investor Principal Collections:....................40
Maximum Principal Payment:.........................44
Minimum Transferor Interest:.......................38
New Withholding Regulations:.......................62
OID Regulations:...................................60
OID:...............................................60
Principal Collections:.............................39
Provident..........................................13
Rapid Amortization Event:..........................45
Required Overcollateralization Amount:.............42
Scheduled Principal Collections Distribution
Amount:...........................................44
SMMEA:.............................................65
Spread Account:....................................47
Tax Counsel:.......................................59
Transfer Date:.....................................37
Transfer Deficiency:...............................36
Transfer Deposit Amount:...........................36
Transferor Principal Collections:..................40
U.S. Person:.......................................73
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered Home Equity Loan
Asset Backed Certificates, Series 1999-_ (the global securities) will be
available only in book-entry form. Investors in the global securities may hold
such global securities through any of The Depository Trust Company (DTC),
CEDEL or Euroclear. The global securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding global securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Home Equity Loan Asset Backed
Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of CEDEL
and Euroclear (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of global securities will be
subject to U.S. withholding taxes unless such holders meet specified
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All global securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the global securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global securities through DTC will
follow the settlement practices applicable to prior Home Equity Loan Asset
Backed Certificates issues. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their global securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. global securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and transferor's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior Home
Equity Loan Asset Backed Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC transferor and CEDEL or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC Participant
to the account of a CEDEL Participant or a Euroclear Participant, the
purchaser will send instructions to CEDEL or Euroclear through a CEDEL
Participant or Euroclear Participant at least one business day before
settlement. CEDEL or Euroclear will instruct the respective Depositary, as the
case may be, to receive the global securities against payment. Payment will
include interest accrued on the global securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following
month. Payment will then be made by the respective Depositary of the DTC
Participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and
the cash debt will be back-valued to, and the interest on the global
securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
global securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing global securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the global securities were credited
to their accounts. However, interest on the global securities would accrue
from the value date. Therefore, in many cases the investment income on the
global securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities
to the respective European Depositary for the benefit of CEDEL Participants or
Euroclear Participants. The sale proceeds will be available to the DTC
transferor on the settlement date. Thus, to the DTC participants a
cross-market transaction will settle no differently than a trade between two
DTC participants.
Trading between CEDEL or Euroclear Transferor and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The transferor will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day before settlement. In these
cases CEDEL or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the global securities to the DTC Participant's account
against payment. Payment will include interest accrued on the global
securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such accrual
period and a year assumed to consist of 360 days. For transactions settling on
the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in
the account of the CEDEL Participant or Euroclear Participant the following
day, and receipt of the cash proceeds in the CEDEL Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the CEDEL
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debt in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase global
securities from DTC participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the global securities in the U.S. from a DTC Participant no
later than one day before settlement, which would give the global securities
sufficient time to be reflected in their CEDEL or Euroclear account in order
to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day before the value date for the sale to the CEDEL Participant or Euroclear
Participant.
U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of global
securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are certificate owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
certificate owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), or (iii) an estate the income of which is includible in
gross income for United States tax purposes, regardless of its source or (iv)
a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust. In
addition, certain trusts treated as United States persons before August 20,
1996 may elect to continue to be so treated to the extent provided in
regulations. This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of the global
securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the global
securities.
In addition, prospective investors are strongly urged to consult their
own tax advisors with respect to the New Withholding Regulations. See "Federal
Income Tax Consequences - Foreign Investors."
<PAGE>
===============================================================================
PROVIDENT BANK HOME EQUITY
LOAN TRUST 1999-__
$-------------
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 1999-__
THE PROVIDENT BANK,
AS TRANSFEROR AND MASTER SERVICER
Until [Date], all dealers selling the Class A Certificates will deliver a
prospectus supplement and prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters of the Class A
Certificates and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
We are not offering the Class A Certificates in any state where the offer
is not permitted.
------------------------------------------------------------
PROSPECTUS SUPPLEMENT
__________, 1999
------------------------------------------------------------
UNDERWRITER
===============================================================================
The information in this prospectus supplement is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the SEC is effective. This prospectus supplement and the
accompanying prospectus are not an offer to sell these securities and they are
not soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED JUNE 28, 1999
Prospectus Supplement
To Prospectus dated ___________, 1999
$___________ (approximate)
PROVIDENT BANK HOME EQUITY LOAN TRUST 1999-_
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1999-_
THE PROVIDENT BANK
as seller and master servicer
PLEASE CONSIDER CAREFULLY THE TRUST
THE RISK FACTORS BEGINNING
ON PAGE S-11 AND ON PAGE will issue [6] classes of senior Class A
1 IN THE PROSPECTUS. Certificates
will issue a single Residual Certificate
will make a REMIC election for federal
income tax purposes
THE CERTIFICATES
represent the entire beneficial interest in a trust, whose assets are a
pool of closed-end fixed and adjustable rate mortgage loans consisting of
two loan groups
CREDIT ENHANCEMENT
will be provided in the form of [overcollateralization] and an
irrevocable and unconditional certificate guaranty insurance policy
issued by [certificate insurer]
[____________], the underwriter, will buy the Class A Certificates from The
Provident Bank at a price equal to ________ of their face value. The
underwriter will sell the Class A Certificates from time to time in negotiated
transactions.
NEITHER THE SEC 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
Name of Underwriter
___________, 199_
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Summary................................S-3
Risk Factors..........................S-11
The Financial Insurance
Policy Issuer....................S-15
The Provident Bank....................S-15
Description of the
Mortgage Loans...................S-20
Prepayment and Yield
Considerations...................S-36
Description of the Certificates.......S-44
Use of Proceeds.......................S-73
Federal Income Tax
Consequences.....................S-73
State Taxes...........................S-77
ERISA Considerations..................S-77
Legal Investment
Considerations...................S-78
Underwriting..........................S-79
Experts...............................S-79
Legal Matters.........................S-79
Ratings...............................S-79
Index of Defined Terms................S-81
Annex I...............................S-82
PROSPECTUS
Page
Risk Factors.............................1
The Trust Fund...........................3
Use of Proceeds.........................10
The Provident Bank......................10
Loan Program............................12
Description of the Securities...........15
Credit Enhancement......................31
Yield and Prepayment
Considerations.....................38
The Agreements..........................41
Legal Aspects
of the Loans.......................58
Federal Income Tax
Consequences.......................68
State Tax Considerations...............103
ERISA Considerations...................104
Legal Investment.......................111
Method of Distribution.................112
Legal Matters..........................113
Financial Information..................113
Rating.................................113
Index of Defined Terms.................115
<PAGE>
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that you need to consider in making your
investment decision. Please read this entire prospectus supplement and the
accompanying prospectus carefully for additional information about the Class A
Certificates.
HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 1999-_
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
LAST SCHEDULED
CERTIFICATE INITIAL CLASS DISTRIBUTION
CLASS RATE PRINCIPAL BALANCE DATE TYPE
- ----- ---- ----------------- ---- ----
<S> <C> <C> <C> <C>
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-1 % $ - Fixed Rate, Group 1
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-2 % $ - Fixed Rate, Group 1
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-3 % $ - Fixed Rate, Group 1
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-4 % $ - Fixed Rate, Group 1
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-5 % $ - Fixed Rate, Group 1
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class A-6 Variable $ - Variable Rate, Group 2
- ---------------- --------------- ---------------------- ---------------- ----------------------------
Class R N/A $0 - Residual
- -----------------------------------------------------------------------------------------------------
</TABLE>
The initial class principal balance is subject to a variance of 5%. We
expect the actual last distribution date for each Class A Certificate to be
significantly earlier than its last scheduled distribution date.
[Describe variable rate]
The Class R certificates are not offered pursuant to this prospectus
supplement and the prospectus.
<PAGE>
THE SELLER AND MASTER SERVICER
o The Provident Bank.
o The Provident Bank maintains its principal office at One East Fourth
Street, Cincinnati, Ohio. Its telephone number is (513) 579-2000.
o The master servicer will receive a monthly fee from the interest payments
on the mortgage loans equal to __% per annum on the principal balance of
each mortgage loan.
We refer you to "The Provident Bank" in this prospectus supplement for
additional information.
TRUST FUND
o Provident Bank Home Equity Loan Trust 1999-_.
TRUSTEE
o [__________________]
CERTIFICATE INSURER
o [__________________].
We refer you to "The Certificate Insurer" in this prospectus supplement for
additional information.
CUT-OFF DATE
o ____________, 1999.
CLOSING DATE
o ________________, 1999.
DISTRIBUTION DATE
o The 25th day of each month, or if that day is not a business day, the next
business day. The first distribution date is ___________ 1999.
DUE PERIOD
o The calendar month immediately preceding a determination date or a
distribution date, as applicable.
REGISTRATION OF CLASS A CERTIFICATES
We will issue the Class A Certificates in book-entry form. You will hold your
interests either through a depository in the United States or through one of
two depositories in Europe. While the certificates are book-entry, they will
be registered in the name of the applicable depository, or in the name of 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 or the related depositories. The limited circumstances under which
definitive certificates will replace the book-entry certificates are described
in this prospectus supplement.
We refer you to "Risk Factors--Consequences on Liquidity and Payment Delay
Because of Owing Book-Entry Certificates," "Description of the
Certificates--Book-Entry Certificates," and "ANNEX I" in this prospectus
supplement for additional information.
TRUST FUND PROPERTY
The trust fund property is held by the trustee for the benefit of the holders
of certificate. The trust fund property includes:
o a pool of closed-end fixed and adjustable rate mortgage loans, secured by
first and second deeds of trust or mortgages on one- to four-family
residential properties;
o payments of interest on the mortgage loans on and after the cut-off date
and principal payments received on and after the cut-off date;
o property that secured a mortgage loan that has been acquired by foreclosure
or deed in lieu of foreclosure;
o rights under any hazard insurance policies covering the mortgaged
properties; and
o amounts on deposit in the accounts described in this prospectus supplement.
THE MORTGAGE LOANS
Mortgage Loan Statistics
On the closing date, the trust fund will acquire a pool of fixed and
adjustable rate home equity loans.
The mortgage loans will have the following characteristics as of the cut-off
date:
o number of mortgage loans: _______
o aggregate principal balance: $____________
o mortgaged property location: __ states and the District of Columbia
o interest rate range: _____% to _____%
o weighted average interest rate: _____% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o last maturity date: __________
o combined loan-to-value ratio range: _____% to _____% (approximate)
o balloon loans -- loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
The mortgage loans in loan group 1 from which the fixed rate certificates are
paid will have the following characteristics as of the cut-off date:
o number of mortgage loans: _______
o aggregate principal balance: $___________
o mortgaged property location: __ states and the District of Columbia
o average principal balance: $___________
o maximum principal balance: $___________
o interest rate range: _____% to ____%
o weighted average interest rate: _________% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o combined loan-to-value ratio range: ____% to _____% (approximate)
o balloon loans -- loans with amortization schedules that don't fully
amortize by their maturity date: _____% (approximate)
The mortgage loans in loan group 2 from which the variable rate certificates
are paid will have the following characteristics as of the cut-off date:
o number of mortgage loans: _______
o aggregate principal balance: $___________
o mortgaged property location: __ states and the District of Columbia
o average principal balance: $___________
o maximum principal balance: $___________
o interest rate range: _____% to ____%
o weighted average interest rate: _________% (approximate)
o weighted average remaining term to stated maturity, based on principal
balance: ___ months (approximate)
o term to stated maturity range: __ months to 360 months
o combined loan-to-value ratio range: ____% to _____% (approximate)
o weighted average combined loan-to-value ratio: ____% (approximate)
o balloon loans - loans with amortization schedules that don't fully amortize
by their maturity date: _____% (approximate)
o weighted average periodic cap: __%
o range of periodic caps: ___% to ___%.
We refer you to "Description of the Mortgage Loans" in this prospectus
supplement for additional information.
MONTHLY ADVANCES
During any due period, the master servicer may receive less than the amount
due on each mortgage loan.
If the master servicer reasonably believes that cash advances can be recovered
from future payments or collections on the mortgage loans, the master servicer
will make cash advances to the trust fund to cover delinquent mortgage loan
payments. The master servicer will make advances only to maintain a regular
flow of scheduled interest and principal payments on the certificates, not to
guarantee or insure against losses.
We refer you to "Description of the Certificates--Monthly Advances" in this
prospectus supplement for additional information.
THE CERTIFICATES
General
o Each month the trustee will calculate the amount you are owed.
o If you hold a certificate on the last day of a calendar month, you will be
entitled to receive payments on the distribution date in the next month.
We refer you to "Description of the Certificates" in this prospectus
supplement for additional information.
Interest Distributions
Interest accrues on the group 1 certificates from the first day of a calendar
month through the last day of that calendar month.
Interest accrues on the group 2 certificates from the distribution date in the
month before that distribution date through the day before that distribution
date.
On each distribution date, you will be entitled to the following:
o interest at the related certificate rate that accrued during the related
interest period; and
o any interest that was due on a prior distribution date and not paid. In
addition, interest will have accrued on the amount of interest that was
previously due and not paid.
We refer you to "Description of the Certificates--Interest" in this
prospectus supplement for additional information.
Principal Distributions
Principal distributions are payable on each distribution date. However, no
class of group 1 certificates will receive a principal distribution until the
other classes with a lower numerical class designation are paid in full.
The calculation of the amount a class is entitled to receive on each
distribution date and the priority of principal distributions among the group
1 certificates is described in this prospectus supplement under "Description
of the Certificates--Principal."
We refer you to "Description of the Certificates--Principal" in this
prospectus supplement for additional information.
CREDIT ENHANCEMENTS
The Certificate Insurance Policy
The certificate insurance policy guarantees the payment of:
o accrued and unpaid interest on the Class A Certificates;
o principal losses on the mortgage loans; and
o any principal amounts owed to the certificateholders on the last scheduled
distribution date.
We refer you to "The Certificate Insurer" in this prospectus supplement for
additional information.
Overcollateralization
On the closing date the aggregate principal balance of the mortgage loans in
each group will equal the aggregate principal balance of the certificates in
the related certificate group. The interest payments on the mortgage loans in
each loan group are expected to exceed the amount of interest due and payable
on the certificates in the related certificate group. This excess will be
applied as principal payments to the most senior Class A Certificate in the
related certificate group that is outstanding on that distribution date. This
will result in a limited acceleration of principal payments on the
certificates relative to the amortization of the related mortgage loans,
thereby creating overcollateralization for the Class A Certificates. Once the
required level of overcollateralization is reached, the application of the
excess interest payments will stop, until it is again needed to maintain the
required level of overcollateralization.
The level of required overcollateralization will increase and decrease over
time. For example, an increase in the required level of overcollateralization
will result if the delinquency or default experience on the mortgage loans
exceeds set levels. In that case, amortization of the Class A Certificates
would be accelerated until the level of overcollateralization reaches its
required level.
We refer you to "Description of the Certificates--Overcollateralization" in
this prospectus supplement for additional information.
Crosscollateralization
The excess interest generated by one loan group may be used to fund shortfalls
on the certificates in the other loan group.
We refer you to "Description of the Certificates--Crosscollateralization"
in this prospectus supplement for additional information.
PRE-FUNDING ACCOUNT
On the closing date, the trustee will deposit $_______________ in the group 1
pre-funding account and $_____________ in the group 2 pre-funding account. The
trust will use the amounts on deposit in the pre-funding accounts to acquire
additional mortgage loans for the related loan group from the seller. The
trustee may only acquire additional mortgage loans until _________________.
If any amounts are left in the pre-funding accounts on ___________________,
holders of the group 1 certificates will receive amounts left in the group 1
pre-funding account and holders of the group 2 certificates will receive
amounts left in the group 2 pre-funding account on the next distribution date
as payment of principal.
We refer you to "Description of the Certificates--Pre-Funding Account" in
this prospectus supplement for additional information.
CAPITALIZED INTEREST ACCOUNT
On the closing date, the trustee will deposit $_______________ in the group 1
capitalized interest account and $____________ in the group 2 capitalized
interest account. The trust will use the amounts on deposit in the capitalized
interest accounts to cover interest shortfalls on the certificates expected to
occur before the trust's purchase of the additional mortgage loans. Until the
trust purchases the additional mortgage loans or prepays the certificates,
interest payments on the loans will not cover the amount of interest due on
the certificates.
Any amounts left in the capitalized interest account after _______________
will be paid to Provident.
We refer you to "Description of the Certificates--Capitalized Interest
Account" in this prospectus supplement for additional information.
OPTIONAL TERMINATION
If the total pool principal balance declines below __% of the total pool
principal balance as of the cut-off date, then Provident may purchase all of
the mortgage loans and the related properties in the trust fund. If Provident
purchases all of the mortgage loans, you will receive a final distribution and
the trust fund will be terminated.
We refer you to "Description of the Certificates--Termination; Purchase of
the Mortgage Loans" in this prospectus supplement for more detail.
FEDERAL TAX CONSIDERATIONS
For federal income tax purposes:
o An election will be made to treat the trust fund as a real estate mortgage
investment conduit or REMIC.
o The Class A Certificates will be regular interests in the REMIC and will be
treated as debt instruments of the REMIC.
o The Class R certificates will represent the beneficial ownership of the
sole class of residual interest in the REMIC.
We refer you to "Federal Income Tax Considerations" in this prospectus
supplement and in this prospectus for additional information.
ERISA CONSIDERATIONS
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974, or ERISA, can limit investments by some pension and
other employee benefit plans. For example, the acquisition of some
certificates may be considered a "prohibited transaction" under ERISA. Some
exemptions from the prohibited transaction rules could be applicable to the
acquisition of the Class A Certificates. If you are a fiduciary of a pension
or other employee benefit plan that is subject to ERISA, you should consult
with your counsel regarding the applicability of the provisions of ERISA and
the tax code before purchasing a Class A Certificate.
We refer you to "ERISA Considerations" in this prospectus supplement and
the prospectus for additional information.
LEGAL INVESTMENT CONSIDERATIONS
The Secondary Mortgage Market Enhancement Act of 1984 defines mortgage related
securities to include only first mortgages and not second mortgages. Because
the pool of mortgage loans owned by the trust fund includes second mortgage
loans, the certificates will not be mortgage related securities under that
definition. Some institutions may be limited in their legal investment
authority to only first mortgages or mortgage related securities and will be
unable to invest in the Class A Certificates.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and "Legal Investment" in the prospectus for additional
information.
CERTIFICATE RATING
The trust fund will not issue the Class A Certificates unless they receive the
following ratings:
___ by _________________
___ by _________________
A rating is not a recommendation to buy, sell, or hold securities and may be
subject to revision or withdrawal by either rating agency.
We refer you to "Ratings" and "Risk Factors--Rating of the Securities" in
the prospectus for additional information.
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE ANY
PURCHASE OF CERTIFICATES. YOU SHOULD ALSO CAREFULLY CONSIDER THE INFORMATION
UNDER "RISK FACTORS" IN THE PROSPECTUS.
CONSEQUENCES ON LIQUIDITY AND PAYMENT DELAY BECAUSE OF OWNING BOOK-ENTRY
CERTIFICATES
o Limit on Liquidity of Certificates. Issuance of certificates in book-entry
form may reduce their liquidity in the secondary trading market since
investors may be unwilling to purchase certificates for which they cannot
obtain physical certificates.
o Limit on Ability to Transfer or Pledge. Since transactions in the
book-entry certificates can be effected only through DTC, participating
organizations, indirect participants, and certain banks, your ability to
transfer or pledge a book-entry certificate to persons or entities that do
not participate in the DTC system or otherwise to do things with your
certificates may be limited because you do not have a physical certificate
representing the book-entry certificates.
o Delays in Distributions. You may experience some delay in the receipt of
distributions on the book-entry certificates since the distributions will
be forwarded by the trustee to DTC for DTC to credit the accounts of its
participants, which will then 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 it, you will suffer a loss if the certificate
insurer fails to perform its obligations under the policy and the other forms
of credit enhancement are insufficient to cover the loss. Approximately ___%
of the mortgage loans are balloon loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS; LIQUIDATION PROCEEDS MAY BE LESS
THAN MORTGAGE LOAN BALANCE
Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, liquidation expenses such
as legal fees, real estate taxes, and maintenance and preservation expenses
will reduce the portion of liquidation proceeds payable to you. If a mortgaged
property fails to provide adequate security for the mortgage loan, you will
incur a loss on your investment if the certificate insurer fails to perform
its obligations under the certificate insurance policy.
We refer you to "Certain Legal Aspects of Loans--Foreclosure" in the
prospectus.
PREPAYMENTS AFFECT TIMING AND RATE OF RETURN ON YOUR INVESTMENT
The yield to maturity on your certificates will be directly related to
the rate of principal payments on the mortgage loans. Please consider the
following:
o Mortgagors may fully or partially prepay their mortgage loan at any
time. However, some mortgage loans require that the mortgagor pay a fee
with any prepayment. This may result in the rate of prepayments being
slower than would otherwise be the case.
o All the mortgage loans contain due-on-sale provisions. Due-on-sale
provisions require the mortgagor to fully pay the mortgage loan when the
mortgaged property is sold. Generally, the master servicer will enforce
the due-on-sale provision unless prohibited by applicable law.
o The rate of principal payments on pools of mortgage loans is influenced
by a variety of factors, including general economic conditions, interest
rates, the availability of alternative financing, and homeowner
mobility.
o We cannot predict the rate at which borrowers will repay their mortgage
loans, nor are we aware of any publicly available studies or statistics
on the rate of prepayment of mortgage loans similar to the mortgage
loans in the pool.
We refer you to "Prepayment and Yield Considerations" in this prospectus
supplement.
CERTIFICATE RATING BASED PRIMARILY ON CLAIMS-PAYING ABILITY OF THE CERTIFICATE
INSURER
The rating on the certificates depends primarily on the claim's paying
ability of the financial insurance policy issuer. Therefore, a reduction of
the rating assigned to the claims-paying ability of the financial insurance
policy issuer may have a corresponding reduction on the ratings assigned to
the certificates. A reduction in the rating assigned to the certificates would
reduce the market value of the certificates and may affect your ability to
sell them. In general, the rating on your certificate addresses credit risk
and does not address the likelihood of prepayments.
We refer you to "Ratings" in this prospectus supplement.
LIEN PRIORITY COULD RESULT IN PAYMENT DELAY AND LOSS
Some of the mortgage loans are secured by mortgages that are junior in
priority. For mortgage loans in the trust fund secured by first mortgages, the
master servicer may consent under some circumstances to a new first priority
lien regardless of the principal amount, which has the effect of making the
first mortgage a junior mortgage. Mortgage loans that are secured by junior
mortgages will receive proceeds from a sale of the related mortgaged property
only after any senior mortgage loans and prior statutory liens have been paid.
If the remaining proceeds are insufficient to satisfy the mortgage loan in the
trust fund and the financial insurance policy issuer fails to perform its
obligations under the policy, then:
there will be a delay in distributions to you while a deficiency judgment
against the borrower is sought; and
you may incur a loss if a deficiency judgment cannot be obtained.
DISTRIBUTIONS AND RIGHTS OF INVESTORS ADVERSELY AFFECTED BY INSOLVENCY OF
SELLER
The sale of the mortgage loans from the seller to the trust will be
treated by the seller and the trust as a sale of the mortgage loans. If the
seller were to become insolvent, a receiver or conservator for, or a creditor
of, the seller, may argue that the transaction between the seller and the
trust is a pledge of mortgage loans as security for a borrowing rather than a
sale. Such an attempt, even if unsuccessful, could result in delays in
distributions to you.
[The seller will maintain possession of the documentation relating to
each mortgage and no assignment of any mortgage is required to be recorded in
the name of the trustee, unless the seller's long-term debt rating is reduced
below [describe]. Within 30 days of that, the seller is required to deliver
the mortgage documents to the trustee and either to record the assignments or
to deliver a legal opinion to the effect that recording the assignments is not
necessary to perfect the interest of trust in the mortgages. Before 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 upon the insolvency of the seller.
In an insolvency proceeding of the seller, if the mortgage notes have not
been delivered to the trustee and the mortgages have not been assigned of
record in the real property recording office to the trustee, the trust may be
a general unsecured creditor of the seller. If the trust were determined to be
a general unsecured creditor of the seller, the mortgages, the mortgage notes,
and their proceeds would not be available to make payments on the
certificates.
INTEREST PAYMENTS ON THE MORTGAGE LOANS MAY BE REDUCED
o Prepayments of Principal May Reduce Interest Payments. If a mortgagor
fully prepays a mortgage loan, the mortgagor is charged interest only up to
the date of the prepayment, instead of a full month. This may result in an
interest shortfall. The master servicer is obligated to pay that interest
shortfall, without any right of reimbursement, up to the amount of its
servicing fee for that month. If the servicing fee is insufficient to pay the
interest shortfalls attributed to prepayments, they will be covered by the
certificate insurance policy.
o Certain Interest Shortfalls Are Not Covered by the Master Servicer or
the Certificate Insurance Policy. The Soldiers' and Sailors' Civil Relief Act
of 1940 permits modifications to the payment terms for mortgage loans,
including a reduction in the amount of interest paid by the borrower under
some circumstances. Neither the master servicer nor the financial insurance
policy issuer will pay for any interest shortfalls created by the Soldiers'
and Sailors' Civil Relief Act of 1940.
RISK OF LOSSES AS A RESULT OF GEOGRAPHIC CONCENTRATION
[The mortgaged properties relating to the mortgage loans are located in
__ states and the District of Columbia. However, __% of the mortgaged
properties by principal balance as of the cut-off date are located in Ohio. If
in the future Ohio experiences weaker economic conditions or greater rates of
decline in real estate values than the United States generally then, the
mortgage loans may experience higher rates of delinquencies, defaults, and
foreclosures than would otherwise be the case.]
[RISK OF PREPAYMENT DUE TO SUBSEQUENT MORTGAGE LOANS
The trust will buy additional mortgage loans from the seller until
_______. The seller will sell mortgage loans to the trust if it has mortgage
loans to sell. The ability of the seller to originate and acquire additional
mortgage loans is affected by a variety of factors, including interest rates,
unemployment levels, the rate of inflation, and consumer perception of
economic conditions generally. If the full amount deposited in the pre-funding
accounts for the purpose of purchasing additional mortgage loans cannot be
used for that purpose within [three] months from the closing date, any
remaining amounts will be paid to you as a prepayment on the certificates.]
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations,
the master servicer is faced with the task of preparing for year 2000. The
year 2000 issue is the result of prior computer programs being written using
two digits, rather than four digits, to define the applicable year. Any of the
master servicer's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Major
computer system failure or miscalculations may occur as a result. The master
servicer is presently engaged in various procedures to ensure that their
computer systems and software will be year 2000 compliant.
However, if the master servicer or any of its suppliers, customers,
brokers, or agents do not successfully and timely achieve year 2000
compliance, the performance of obligations of the master servicer could be
materially adversely affected. This could result in delays in processing
payments on the mortgage loans and cause a related delay in distributions to
you.
THE FINANCIAL INSURANCE POLICY ISSUER
The following information set forth in this section has been provided by
[____________], the financial insurance policy issuer. Accordingly, neither
The Provident Bank ("Provident") nor the master servicer makes any
representation as to the accuracy and completeness of this information.
[Description of Financial Insurance Policy Issuer]
THE PROVIDENT BANK
Provident, as master servicer, will service the mortgage loans in
accordance with the pooling and servicing agreement to be dated as of
_________, 1999 (the "Cut-Off Date"), between Provident as transferor and
master servicer, and _________, as trustee. The master servicer may perform
any of its obligations under the pooling and servicing agreement through one
or more subservicers. Notwithstanding any subservicing arrangement, the master
servicer will remain liable for its servicing obligations under the pooling
and servicing agreement as if it alone were servicing the mortgage loans.
Provident will be responsible for servicing the mortgage loans for the
trust fund in accordance with the terms of the pooling and servicing
agreement. [Beginning on __________, _____________ will service the mortgage
loans for Provident pursuant to a subservicing agreement, to be dated as of
[______________], between Provident and the subservicer. The terms of the
subservicing agreement are consistent with the terms of the pooling and
servicing agreement. This subservicing agreement does not relieve Provident
from any of its obligations to service the mortgage loans in accordance with
the terms of the pooling and servicing agreement.]
Provident is the principal banking subsidiary of Provident Financial
Group, Inc., a Cincinnati-based bank holding company registered under the Bank
Holding Company Act. Provident Financial Group, Inc. operates throughout Ohio,
Northern Kentucky, Southeastern Indiana, and Florida. As of ____________,
Provident Financial Group, Inc. had total assets of $____ billion, net loans
of $___ billion, deposits of $____ billion, and total shareholders' equity of
$____ million. Provident Financial Group's tier 1 and total capital ratios
were ____% and _____%, respectively. For the [___] months ended
______________, Provident Financial Group had net earnings of $____ million.
As of _______________, Provident Financial Group had total assets of $____
billion, net loans of $___ billion, deposits of $___ billion, and total
shareholders' equity of $___ million. Provident Financial Group's tier I and
total capital ratios were ____% and ____%, respectively. For the fiscal year
ended __________________, Provident Financial Group, Inc. had net earnings of
$___ million. Provident represents approximately ___% of Provident Financial
Group, Inc.'s assets.
CREDIT AND UNDERWRITING GUIDELINES
The following is a description of the underwriting guidelines customarily
employed by Provident with respect to mortgage loans which it purchases or
originates. Each mortgage loan was underwritten according to these guidelines.
Provident believes its standards are consistent with those utilized by similar
lenders generally. The underwriting process is intended to assess both the
prospective borrower's ability to repay and the adequacy of the real property
security as collateral for the loan granted. In certain cases, loans may be
made outside of those guidelines with the prior approval of an underwriting
manager of Provident.
Provident generally originates or purchases loans that either fully
amortize over a period not to exceed 360 months or provide for amortization
over a 360 month schedule with a balloon payment required at the maturity
date, which will not be less than fifteen years after origination. The loan
amounts generally range from a minimum of $10,000 to a maximum of $500,000
unless a higher amount is specifically approved by a senior official of
Provident. Provident primarily originates or purchases non-purchase money
first or second mortgage loans, although Provident also originates some
purchase money first mortgages.
The homes used for collateral to secure the loans may be either primary
residential, including 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. Mobile housing or
agricultural land are not accepted as collateral. In some cases, the loan may
be secured by an owner-occupied residence plus additional collateral.
Each property proposed as security for a loan must be appraised not more
than six months before the date of the loan. The combined loan-to-value ratio
of the first and second mortgages generally may not exceed 85%. If a prior
mortgage exists, Provident first reviews the first mortgage history. If it
contains open-end, advance, or negative amortization provisions, the maximum
potential first mortgage balance is used in calculating the combined
loan-to-value ratio that 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 generally cannot exceed 60% of the
applicant's gross monthly income. Monthly obligations includes principal and
interest on each mortgage, tax assessments, other loans, charge accounts, and
all other scheduled indebtedness. Applicants who are salaried employees must
provide current employment information in addition to two recent years of
employment history and Provident verifies this information. Verifications are
based on written confirmation from employers or a combination of the two most
recent pay stubs, the two most recent years' W-2 tax forms, and telephone
confirmation from the employer. Self-employed applicants must be self-employed
in the same field for a minimum of two years and must provide signed copies of
complete federal income tax returns, including schedules, filed for the most
recent two years.
For Provident's non-income verifier program, proof of one year history of
employment plus proof of current self-employed status is required. The
applicant's debt-to-income ratio is calculated based on income as certified by
the borrower on the application and must be reasonable. The maximum combined
loan-to-value ratio may not exceed 80% for the non-income verifier program.
A credit report by an independent credit reporting agency is required
reflecting the applicant's complete credit history. The credit report should
reflect all delinquencies of 30 days or more, repossessions, judgments,
foreclosures, garnishments, bankruptcies, divorce actions, and similar adverse
credit practices that can be discovered by a search of public records. If the
report is obtained more than 60 days before the loan closing, the lender must
determine that the reported information has not changed. Written verification
is obtained of any first mortgage balance if not reported by the credit
bureau.
Generally, the applicant should have an acceptable credit history given
the amount of equity available, the strength of the applicant's employment
history, and the level of the applicant's income to debt obligations. The
rescission period must have expired before funding a loan. Recission periods
are generally three days. The rescission period may not be waived by the
applicant except as permitted by law. Either an ALTA title insurance policy or
an attorney's opinion of title is required for all loans.
The applicant is required to secure property insurance in an amount
sufficient to cover the new loan and any prior mortgage. If the sum of any
outstanding first mortgage and the home equity loan exceeds replacement value,
insurance equal to replacement value may be accepted. Provident must ensure
that its name and address is properly added to the mortgage clause of the
insurance policy. If Provident's name is added to a loss payee clause and the
policy does not provide for written notice of policy changes or cancellation,
an endorsement adding that 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 master servicer has established standard policies for the servicing
and collection of the home equity loans. Servicing includes:
o the collection and aggregation of payments relating to the mortgage
loans;
o the supervision of delinquent mortgage loans, loss mitigation efforts,
foreclosure proceedings, and, if applicable, the disposition of
mortgaged properties; and
o the preparation of tax related information in connection with the
mortgage loans.
Billing statements are mailed monthly by the master servicer. The
statement details all debits and credits and specifies the minimum payment due
and the available credit line. Notice of changes in the applicable loan rate
are provided by the master servicer to the mortgagor with the statements. All
payments are due by the fifteenth day of the month.
The general policy of the master servicer is to initiate foreclosure in
the underlying property after a mortgage loan is 75 days or more delinquent
and satisfactory arrangements cannot be made with the mortgagor or if a notice
of default on a senior lien is received by the master servicer. Foreclosure
proceedings may be terminated if the delinquency is cured. mortgage loans to
borrowers in bankruptcy proceedings may be restructured in accordance with law
and with a view to maximizing recovery on the mortgage loans, including any
deficiencies.
Once foreclosure is initiated by the master servicer, the foreclosure is
out-sourced to a law firm specializing in handling foreclosures. The
out-source agreement includes specific parameters to monitor whether
proceedings are progressing within the time frame typical for the state in
which the property is located. During the foreclosure proceeding, the master
servicer determines the amount of the foreclosure bid and whether to liquidate
the mortgage loan.
After foreclosure, if the home equity loan is secured by a first mortgage
lien, the master servicer may liquidate the mortgaged property and charge off
the home equity loan balance that was not recovered through liquidation
proceeds. If the mortgaged property was subject to a senior lien, the master
servicer will either directly manage the foreclosure sale of the property and
satisfy the senior lien at the time of sale or take other action deemed
necessary to protect the interest in the mortgaged property. If in the
judgment of the master servicer the cost of maintaining or purchasing the
senior lien position exceeds the economic benefit of doing that, the master
servicer will generally charge off the entire home equity loan and may seek a
money judgment against the borrower.
Servicing and charge-off policies and collection practices may change
over time in accordance with, among other things, the master servicer's
business judgment, changes in the portfolio, and applicable laws and
regulations.
DELINQUENCY EXPERIENCE
The following tables set forth Provident's delinquency and charge-off
experience on its servicing portfolio of home equity loans similar to and
including the mortgage loans for the periods indicated, including home equity
loans subserviced by others for Provident. We cannot assure you that the
delinquency and charge-off experience on the mortgage loans will be consistent
with the historical information provided below. Accordingly, this information
should not be considered to reflect the credit quality of the mortgage loans
included in the trust fund, or a basis of assessing the likelihood, amount, or
severity of losses on the mortgage loans. The statistical data in the tables
are based on all of the closed-end fixed and adjustable rate mortgage loans in
Provident's servicing portfolio.
The information in the tables below has not been adjusted to eliminate
the effect of the significant growth in the size of Provident's mortgage loan
portfolio during the periods shown. Accordingly, delinquency as a percentage
of aggregate principal balance of mortgage loans serviced for each period
would be higher than those shown if a group of mortgage loans were
artificially isolated at a point in time and the information showed the
activity only in that isolated group. However, since most of the mortgage
loans in Provident's mortgage loan portfolio are not fully seasoned, the
delinquency information for an isolated group would also be distorted to some
degree.
The following table sets forth information relating to the delinquency
experience of mortgage loans similar to and including the mortgage loans for
the quarters ended [________________], [_______________], [______________] and
[____________].The delinquency percentage represents the number and principal
balance of mortgage loans with payments contractually past due, and includes
properties in foreclosure, delinquent bankruptcies and real estate owned.
DELINQUENCY EXPERIENCE OF THE MASTER SERVICER'S
PORTFOLIO OF HOME EQUITY LINES OF CREDIT
<TABLE>
<CAPTION>
QUARTER ENDED
________, 199_ _________, 199_ ____________, 199_ ___________, 199_
---------------------------------------------------------------------------------------------
NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR NUMBER DOLLAR
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio...........
Delinquency
percentage .........
30-59 days.......
60-89 days.......
90 days or more..
Total...............
</TABLE>
DESCRIPTION OF THE MORTGAGE LOANS
GENERAL
The statistical information presented in this prospectus supplement only
covers the mortgage loans in the trust fund and describes the mortgage loans
in loan group 1 and the mortgage loans in loan group 2 and is based on the
characteristics of the loan groups as of _______, 1999. All weighted averages
or percentages of totals are weighted or based on the basis of the Cut-Off
Date pool principal balance included in the trust fund unless otherwise
indicated.
The mortgage loans are divided into two loan groups. Loan group 1
consists of mortgage loans with fixed interest rates. Loan group 2 consists of
mortgage loans with adjustable interest rates. The loan group 1 principal
balance on any date and the loan group 2 principal balance on any date will be
equal to the aggregate of the principal balances of all mortgage loans in loan
group 1 and loan group 2, respectively, on that date.
The mortgage loans to be purchased by the trust fund will be originated
or purchased by Provident and sold by Provident to the trust fund.
The mortgage pool consists of mortgage loans with an aggregate principal
balance as of the Cut-Off Date of $ _______________. The principal balance of
a mortgage loan that is not a liquidated mortgage loan on any day is equal to
its Cut-Off Date principal balance minus all collections applied in reduction
of the Cut-Off Date principal balance of the mortgage loan. The pool principal
balance on any day is the aggregate of the principal balances of all the
mortgage loans on that day. The mortgage pool consists of fixed and adjustable
rate mortgage loans with remaining terms to stated maturity of not more than
____ months, including both fully amortizing and balloon loans.
Approximately______ % of the mortgage loans were 30 to 59 days delinquent. No
mortgage loan was more than 59 days delinquent as of the Cut-Off Date.
The average Cut-Off Date principal balance of the mortgage loans was
$_______, the minimum Cut-Off Date principal balance was $__________, and the
maximum Cut-Off Date principal balance was $__________. Interest on each
mortgage loan is payable monthly on its outstanding principal balance at the
rate per annum specified in the related mortgage note. The minimum interest
rate on the mortgage loans and the maximum interest rate on the mortgage loans
on the Cut-Off Date were ____% and ____% per annum, respectively, and the
weighted average interest rate on the mortgage loans as of the Cut-Off Date
was ____% per annum. The weighted average loan-to-value ratio of the mortgage
loans was ____% as of the Cut-Off Date.
Approximately _____% of the mortgage loans are balloon loans. Balloon
loans are mortgage loans in which borrowers are not required to make monthly
payments of principal that will fully amortize the mortgage loan by its
maturity. Each mortgage loan was originated on or after _______, 199__. The
remaining terms to stated maturity as of the Cut-Off Date of the mortgage
loans range from _____months to____ months; the weighted average remaining
term to stated maturity of the mortgage loans as of the Cut-Off Date is
_______months. In no event will more than 5% of the Cut-Off Date pool
principal balance of the mortgage pool deviate from the characteristics of the
mortgage loans described in this prospectus supplement.
The mortgage loans provide that interest is charged to the borrowers, and
payments are due from the borrowers, on a scheduled day of each month that is
fixed at the time of origination. Scheduled monthly payments made by the
borrowers on the mortgage loans either earlier or later than their scheduled
due dates will not affect the amortization schedule or the relative
application of the payments to principal and interest.
LOAN GROUP 1 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise stated, all percentages with respect
to the mortgage loans in loan group 1 are percentages of the Cut-Off Date loan
group 1 principal balance.
The mortgage loans in loan group 1 consist of ___ loans, and the related
mortgaged properties are located in __ states and the District of Columbia. As
of the Cut-Off Date, the mortgage loans in loan group 1 had an aggregate
principal balance of $__________, the maximum principal balance of any of the
mortgage loans in loan group 1 was $__________, the minimum principal balance
was $________, and the principal balance of the loan group 1 mortgage loans
averaged $_________. As of the Cut-Off Date, the interest rate on the mortgage
loans in loan group 1 ranged from ____% to _____% per annum, and the weighted
average interest rate on the mortgage loans in loan group 1 was _____% per
annum.
As of the Cut-Off Date, the original term to stated maturity of each
mortgage loan in loan group 1 was ___ months, the remaining term to stated
maturity ranged from ___ months to ___ months, the weighted average remaining
term to stated maturity was ___ months, and the loan-to-value ratio ranged
from _____% to _____%, with a weighted average loan-to-value ratio of _____%.
All of the mortgage loans in loan group 1 are secured by first liens._____ %
of the mortgage loans in loan group 1 require monthly payments of principal
that will fully amortize the mortgage loan by its maturity date, and _____% of
the mortgage loans in loan group 1 are balloon loans.
CUT-OFF DATE LOAN GROUP 1 PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Range of Cut-Off Number of Loan Group 1 Loan Group 1
Date Principal Balances Mortgage Loans Principal Balance Principal Balance
- ----------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
GEOGRAPHIC DISTRIBUTION BY STATE
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
The loan-to-value ratios shown in the following table for each mortgage
loan are equal to:
o the original principal balance of the mortgage loan at the date of
origination, divided by the lesser of:
o the value of the related mortgaged property, based on the appraisal
made at the time of origination of the mortgage loan or
o the purchase price of the mortgaged property if the mortgage loan
proceeds from the mortgage loan are used to purchase the mortgaged
property.
<PAGE>
LOAN-TO-VALUE RATIOS
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
LOAN RATES
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Loan Rates Mortgage Loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 1 Loan Group 1
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 1 Loan Group 1
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
MONTHS SINCE ORIGINATION
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
PROPERTY TYPE
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
OCCUPANCY TYPE
LOAN GROUP 1
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 1 Loan Group 1
Occupancy Type Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
[CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The pooling and servicing agreement permits the trust fund to purchase
from Provident, after the date of this prospectus supplement and before
_______, 19__, mortgage loans to be added to the trust fund after the initial
closing in an amount not to exceed approximately $________ in aggregate
principal balance for inclusion in the trust fund. Each mortgage loan to be
added to the trust fund after the initial closing will have been originated or
purchased by Provident in accordance with the underwriting guidelines
described under "Underwriting and Credit Guidelines." Accordingly, the
statistical characteristics of the mortgage pool in the preceding tables are
based exclusively on the initial mortgage loans and the statistical
characteristics of the mortgage pool after giving effect to the acquisition of
any mortgage loans to be added to the trust fund after the initial closing
will likely differ from the information in this prospectus supplement. The
date on which Provident transfers a mortgage loan to be added to the trust
fund after the initial closing to the trust fund shall be referred to in this
prospectus supplement as the subsequent transfer date.
Each conveyance of mortgage loans to be added to the trust fund after the
initial closing will be subject to, among other things, the following
conditions:
o the mortgage loans to be added to the trust fund after the initial
closing must:
o satisfy the eligibility criteria in the prospectus under "The Loan
Program--Representations by Provident; Repurchases" and
o comply with each representation and warranty as to the mortgage loans
in the pooling and servicing agreement;
o the mortgage loans to be added to the trust fund after the initial
closing must not have been selected by Provident in a manner that it
believes is adverse to the interests of the certificateholders,
o no mortgage loans to be added to the trust fund after the initial
closing may be ___ or more days contractually delinquent as of the
applicable Cut-Off Date;
o no mortgage loans to be added to the trust fund after the initial
closing may have a remaining term to maturity in excess of ___ years;
o no mortgage loans to be added to the trust fund after the initial
closing may have an interest rate less than ____%;
o following the purchase of the mortgage loans to be added to the trust
fund after the initial closing by the trust fund, the mortgage loans:
o will have a weighted average interest rate of at least ____%;
o will have a weighted average loan-to-value ratio of not more than
____%;
o will not have a weighted average remaining term to stated maturity of
more than ____ months; and
o will, in each case, have a principal balance in excess of $_______ as
of the Cut-Off Date;
o Provident [and the trustee shall not have been notified by either rating
agency that the conveyance of the mortgage loans to be added to the
trust fund after the initial closing will result in a qualification,
modification, or withdrawal of its then-current rating of any class of
certificates] [shall have notified each rating agency of the conveyance
as required by the pooling and servicing agreement]; and
o the trustee shall have received opinions of counsel as to, among other
things, the enforceability and validity of the transfer agreements
relating to the conveyance of the mortgage loans to be added to the
trust fund after the initial closing.] All subsequent mortgage loans
shall be added from a specified group of mortgage loans.]
LOAN GROUP 2 STATISTICS
The sum of the columns below may not equal the total indicated due to
rounding. In addition, unless otherwise stated, all percentages with respect
to the mortgage loans in loan group 2 are percentages of the Cut-Off Date loan
group 2 principal balance.
The mortgage loans in loan group 2 bear interest rates that adjust based
on the London interbank offered rate for six-month United States dollar
deposits.
The mortgage loans in loan group 2 consist of _____ loans, and the
related mortgaged properties are located in ___states and the District of
Columbia. As of the Cut-Off Date, the mortgage loans in loan group 2 had an
aggregate principal balance of $______________, the maximum principal balance
of any of the mortgage loans in loan group 2 was $__________, the minimum
principal balance was $________, and the principal balance of the loan group 2
mortgage loans averaged $_________. As of the Cut-Off Date, the interest rate
on the mortgage loans in loan group 2 ranged from ____% to _____% per annum,
and the weighted average interest rate on the mortgage loans in loan group 2
was _____% per annum.
As of the Cut-Off Date, the original term to stated maturity of the
mortgage loans in loan group 2 was ___ months, the remaining term to stated
maturity ranged from ___ months to ___ months, the weighted average remaining
term to stated maturity was ___ months, and the loan-to-value ratio ranged
from ____% to ____%, with a weighted average loan-to-value ratio of ____%. The
mortgage loans in loan group 2 had stated maturities ranging from ___ to ___.
[All] of the mortgage loans in loan group 2 require monthly payments of
principal that will fully amortize the mortgage loan by its maturity date. All
of the mortgage loans in loan group 2 have interest rates that adjust
semi-annually. All of the mortgage loans in loan group 2 have minimum and
maximum interest rates on the mortgage loans. The weighted average minimum
interest rate on the mortgage loans in loan group 2 is approximately ____% per
annum, with minimum interest rates on the mortgage loans that range from
approximately ____ % per annum to ____% per annum. The weighted average
maximum interest rate on the mortgage loans in loan group 2 is approximately
____% per annum, with maximum interest rates on the mortgage loans that range
from approximately _____% per annum to _____% per annum. The mortgage loans in
loan group 2 have a weighted average gross margin of approximately ____% per
annum, with gross margins that range from approximately ____% per annum to
____% per annum. The mortgage loans in loan group 2 have a weighted average
periodic cap of approximately ____% per annum, with periodic caps that range
from approximately ____% per annum to ____% per annum. ____% of the mortgage
loans in loan group 2 adjust after [one] year; ____% of the mortgage loans in
loan group 2 adjust after [three] years; and ____% of the mortgage loans in
loan group 2 adjust after [five] years. The weighted average number of months
to the next reset date of the mortgage loans in loan group 2 is approximately
______, with a maximum number of months of ______ and a minimum number of
months of ______.
CUT-OFF DATE LOAN GROUP 2 PRINCIPAL BALANCES
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Range of Cut-Off Number of Loan Group 2 Loan Group 2
Date Principal Balances Mortgage Loans Principal Balance Principal Balance
- ----------------------- -------------- ----------------- ------------------
<S> <C> <C> <C>
</TABLE>
Geographic distribution has been determined by the property address in
the related mortgage.
GEOGRAPHIC DISTRIBUTION BY STATE
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
State Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
The loan-to-value ratios shown in the following table for each mortgage
loan are equal to:
o the original principal balance of the mortgage loan at the date of
origination, divided by the lesser of:
o the value of the related mortgaged property, based on the appraisal
made at the time of origination of the mortgage loan or
o the purchase price of the mortgaged property if the mortgage loan
proceeds from the mortgage loan are used to purchase the mortgaged
property.
LOAN-TO-VALUE RATIOS
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan-to-Value Ratio Mortgage Loans Principal Balance Principal Balance
- ------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
LOAN RATES
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Loan Rates Mortgage Loans Principal Balance Principal Balance
- ---------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
ORIGINAL TERM TO STATED MATURITY
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Original Term to Number of Loan Group 2 Loan Group 2
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
REMAINING MONTHS TO STATED MATURITY
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Remaining Term to Number of Loan Group 2 Loan Group 2
Stated Maturity Mortgage Loans Principal Balance Principal Balance
- --------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
MONTHS SINCE ORIGINATION
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Months Since Origination Mortgage Loans Principal Balance Principal Balance
- ------------------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
PROPERTY TYPE
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Property Type Mortgage Loans Principal Balance Principal Balance
- ------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
OCCUPANCY TYPE
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Occupancy Type Mortgage Loans Principal Balance Principal Balance
- -------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
MARGIN
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Margin Mortgage Loans Principal Balance Principal Balance
- ------ -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
LIFETIME CAP
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Lifetime Cap Mortgage Loans Principal Balance Principal Balance
- ------------ -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
<PAGE>
FLOOR
LOAN GROUP 2
<TABLE>
<CAPTION>
Cut-Off Date % of Cut-Off Date
Number of Loan Group 2 Loan Group 2
Floor Mortgage Loans Principal Balance Principal Balance
- ----- -------------- ----------------- -----------------
<S> <C> <C> <C>
</TABLE>
PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The rate of principal payments on the Class A Certificates, the aggregate
amount of distributions on the Class A Certificates, and the yield to maturity
of the Class A Certificates will be related to the rate and timing of payments
of principal on the mortgage loans in the related loan group. The rate of
principal payments on the mortgage loans will in turn be affected by the
amortization schedules of the mortgage loans and by the rate of principal
prepayments. For this purpose principal prepayments include prepayments from
refinancing; liquidations of the mortgage loans due to defaults, casualties,
and condemnations; repurchases by the seller; and any optional purchase by the
master servicer of the remaining mortgage loans to terminate the trust fund.
The mortgage loans may be prepaid by the mortgagors at any time. However,
approximately __% of the mortgage loans are subject to prepayment penalties
that vary from jurisdiction to jurisdiction.
Prepayments, liquidations, and purchases of the mortgage loans in a loan
group will result in distributions on the related Class A Certificates of
principal amounts that would otherwise be distributed over their remaining
terms. Since the rate of payment of principal of the mortgage loans will
depend on future events and a variety of factors, we cannot assure you about
the rate of principal prepayments. The extent to which the yield to maturity
of a Class A Certificate may vary from the anticipated yield will depend upon
the degree to which a certificate is purchased at a discount or premium, and
the degree to which the timing of payments on it is sensitive to prepayments,
liquidations, and purchases of the mortgage loans.
We cannot predict the rate of prepayment on the mortgage loans. The
prepayment experience of the trust fund with respect to the mortgage loans may
be affected by a wide variety of factors, including 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 loans. All of the mortgage loans contain
due-on-sale provisions, and the master servicer is required by the pooling and
servicing agreement to enforce these provisions, unless enforcement is not
permitted by applicable law. The enforcement of a due-on-sale provision will
have the same effect as a prepayment of the related mortgage loan. See
"Certain Legal Aspects of Loans--Due-on-Sale Clauses in Mortgage Loans" in the
prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of mortgage loans with fixed rates such as the mortgage loans in the loan
group 1 is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
interest rate on a mortgage, mortgagors may have an increased incentive to
refinance their mortgage loans. Depending on prevailing market rates, the
future outlook for market rates, and economic conditions generally, some
mortgagors may sell or refinance mortgaged properties to realize their equity
in the mortgaged properties, to meet cash flow needs, or to make other
investments.
All of the mortgage loans in the loan group 2 are adjustable-rate
mortgage loans. As is the case with conventional fixed-rate mortgage loans,
adjustable-rate mortgage loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if
prevailing interest rates fall significantly, adjustable-rate mortgage loans
could be subject to higher prepayment rates than if prevailing interest rates
remain constant because the availability of fixed-rate mortgage loans at
competitive interest rates may encourage mortgagors to refinance their
adjustable-rate mortgage loans at competitive interest rates to lock in a
lower fixed interest rate.
In addition to the foregoing factors affecting the weighted average life
of the Class A Certificates, the use of excess spread to pay principal of the
Class A Certificates to the extent required by the pooling and servicing
agreement will result in the acceleration of the Class ___ and Class ___
certificates, as applicable, relative to the amortization of the mortgage
loans in their related loan group in the early months of the transaction, and
in addition will accelerate in Group 1 the first date on which each other
class of Group 1 certificates will begin to receive distributions of
principal. This acceleration feature creates overcollateralization that
results from the excess of the aggregate principal balance of mortgage loans
in loan group 1 over the aggregate Class A principal balance of loan group 1.
Once the required level of overcollateralization for a certificate group is
reached, the acceleration feature for the certificate group will cease, unless
necessary to maintain the required level of overcollateralization for the
certificate group. See "Description of the Certificates--Overcollateralization
Provisions."
WEIGHTED AVERAGE LIVES
Generally, greater than anticipated prepayments of principal will
increase the yield on the Class A Certificates purchased at a price less than
par and will decrease the yield on the Class A Certificates purchased at a
price greater than par. The effect on an investor's yield due to principal
prepayments on the mortgage loans occurring at a rate that is faster or slower
than the rate anticipated by the investor in the period immediately following
the issuance of the certificates will not be entirely offset by a subsequent
like reduction or increase in the rate of principal payments. The weighted
average life of the Class A Certificates will also be affected by the amount
and timing of delinquencies and defaults on the mortgage loans and any
recoveries 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 of
principal of the Certificate is repaid. The weighted average life of any class
of Class A Certificates will be influenced by, among other factors, the rate
at which principal payments are made on the mortgage loans, including final
payments made upon the maturity of balloon loans in loan group 1.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding
principal balance of the pool of mortgage loans for the life of the mortgage
loans. A 100% Prepayment Assumption assumes a conditional prepayment rate
("CPR") of 4% per annum of the outstanding principal balance of the mortgage
loans in the first month of the life of the mortgage loans and an additional
1.45% (precisely 16/11) 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. 0% Prepayment Assumption assumes a conditional prepayment rate
equal to 0% of the Prepayment Assumption, i.e., no prepayments.
Correspondingly, [200]% Prepayment Assumption assumes prepayment rates equal
to [200]% of the Prepayment Assumption, and so forth. The Prepayment
Assumption does not purport to be a historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any
particular pool of mortgage loans, including the mortgage loans. Provident
believes that no existing statistics of which it is aware provide a reliable
basis for holders of the Class A Certificates to predict the amount or the
timing of receipt of prepayments on the mortgage loans.
Since the tables were prepared on the basis of the assumptions in the
following paragraph, there are discrepancies between characteristics of the
actual mortgage loans and the characteristics of the mortgage loans assumed in
preparing the tables. These discrepancies may have an effect on the
percentages of the principal balances outstanding and weighted average lives
of the Class A Certificates in the tables. In addition, since the actual
mortgage loans in the trust fund have characteristics that differ from those
assumed in preparing the tables, the distributions of principal on the Class A
Certificates may be made earlier or later than as indicated in the tables.
For the purpose of the tables, it is assumed that:
o the mortgage loans consist of pools of loans with the level-pay and
balloon amortization characteristics set forth below,
o the closing date for the Class A Certificates is ________________,
o distributions on the Class A Certificates are made on the 25th day of
each month regardless of the day on which the distribution date
actually occurs, commencing in _____________, and are made in
accordance with the priorities described herein,
o the scheduled monthly payments of principal and interest on the
mortgage loans will be timely delivered on the first day of each
month with no defaults, commencing in _______________,
o the mortgage loans' prepayment rates are a multiple of the Prepayment
Assumption,
o all prepayments are prepayments in full received on the last day of
each month commencing ______________ and include 30 days' interest on
them,
o no optional termination is exercised,
o the Class A Certificates of each class have their respective
certificate rates and initial Class A principal balances,
o the overcollateralization levels are set initially as specified in
the pooling and servicing agreement, and thereafter decrease in
accordance with the provisions of the pooling and servicing
agreement,
o with respect to pools of loans with an assumed Cut-Off Date of
_________________, interest will be calculated at a rate of __% per
annum for one month],
o six-month LIBOR for each interest period will be __%, and
o one-month LIBOR for each interest period will be ___%.
<PAGE>
<TABLE>
<CAPTION>
Original Original Remaining Term
Principal Amortization Term Term to Maturity to Maturity
Amortization Methodology Balance Loan Rate (months) (months) (months)
- ------------------------ ------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
GROUP 1
Balloon............ $
Level Pay.......... $
Level Pay.......... $
</TABLE>
Subject to the foregoing discussion and assumptions, the following table
indicates the weighted average life of each class of Class A Certificates, and
the percentages of the initial Class A principal balance of each class of
Class A Certificates that would be outstanding after each of the dates shown
at various percentages of Prepayment Assumption.
<TABLE>
<CAPTION>
Original Original Remaining
Months Maximum Minimum Amortization Term to Term to
Amortization Principal Loan to Rate Gross Interest Interest Term Maturity Maturity
Methodology Balance Rate Change Margin Rate Rate (months) (months) (months)
- ----------- ------- ---- ------ ------ ---- ---- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP 2
Balloon.... $
Level Pay... $
Level Pay... $
</TABLE>
<PAGE>
In the three following tables, the weighted average life of a certificate
of any class is determined by 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,
adding the results, and dividing the sum by the highest principal balance of
the certificate.
PERCENT OF INITIAL CLASS A PRINCIPAL BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2
--------- ---------
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years).....
CLASS A-3 CLASS A-4
--------- ---------
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years).....
CLASS A-5 CLASS A-6
DISTRIBUTION DATE % % % % % % % %
- ----------------- - - - - - - - -
Initial
Percentage....... 100 100 100 100 100 100 100 100
Weighted Average
Life (years).....
</TABLE>
DESCRIPTION OF THE CERTIFICATES
The Home Equity Loan Asset-Backed Certificates, Series 1999-__ will be
issued pursuant to the pooling and servicing agreement. The form of the
pooling and servicing agreement has been filed as an exhibit to the
registration statement of which this prospectus supplement and the prospectus
is a part. The following is a description of the material provisions of the
pooling and servicing agreement. Wherever particular sections or defined terms
of the pooling and servicing agreement are referred to, those sections or
defined terms are incorporated by reference into this discussion.
GENERAL
The offered certificates will be issued in denominations of $1,000 and
multiples of $1 in excess of $1,000 and will evidence specified undivided
interests in the trust fund. The property of the trust fund will consist of,
to the extent provided in the pooling and servicing agreement:
o each of the mortgage loans that from time to time are subject to the
pooling and servicing agreement;
o collections on the mortgage loans received after the Cut-Off Date,
exclusive of payments of accrued interest due on or before the Cut-Off
Date;
o mortgaged properties relating to the mortgage loans that are acquired by
foreclosure or deed in lieu of foreclosure;
o the collection account for the mortgage loan proceeds and the
Distribution Account for the certificates, excluding net earnings on
amounts in it;
o the trust fund's limited financial guaranty insurance policy; and
o the rights under hazard insurance policies covering the mortgaged
properties.
Definitive certificates, if issued, will be transferable and exchangeable
at the corporate trust office of the trustee, which will initially maintain
the security register for the certificates. See "--Book-Entry Certificates."
No service charge will be made for any registration of exchange or transfer of
certificates, but the trustee may require payment of a sum sufficient to cover
any tax or other governmental charge.
Each mortgage loan in the trust fund will be assigned to one of two
mortgage loan groups loan group 1 or loan group 2. The Class A-1, Class A-2,
Class A-3, Class A-4, and Class A-5 Certificates represent undivided ownership
interests in the mortgage loans assigned to loan group 1, all collections on
them except payments of interest due before but received after the Cut-Off Date,
and their proceeds. The Class A-6 Certificates represent undivided ownership
interests in the mortgage loans assigned to loan group 2, all collections on
them except payments of interest due before their Cut-Off Date, and their
proceeds. The principal amount of a class of Class A Certificates on any
distribution date is equal to the applicable Class A principal balance on the
closing date minus the aggregate of amounts actually distributed as principal to
the holders of that class of Class A Certificates. The aggregate Class A
principal balance of the group 1 certificates on any day is the aggregate of the
Class A principal balances of the Class A-1, Class A-2, Class A-3, Class A-4,
and Class A-5 Certificates. The aggregate Class A principal balance of the group
2 certificates on any day is the Class A principal balance of the Class A-6
Certificates.
The trust fund will issue six classes of Class A Certificates, Class A-1,
Class A-2, Class A-3, Class A-4, Class A-5, and Class A-6, and one class of
subordinated certificates, the Class R Certificates. Only the Class A
Certificates are being offered by this prospectus supplement. Each class of
offered certificates represents the right to receive payments of interest at
the certificate rate for its class and payments of principal as described in
this prospectus supplement.
A certificate's percentage interest in the trust fund is equal to the
percentage derived by dividing its original principal balance by the original
aggregate certificate principal balance.
The certificates will not be listed on any securities exchange.
BOOK-ENTRY CERTIFICATES
The certificates will be book-entry certificates. Persons acquiring
beneficial ownership interests in the certificates may elect to hold their
certificates through the Depository Trust Company in the United States, or
Cedel Bank or the Euroclear System in Europe if they are participants in those
systems, or indirectly through organizations that are participants in those
systems. Investors may hold beneficial interests in the book-entry
certificates in minimum denominations representing certificate principal
balances of $1,000 and in multiples of $1 in excess of $1,000. Certificate
owners will not be certificateholders as that term is used in the pooling and
servicing agreement. Certificate owners are only permitted to exercise their
rights indirectly through the participating organizations that utilize the
services of DTC, including securities brokers and dealers, banks and trust
companies, and clearing corporations and other participants in DTC, and DTC.
For information with respect to tax documentation procedures relating to
the certificates, see "Federal Income Tax Consequences--Foreign Investors" and
"--Backup WithholdinG" herein and "Global, Clearance, Settlement And Tax
Documentation Procedures--U.S. Federal Income Tax Documentation Requirements"
in Annex I to this prospectus supplement.
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 those payments to the accounts of the applicable DTC
participants in accordance with DTC's normal procedures. Each DTC participant
will be responsible for disbursing those 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 financial intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
certificates that it represents.
For further discussion about DTC, the European depositaries, and
book-entry procedures see "Description of the Securities--Book-Entry
Registration of Securities" in the prospectus.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the certificates, Provident will transfer to
the trust fund all of its interests in each mortgage loan, related mortgage
notes, mortgages, and other related documents, including all collections
received with respect to each mortgage loan after the Cut-Off Date, exclusive
of payments of accrued interest due on or before the Cut-Off Date.
Concurrently with the transfer, the trustee will deliver the certificates to
Provident. Each mortgage loan transferred to the trust fund will be identified
on a mortgage loan schedule delivered to the trustee pursuant to the pooling
and servicing agreement. That schedule will include information as to the
Cut-Off Date principal balance, the interest rates applicable to the mortgage
loans, and other information.
[Under the terms of the pooling and servicing agreement, Provident will
maintain possession of the mortgage file containing documentation relating to
each mortgage loan for so long as an Assignment Event has not occurred. As
soon as practicable and in any event within 60 days of an Assignment Event,
the seller will cause the mortgage files pertaining to each mortgage loan to
be delivered to the trustee. The trustee will acknowledge the assignment of
the mortgage loans to the trust fund and Provident will agree to hold the
mortgage files for and on behalf of the trustee.]
[An "Assignment Event" will occur on the 30th day following either the
occurrence and continuance of an event of default, the reduction of the
seller's long-term unsecured debt rating below Baa2 by Moody's or BBB by S&P
or Fitch, or the suspension, termination, or withdrawal of the seller's
long-term unsecured debt rating by Moody's or S&P.]
Within 60 days of an Assignment Event, the trustee will review the
mortgage loans and the related documents pursuant to the pooling and servicing
agreement and if any mortgage loan or related document is found to be
defective in any material respect and the defect is not cured within 90 days
following notice of the defect to the seller, the seller will be obligated to
either substitute an eligible substitute mortgage loan for the defective
mortgage loan or purchase the defective mortgage loan at a price equal to the
outstanding principal balance of the defective mortgage loan as of the date of
purchase, plus all accrued and unpaid interest on it, net of the master
servicing fee if Provident is the master servicer, plus the amount of any
unreimbursed servicing advances made by the master servicer. However,
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 the
substitution will not disqualify the trust fund as a real estate mortgage
investment conduit or result in a prohibited transaction tax under the
Internal Revenue Code of 1986. The purchase price will be deposited in the
collection account for the mortgage loan proceeds on or before the eighteenth
day of a month next occurring after the obligation arises. If the principal
balance of the defective mortgage loan exceeds the principal balance of the
eligible substitute mortgage loan, then on or before the date on which the
purchase price would have been required to be deposited, the seller will be
required to deposit an amount equal to the excess in the collection account
for the mortgage loan proceeds. 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.
Eligible substitute mortgage loans are mortgage loans substituted by
Provident for a defective mortgage loan that must, on the date of
substitution,
o have an aggregate outstanding principal balance not __% more or less
than the transfer deficiency of the defective mortgage loan;
o have an interest rate not less than the interest rate of the defective
mortgage loan and not more than _% in excess of the interest rate of the
defective mortgage loan;
o if the defective mortgage loan is in loan group 2, have interest rates
based on the same index with adjustments to the interest rates made on
the same interest rate adjustment date as that of the defective mortgage
loan;
o if the defective mortgage loan is in loan group 2, have an interest rate
spread that is not less than the interest rate spread of the defective
mortgage loan and not more than ___ basis points higher than the
interest rate spread for the defective mortgage loan;
o have a mortgage of the same or higher level of priority as the mortgage
relating to the defective mortgage loan;
o have a remaining term to maturity not more than ___ months earlier and
not more than __ months later than the remaining term to maturity of the
defective mortgage loan;
o comply with each representation and warranty as to the mortgage loans in
the pooling and servicing agreement as of the date of substitution;
o have an original loan-to-value ratio not greater than that of the
defective mortgage loan;
o if the defective mortgage loan is in loan group 2, have a lifetime rate
cap and a periodic rate cap no lower than the lifetime rate cap and
periodic rate cap, respectively, of the defective mortgage loan; and
o be of the same type of mortgaged property as the defective mortgage loan
or a detached single family residence.
The seller will make representations and warranties as to the accuracy in
all material respects of some of the information furnished to the trustee with
respect to each mortgage loan, e.g., Cut-Off Date principal balance and the
interest rates applicable to the mortgage loans. In addition, the seller will
represent and warrant on the Closing Date that at the time of transfer to the
trust fund, the seller has transferred or assigned all of its interests in
each mortgage loan and the related documents, free of any lien, subject to
specified exceptions, and that 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 of its representations and warranties that
materially and adversely affect the interests of the certificateholders or the
financial insurance policy issuer 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 substitute for the defective
mortgage loan an eligible substitute mortgage loan or purchase the defective
mortgage loan from the trust fund. The procedure and limitations in the second
preceding paragraph for the transfer of defective mortgage loans will apply to
the transfer of a mortgage loan that is required to be transferred because of
a breach of a representation or warranty in the pooling and servicing
agreement that materially and adversely affects the interests of the
certificateholders or the financial insurance policy issuer.
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 for the benefit of the certificateholders.
The collection account for the mortgage loan proceeds must satisfy the
conditions to be an eligible account. On their receipt by the master servicer,
the master servicer will deposit in the collection account all amounts
collected on the mortgage loans except amounts representing the servicing fee.
Amounts deposited in the collection account may be invested in permitted
investments maturing no later than two business days before the date on which
they are required to be deposited in the distribution account.
The trustee will establish the distribution account into which will be
deposited amounts withdrawn from the collection account for payment to
certificateholders on a distribution date. The distribution account will be an
eligible account. Amounts on deposit in it may be invested in permitted
investments maturing on or before the business day before their distribution
date. Net investment earnings on the funds in the distribution account will be
paid to ____________.
An eligible account is:
o an account that is maintained with a depository institution whose debt
obligations at the time of any deposit have the highest short-term debt
rating by the rating agencies,
o one or more accounts with a depository institution having a minimum
long-term unsecured debt rating of ____ by _______ and ____ by ___,
which accounts are fully insured by either the Savings Association
Insurance Fund or the Bank Insurance Fund of the Federal Deposit
Insurance Corporation,
o a segregated trust account maintained with the trustee or an affiliate
of the trustee in its fiduciary capacity, or
o otherwise acceptable to the financial insurance policy issuer and each
rating agency without reduction or withdrawal of their then current
ratings of the certificates as evidenced by a letter from the financial
insurance policy issuer and each rating agency to the trustee.
Permitted investments are specified in the pooling and servicing
agreement and are limited to investments that are acceptable to the financial
insurance policy issuer and meet the criteria of the rating agency from time
to time as being consistent with their then current ratings of the notes.
ADVANCES
Not later than two business days before each distribution date, the
master servicer will remit to the trustee for deposit in the distribution
account an amount, to be distributed on the related distribution date, equal
to the sum of the interest accrued and principal due on each mortgage loan
through the related due date but not received by the master servicer as of the
close of business on the last day of the related due period, net of the master
servicing fee. The master servicer with continue these deposits with respect
to each mortgage loan until it becomes a liquidated mortgage loan.
In the course of performing its servicing obligations, the master
servicer will pay all reasonable and customary out-of-pocket costs incurred in
the performance of its servicing obligations, including the cost of the
preservation, restoration, and protection of the mortgaged properties, any
enforcement or judicial proceedings, including foreclosures, and the
management and liquidation of mortgaged properties acquired in satisfaction of
the related mortgage. Each of these expenditures 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 any other amounts collected by
the master servicer from the related mortgagor or otherwise relating to the
mortgage loan in respect of which the unreimbursed amounts are owed. The
master servicer's right to reimbursement for monthly advances is 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 these reimbursements is before the rights of certificateholders.
The master servicer is not required to make any monthly advance or
servicing advance if in its good faith judgment and sole discretion, the
master servicer determines that the advance will not be ultimately recoverable
from collections received from the mortgagor on the related mortgage loan or
other recoveries on the related mortgage loan. However, if any servicing
advance or monthly advance is determined by the master servicer to be
nonrecoverable from those sources, the amount of the nonrecoverable advance
may be reimbursed to the master servicer from other amounts on deposit in the
collection account for the mortgage loan proceeds.
DISTRIBUTION DATES
On the 25th day of each month, or if it is not a business day, then the
next business day, commencing in _________________, 1999, the holders of the
offered certificates will be entitled to receive, from amounts then on deposit
in the distribution account, to the extent of funds available therefor in
accordance with the priorities and in the amounts described below under
"Priority of Distributions," an aggregate amount equal to the sum of the Class
Interest Distribution for each class of offered certificates and the Class A
Principal Distribution for each certificate group. Distributions will be made
in immediately available funds to holders of offered certificates, the
aggregate principal balance of which is at least $1,000,000, by wire transfer
or otherwise, to the account of the certificateholder at a domestic bank or
other entity having appropriate facilities, if the certificateholder has so
notified the trustee in accordance with the pooling and servicing agreement,
or by check mailed to the address of the person entitled thereto as it appears
on the register maintained by the trustee as registrar.
DEPOSITS TO THE DISTRIBUTION ACCOUNT
No later than one business day before 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 the distribution date:
o payments of principal and interest on the mortgage loans in the loan group,
net of the master servicing fee for the related loan group and
reimbursement for related monthly advances and servicing advances;
o net liquidation proceeds and insurance proceeds with respect to the
mortgage loans in the loan group, net of amounts applied to the restoration
or repair of a mortgaged property;
o the purchase price for repurchased defective mortgage loans with respect to
the mortgage loans in the loan group and any related Substitution
Adjustment Amounts;
o payments from the master servicer in connection with monthly advances,
Prepayment Interest Shortfalls, and the termination of the trust fund with
respect to the mortgage loans in the loan group; and
o any amounts paid under the trust fund's limited financial guaranty
insurance policy in respect of the related certificate group.
PRIORITY OF DISTRIBUTIONS
On each distribution date the trustee shall withdraw from the
distribution account the sum of the Available Funds with respect to the Group
1 certificates and the Available Funds with respect to the Group 2
certificates (that sum, the "Amount Available"), and distribute it to the
extent of the Amount Available:
A. With respect to the Group 1 certificates, the Available Funds for
the group 1 certificate group in the following order of priority:
(1) to the trustee, the trustee fee for group 1 for the distribution
date;
(2) to holders of each class of group 1 certificates, an amount
equal to the related Class Interest Distribution for the
distribution date;
(3) sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4,
and Class A-5 certificateholders, in that order, until the
respective Class A principal balance of each class is reduced to
zero, the related Class A Principal Distribution, other than the
portion constituting the distributable excess spread, for the
distribution date, except that after the occurrence and continuance
of an insurer default, the Class A principal distribution for the
group 1 certificates will be distributed pro rata based on the
respective Class A principal balances;
(4) to the financial insurance policy issuer, the amount owing to
the financial insurance policy issuer under the insurance agreement
for the premium payable relating to the group 1 certificates; and
(5) sequentially, to the Class A-1, Class A-2, Class A-3, Class A-4,
and Class A-5 Certificateholders, in that order, until the
respective Class A principal balance of each class is reduced to
zero, the related distributable excess spread for the distribution
date, except that after the occurrence and continuance of an insurer
default, the distributable excess spread for the group 1
certificates will be distributed pro rata based on the respective
Class A principal balances.
B. With respect to the Group 2 certificates, the Available Funds for
the group 2 certificate group in the following order of priority:
(1) to the trustee, the trustee fee for group 2 for the distribution
date;
(2) to the holders of the Class A-6 Certificates, an amount equal to
the Class Interest Distribution for the Class A-6 Certificates for
the distribution date;
(3) to the holders of the Class A-6 Certificates, the Class A
Principal Distribution for the Class A-6 Certificates, other than
the portion constituting the distributable excess spread;
(4) to the financial insurance policy issuer, the amount owing to
the financial insurance policy issuer under the insurance agreement
for the premium payable relating to the group 2 certificates; and
(5) to the holders of the Class A-6 Certificates until the Class A-6
principal balance is reduced to zero, the related distributable
excess spread for the distribution date.
C. On any distribution date, to the extent Available Funds for a
certificate group are insufficient to make the distributions specified
above pursuant to the applicable subclause, Available Funds for the other
certificate group remaining after making the distributions required to be
made pursuant to the applicable subclause for the other certificate group
shall be distributed to the extent of the insufficiency in accordance
with the priorities for distribution in the subclause above with respect
to the certificate group experiencing the insufficiency.
D. After making the distributions referred to in subclauses A, B,
and C above, the trustee shall make distributions in the following order
of priority, to the extent of the balance of the Amount Available:
(1) to the master servicer, the amount of any accrued and unpaid
master servicing fee;
(2) to the financial insurance policy issuer, amounts owing to the
financial insurance policy issuer for reimbursement for prior draws
made on the trust fund's limited financial guaranty insurance
policy;
(3) to the master servicer, the amount of nonrecoverable advances
not previously reimbursed;
(4) to the financial insurance policy issuer, any other amounts
owing to the financial insurance policy issuer under the insurance
agreement;
(5) to the Class A-6 certificateholders, the Class A-6 Interest
Carryover; and
(6) to the Class R certificateholders, the balance.
"Class A-6 Interest Carryover" means, with respect to any distribution
date on which the certificate rate for the Class A-6 Certificates is based
upon the Net Funds Cap, the excess of
(1) the amount of interest the Class A-6 Certificates would be
entitled to receive on the distribution date had the rate been
calculated pursuant to the lesser of clause (A) and clause (C) of
the definition of certificate rate over
(2) the amount of interest the Class A-6 Certificates actually
receives on the distribution date, plus accrued interest thereon at
the rate determined pursuant to clause (1) above for the
distribution date.
THE CERTIFICATE RATE
The certificate rate for any interest period with respect to the Class
A-1 Certificates will be ___% per annum, the Class A-2 Certificates will be
___% per annum, the Class A-3 Certificates will be ___% per annum, the Class
A-4 Certificates will be ___% per annum, and the Class A-5 Certificates will
be ___% per annum. Interest period means, with respect to each distribution
date and group 1 certificates, the period from the first day of the calendar
month preceding the month of the distribution date through the last day of
that calendar month. Interest period means, with respect to each distribution
date and group 2 certificates, the period from the distribution date in the
month preceding the month of the distribution date (or, in the case of the
first distribution date, from the Closing Date) through the day before the
distribution date. Interest in respect of any distribution date will accrue on
the group 1 certificates during each interest period on the basis of a 360-day
year consisting of twelve 30-day months.
The certificate rate with respect to the Class A-6 Certificates for an
interest period will equal the least of
o (A) the sum of the LIBOR Rate plus ____% (or ____% for each distribution
date occurring after the date on which the master servicer has the right to
terminate the trust fund),
o (B) the Net Funds Cap for the distribution date, and
o (C) ____% per annum. The "Net Funds Cap" for any distribution date shall
equal the difference between
o the average of the interest rate on the mortgage loans of the mortgage
loans in loan group 2 as of the first day of the month preceding the month
of the distribution date, weighted on the basis of the related principal
balances as of that date and
o the sum of
o the master servicing fee rate and the rate at which the trustee fee and
the premium payable to the financial insurance policy issuer are
calculated and
o commencing with the thirteenth distribution date, ___%.
With respect to the Class A-6 Certificates, interest in respect of any
distribution date will accrue during each interest period on the basis of a
360-day year and the actual number of days elapsed.
On each distribution date, "LIBOR" shall be established by the trustee
and as to any interest period, LIBOR will equal the rate for United States
dollar deposits for one month that appears on Telerate screen page 3750 as of
11:00 A.M., London time, on the second LIBOR business day before the first day
of the interest period. Telerate screen page 3750 is the display designated as
page 3750 on Bridge Telerate, Inc. (or any other page that replaces page 3750
on that service for the purpose of displaying London interbank offered rates
of major banks). If that rate does not so appear, or appear on a replacement
service for displaying LIBOR or comparable rates selected by Provident, 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 as of 11:00
A.M., London time, on the day that is two LIBOR business days before the
immediately preceding distribution date to prime banks in the London interbank
market for a period of one month in amounts approximately equal to the
principal amount of the certificates then outstanding. The reference banks
will be three major banks that are engaged in transactions in the London
interbank market, selected by Provident. 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 fewer than two quotations are
provided on that date as requested, the rate will be the arithmetic mean of
the rates quoted by one or more major banks in New York City, selected by
Provident as of 11:00 A.M., New York City time, on that date for loans in U.S.
Dollars to leading European banks for a period of one month in amounts
approximately equal to the principal amount of the certificates then
outstanding. If no such quotations can be obtained, the rate will be LIBOR for
the prior distribution date. A LIBOR business day is any day other than a
Saturday or a Sunday or 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,
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 one month's interest at the related certificate rate on the related
Class A principal balance immediately before the distribution date (the "Class
Monthly Interest Distributable Amount") and any Class Interest Carryover
Shortfall for the class of Class A Certificates for the distribution date. As
to any distribution date and class of Class A Certificates, the "Class
Interest Carryover Shortfall" is the sum of 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 the class
on the preceding distribution date, over the amount in respect of interest
that is actually distributed to the class on the preceding distribution date
plus one month's interest on that excess, to the extent permitted by law, at
the related certificate rate. The interest entitlement will be reduced by a
class' pro rata share of shortfalls attributable to the Soldiers' and Sailors'
Civil Relief Act of 1940, if any, for the distribution date. Shortfalls
attributable to the Soldiers' and Sailors' Civil Relief Act will not be
covered by payments under the trust fund's limited financial guaranty
insurance policy.
On each distribution date, the Class Interest Distribution for each class
of Class A Certificates in a particular certificate group will be distributed
on an equal priority and any shortfall in the amount required to be
distributed as interest thereon to each class will be allocated between the
classes pro rata based on the amount each class would have been distributed in
the absence of the shortfall. See "--Crosscollateralization" below.
PRINCIPAL
On each distribution date, to the extent of funds available, in
accordance with the priorities described above under "--Priorities of
Distributions," principal will be distributed to the holders of Class A
Certificates of each certificate group then entitled to distributions of
principal in an amount equal to the lesser of the related Aggregate Class A
principal balance and the related Class A Principal Distribution for the
distribution date. "Class A Principal Distribution" means, with respect to any
distribution date and certificate group, the sum of the related Class A
Monthly Principal Distributable Amount for the distribution date and any
outstanding Class A Principal Carryover Shortfall as of the close of business
on the preceding distribution date.
"Class A Monthly Principal Distributable Amount" means, with respect to
any distribution date and certificate group, to the extent of funds available
therefor the amount equal to the sum of the following amounts (without
duplication) with respect to the immediately preceding due period:
o each payment of principal on a mortgage loan in the related loan
group received by the master servicer during the due period,
including all full and partial principal prepayments,
o the principal balance as of the end of the preceding due period of
each mortgage loan in the related loan group that became a liquidated
mortgage loan for the first time during the related due period,
o the portion of the purchase price allocable to principal of all
repurchased defective mortgage loans in the related loan group with
respect to the due period,
o any Substitution Adjustment Amounts received on or before the
previous determination date and not yet distributed with respect to
the related loan group, and
o such portion (not greater than 100%) of excess spread, if any,
required to be distributed on the distribution date to satisfy the
required level of overcollateralization for the related loan group
for the distribution date.
"Class A Principal Carryover Shortfall" means, with respect to any
distribution date and certificate group, the excess of the sum of the related
Class A Monthly Principal Distributable Amount for the preceding distribution
date and any outstanding Class A Principal Carryover Shortfall with respect to
that certificate group on the preceding distribution date over the amount in
respect of principal that is actually distributed to the Class A
Certificateholders of that certificate group on the preceding distribution
date.
If the required level of overcollateralization for a certificate group is
reduced below the then existing amount of overcollateralization or if the
required level of overcollateralization for the certificate group is
satisfied, the amount of the related Class A Monthly Principal Distributable
Amount on the following distribution date will be correspondingly reduced by
the amount of that reduction or by the amount necessary such that the
overcollateralization will not exceed the required level of
overcollateralization for a certificate group after giving effect to the
distribution in respect of principal with respect to the certificate group to
be made on the distribution date.
The application of distributable excess spread in respect of a
certificate group is intended to create overcollateralization to provide a
source of additional cashflow to cover losses on the mortgage loans in the
related loan group. If the amount of losses in a particular due period for the
loan group exceeds the amount of the related excess spread for the related
distribution date, subject to the provisions described below under
"--Crosscollateralization," the amount distributed in respect of principal
will be reduced. A draw on the trust fund's limited financial guaranty
insurance policy in respect of principal will not be made until the Class A
principal balance of a certificate's group exceeds the aggregate principal
balance of the mortgage loans in the related loan group. See "--The Policy."
Accordingly, there may be distribution dates on which Class A
certificateholders receive little or no distributions in respect of principal.
So long as an insurer default has not occurred and is continuing,
distributions of the Class A Principal Distribution with respect to the group
1 certificates will be applied, sequentially, to the distribution of principal
to the Class A-1, Class A-2, Class A-3, Class A-4, and Class A-5 Certificates,
in that order, such that no Class of Group 1 certificates having a higher
numerical designation is entitled to distributions of principal until the
Class A principal balance of each class of certificates having a lower
numerical designation has been reduced to zero. On any distribution date if an
insurer default has occurred and is continuing, the Class A Principal
Distribution with respect to the Group 1 certificates will be applied to the
distribution of principal of each class outstanding on a pro rata basis in
accordance with the Class A principal balance of each class.
On each distribution date following an insurer default, net losses
realized in respect of liquidated mortgage loans in a loan group (to the
extent such amount is not covered by Available Funds from the related loan
group or the crosscollateralization mechanics) will reduce the amount of
overcollateralization, if any, with respect to the related certificate group.
Due period means, with respect to any distribution date, the calendar
month immediately preceding the distribution date.
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 pooling and servicing
agreement, as of the end of the preceding due period, that all liquidation
proceeds that it expects to recover with respect to the mortgage loan has been
recovered.
Excess spread means, with respect to any distribution date and loan
group, the positive excess, if any, of Available Funds for the related
certificate group for the distribution date over the amount required to be
distributed pursuant to subclause A items (1) through (4), with respect to the
group 1 certificates and subclause B items (1) through (4), with respect to
the group 2 certificates, in each case set forth under the heading
"Description of Certificates--Priority of Distributions" on the distribution
date.
An insurer default will occur if the financial insurance policy issuer
fails to make a payment required under the trust fund's limited financial
guaranty insurance policy or if certain events of bankruptcy or insolvency
occur with respect to the financial insurance policy issuer.
THE POLICY
The following information has been supplied by the financial insurance
policy issuer for inclusion in this prospectus supplement. Accordingly,
Provident does not make any representation as to the accuracy and completeness
of this information.
The financial insurance policy issuer, in consideration of the payment of
the premium and subject to the terms of the trust fund's limited financial
guaranty insurance policy, thereby unconditionally and irrevocably guarantees
to any owner that an amount equal to each full and complete Insured Payment
will be received by __________________________, or its successor, as trustee
for the owners on behalf of the owners from the financial insurance policy
issuer, for distribution by the trustee to each owner of each owner's
proportionate share of the Insured Payment. The financial insurance policy
issuer's obligations under the trust fund's limited financial guaranty
insurance 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 they are properly applied by the
trustee. Insured Payments shall be made only at the time set forth in the
trust fund's limited financial guaranty insurance policy and no accelerated
Insured Payments shall be made regardless of any acceleration of the Class A
Certificates, unless the acceleration is at the sole option of the financial
insurance policy issuer.
Notwithstanding the foregoing paragraph, the trust fund's limited
financial guaranty insurance policy does not cover any shortfalls attributable
to the liability of the trust fund, the REMIC, or the trustee for any
withholding taxes, including interest and penalties regarding them.
The financial insurance policy issuer will pay any Insured Payment that
is a preference amount on the business day following receipt on a business day
by the fiscal agent of:
o a certified copy of the order requiring the return of a preference
payment,
o an opinion of counsel satisfactory to the financial insurance policy
issuer that the order is final and not subject to appeal,
o an assignment in the form reasonably required by the financial insurance
policy issuer, irrevocably assigning to the financial insurance policy
issuer all rights of the owner relating to the Class A Certificates
against the debtor that made the preference payment or otherwise with
respect to the preference payment, and
o appropriate instruments to effect the appointment of the financial
insurance policy issuer as agent for the owner in any legal proceeding
related to the preference payment, those instruments being in a form
satisfactory to the financial insurance policy issuer.
If these documents are received after 12:00 NOON, New York City time, on a
business day, they will be considered to be received on the following business
day. The payments will 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 the owner has returned principal or
interest paid on the Class A Certificates to the receiver or trustee in
bankruptcy, in which case the payment shall be disbursed to the owner.
The financial insurance policy issuer will pay any other amount payable
under the trust fund's limited financial guaranty insurance 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 third business day following
receipt in New York, New York on a business day by State Street Bank and Trust
Company, N.A., as fiscal agent for the financial insurance policy issuer or
any successor fiscal agent appointed by the financial insurance policy issuer
of a notice. If the notice is received after 12:00 NOON, New York City time,
on a business day, it will be considered to be received on the following
business day. If any notice received by the fiscal agent is not in proper form
or is otherwise insufficient for the purpose of making a claim under the trust
fund's limited financial guaranty insurance policy, it shall be considered not
to have been received by the fiscal agent for purposes of this paragraph, and
the financial insurance policy issuer 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 trust fund's limited financial guaranty
insurance policy 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 financial insurance policy issuer
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 financial insurance policy
issuer to deposit or cause to be deposited, sufficient funds to make payments
due under the trust fund's limited financial guaranty insurance policy.
As used in the trust fund's limited financial guaranty insurance policy,
the following terms shall have the following meanings:
"Deficiency Amount" means for any distribution date the Guaranteed
Principal Amount and also the excess of the Class Monthly Interest
Distributable Amount (net of any interest shortfalls attributable to the
Soldiers' and Sailors' Civil Relief Act of 1940) plus any Class Interest
Carryover Shortfall over funds on deposit in the distribution account net of
the trustee's fee and the insurance premium for that distribution date.
"Guaranteed Principal Amount" means for any distribution date the amount
that is required to reduce the then outstanding Class A principal balance
after giving effect to the distributions to the holders of principal on the
distribution date to an amount equal to the aggregate principal balance of the
mortgage loans as of the last day of the immediately preceding due period, and
on __________, 20__ after giving effect to all other distributions to be made
on that day, an amount equal to the then outstanding Class A principal
balance.
"Insured Payment" means any Deficiency Amount on any distribution date
and also at any time any amount previously distributed to an owner on the
Class A Certificates that is recoverable and sought to be recovered as an
avoidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time in accordance with a
final nonappealable order of a court having competent jurisdiction.
Any notice under the trust fund's limited financial guaranty insurance
policy or service of process on the fiscal agent or the financial insurance
policy issuer may be made at the fiscal agent's address or the financial
insurance policy issuer's address or any other address the financial insurance
policy issuer specifies in writing to the trustee.
The notice address of the fiscal agent is 61 Broadway, 15th Floor, New
York, New York 10006, Attention: Municipal Registrar and Paying Agency, or any
other address the fiscal agent specifies to the trustee in writing.
The trust fund's limited financial guaranty insurance policy is not
cancelable for any reason. The premium on the trust fund's limited financial
guaranty insurance policy is not refundable for any reason including payment,
or provision being made for payment, before the maturity of the Class A
Certificates. The insurance provided by the trust fund's limited financial
guaranty insurance policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
OVERCOLLATERALIZATION
The credit enhancement provisions of the trust fund result in a limited
acceleration of the Class A Certificates of a certificate group relative to
the amortization of the mortgage loans in the related loan group in the early
months of the transaction. The accelerated amortization is achieved by the
application of distributable excess spread relating to a loan group to
principal distributions on the Class A Certificates of the related certificate
group. This acceleration feature creates, with respect to each certificate
group, overcollateralization. That is, the aggregate outstanding principal
balance of the mortgage loans in the related loan group exceeds the related
aggregate Class A principal balance. Once the required level of
overcollateralization is reached for a certificate group, and subject to the
provisions described in the next paragraph, the acceleration feature for that
certificate group will cease, until necessary to maintain the required level
of overcollateralization for the certificate group.
The pooling and servicing agreement provides that, subject to specified
floors, caps, and triggers, the required level of overcollateralization with
respect to a certificate group may increase or decrease over time. Any
decrease in the required level of overcollateralization for a loan group will
occur only at the sole discretion of the financial insurance policy issuer.
Any such decrease will have the effect of reducing the amortization of the
Class A Certificates of the related certificate group below what it otherwise
would have been.
CROSSCOLLATERALIZATION
Excess spread from one loan group will be available to cover some
shortfalls relating to the other loan group as described above under the
caption "--Priority of Distributions."
[PRE-FUNDING ACCOUNT
On the closing date, $___________ will be deposited in the pre-funding
account, which account will be in the name of and maintained by the trustee,
will be part of the trust fund, and will be used to acquire subsequent
mortgage loans. During the funding period beginning on the closing date and
terminating on _____________, 19__ the pre-funded amount will be reduced by
the amount used to purchase subsequent mortgage loans in accordance with the
pooling and servicing agreement. Any pre-funded amount remaining at the end of
the funding period will be distributed to holders of the classes of
certificates entitled to receive principal on the distribution date in
______________, 19__ in reduction of the related certificate principal
balances, resulting in a partial principal prepayment of the related
certificates on that date.
Amounts on deposit in the pre-funding account will be invested in
permitted investments. All interest and any other investment earnings on
amounts on deposit in the pre-funding account will be deposited in the
capitalized interest account. The pre-funding account will not be an asset of
the REMIC. All reinvestment earnings on the pre-funding account will be owned
by, and be taxable to, the seller.
CAPITALIZED INTEREST ACCOUNT
On the closing date there will be deposited in capitalized interest
account maintained with and in the name of the trustee on behalf of the trust
fund a portion of the proceeds of the sale of the certificates. The amount
deposited in it will be used by the trustee on the distribution dates in
_________________ 199__, _____________ 199__ and ______________, 199__ to
cover shortfalls in interest on the certificates that may arise as a result of
the use of the pre-funding account for the purchase by the trust fund of
subsequent mortgage loans after the closing date. Any amounts remaining in the
capitalized interest account at the end of the funding period that are not
needed to cover shortfalls on the distribution date in ___________ 199__ are
required to be paid directly to Provident. The capitalized interest account
will not be an asset of the REMIC. All reinvestment earnings on the
capitalized interest account will be owned by, and be taxable to, the seller.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to the certificateholders, the master
servicer will forward to the trustee for mailing to each certificateholder a
statement setting forth at each distribution date among other items:
(1) the aggregate amount of the distribution to each class of
certificateholders on the distribution date;
(2) the amount of the distribution in clause (1) above that was interest and
the amount that was any Class Interest Carryover Shortfall, and the
amount of any Class Interest Carryover Shortfall remaining;
(3) the amount of the distribution in clause (1) above that was principal and
the amount that was the Class A Principal Carryover Shortfall, and any
remaining Class A Principal Carryover Shortfall;
(4) the amount of excess spread for each loan group and the amount applied in
a distribution on the certificates;
(5) the Guaranteed Principal Amount with respect to each certificate group
for the distribution date;
(6) the amount paid under the trust fund's limited financial guaranty
insurance policy for the distribution date for the Class Interest
Distribution to each class of certificates;
(7) the master servicing fee;
(8) the pool principal balance, the loan group 1 principal balance, and the
loan group 2 principal balance, in each case as of the close of business
on the last day of the preceding due period;
(9) the aggregate Class A principal balance of each certificate group after
giving effect to payments allocated to principal;
(10) the amount of overcollateralization relating to each loan group as of the
close of business on the distribution date, after giving effect to
distributions of principal on the distribution date;
(11) the number and aggregate principal balances of the mortgage loans as to
which the minimum monthly payment is delinquent for 30-59 days, 60-89
days, and 90 or more days, respectively, as of the end of the preceding
due period;
(12) the book value of any real estate that is acquired by the trust fund
through foreclosure or grant of deed in lieu of foreclosure;
(13) the aggregate amount of prepayments received on the mortgage loans during
the previous due period and specifying the amount for each loan group;
and
(14) the weighted average interest rate on the mortgage loans and specifying
the weighted average interest rate on the mortgage loan for each loan
group as of the first day of the month before the distribution date.
In the case of information furnished pursuant to clauses (2) and (3)
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 who requests it in writing and who was a
certificateholder during the prior calendar year a statement containing the
information in clauses (2) and (3) above aggregated for the calendar year.
LAST SCHEDULED DISTRIBUTION DATE
The last scheduled distribution date for each class of offered
certificates is as follows: Class A-1 Certificates, _______; Class A-2
Certificates, _______; Class A-3 Certificates, _______; Class A-4
Certificates, _______; Class A-_ Certificates, _______; and Class A-_
Certificates, _______. The actual last distribution date for each class of
offered certificates is expected to occur significantly earlier than the last
scheduled distribution dates. See "Prepayment and Yield Considerations."
The last scheduled distribution dates are based on a 0% Prepayment
Assumption with no distributable excess spread used to make accelerated
payments of principal to the holders of the related offered certificates and
the assumptions under "Prepayment and Yield Considerations--Weighted Average
Lives." The last scheduled distribution dates for the Class A-5 Certificates
and the Class A-6 Certificates have been calculated assuming that the mortgage
loan in the related loan group having the latest maturity date allowed by the
pooling and servicing agreement amortizes according to its terms, plus one
year.
COLLECTION AND OTHER SERVICING PROCEDURES ON MORTGAGE LOANS
The master servicer will make reasonable efforts to collect all payments
called for under the mortgage loans and will, consistent with the pooling and
servicing agreement, follow the collection procedures it follows from time to
time with respect to the loans in its servicing portfolio comparable to the
mortgage loans. Consistent with this, 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,
if the arrangement is consistent with the master servicer's policies with
respect to the home equity mortgage loans it owns or services. In accordance
with the terms of the pooling and servicing agreement, the master servicer may
consent under specified circumstances to the placing of a subsequent senior
lien on the property covered by a mortgage loan.
HAZARD INSURANCE
The master servicer shall maintain fire and hazard insurance with
extended coverage customary in the area where the mortgaged property is
located on the mortgaged properties relating to mortgage loans, and any
foreclosed or repossessed properties, in an amount that is at least equal to
the lesser of the outstanding principal balance on the mortgage loan and any
related senior liens and the maximum insurable value of the improvements
securing the mortgage loan. Generally, if the mortgaged property is in an area
identified in the federal register by the Flood Emergency Management Agency as
Flood Zone A and the master servicer determines that flood insurance is
necessary in accordance with accepted mortgage servicing practices of prudent
lending institutions, the master servicer will cause a flood insurance policy
to be purchased with a generally acceptable insurance carrier, in an amount
representing coverage not less than the lesser of the outstanding principal
balance of the mortgage loan and any related senior liens or the maximum
amount of insurance available under the National Flood Insurance Act of 1968,
as amended. Any amounts collected by the master servicer under any flood
policies, other than amounts to be applied to the restoration or repair of the
mortgaged property, or to be released to the borrower in accordance with
customary mortgage servicing procedures, will be deposited in the collection
account for the mortgage loan proceeds, subject to retention by the master
servicer to the extent the amounts constitute servicing compensation or to
withdrawal pursuant to the pooling and servicing agreement.
If the master servicer obtains and maintains a blanket policy as provided
in the pooling and servicing agreement insuring against fire and hazards of
extended coverage on all of the mortgage loans then, to the extent the 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 have satisfied
its obligations with respect to fire and hazard insurance coverage.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The master servicer will foreclose on or otherwise comparably convert to
ownership mortgaged properties securing any mortgage loans that come into
default when, in accordance with applicable servicing procedures under the
pooling and servicing agreement, no satisfactory arrangements can be made for
the collection of delinquent payments. In connection with foreclosure or other
conversion, the master servicer will follow the practices it deems appropriate
and as are in keeping with its general subordinate mortgage servicing
activities. 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, the 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
The master servicer will receive from interest collections on mortgage
loans in each due period a portion of the interest collections as a monthly
servicing fee in the amount equal to ____% per annum on the aggregate
principal balances of the mortgage loans as of the first day of the related
due period, or as of the Cut-Off Date for the first due period. All assumption
fees, late payment charges, and other fees and charges, to the extent
collected from borrowers, will be retained by the master servicer as
additional servicing compensation.
The master servicer's right to reimbursement for unreimbursed servicing
advances is limited to late collections on the related mortgage loan,
including liquidation proceeds, insurance proceeds, and any other amounts
collected by the master servicer from the related mortgagor or otherwise
relating to the mortgage loan in respect of which the unreimbursed amounts are
owed. The master servicer's right to such reimbursements is before the rights
of certificateholders. However, if any servicing advance or monthly advance is
determined by the master servicer to be nonrecoverable from those sources, the
amount of those nonrecoverable advances may be reimbursed to the master
servicer from other amounts on deposit in the collection account for the
mortgage loan proceeds.
Interest shortfalls attributable to the Soldiers' and Sailors' Civil
Relief Act of 1940 will not be covered by the trust fund's limited financial
guaranty insurance policy, although Prepayment Interest Shortfalls, after
application of the master servicing fee, will be so covered. The master
servicer is not obligated to offset any of the master servicing fee against,
or to provide any other funds to cover, any shortfalls in interest collections
on the mortgage loans that are attributable to the Soldiers' and Sailors'
Civil Relief Act of 1940. See "Risk Factors--Payments on the Mortgage Loans"
in this prospectus supplement.
EVIDENCE AS TO COMPLIANCE
The pooling and servicing agreement provides for delivery on or before
the last day of the fifth month following the end of the master servicer's
fiscal year, beginning in 199_, to the trustee, Provident, the financial
insurance policy issuer, and the rating agencies of an annual statement signed
by an officer of the master servicer to the effect that the master servicer
has fulfilled its material obligations under the pooling and servicing
agreement throughout the preceding fiscal year, except as specified in the
statement.
On or before the last day of the fifth month following the end of the
master servicer's fiscal year, beginning in 199_, the master servicer will
furnish a report prepared by a firm of nationally recognized independent
public accountants, who may also render other services to the master servicer
or Provident, to the trustee, Provident, the financial insurance policy
issuer, and the rating agencies to the effect that the firm has examined
documents and the records relating to servicing of the mortgage loans under
the Uniform Single Attestation Program for Mortgage Bankers and the firm's
conclusion with respect thereto.
The master servicer's fiscal year is the calendar year.
MATTERS REGARDING THE MASTER SERVICER
The pooling and servicing agreement provides that the master servicer may
not resign from its obligations under it, except in connection with a
permitted transfer of servicing, unless its obligations are no longer
permissible under applicable law or on the satisfaction of the following
conditions:
o the master servicer has proposed a successor master servicer to the
trustee and the financial insurance policy issuer in writing and the
proposed successor master servicer is reasonably acceptable to the
trustee;
o the rating agencies have confirmed to the trustee and the financial
insurance policy issuer that the appointment of the proposed successor
master servicer as the master servicer will not result in the reduction
or withdrawal of the then current rating of the notes; and
o the proposed successor master servicer is reasonably acceptable to the
financial insurance policy issuer.
No resignation will become effective until the trustee or a successor master
servicer has assumed the master servicer's obligations under the pooling and
servicing agreement.
The master servicer may perform any of its obligations under the pooling
and servicing agreement through one or more subservicers or delegates, which
may be affiliates of the master servicer. Notwithstanding any such
arrangement, the master servicer will remain obligated to the trustee, the
certificateholders, and the financial insurance policy issuer for the master
servicer's obligations under the pooling and servicing agreement, without any
diminution of its obligations and as if the master servicer itself were
performing those obligations.
The master servicer may agree to changes in the terms of a mortgage loan,
if the changes will not cause the trust fund to fail to qualify as a REMIC and
do not adversely affect the interests of the certificateholders or the
financial insurance policy issuer, are consistent with prudent business
practices, and do not change the interest rate on the mortgage loan or extend
the maturity date of the mortgage loan in excess of one year unless the
related mortgager is in default, or default is, in the judgment of the master
servicer, imminent. Any changes to a mortgage loan that would cause the trust
fund to fail to qualify as a REMIC, however, may be agreed to by the master
servicer, if the master servicer has determined the changes are necessary to
avoid a prepayment of the mortgage loan, the changes are in accordance with
prudent business practices, and the master servicer purchases the mortgage
loan in accordance with the pooling and servicing agreement.
The pooling and servicing agreement provides that the master servicer
will indemnify the trust, the trustee, and the owner trustee against any loss,
liability, expense, damage, or injury suffered as a result of the master
servicer's actions or omissions in connection with the servicing and
administration of the mortgage loans that are not in accordance with the
pooling and servicing agreement. Upon an event of servicing termination
resulting in the assumption of servicing obligations by a successor master
servicer, the successor master servicer will indemnify the Transferor for any
losses, claims, damages, and liabilities of the Transferor as described in
this paragraph arising from the successor master servicer's actions or
omissions. The pooling and servicing agreement provides that neither the
Transferor nor the master servicer nor their directors, officers, employees,
or agents will be under any other liability to the trust, the trustee, the
owner trustee, the certificateholders, or any other person for any action
taken or for refraining from taking any action pursuant to the pooling and
servicing agreement. However, neither the Transferor nor the master servicer
will be protected against any liability that would otherwise be imposed by
reason of willful misconduct, bad faith, or gross negligence of the Transferor
or the master servicer in the performance of its duties under the pooling and
servicing agreement or by reason of reckless disregard of its obligations
under the pooling and servicing agreement. In addition, the pooling and
servicing agreement provides that the master servicer will not be under any
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under the pooling and servicing
agreement and that in its opinion may expose it to any expense or liability.
The master servicer may, in its sole discretion, undertake any legal action
that it deems appropriate with respect to the pooling and servicing agreement
and the rights and duties of the parties thereto and the interest of the
certificateholders and the financial insurance policy issuer thereunder.
Any person into which, in accordance with the pooling and servicing
agreement, Provident or the master servicer may be merged or consolidated or
any person resulting from any merger or consolidation to which Provident or
the master servicer is a party, or any person succeeding to the business of
Provident or the master servicer, will be the successor to the master servicer
under the pooling and servicing agreement, without the execution or filing of
any paper or any further act on the part of any of the parties to the pooling
and servicing agreement, anything in the pooling and servicing agreement to
the contrary notwithstanding.
EVENTS OF DEFAULT
Events of default are any of the following:
o any failure of the master servicer to make any required monthly
advance or any other failure of the master servicer to deposit in the
collection account for the mortgage loan proceeds or distribution
account any deposit required to be made under the pooling and
servicing agreement, which failure continues unremedied for two
business days after written notice of the failure to the master
servicer by the trustee, or to the master servicer and the trustee by
the financial insurance policy issuer or any certificateholder;
o any failure by the master servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
pooling and servicing agreement that, in each case, materially and
adversely affects the interests of the certificateholders or the
financial insurance policy issuer and continues unremedied for 30
days after written notice of the failure to the master servicer by
the trustee, or to the master servicer and the trustee by the
financial insurance policy issuer or any certificateholder;
o any failure by the master servicer to make any required servicing
advance, which failure continues unremedied for a period of 30 days
after written notice of the failure to the master servicer by the
trustee, or to the master servicer and the trustee by the financial
insurance policy issuer or any certificateholder; or
o 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.
Upon the failure for two business days of the master servicer to make any
required monthly advance, the trustee will make the monthly advance and either
the trustee or a successor master servicer will immediately assume the duties
of the master servicer.
Upon removal or resignation of the master servicer, the trustee will be
the successor master servicer. The trustee, as successor master servicer, will
be obligated to make monthly advances and servicing advances and certain other
advances unless it determines reasonably and in good faith that the advances
would not be recoverable.
Notwithstanding the foregoing, a delay in or failure to make any required
monthly advance or any other failure of the master servicer to deposit in the
collection account for the mortgage loan proceeds or distribution account any
deposit required to be made for a period of ten business days, or a delay in
or failure by the master servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the pooling and servicing
agreement that, in each case, materially and adversely affects the interests
of the certificateholders or the financial insurance policy issuer for a
period of thirty business days, shall not constitute an event of default if
the delay or failure could not be prevented by the exercise of reasonable
diligence by the master servicer and the delay or failure was caused by an act
of God or other similar occurrence. Upon the occurrence of any of these events
the master servicer shall not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the pooling and
servicing agreement and the master servicer shall provide the trustee, the
financial insurance policy issuer, and the certificateholders prompt notice of
the failure or delay by it, together with a description of its efforts to so
perform its obligations.
RIGHTS UPON AN EVENT OF DEFAULT
So long as an event of default remains unremedied, either the trustee,
certificateholders holding certificates evidencing at least 51% of the voting
rights in the trust fund, with the consent of the financial insurance policy
issuer, or the financial insurance policy issuer may terminate all of the
rights and obligations of the master servicer under the pooling and servicing
agreement and in the mortgage loans, whereupon the trustee will succeed to all
the obligations of the master servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements. If the
trustee would be obligated to succeed to all the obligations 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 pooling
and servicing agreement and having a net worth of at least $50,000,000 and
acceptable to the financial insurance policy issuer to act as successor to the
master servicer under the pooling and servicing agreement. Pending that
appointment, the trustee will be obligated to act in as master servicer unless
prohibited by law. The successor master servicer will be entitled to receive
the same compensation that the master servicer would otherwise have received,
or any lesser compensation the trustee and the successor agree to. 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 pooling and servicing agreement may be amended from time to time by
the seller, the master servicer, and the trustee and with the consent of the
financial insurance policy issuer, but without the consent of the
certificateholders, to cure any ambiguity, to correct or supplement any of its
provisions that may be inconsistent with any other provisions of the pooling
and servicing agreement, to add to the duties of the seller or the master
servicer to comply with any requirements imposed by the Internal Revenue Code
or any regulation under the Internal Revenue Code, or to add or amend any
provisions of the pooling and servicing agreement as required by the rating
agencies 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 financial insurance policy issuer,
nor the master servicer is obligated to obtain, maintain, or improve any
rating), or to add any other provisions with respect to matters or questions
arising under the pooling and servicing agreement that are not inconsistent
with the provisions of the pooling and servicing agreement if the action will
not, as evidenced by an opinion of counsel, materially and adversely affect
the interests of any certificateholder or the financial insurance policy
issuer. An amendment will not be considered to materially and adversely affect
the certificateholders and no opinion will be required to be delivered if the
person requesting the amendment obtains a letter from the rating agencies
stating that the amendment would not result in a downgrading of the then
current rating of the notes.
The pooling and servicing 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 financial insurance policy issuer, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the pooling and servicing agreement or of modifying
in any manner the rights of the certificateholders, if the amendment will not
reduce in any manner the amount of, or delay the timing of, collections of
payments on the certificates or payments under the trust fund's limited
financial guaranty insurance policy that are required to be made on any
certificate without the consent of the holder of the certificate and the
financial insurance policy issuer or 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
payment in full of all amounts owing to the financial insurance policy issuer
and the earliest of:
o the distribution date on which the aggregate Class A principal balance
has been reduced to zero,
o the final payment or other liquidation of the last mortgage loan in the
trust fund,
o the optional purchase by the master servicer of the mortgage loans, and
o the distribution date in ____________ 20___.
Subject to provisions in the pooling and servicing agreement concerning
adopting a plan of complete liquidation, the master servicer may, at its
option, terminate the pooling and servicing agreement on any date on which the
pool principal balance is less than 5% of the Cut-Off Date pool principal
balance by purchasing, on the next distribution date, all of the outstanding
mortgage loans. The purchase price will be an amount equal to the sum of the
outstanding pool principal balance (subject to reduction as provided in the
pooling and servicing agreement if the purchase price is based in part on the
appraised value of any repossessed property included in the trust fund and the
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
interest rate on the mortgage loans through the end of the due period
preceding the final distribution date together with all amounts due and owing
to the financial insurance policy issuer. The purchase shall be accomplished
by deposit into the distribution account of the purchase price.
VOTING RIGHTS
Under the pooling and servicing agreement, the voting rights will be
allocated among the classes of the Class A Certificates in proportion to their
respective class principal balances. Voting rights allocated to a class of
certificates will be further allocated among the certificates of the class on
the basis of their respective percentage interests. [So long as no Insurer
Default is continuing, the financial insurance policy issuer will be entitled
to exercise the voting rights of the Class A Certificates].
THE TRUSTEE
________________________________________, has been named trustee pursuant
to the pooling and servicing agreement.
The trustee may have normal banking relationships with Provident and the
master servicer.
The trustee may resign at any time, in which case Provident will be
obligated to appoint a successor trustee, as approved by the financial
insurance policy issuer. Provident may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. Upon becoming aware of any of
these circumstances, Provident will be obligated to appoint a successor
trustee, as approved by the financial insurance policy issuer. 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 pooling and
servicing agreement to institute any proceeding with respect to the pooling
and servicing agreement unless the holder previously has given to the trustee
written notice of default and unless certificateholders holding certificates
evidencing at least 51% of the percentage interests in the trust fund have
requested the trustee in writing to institute the proceeding in its own name
as trustee and have offered to the trustee reasonable indemnity, and the
trustee for 60 days has neglected or refused to institute the proceeding. The
trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the pooling and servicing agreement or to make any
investigation of matters arising under it or to institute, conduct, or defend
any litigation under it at the request, order, or direction of any of the
certificateholders, unless the certificateholders have offered to the trustee
reasonable security or indemnity against the cost, expenses, and liabilities
that may be incurred.
USE OF PROCEEDS
The net proceeds to be received from the sale of the certificates will be
applied by Provident towards general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the trust fund as a real estate
mortgage investment conduit for federal income tax purposes under the Internal
Revenue Code of 1986, as amended (the "Code"). In the opinion of Tax Counsel,
the Class A Certificates will be designated as regular interests in the REMIC
and the Class R Certificates will be designated as the sole class of residual
interests in the REMIC. See "Federal Income Tax Consequences--Taxation of the
REMIC and its Holders" in the prospectus.
The offered certificates generally will be treated as debt instruments
issued by the REMIC for federal income tax purposes. Income on the offered
certificates must be reported under an accrual method of accounting.
The offered certificates may, depending on their issue price, be issued
with original issue discount ("OID") for federal income tax purposes. Holders
of the offered 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 that 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), we cannot assure you that this methodology represents
the correct manner of calculating OID.
The yield used to calculate accruals of OID with respect to the offered
certificates with OID will be the original yield to maturity of those
certificates, determined by assuming that the mortgage loans in loan group 1
will prepay in accordance with ___% of the Prepayment Assumption and that the
mortgage loans in loan group 2 will prepay in accordance with ___% of the
Prepayment Assumption. No representation is made as to the actual rate at
which the mortgage loans will prepay.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The Prepayment Assumption model used in this
prospectus is based on a Constant Prepayment Rate ("CPR"). CPR represents a
constant rate of prepayment on the mortgage loans each month relative to the
aggregate outstanding principal balance of the mortgage loans. CPR does not
purport to be either an historical description of the prepayment experience of
any pool of mortgage loans or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the mortgage loans, and we
cannot assure you that the mortgage loans will prepay at the specified CPR.
Provident does not make any representation about the appropriateness of the
CPR model.
In the opinion of Tax Counsel, the offered certificates will be treated
as regular interests in a REMIC under section 860G of the Code. Accordingly,
the offered certificates will be treated as assets described in section
7701(a)(19)(C) of the Code, and real estate assets within the meaning of
section 856(c)(4)(A) of the Code, in each case to the extent described in the
prospectus. Interest on the offered certificates will be treated as interest
on obligations secured by mortgages on real property within the meaning of
section 856(c)(3)(B) of the Code to the same extent that the offered
certificates are treated as real estate assets. See "Federal Income Tax
Consequences" in the prospectus.
BACKUP WITHHOLDING
Some 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, on 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 specified 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 any OID
accrued on the offered certificates, and any amount of interest withheld for
federal income taxes, for each calendar year, except as to exempt holders.
Exempt holders are generally holders that are corporations, some 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 the
certificates owned from participants and indirect participants rather than
from the trustee. The trustee, however, will respond to requests for necessary
information to enable participants, indirect participants, and 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. These amounts will be considered distributed to
the affected certificate owner for all purposes of the certificates, the
pooling and servicing agreement, and the trust fund's limited financial
guaranty insurance policy.
Final regulations dealing with withholding tax on income paid to foreign
persons, backup withholding, and related matters (the "New Withholding
Regulations") were issued by the Treasury Department on October 6, 1997. The
New Withholding Regulations generally will be effective for payments made
after December 31, 1999, subject to transition rules. Prospective certificate
owners are strongly encouraged to consult their own tax advisors with respect
to the New Withholding Regulations.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign Investors").
The term "Foreign Investor" means any person other than
o a citizen or resident of the United States,
o a corporation, partnership, or other entity organized in or under the
laws of the United States, any of its states or the District of
Columbia, other than a partnership that is not treated as a United
States person under any applicable Treasury regulations,
o an estate the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source,
o a trust fund if a court within the United States is able to exercise
primary supervision over the administration of the trust fund and one or
more United States persons have authority to control all substantial
decisions of the trust fund, or
o some 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 that rate has
been 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 and no other exceptions to the withholding
tax exemption are applicable, no withholding tax will apply to the offered
certificates.
For the offered certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the certificate owner an executed IRS Form W-8 or similar form
signed under penalty of perjury by the certificate owner stating that the
certificate owner is a Foreign Investor and providing the 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 the offered certificate, if the gain is
not effectively connected with a trade or business carried on by the
certificate owner in the United States, in the case of a certificate owner
that is an individual, the certificate owner is not present in the United
States for 183 days or more during the taxable year in which the sale,
exchange, or redemption occurs, and in the case of gain representing accrued
interest, the conditions described in the immediately preceding paragraph are
satisfied.
STATE TAXES
Provident makes no representations regarding the tax consequences of
purchase, ownership, or disposition of the offered certificates under the tax
laws of any state. Investors considering an investment in the certificates are
encouraged to consult their own tax advisors regarding those tax consequences.
All investors are encouraged to consult their own tax advisors regarding
the federal, state, local, or foreign income tax consequences of the purchase,
ownership, and disposition of the certificates.
ERISA CONSIDERATIONS
Any Plan fiduciary that proposes to cause a Plan to acquire any of the
offered certificates is encouraged to consult with its counsel with respect to
the potential consequences under the Employee Retirement Income Security Act
of 1974, as amended and the Code, of the Plan's acquisition and ownership of
the offered certificates. See "ERISA Considerations" in the prospectus.
The U.S. Department of Labor has granted to _________________________
(the "underwriter") Prohibited Transaction Exemption _____ (the "Exemption"),
which exempts from the application of the prohibited transaction rules
transactions relating to the acquisition, sale, and holding by Plans of some
certificates representing an undivided interest in some asset-backed
pass-through trusts, with respect to which _____________ or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and the servicing, operation, and management of those
asset-backed pass-through trusts, if the general conditions and other
conditions in the Exemption are satisfied. The Exemption will apply to the
acquisition, holding, and resale of the Class A Certificates by a Plan, if the
required conditions are met.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
o The acquisition of the Class A Certificates by a Plan is on terms,
including the price for the 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;
o The rights and interests evidenced by the Class A Certificates acquired
by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust fund;
o The Class A Certificates acquired by the Plan have received a rating at
the time of their acquisition that is in one of the three highest
generic rating categories from S&P, Moody's, Duff & Phelps Credit Rating
Co., or Fitch IBCA, Inc.;
o The sum of all payments made to and retained by the underwriter in
connection with the distribution of the Class A Certificates represents
not more than reasonable compensation for underwriting the certificates;
o The sum of all payments made to and retained by the seller pursuant to
the sale of the mortgage loans to the trust fund represents not more
than the fair market value of the mortgage loans;
o 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 pooling and servicing agreement and
reimbursement of the master servicer's reasonable expenses in connection
therewith;
o The trustee is not an affiliate of any underwriter, the seller, the
master servicer, the financial insurance policy issuer, any borrower
whose obligations under one or more mortgage loans constitute more than
5% of the aggregate unamortized principal balance of the assets in the
trust fund, or any of their respective affiliates; and
o The Plan investing in the Class A Certificates is an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the SEC under the
Securities Act of 1933, as amended.
The underwriter believes that the Exemption as amended will apply to the
acquisition and holding of the Class A Certificates by Plans and that all
conditions of the Exemption other than those within the control of the
investors will be met.
Any Plan fiduciary considering whether to purchase any Class A
Certificates on behalf of a Plan is encouraged to consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to such investment. Among other
things, before purchasing any Class A Certificates, a fiduciary of a Plan
subject to the fiduciary responsibility provisions of ERISA or an employee
benefit plan subject to the prohibited transaction provisions of the Code
should make its own determination as to the availability of the exemptive
relief provided in the Exemption, and also consider the availability of any
other prohibited transaction exemptions.
LEGAL INVESTMENT CONSIDERATIONS
The offered certificates will constitute mortgage related securities for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") so
long as they are rated in one of the two highest rating categories by at least
one nationally recognized statistical rating organization and, as such, are
legal investments for certain entities to the extent provided in SMMEA.
Institutions whose investment activities are subject to review by federal
or state regulatory authorities are encouraged to consult with their counsel
or the applicable authorities to determine whether an investment in the
offered certificates complies with applicable guidelines, policy statements or
restrictions. See "Legal Investment" in the prospectus.
UNDERWRITING
Subject to the underwriting agreement, dated ____________________,
between Provident and ______________________, Provident has agreed to sell to
the underwriter and the underwriter has agreed to purchase from Provident the
Class A Certificates.
Distributions of the offered certificates will be made from time to time
in negotiated transactions or otherwise at varying prices to be determined at
the time of sale. Proceeds to Provident from the sale of the offered
certificates will be approximately $________, plus accrued interest, before
deducting expenses payable by Provident, estimated to be $________ in the
aggregate. In connection with the purchase and sale of the offered
certificates, the underwriter may be deemed to have received compensation from
Provident in the form of underwriting discounts.
Provident has been advised by the underwriter that it presently intends
to make a market in the offered certificates. However, it is not obligated to
do so, any market-making may be discontinued at any time, and we cannot assure
you that an active public market for the offered certificates will develop.
The underwriting agreement provides that Provident will indemnify the
underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933.
EXPERTS
[----------]
LEGAL MATTERS
Legal matters with respect to the Class A Certificates will be passed
upon for Provident by Brown & Wood LLP, New York, New York, and Keating,
Muething & Klekamp, P.L.L. Cincinnati, Ohio, and for the underwriter by
____________________.
RATINGS
It is a condition to the issuance of the Class A Certificates that they
receive ratings of AAA by _______ and Aaa by ______.
A securities rating addresses the likelihood of the receipt by Class A
Certificateholders of distributions on the mortgage loans. The rating takes
into consideration the characteristics of the mortgage loans and the
structural, legal, and tax aspects associated with the Class A Certificates.
The ratings on the Class A Certificates do not, however, constitute statements
regarding the likelihood or frequency of prepayments on the mortgage loans or
the possibility that Class A Certificateholders might realize a lower than
anticipated yield.
The ratings assigned to the Class A Certificates will depend primarily on
the creditworthiness of the financial insurance policy issuer. Any reduction
in a rating assigned to the claims-paying ability of the financial insurance
policy issuer below the ratings initially assigned to the Class A Certificates
may result in a reduction of one or more of the ratings assigned to the Class
A Certificates.
A securities rating is not a recommendation to buy, sell, or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
<PAGE>
INDEX OF DEFINED TERMS
TERMS PAGE
Amount Available..............................48
Assignment Event..............................43
Available Funds...............................47
Capitalized Interest Account..................58
Class A Monthly Principal Distributable Amount52
Class A Principal Carryover Shortfall.........52
Class A Principal Distribution................52
Class A-6 Interest Carryover..................50
Class Interest Carryover Shortfall............51
Class Interest Distribution...................51
Class Monthly Interest Distributable Amount...51
Code..........................................68
CPR...........................................37
Cut-Off Date..................................15
Deficiency Amount.............................56
distributable excess spread...................52
Excess spread.................................54
Exemption.....................................72
Foreign Investor..............................70
Foreign Investors.............................70
Guaranteed Principal Amount...................56
Insured Payment...............................56
LIBOR Rate....................................51
Net Funds Cap.................................50
New Withholding Regulations...................70
OID...........................................68
Prepayment Assumption.........................37
Provident.....................................15
SMMEA.........................................73
U.S. Person...................................81
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Provident
Home Equity Loan Asset-Backed certificates, Series 199__ (the "global
securities") will be available only in book-entry form. Investors in the
global securities may hold such global securities through any of DTC, CEDEL or
Euroclear. The global securities will be tradeable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities
through CEDEL and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding global securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Mortgage Pass-Through
Certificates issues.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding certificates will be effected on a
delivery-against-payment basis through the respective depositaries of CEDEL
and Euroclear (in such capacity) and as DTC participants.
Non-U.S. holders (as described below) of global securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All global securities will be held in book-entry form by DTC in the name
of Cede & Co. ("Cede") as nominee of DTC. Investors' interests in the global
securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, CEDEL and
Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold such positions in accounts as
DTC participants.
Investors electing to hold their global securities through DTC will
follow the settlement practices applicable to prior Mortgage Pass-Through
Certificates issues. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their global securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. global securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior Mortgage
Pass-Through Certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary market
trading between CEDEL participants or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day before settlement. CEDEL or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the global securities against payment. Payment will include interest
accrued on the global securities from and including the last coupon
distribution date to and excluding the settlement date, on the basis of either
the actual number of days in such accrual period and a year assumed to consist
of 360 days or a 360-day year of 12 30-day months as applicable to the related
class of global securities. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the respective Depositary of
the DTC Participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the CEDEL Participant's or Euroclear Participant's
account. The securities credit will appear the next day (European time) and
the cash debt will be back-valued to, and the interest on the global
securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to preposition funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within CEDEL or Euroclear. Under this
approach, they may take on credit exposure to CEDEL or Euroclear until the
global securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the global securities were credited
to their accounts. However, interest on the global securities would accrue
from the value date. Therefore, in many cases the investment income on the
global securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities
to the respective European Depositary for the benefit of CEDEL participants or
Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participants a cross-market
transaction will settle no differently than a trade between two DTC
participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL participants and Euroclear participants
may employ their customary procedures for transactions in which global
securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day before settlement. In these cases CEDEL
or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the global securities to the DTC Participant's account against
payment. Payment will include interest accrued on the global securities from
and including the last coupon payment to and excluding the settlement date on
the basis of either the actual number of days in such accrual period and a
year assumed to consist of 360 days or a 360-day year of 12 30-day months as
applicable to the related class of global securities. For transactions
settling on the 31st of the month, payment will include interest accrued to
and excluding the first day of the following month. The payment will then be
reflected in the account of the CEDEL Participant or Euroclear Participant the
following day, and receipt of the cash proceeds in the CEDEL Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
CEDEL Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds
in the CEDEL Participant's or Euroclear Participant's account would instead be
valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase global
securities from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the global securities in the U.S. from a DTC Participant no
later than one day before settlement, which would give the global securities
sufficient time to be reflected in their CEDEL or Euroclear account in order
to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least one
day before the value date for the sale to the CEDEL Participant or Euroclear
Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of global securities holding securities through CEDEL
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). beneficial owners of global
securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are certificate owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
certificate owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The certificate owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of
the United States or any political subdivision thereof, (iii) an estate the
income of which is includible in gross income for United States tax purposes,
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States trustees have authority to control all
substantial decisions of the trust. This summary does not deal with all
aspects of U.S. federal income tax withholding that may be relevant to foreign
holders of the global securities. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and disposing of
the global securities.
<PAGE>
PROVIDENT BANK HOME EQUITY
LOAN TRUST 199_-_
$-------------
$ _________ Class A-1 _____% certificates
$ _________ Class A-2 _____% certificates
$ _________ Class A-3 _____% certificates
$ _________ Class A-4 _____% certificates
$ _________ Class A-5 _____% certificates
$ _________ Class A-6 _____% certificates
HOME EQUITY LOAN
ASSET-BACKED CERTIFICATES
SERIES 199_-_
THE PROVIDENT BANK,
AS SELLER AND MASTER SERVICER
Until [Date], all dealers selling the Class A Certificates will deliver a
prospectus supplement and prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters of the Class A
Certificates and with respect to their unsold allotments or subscriptions.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Class A Certificates in any state where the offer
is not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
PROSPECTUS SUPPLEMENT
________, 199_
_________________________________________________________
UNDERWRITER
SUBJECT TO COMPLETION, DATED JUNE 28, 1999
PROSPECTUS
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
----------------
CONSIDER CAREFULLY THE RISK The Provident Bank may periodically
FACTORS BEGINNING ON PAGE 4 issue securities, which may be in the
OF THIS PROSPECTUS. form of asset-backed certificates or
asset-backed notes. Each issue of
securities will have its own series
designation and will evidence interests
in or obligations of a trust established
by The Provident Bank.
EACH TRUST WILL CONSIST OF:
o mortgage loans secured by senior or junior liens on one- to four-family
residential properties; and
o closed-end or revolving home equity loans secured by senior or junior
liens on one- to four-family residential properties.
EACH SERIES OF SECURITIES:
o will either evidence beneficial ownership of a trust or be secured by the
assets of a trust; and
o will be issued in one or more classes of securities. A class of
securities:
o will be entitled to anywhere from 0% to 100% of the interest
payments and principal payments on the assets of the trust;
o may be senior or subordinate in right of payment to other classes;
and
o may receive payments from an insurance policy, cash account, or
other form of credit enhancement to cover losses on the trust
assets.
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.
________________, 1999
<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:
o this prospectus, which provides general information, some of
which may not apply to your series of securities and
o the accompanying prospectus supplement, which describes the
specific terms of your series of securities.
THE TERMS OF ANY PARTICULAR SERIES OF SECURITIES AS GENERALLY
DESCRIBED IN THIS PROSPECTUS WILL BE SUPPLEMENTED BY THE DISCLOSURE IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT, WHICH MUST BE READ IN CONJUNCTION WITH
THIS PROSPECTUS. THIS PROSPECTUS MAY BE USED TO OFFER AND SELL THE SECURITIES
ONLY IF ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
We have authorized the use of only 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 115.
<PAGE>
TABLE OF CONTENTS
RISK FACTORS................................1
THE TRUST FUND..............................3
General................................3
The Loans..............................5
Substitution of Trust Fund Assets.....10
USE OF PROCEEDS............................10
THE PROVIDENT BANK.........................10
General...............................10
Available Information.................11
Incorporation of Certain
Documents by Reference..............11
LOAN PROGRAM...............................12
Underwriting Standards................12
Qualifications of Provident...........13
Representations by Provident;
Repurchases.........................14
DESCRIPTION OF THE SECURITIES..............15
General...............................16
Distributions on Securities...........18
Advances..............................20
Reports to Securityholders............21
Categories of Classes of Securities...23
Book-Entry Registration
of Securities.......................26
CREDIT ENHANCEMENT.........................31
General...............................31
Subordination.........................32
Letter of Credit......................33
Insurance Policies, Surety Bonds,
and Guaranties......................34
Over-Collateralization................34
Reserve Accounts......................34
Pool Insurance Policies...............36
Cross-Collateralization...............38
YIELD AND PREPAYMENT
CONSIDERATIONS..........................38
THE AGREEMENTS.............................41
Assignment of the Trust
Fund Assets.........................41
Payments on Loans; Deposits to
Security Account....................43
Pre-Funding Account...................46
Sub-Servicing.........................47
Collection Procedures.................47
Hazard Insurance......................48
Realization Upon Defaulted Loans......50
Servicing and Other Compensation
and Payment of Expenses.............51
Evidence as to Compliance.............51
Matters Regarding the
Master Servicer and Provident.......52
Events of Default; Rights
Upon Event of Default...............53
Amendment.............................56
Termination; Optional Termination.....57
The Trustee...........................58
LEGAL ASPECTS OF THE LOANS.................59
General...............................59
Foreclosure and Repossession..........59
Environmental Risks...................61
Rights of Redemption..................63
Anti-Deficiency Legislation;
Bankruptcy Laws; Tax Liens..........63
Due-on-Sale Clauses...................65
Enforceability of Prepayment
and Late Payment Fees...............65
Applicability of Usury Laws...........66
Soldiers' and Sailors'
Civil Relief Act....................66
Junior Mortgages; Rights of
Senior Mortgagees...................67
Consumer Protection Laws..............68
FEDERAL INCOME TAX
CONSEQUENCES............................69
General...............................69
Taxation of Debt Securities...........70
Taxation of the REMIC
and its Holders.....................76
REMIC Expenses; Single
Class REMICs........................77
Taxation of the REMIC.................78
Taxation of Holders of Residual
Interest Securities.................79
Administrative Matters................83
Tax Status as a Grantor Trust.........83
Sale or Exchange......................87
Miscellaneous Tax Aspects.............88
Tax Treatment of Foreign Investors....88
Tax Characterization of the
Trust Fund as a Partnership.........90
Tax Consequences to Holders
of the Notes........................90
Tax Consequences to Holders
of the Certificates.................93
Taxation of Trust as FASIT............99
Treatment of FASIT
Regular Securities..................102
Treatment of High-Yield Interests.....102
Tax Treatment of FASIT
Ownership Securities................103
State Tax Considerations..............104
ERISA Considerations..................104
Legal Investment......................111
Method of Distribution................112
Legal Matters.........................113
Financial Information.................114
Rating................................114
Index of Defined Terms................116
<PAGE>
RISK FACTORS
PLEASE CAREFULLY 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 assure you 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, some assets of
the trust may be released to The Provident Bank, the master servicer, a credit
enhancement provider, or other person. Once released, those assets will no
longer be available to make payments to you.
The securities will not represent an interest in The Provident Bank,
the master servicer, or any of their respective affiliates, nor will the
securities represent an obligation of any of them. Our only obligation with
respect to a trust is the obligation to repurchase a trust asset if we breach
a representation and warranty concerning that trust asset. You will not have
any recourse against us 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,
you may suffer LOSSES. In addition, credit enhancement may not cover all
potential sources of loss, such as a loss from fraud or negligence by a loan
originator or other party.
NATURE OF MORTGAGES SECURING THE LOANS
o Decline in Property Values May Increase Loan Losses. Because your
securities represent an interest in mortgage loans or are secured by mortgage
loans, your investment may be affected by a decline in property values. If the
outstanding balance of a mortgage loan and any secondary financing on the
underlying property is greater than the value of the property, the risk of
delinquency, foreclosure, and loss increases. A decline in property values
could extinguish the value of a junior mortgagee's interest in a property.
o Delays Due to Liquidation. Substantial delays may occur before
defaulted loans are liquidated and the proceeds are 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 their 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.
We refer you to "Legal Aspects of the Loans--Anti-Deficiency
Legislation; Bankruptcy Laws; Tax Liens" for additional information.
o Junior Liens Satisfied After Senior Liens. Some of the loans in the
trust may be junior loans. Mortgages or deeds of trust securing junior loans
will be satisfied after the claims of the senior mortgage holders and the
foreclosure costs are satisfied. In addition, a junior mortgage lender may
only foreclose subject to any related senior mortgage. As a result, the junior
mortgage lender generally must either pay the related senior mortgage lender
in full at or before the foreclosure sale or agree to make the regular
payments on the senior mortgage. Since the trust will not have any source of
funds to satisfy any senior mortgage or to continue making payments on it, the
trust's ability as a practical matter to foreclose on any junior mortgage will
be limited.
o Regulated by Consumer Protection Laws. Most states have laws and
public policies for the protection of consumers that regulate interest rates
and other loan changes, require licensing of loan originators and servicers,
and prohibit unfair and deceptive practices in making, servicing, and
collecting loans. Violations of these laws may limit the ability of the master
servicer to collect interest or principal on the loans and may entitle the
borrowers to a refund of amounts previously paid.
The loans may also be subject to federal laws relating to the
origination and underwriting of loans. These laws
o require disclosures of the terms of the loans to the borrowers;
o prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public
assistance, or the exercise of any right under the consumer
credit protection act in the extension of credit;
o regulate the use and reporting of information related to the
borrower's credit experience; and
o require additional application disclosures, limit changes that
may be made to the loan documents without the borrower's
consent, and restrict a lender's ability to declare a default
or to suspend or reduce a borrower's credit limit to enumerated
events.
Some violations of these federal laws may render the master servicer
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 "Legal Aspects of the Loans" for additional
information.
TRUST SUBJECT TO ENVIRONMENTAL RISKS
Under the laws of some states, contamination of a property may create
a lien on the property to assure the costs of cleanup. In several states, that
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.
These costs could result your incurring in a loss on your investment.
We refer you to "Legal Aspects of the Loans--Environmental Risks" for
additional information.
VALUE OF TRUST ASSETS
We cannot assure you 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 any credit enhancer,
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 investment.
THE TRUST FUND
GENERAL
The Asset-Backed Certificates and the Asset-Backed Notes that may be
issued from time to time in one or more series will represent interests in the
assets of the related 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. Each trust fund will consist of a pool of loans as
specified in the related prospectus supplement, together with payments on the
loans, as specified in the related prospectus supplement. The pool of loans
will be created on the first day of the month of the issuance of the related
series of securities or another 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 from 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 under
"Loan Program--Underwriting Standards" or as otherwise described in the
related prospectus supplement. 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 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 between Provident, the master servicer, and
the trustee with respect to a series consisting of certificates, or 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
its 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 the loans.
As used in this prospectus, agreement means the pooling and servicing
agreement when used with reference to a series consisting of certificates, and
means the trust agreement, the indenture, and the master servicing agreement
when used with reference to a series consisting of certificates and notes.
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 between Provident and the trustee of the trust fund.
A trust fund will have no assets or liabilities before the initial
offering of its related series of securities. No trust fund is expected to
engage in any activities other than acquiring, managing and holding the
related trust fund assets and other specified assets contemplated in this
prospectus and in the related prospectus supplement and their proceeds,
issuing securities and making payments and distributions on them, and other
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 specified representations and warranties to the
trustee for the series. Provident will be obligated to cure any breach of a
representation or warranty that materially and adversely affects the interests
of a securityholder or to repurchase or substitute for the affected loans. See
"The Agreements--Assignment of the Trust Fund Assets." The obligations of the
master servicer with respect to the loans will consist principally of its
contractual servicing obligations under the related agreement and its
obligation, if any, to make specified cash advances upon delinquencies in
payments on the loans in the amounts described in this prospectus under
"Description of the Securities--Advances." The obligations of the master
servicer under the related agreement include its obligation to enforce the
obligations of the sub-servicers or Provident, or both, as more fully
described in this prospectus under "Loan Program--Representations by
Provident; Repurchases" and "The Agreements--Sub-Servicing" and "--Assignment
of the Trust Fund Assets." The obligations of the master servicer to make
advances may be subject to limitations to the extent provided in this
prospectus 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 about trust fund assets
is not known at the time the related series of securities initially is
offered, more general information of the nature described under "the Loans"
will be provided in the related prospectus supplement, and specific
information will be provided in a report on Form 8-K to be filed with the SEC
within fifteen days after the initial issuance of the securities. A copy of
the agreement for 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 the series will be
attached to the agreement delivered to the trustee on delivery of the
securities.
THE LOANS
General. Loans will consist of mortgage loans and home equity loans.
As more fully described in the related prospectus supplement, the loans will be
conventional loans.
The loans in a pool will have monthly payments due on the first day
of each month or on another 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 combinations of them:
Interest may be payable at
o a fixed rate,
o an adjustable rate based on an index,
o a rate that is fixed for a period of time or under specified
circumstances and is followed by an adjustable rate,
o a rate that otherwise varies, or
o 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 these limitations. Accrued
interest may be deferred and added to the principal of a loan for periods and
under circumstances specified in the related prospectus supplement. A loan may
provide for the interest to be paid by the borrower to be at a rate lower than
the specified interest rate borne by the loan for a period of time or for the
life of the loan. In these cases and the amount of difference would be
contributed from funds supplied by the seller of the property or another
source.
Principal may be payable:
o at an amortization rate calculated on the basis of level debt
service calculated to amortize the loan fully over its term,
o at an amortization rate calculated on the basis of an assumed
amortization schedule that is significantly longer than the
original term to maturity,
o at an amortization rate calculated on the basis of an interest
rate that is different from the interest rate provided for in
the mortgage loan note,
o at an amortization rate that may not amortize principal during
all or a portion of the original term,
o as a balloon payment where all or a substantial portion of the
principal may be due on maturity, or
o as negative amortization where interest that has been deferred
is 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. Also
prepayments may be prohibited for the life of the loan or for specified
periods commonly called lockout periods. Some loans may permit prepayments
after expiration of a lockout period and may require the payment of a
prepayment fee in connection with that 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 that
permit the mortgagee to demand payment of the entire loan in connection with
the sale or specified transfers of the related mortgaged property. Other loans
may be assumable by persons meeting the then applicable standards in the
agreement.
A trust fund may contain loans commonly called buydown loans where a
third party partially subsidizes the monthly payments of the borrowers on the
loans during their early years, the difference being made up from a buydown
fund contributed by the third party when the loan is made. 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 about limitations on the
interest rate paid by the borrower initially, the annual increases in the
interest rate, and the length of the buydown period for any buydown loans.
The real property that secures repayment of a loan is referred to as
the mortgaged property. Each loan 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, the 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
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
other single family properties. The mortgaged properties may include vacation
and second homes, investment properties, and dwellings situated on land that
is leased rather than owned. 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
mortgaged 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 specified loan-to-value ratios or specified principal
balances may be covered wholly or partially by primary mortgage guaranty
insurance policies. The existence, extent, and duration of the insurance
coverage will be described in the applicable prospectus supplement.
The aggregate principal balance of loans secured by mortgaged
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:
o 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
o 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 some of their
balances is computed and payable monthly on the average daily outstanding
principal balance of the loan, except for introduction rates offered from time
to time during promotional periods. Principal amounts up to a maximum amount
on a revolving credit line loan may be drawn down or repaid under each
revolving credit line loan from time to time, but may be subject to a minimum
periodic payment. As specified in the related prospectus supplement, the trust
fund may include any amounts borrowed under a revolving credit line loan after
the Cut-Off Date. The full amount of a closed-end loan is advanced at the
inception of the loan and generally is repayable in equal, or substantially
equal, installments of an amount to amortize the loan fully 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 the loan multiplied by its interest rate and then by a
factor for the period involved. The factor for the period involved is either
the fraction 30 divided by 360 or a fraction whose numerator is the number of
days in the period elapsed since the preceding payment of interest was made
and whose denominator is the number of days in the annual period for which
interest accrues on the loan.
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 specified 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 that
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, about its loan pool, including:
o the aggregate outstanding principal balance and the average
outstanding principal balance of the loans as of the applicable
Cut-Off Date,
o 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,
o the original terms to maturity of the loans,
o the largest principal balance and the smallest principal
balance of any of the loans,
o the earliest origination date and latest maturity date of any
of the loans,
o the loan-to-value ratios or combined loan-to-value ratios, as
applicable, of the loans,
o the interest rates provided for in the mortgage loan notes or
annual percentage rates or range of interest rates provided for
in the mortgage loan notes or APR's borne by the loans,
o the maximum and minimum per annum interest rate provided for in
the mortgage loan notes, and
o the geographical location of the loans.
This information will be as of the date of the prospectus supplement
and to the extent then specifically known to Provident. If specific
information about the loans is not known to Provident at the time the related
securities are initially offered, more general information of this nature will
be provided in the related prospectus supplement, and specific information
will be provided in a subsequent 8-K filing with the SEC.
Generally, the loan-to-value ratio of a loan at any given time is
equal to a fraction whose numerator is the original principal balance of the
related loan and whose denominator is the collateral value of the related
mortgaged property. Generally, the combined loan-to-value ratio of a loan at
any given time is the ratio of:
o the sum of:
o the original principal balance of the loan, or, in the
case of a revolving credit line loan, its maximum
available amount and
o the outstanding principal balance at the date of
origination of the loan of any senior mortgage loans or,
in the case of any open-ended senior mortgage loan, its
maximum available line of credit, to
o the collateral value of the related mortgaged property.
The collateral value of a mortgaged property, other than particular loans the
proceeds of which are used to refinance an existing mortgage loan, is the
lesser of the appraised value determined in an appraisal obtained at
origination of the loan and the sales price for the mortgaged property. The
collateral value of a mortgaged property securing a refinance loan is its
appraised value determined in an appraisal obtained at the time of
refinancing.
The residential real estate market could experience an overall
decline in property values. That decline could be so large that the sum of the
outstanding principal balances of the loans and any primary or secondary
financing on the mortgaged properties, in a particular pool becomes greater
than the value of the mortgaged properties. In that case, 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 in any pool. To the extent
that these losses are not covered by subordination provisions or alternative
arrangements, they will be borne, at least in part, by the holders of the
securities of the related series.
SUBSTITUTION OF TRUST FUND ASSETS
The sellers of assets that wind up in the trust fund make
representations and warranties about those assets. If the representations and
warranties turn out to be untrue or if the documentation for a trust fund
asset is determined to be incomplete, new assets may be substituted for the
defective trust fund assets. The period during which 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).
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. 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 a registration
statement under the Securities Act of 1933 covering 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 in the
registration statement, but do not contain all of the information in the
registration statement. For further information, reference is made to the
registration statement and its exhibits. The registration statement, exhibits,
and the information incorporated by reference described under "Incorporation
of Certain Documents by Reference" can be inspected and copied at prescribed
rates at the public reference facilities maintained by the SEC 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 SEC at
1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov from
which the 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 SEC pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and before the termination of any offering
of the securities issued by the trust fund are incorporated by reference in
this prospectus and a part of this prospectus from the date of their filing.
Any statement contained in a document incorporated by reference in this
prospectus shall be modified or superseded for all purposes of this prospectus
to the extent that a statement contained in this prospectus or in the
accompanying prospectus supplement or in any other subsequently filed document
that also is incorporated by reference modifies or replaces the statement. The
statement so modified or superseded shall not constitute a part of this
prospectus, except as so modified or superseded. Neither Provident nor the
master servicer for any series intends to file with the SEC 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 Securities Exchange
Act of 1934.
The trustee or another 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
the person, a copy of any of the documents referred to in the previous
paragraph that have been incorporated by reference in this prospectus.
Exhibits to the information that is incorporated by reference will not be
provided unless the exhibits are specifically incorporated by reference into
the information that this prospectus incorporates. Requests should be directed
to the corporate trust office of the trustee or the address of the 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 the other entity.
LOAN PROGRAM
The loans will have been originated or purchased by Provident, either
directly or through affiliates. The loans will have been originated in
accordance with the underwriting criteria specified 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 of any senior mortgage,
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 that
summarizes the borrower's credit history with local merchants and lenders and
any record of bankruptcy. In most cases, an employment verification is
obtained from an independent source, typically the borrower's employer, which
verification reports, among other things, the length of employment with that
organization and the borrower's current salary. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of
deposits at financial institutions where the borrower has demand or savings
accounts.
In determining the adequacy of the property to be used as collateral,
an appraisal will generally be made of each property considered for financing.
The appraiser is generally required to inspect the property, issue a report on
its condition, and, if applicable, verify construction has been completed. The
appraisal is based on the market value of comparable homes, the estimated
rental income, if considered applicable by the appraiser, and the cost of
replacing the property. The value of the property being financed, as indicated
by the appraisal, must be such that it currently supports, and is anticipated
to support in the future, the outstanding loan balance.
The maximum loan amount will vary depending upon a borrower's credit
grade and loan program but will not generally exceed $750,000. Variations in
maximum loan amount limits will be permitted based on compensating factors.
Compensating factors may generally include, to the extent specified in the
related prospectus supplement, low loan-to-value ratio, low debt-to-income
ratio, stable employment, favorable credit history, and the nature of the
underlying first mortgage loan, if applicable.
Provident's underwriting standards generally permit loans with
loan-to-value ratios at origination of up to 100% depending on the loan
program, type and use of the property, creditworthiness of the borrower, and
debt-to-income ratio.
After obtaining all applicable employment, credit, and property
information, Provident will use a debt-to-income ratio to assist in
determining whether the prospective borrower has sufficient monthly income
available to support the payments of principal and interest on the mortgage
loan in addition to other monthly credit obligations. The debt-to-income ratio
is the ratio of the borrower's total monthly obligations (including principal
and interest on each mortgage, tax assessments, other loans, charge accounts,
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,
some credit underwriting documentation concerning income or income
verification 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.
Some of the types of loans that may be included in a trust fund may
involve uncertainties not present in traditional types of loans. For example,
some of the 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 the payments increase. These types of loans
may also be underwritten primarily on 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 and the Federal Home Loan Mortgage Corporation.
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.
REPRESENTATIONS BY PROVIDENT; REPURCHASES
Provident will have made representations and warranties about the
loans sold by Provident to the trust fund and evidenced by all, or a part, of
a series of securities. These representations and warranties may include,
among other things:
o that title insurance, or in the case of mortgaged properties
located in areas where title 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;
o that Provident had good title to each loan and the loan was
subject to no offsets, defenses, counterclaims, or rights of
rescission except to the extent that any buydown agreement may
forgive specified indebtedness of a borrower;
o that each loan constituted a valid lien on, or a perfected
security interest in, the property, subject only to disclosed
permissible liens, title insurance exceptions, and other
exceptions described in the agreement;
o the property is not damaged by waste, fire, earthquake, earth
movement, windstorm, flood, tornado, or other casualty, so as
to affect adversely the value of the mortgaged property;
o that there were no delinquent tax or assessment liens against
the mortgaged property;
o that no required payment on a loan was delinquent more than the
number of days specified in the related prospectus supplement;
and
o 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 about a loan that
materially and adversely affects the interests of the securityholders in the
loan. If Provident cannot cure the 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 to
substitute for the loan a replacement loan that satisfies the criteria
specified in the related prospectus supplement or to repurchase the loan from
the trust fund at a purchase price equal to 100% of its unpaid principal
balance as of the date of the repurchase plus unpaid accrued interest on it to
the first day of the month following the month of repurchase at the interest
rate provided for in the mortgage loan note, less any servicer advances or
amount payable as related servicing compensation if Provident is the master
servicer. If a trust fund is to elect status as a real estate mortgage
investment conduit, the master servicer or a holder of the related residual
certificate generally will be obligated to pay any prohibited transaction tax
that may arise in connection with any repurchase or substitution and the
trustee must have received a satisfactory opinion of counsel that the
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 we cannot assure you that
Provident will carry out its respective repurchase or substitution
obligations.
DESCRIPTION OF THE SECURITIES
Each series of certificates will be issued pursuant to a pooling and
servicing agreement or a trust agreement between 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 between the related trust fund and the entity named in the
related prospectus supplement as trustee for the 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 will be between Provident, the master servicer, and the trustee
for the benefit of the holders of the securities of the series and will be
dated as of the related Cut-Off Date. The provisions of each agreement will
vary depending upon the nature of the securities to be issued under it and the
nature of the related trust fund. The following are descriptions of the
material provisions that 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 the 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:
o will be issued in book-entry or fully registered form,
o will be in the authorized denominations specified in the
related prospectus supplement,
o will, in the case of certificates, evidence specified
beneficial ownership interests in, the assets of the related
trust fund,
o will, in the case of notes, be secured by, the assets of the
related trust fund, and
o will not be entitled to payments on 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. Some of the loans may be guaranteed or insured as set forth in the
related prospectus supplement. Each trust fund will consist of:
o the trust fund assets, which may exclude specified retained
interests,
o the assets required to be deposited in the related security
account, as described under "The Agreements--Payments on Loans;
Deposits to Security Account,"
o property acquired on behalf of the securityholders by
foreclosure or deed in lieu of foreclosure, and
o 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 of future interest payments and a specified percentage of
future principal payments on the related trust fund assets. Some classes may
have no interest in future interest payments, and others may have no interest
in future principal payments. 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 in the series. Some 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" in this
prospectus and in the related prospectus supplement. Distributions on some
classes of a series of securities may be made before distribution on other
classes, and the priority of distributions may be established or changed 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 distributions may vary among classes or over time as
specified in the related prospectus supplement.
Distributions of principal or interest or both will be made by the
trustee on each distribution date in proportion to the percentages specified
in the related prospectus supplement. The distribution dates may be monthly,
quarterly, semi-annually, or at other intervals and on the dates specified in
the related prospectus supplement. Whoever the securities are registered to at
the close of business on the record dates specified in the related prospectus
supplement will be entitled to receive distributions. Except for the final
distribution, distributions will be made to the persons entitled thereto at
the address appearing in the security register maintained for securityholders
in the manner specified in the related prospectus supplement. The final
distribution in retirement of the securities will be made only on presentation
and surrender of the securities at the office or agency of the trustee or
other person specified in the notice to securityholders of the final
distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the trustee specified in the related prospectus
supplement. No service charge will be imposed 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 of it 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 specified conditions are satisfied. As to
that series, the terms applicable to a REMIC election will be specified in the
related prospectus supplement, if a REMIC election is made for a series of
securities, one of the classes will be designated as evidencing the sole class
of residual interests in the REMIC, as defined in the Code. All other classes
of securities in the a series will constitute regular interests in the REMIC,
as defined in the Code. As to each series of securities for 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 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 for to the series. See "Credit
Enhancement." Various methods that may be used to determine the amount of
distributions on the securities of a particular series are described under
this heading. 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 the series.
Distributions on the securities entitled to distributions will be
made monthly, semi-annually, or at other intervals and on the distribution
date specified in the related prospectus supplement. 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
interest, distributions made on any distribution date will be applied as
specified in the related prospectus supplement. Likewise, the related
prospectus supplement will specify how distribution will be allocated between
distributions of principal payments and scheduled payments of principal. The
prospectus supplement will also describe the method for allocating
distributions among securities of a particular class.
Available Funds. All distributions on the securities of each series
on each distribution date will be made from the Available Funds, in accordance
with the terms described in the related prospectus supplement and specified in
the agreement. Available funds for a distribution date will generally equal
the amount on deposit in the related security account on the distribution
date, net of related fees and expenses payable by the related trust fund,
other than specified amounts to be held in the related security account for
distribution on future distribution dates.
Distributions of Interest. Interest will accrue on the aggregate
principal balance of each class of securities entitled to interest at the
pass-through rate or interest rate, as applicable for the periods specified in
the prospectus supplement. Securities entitled only to distributions allocable
to interest will use an aggregate notional amount instead of a principal
balance to compute interest. The pass-through rates and the interest rates may
be a fixed rate or an adjustable rate as specified in the prospectus
supplement. To the extent funds are available therefor, interest accrued
during each specified period on each class of securities entitled to interest
currently will be distributable on the distribution dates specified in the
related prospectus supplement until the aggregate current principal balance of
the 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 the securities is reduced to zero, or for the period of time
designated in the related prospectus supplement. The original current
principal balance of the class of each security will equal the aggregate
distributions allocable to principal to which the 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 the 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
other specified 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. If interest accrues over a period ending two or more
days before 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
the distribution date, and the effective yield at par to securityholders will
be less than the indicated coupon rate.
Accrual securities provide for interest that accrues but is not paid
currently. If specified in the related prospectus supplement, any interest on
securities that has accrued but is not paid on a given distribution date will
be added to the aggregate current principal balance of that class of
securities on that distribution date. Distributions of interest on any class
of accrual securities will begin only after the conditions specified in the
prospectus supplement have been satisfied. Before that time, the beneficial
ownership interest in the trust fund or the principal balance, as applicable,
of the class of accrued securities, as reflected in the aggregate current
principal balance of the class of the class of accrual securities, will
increase on each distribution date by the amount of interest that accrued on
the class of accrual securities during the preceding interest accrual period
but that was not required to be distributed to the class on the distribution
date. A class of accrual securities will thereafter accrue interest on its
outstanding current principal balance of the class 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 that amount will be allocated among the classes of securities entitled
to distributions of principal. The aggregate current principal balance of the
class of any class of securities entitled to distributions of principal
generally will be the original aggregate current principal balance of the
class of the class of securities reduced by all distributions to the holders
of the securities allocable to principal. Additionally, the aggregate class
security balance of accrual securities will be increased by interest accrued
but not then distributable and the aggregate class security balance of
adjustable rate securities may increase if they experience negative
amortization.
Principal prepayments occur when payments of principal 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 the
payments. If so provided in the related prospectus supplement, some classes of
securities will be entitled to receive all or a disproportionate percentage of
principal prepayments in the percentages and under specified circumstances or
for the specified periods. Disproportionate allocations of principal
prepayments to particular classes of securities will have the effect of
accelerating their amortization while increasing the interests evidenced by
the other classes of securities in the trust fund. Increasing the interests of
the other classes of securities relative to that of the accelerated securities
is intended to preserve the availability of the subordination provided by the
other securities. See "Credit Enhancement--Subordination."
Unscheduled Distributions. If specified in the related prospectus
supplement, the securities may receive distributions before the next scheduled
distribution date under the circumstances and in the manner described below
and in the prospectus supplement. If applicable, the trustee will be required
to make 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 the distribution date. Unless otherwise specified in the related
prospectus supplement, the amount of that unscheduled distribution 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 any
applicable pass-through rate or interest rate on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified
in the 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 an amount equal to the aggregate of payments of interest or principal
that were delinquent on the related determination date subject to the master
servicer's determination that the advances may be recoverable out of late
payments by borrowers, liquidation proceeds, insurance proceeds, or otherwise.
These advances may come 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.
The purpose of servicing advances is to maintain a regular flow of
scheduled interest and principal payments to securityholders, rather than to
guarantee or insure against losses. If servicing advances are made by the
master servicer from cash being held for future distribution to
securityholders, the master servicer will replace those funds by the following
distribution dates to the extent that funds in the applicable security account
on any following distribution date would be less than the amount required to
be available for distributions to securityholders on that date. Any master
servicer funds advanced will be reimbursable to the master servicer out of
recoveries on the specific loans with respect to which the 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 or a sub-servicer also will be reimbursable to the master servicer or
sub-servicer from cash otherwise distributable to junior and senior
securityholders to the extent that the master servicer determines that any of
them would not otherwise be recovered. To the extent provided in the related
prospectus supplement, the master servicer also will be obligated to make
advances, for some taxes and insurance premiums not paid by borrowers on a
timely basis to the extent recoverable out of insurance proceeds, liquidation
proceeds, or otherwise. Funds so advanced are reimbursable to the master
servicer to the extent permitted by the related agreement. The obligations of
the master servicer to make advances may be supported by a cash advance
reserve fund, a surety bond, or other arrangement of the type described in
this prospectus under "Credit Enhancement," in each case as described in the
related prospectus supplement.
If the master servicer or a sub-servicer fails to make a required
advance, the trustee will be obligated to make the advance in its capacity as
successor servicer if it is acting in that capacity. If the trustee makes an
advance, it will be entitled to be reimbursed for the advance just 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
Before or concurrently with each distribution on a distribution date,
the master servicer or the trustee will furnish to each securityholder of
record of a series a statement of each of the following that is applicable to
any class in the series:
(1) the amount of the 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;
(2) the amount of the distribution allocable to interest;
(3) the amount of any servicing advance;
(4) the aggregate amount
o otherwise allocable to the holders of subordinated
securities on the distribution date, and
o withdrawn from the reserve account, that is included
in the amounts distributed to the holders of senior
securities;
(5) the outstanding principal balance or notional amount of
each class of the series after giving effect to the
distribution of principal on the distribution date;
(6) the percentage of principal payments on the loans
prepayments that each class will be entitled to receive on
the following distribution date not including principal
prepayments;
(7) the percentage of any principal prepayments on the loans
that each class will be entitled to receive on the
following distribution date;
(8) 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 items;
(9) 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 the distribution date;
(10) the book value of any real estate acquired through
foreclosure or grant of a deed in lieu of foreclosure;
(11) the pass-through rate or interest rate, as applicable, of
the class expected to be applicable to the next
distribution to the class if is has changed from the date
of the last statement;
(12) the amount remaining in any reserve account at the close
of business on the distribution date;
(13) the pass-through rate or interest rate, as applicable, as
of the day before the preceding distribution date; and
(14) any amounts remaining under letters of credit, pool
policies, or other forms of credit enhancement.
Where applicable, any of these amounts may be expressed as a dollar
amount per single security of the relevant class having the percentage
interest specified in the related prospectus supplement. The report to
securityholders for any series of securities may include additional or other
information of a similar nature to the listed information.
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 the calendar year a report as to
the aggregate of amounts reported pursuant to (1) and (2) above for the
calendar year or, if the person was a securityholder of record only during a
portion of the calendar year, for the applicable portion of the year and any
other customary information deemed appropriate 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.
The classes, in general, fall into different categories. The following chart
identifies and briefly explains some of the more typical categories. The
prospectus supplement for a series of securities may identify the classes that
comprise the series by reference to the following categories:
<TABLE>
<CAPTION>
CATEGORIES OF CLASSES DEFINITION
<S> <C>
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
interest payment characteristics but together constitute a
single class. Each component of a class of component
securities may be identified as falling into one or more of
the categories in this chart.
Notional Amount
Securities........................................ A class having no principal balance and bearing interest on
the related notional amount. The notional amount is used for
purposes of the determination of interest distributions.
Planned Principal Class,
also sometimes
referred to as PACs............................... A class that is designed to receive principal payments using
a predetermined principal balance schedule derived by
assuming two constant prepayment rates for the underlying
trust fund assets. These two rates are the endpoints for the
structuring range for the planned principal class. The
planned principal classes in any series of securities may be
subdivided into different categories (e.g., primary planned
principal classes, secondary planned principal classes, and
so forth) having different effective structuring ranges and
different principal payment priorities. The structuring range
for the secondary planned principal class of a series of
securities will be narrower than that for the primary planned
principal class of the series.
Scheduled Principal Class.......................... A class that is designed to receive principal payments using
a predetermined principal balance schedule but is not
designated as a planned principal class or targeted principal
class. In many cases, the schedule is derived by assuming two
constant prepayment rates for the underlying trust fund
assets. These two rates are the endpoints for the
"structuring range" for the scheduled principal class.
Sequential Pay..................................... Classes that receive principal payments in a prescribed
sequence, that do not have predetermined principal balance
schedules and that under all circumstances receive payments
of principal continuously from the first distribution date on
which they receive principal until they are retired. A single
class that receives principal payments before or after all
other classes in the same series of securities may be
identified as a Sequential Pay class.
Strip.............................................. A class that receives a constant proportion, or "strip," of
the principal payments on the underlying trust fund assets.
Support Class, also
sometimes referred to
as companion classes.............................. A class that receives principal payments on any distribution
date only if scheduled payments have been made on specified
planned principal classes, targeted principal classes, and
scheduled principal classes.
Targeted Principal Class,
also sometimes
referred to as TACs............................... A class that is designed to receive principal payments using
a predetermined principal balance schedule derived by
assuming a single constant prepayment rate for the underlying
trust fund assets.
INTEREST TYPES
Fixed Rate......................................... A class with an interest rate that is fixed throughout the
life of the class.
Floating Rate...................................... A class with an interest rate that resets periodically based
upon a designated index and that varies directly with changes
in the 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 the 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
interest rate borne by the underlying mortgage loans.
Interest Only...................................... A class that receives some or all of the interest payments
made on the underlying trust fund assets and little or no
principal. Interest only classes have either a nominal
principal balance or a notional amount. A nominal principal
balance represents actual principal that will be paid on the
class. It is referred to as nominal since it is extremely
small compared to other classes. A notional amount is the
amount used as a reference to calculate the amount of
interest due on an interest only class that is not entitled
to any distributions in respect of principal.
Principal Only..................................... A class that does not bear interest and is entitled to
receive only distributions in respect of principal.
Partial Accrual.................................... A class that accretes a portion of the amount of accrued
interest on it, which amount will be added to the principal
balance of the class on each applicable distribution date,
with the remainder of the accrued interest to be distributed
currently as interest on the class. The accretion may
continue until a specified event has occurred or until the
partial accrual class is retired.
Accrual............................................ A class that accretes the amount of accrued interest
otherwise distributable on the class, which amount will be
added as principal to the principal balance of the class on
each applicable distribution date. The accretion may continue
until some specified event has occurred or until the accrual
class is retired.
</TABLE>
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the related prospectus supplement, if not issued in
fully registered form, each class of securities will be registered as
book-entry certificates. Persons acquiring beneficial ownership interests in
the securities will hold their securities through DTC in the United States, or
the European depositaries, Cedel Bank or the Euroclear System, in Europe, if
they are participants of those systems, or indirectly through organizations
that are participants in those systems. The book-entry securities will be
issued in one or more certificates that 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 the 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. Except in
limited circumstances, no person acquiring a book-entry security will be
entitled to receive a physical certificate representing the security. Until
definitive securities are issued, Cede & Co., as nominee of DTC, is the only
anticipated securityholder of the securities. Security owners are only
permitted to exercise their rights indirectly through clearing system
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 that maintains the beneficial owner's account for
that purpose. In turn, the financial intermediary's ownership of the
book-entry security will be recorded on the records of DTC, or of a
participating firm that acts as agent for the financial intermediary, whose
interest will in turn be recorded on the records of DTC, if the beneficial
owner's financial intermediary is not a DTC participant, and on the records of
CEDEL or Euroclear, as appropriate.
Security owners will receive all distributions of principal of, and
interest on, the securities from the trustee through DTC and DTC participants.
While the book-entry securities are outstanding, under the rules, regulations,
and procedures creating and affecting DTC and its operations, DTC is required
to make book-entry transfers between clearing system 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.
Clearing system participants and indirect participants with whom security
owners have securities accounts are similarly required to make book-entry
transfers and receive and transmit distributions on behalf of their respective
security owners. Accordingly, although security owners will not possess
certificates, the clearing system 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 interests in the securities, except under
limited circumstances. Until definitive securities are issued, security owners
who are not clearing system participants may transfer ownership of securities
only through clearing system participants and indirect participants by
instructing the clearing system participants and indirect participants to
transfer securities, by book-entry transfer, through DTC for the account of
the purchasers of the securities. The purchaser's account must be maintained
with clearing system participants. Under the clearing system 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 clearing
system participants at DTC will be debited and credited. Similarly, the
clearing system 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 clearing system
participant will be made during subsequent securities settlement processing
and dated the business day following the DTC settlement date. Those credits or
any transactions in the securities settled during that processing will be
reported to the relevant Euroclear or CEDEL participants on that business day.
Cash received in CEDEL or Euroclear as a result of sales of securities by or
through a CEDEL participant or Euroclear participant 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 clearing system 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, the cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in the system in accordance
with its rules and procedures and within its established deadlines, European
time. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
relevant depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL participants and Euroclear participants may not deliver
instructions directly to the European depositaries.
DTC is a New York-chartered limited purpose trust company that
performs services for its participants. Some of the participants or their
representatives or both own interests in DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC
participant in the book-entry certificates, whether held for its own account
or as a nominee for another person. In general, beneficial ownership of
book-entry certificates will be subject to the rules, regulations, and
procedures governing DTC and DTC participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of [28] currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance, and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers, and dealers,
banks, trust companies, clearing corporations, and 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
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. Euroclear is operated by
the Brussels, Belgium office of Morgan Guaranty Trust Company of New York
under contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation. All operations are conducted by Morgan Guaranty, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator, not Euroclear Clearance Systems.
Euroclear Clearance Systems establishes policy for Euroclear on behalf of
Euroclear participants. Euroclear participants include banks, 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 Guaranty 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 Guaranty
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. These provisions 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
these provisions 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 the
payments will be forwarded by the trustee to Cede & Co., as nominee of DTC.
Distributions on 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. The 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" in this
prospectus. 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 the book-entry securities. In
addition, issuance of the book-entry securities in book-entry form may reduce
the liquidity of the securities in the secondary market since some potential
investors may be unwilling to purchase securities for which they cannot obtain
physical certificates.
Monthly and annual reports on the trust fund will be provided to Cede
& Co., as nominee of DTC, and may be made available by Cede & Co. to
beneficial owners upon request, in accordance with the rules, regulations, and
procedures creating and affecting the Depository, and to the financial
intermediaries to whose DTC accounts the book-entry securities of the
beneficial owners are credited.
DTC has advised the trustee that, 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
the financial intermediaries to whose DTC accounts the book-entry securities
are credited, to the extent that the actions are taken on behalf of financial
intermediaries whose holdings include the 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 the actions on its behalf through DTC. DTC may take actions, at the
direction of its related clearing system participants, with respect to some
securities which conflict with actions taken with respect to other securities.
Definitive certificates will be issued to beneficial owners of the
book-entry certificates, or their nominees, rather than to DTC, only if:
o 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,
o Provident, in its sole option, with the consent of the trustee,
elects to terminate a book-entry system through DTC, or
o after the occurrence of an event of default, beneficial owners
representing not less than 51% of the principal balance of the
book-entry Class A Certificates advise the trustee and DTC
through the financial intermediaries and the DTC participants
in writing that the continuation of a book-entry system through
DTC is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the preceding
paragraph, the trustee will be required to notify all beneficial owners of the
occurrence of the 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 the definitive securities as securityholders under
the applicable agreement.
Although DTC, CEDEL, and Euroclear have agreed to the foregoing
procedures to facilitate transfers of securities between participants of DTC,
CEDEL, and Euroclear, they are under no obligation to perform or continue to
perform those procedures and those 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 the beneficial ownership interests.
DTC management is aware that some computer applications, systems, and
the like for processing data 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
that it has developed and is implementing a program so that its systems, as
the same relate to the timely payment of distributions to securityholders,
book-entry deliveries, and settlement of trades within DTC, 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 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 impress
upon them the importance of their services being year 2000 compliant and
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 contingency plans it deems appropriate.
According to DTC, the this 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.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided for one or more classes of a
series of securities or for 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 the series, the establishment of one or more
reserve accounts, the use of a cross-collateralization feature, the 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 in
this prospectus 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 on them. If losses occur that 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 the credit enhancement relates and the manner of determining the amount
of coverage provided to the trust funds by it and of the application of the
coverage to the identified trust funds.
SUBORDINATION
Protection afforded to holders of one or more classes of securities
of a series by a subordination feature may be accomplished by the preferential
right of holders of one or more other classes of the series to distributions
of scheduled principal, principal prepayments, interest, or any combination of
them that otherwise would have been payable to holders of subordinated
securities under the circumstances and to the extent specified in the related
prospectus supplement. Protection may also be afforded to the holders of
senior securities of a series by reducing the ownership interest of the
related subordinated securities, a combination of ownership reduction and
preferential payment rights, or as otherwise described in the related
prospectus supplement.
The related prospectus supplement may provide that delays in receipt
of scheduled payments on the loans and losses on defaulted loans will be borne
first by the various classes of subordinated securities and thereafter by the
various classes of senior securities under specified circumstances. The
related prospectus supplement may limit the aggregate distributions of
delinquent payments on the loans over the lives of the securities or at any
time, the aggregate losses on defaulted loans that 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. If aggregate distributions of delinquent payments on the
loans or aggregate losses on defaulted 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 distributed to senior securityholders or deposited into one or more reserve
accounts established with the trustee. The deposits may be made on each
distribution date for specified periods, until the balance in the reserve
account has reached a specified amount, or 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 specified classes of securities at the times and
under the circumstances specified in the 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 specified 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 the
classes:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events, or
o otherwise, in each case as specified in the related prospectus
supplement.
As between classes of subordinated securities that would otherwise
have been entitled to the payments, the redirection of payments to holders of
senior securities on account of delinquencies or losses or to 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. Under the letter of credit, the letter of credit bank
will be obligated to honor drawings under its letter of credit in an aggregate
fixed dollar amount, net of unreimbursed payments under its letter of credit,
equal to the percentage specified in the related prospectus supplement of the
aggregate principal balance of the loans on the related Cut-Off Date or of one
or more classes of securities. If so specified in the related prospectus
supplement, the letter of credit may permit drawings against 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 the federal
Bankruptcy Code, or losses resulting from denial of insurance coverage due to
misrepresentations in connection with the origination of a loan. The amount
available under the letter of credit will, in all cases, be reduced to the
extent of the unreimbursed payments under it. The obligations of the letter of
credit bank under its 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 any letter of credit
for a series will be filed with the SEC 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
The prospectus supplement for a series of securities, may provide
that deficiencies in amounts otherwise payable on the securities or specified
classes of them will be covered by insurance policies or surety bonds provided
by one or more insurance companies or sureties. These instruments may cover,
with respect to one or more classes of securities of the related series,
timely distributions of interest 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, a
trust fund may also include bankruptcy bonds, special hazard insurance
policies, other insurance, or guaranties:
o to maintain timely payments or provide additional protection
against losses on the assets included in the trust fund,
o to pay administrative expenses, or
o to establish a minimum reinvestment rate on the payments made
in respect of the assets or principal payment rate on the
assets.
These arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
on the terms specified in the prospectus supplement. A copy of the instrument
providing this enhancement for a series will be filed with the SEC as an
exhibit to a Current Report on Form 8-K to be filed with the SEC within 15
days of issuance of the securities of the related series.
OVER-COLLATERALIZATION
The prospectus supplement for a series of securities may provide that
a portion of the interest payment on each loan will be applied as an
additional distribution in respect of principal to reduce the principal
balance of a specified class or classes of securities and, thus, accelerate
the rate of payment of principal on the class or classes of securities
relative to the principal balance of the loans in the related trust fund.
RESERVE ACCOUNTS
The related prospectus supplement may provide that credit support for
a series of securities will be provided by establishing and maintaining with
the trustee for the series, in trust, of one or more reserve accounts for the
series. The reserve account for a series will be funded:
o by depositing in it cash, United States Treasury securities,
instruments evidencing ownership of principal or interest
payments on United States Treasury securities, letters of
credit, demand notes, certificates of deposit, or a combination
of them,
o by depositing in it from time to time specified amounts to
which subordinated securityholders would otherwise be entitled,
or
o in any other manner 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. Permitted investments may include:
o 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, if the obligations
are backed by the full faith and credit of the United States;
o repurchase agreements on obligations specified in the first
item in this list maturing not more than three months from the
date of their acquisition, if the short-term unsecured debt
obligations of the party agreeing to repurchase the obligations
are at the time rated by each rating agency in its highest
short-term rating category;
o certificates of deposit, time deposits, and bankers'
acceptances of any U.S. depository institution or trust company
incorporated under the laws of the United States or any of its
states and subject to supervision and examination by federal or
state banking authorities, if the unsecured short-term debt
obligations of the depository institution or trust company at
the date of their acquisition have been rated by each rating
agency in its highest unsecured short-term debt rating
category, and that, in the case of bankers' acceptances, shall
not have an original maturity of more than 365 days and, if
Moody's is a rating agency, shall each have an original
maturity of not more than 90 days;
o commercial paper of any corporation incorporated under the laws
of the United States or any of its states that on the date of
acquisition has been rated by the rating agencies in their
highest short-term rating categories having original maturities
of not more than 90 days;
o short-term investment funds sponsored by any trust company or
bank incorporated under the laws of the United States or any of
its states that on the date of acquisition has been rated by
the rating agencies in their respective highest rating category
of long-term unsecured debt;
o interests in any money market fund that at the date of
acquisition of the interests in the fund and throughout the
time the interest is held in the fund has the rating specified
in the related prospectus supplement by each rating agency; and
o other obligations or securities that are acceptable to each
rating agency as a permitted investment and will not result in
a reduction in the then current rating of the securities, as
evidenced by a letter to that effect from the rating agency.
A permitted investment may not evidence either the right to receive only
interest on the obligations underlying the instrument or both principal and
interest payments derived from obligations underlying the instrument and the
interest and principal payments on the instrument provide a yield to maturity
at par greater than 120% of the yield to maturity at par of the underlying
obligations. In addition, no permitted investment may be purchased at a price
greater than par if the instrument may be prepaid or called at a price less
than its purchase price before its stated maturity. Unless otherwise specified
in the related prospectus supplement, any instrument deposited in the reserve
accounts 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. The
related prospectus supplement will contain additional information about the
instruments deposited in the reserve accounts.
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
The related prospectus supplement, may provide that a separate pool
insurance policy will be obtained for the pool and issued by the insurer named
in the prospectus supplement. Each pool insurance policy will, subject to
specified limitations, cover loss from default in payment on loans in the pool
in an amount equal to a specified percentage of the aggregate principal
balance of the loans on the Cut-Off Date that are not covered as to their
entire outstanding principal balances by primary mortgage insurance policies.
The master servicer will present claims under that insurance to the pool
insurer on behalf of itself, the trustee, and the holders of the securities of
the related series. However, the pool insurance policies are not blanket
policies against loss, since claims under them may only be made against
particular defaulted loans and only on satisfaction of specified conditions
precedent. 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
o any required primary mortgage insurance policy is in effect for
the defaulted loan and a claim under it has been submitted and
settled;
o hazard insurance on the related property has been kept in force
and real estate taxes and other protection and preservation
expenses have been paid;
o if there has been physical loss or damage to the mortgaged
property, it has been restored to its physical condition,
reasonable wear and tear excepted, at the time of issuance of
the policy; and
o the insured has acquired good and merchantable title to the
property free of liens except specified permitted encumbrances.
On satisfaction of these conditions, the pool insurer will have the option
either to purchase the property securing the defaulted loan at a price equal
to its principal balance plus accrued and unpaid interest and specified
expenses incurred by the master servicer on behalf of the trustee and
securityholders, or to pay the amount by which the sum of the principal
balance of the defaulted loan plus accrued and unpaid interest at the interest
rate provided for in the mortgage loan note to the date of payment of the
claim and the aforementioned expenses exceeds the proceeds received from an
approved sale of the mortgaged property, in either case net of specified
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 any
proceeds 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 the restoration will increase the
proceeds to securityholders on liquidation of the loan after reimbursement of
the master servicer for its expenses and the 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, failure to construct a
property in accordance with plans and specifications, or fraud or negligence
in the origination or servicing of a loan, including misrepresentation by the
borrower, the originator, or persons involved in its origination. A failure of
coverage attributable to one of these events might result in a breach of
Provident's representations and in that case might obligate 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 on a defaulted loan occurring when the servicer of the
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 on disposition of all foreclosed properties. The
amount of claims paid will include specified expenses incurred by the master
servicer as well as accrued interest on delinquent loans to the date of
payment of the claim or another 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
The related prospectus supplement may provide that the beneficial
ownership of separate groups of assets included in a trust fund will be
evidenced by separate classes of the related series of securities. In that
case, credit support may be provided by a cross-collateralization feature that
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 before distributions to subordinated securities evidencing a
beneficial ownership interest in, or secured by, one or more other asset
groups within the trust fund. Cross-collateralization may be provided by the
allocation of specified excess amounts generated by one or more asset groups
to one or more other asset groups within the same trust fund or by the
allocation of losses from 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 that includes a cross-collateralization feature will describe the
manner and conditions for applying the cross-collateralization feature.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the securities
will be affected primarily by the amount and timing of principal payments
received on 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 in it. Each prospectus supplement will contain
information about the type and maturities of the loans in the related pool.
The related prospectus supplement will specify any circumstances 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 those
loans. Generally, home equity loans and home improvement contracts are not
viewed by borrowers as permanent financing. Accordingly, the 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, these 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 will have the same effect as a prepayment of the related
loan. See "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 the investor at the time the securities were purchased.
Collections on home equity loans may vary because, among other
things, borrowers may make payments as high as the entire outstanding
principal balance plus accrued interest and the fees and charges or make
payments during any month as low as the minimum monthly payment for the month
that for some loans is only the interest and the fees and charges for the
month. In addition, collections on the loans may vary due to seasonal
purchasing and the payment habits of borrowers.
Some of the conventional loans will contain due-on-sale provisions
permitting the mortgagee to accelerate the maturity of the loan upon sale or
some transfers by the borrower of the related mortgaged property. Thus, the
rate of prepayments on the 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 "Legal Aspects of the Loans" for a description of each
agreement and legal developments that may affect the prepayment experience on
the loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, if prevailing rates fall
significantly below the interest rate in the mortgage loan notes, the loans
are more likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above the interest rate in the mortgage loan
notes. Conversely, if prevailing interest rates rise appreciably above the
interest rate in the mortgage loan notes, the loans are more likely to
experience a lower prepayment rate than if prevailing rates remain at or below
the interest rate in the mortgage loan notes. However, we cannot assure you
that that will continue to be the case.
When a full prepayment is made on a loan, the borrower is charged
interest on the principal amount 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 that 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 liquidating 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 law 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 sale of mortgaged property by
the secured party. Upon 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 on 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 various disclosures, and require licensing of some
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 that may apply to
originating, servicing, and collecting loans. Depending on the applicable law
and the specific 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 interest
rates will affect the yield on the 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 generally accrue on each loan from the first day of the
month, the distribution of interest will not be made earlier than the month
following the month of accrual.
Under specified 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. We cannot provide you assurances about 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 the securities.
THE AGREEMENTS
A description of the material provisions of each agreement that are
not described elsewhere in this prospectus follows. The description is subject
to, and qualified in its entirety by reference to, the provisions of each
agreement. Where particular terms used in the agreements are referred to,
those terms are as specified in the agreements.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. When a series of securities is issued,
Provident will assign the loans comprising the related trust fund to the
trustee, without recourse, together with all principal and interest due after
the Cut-Off Date and received by Provident on the loans after the Cut-Off
Date, other than any retained interest specified in the related prospectus
supplement. The trustee will, concurrently with the assignment, deliver the
securities to Provident in exchange for the loans. Each loan will be
identified in a schedule appearing as an exhibit to the related agreement. The
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 about the APR or the interest rate provided for in the
mortgage loan note, the maturity of the loan, the loan-to-value ratios or
combined loan-to-value ratios, as applicable, at origination, and other
information.
Unless otherwise specified in the related prospectus supplement, the
agreement will require that Provident will also deliver or cause to be
delivered to the trustee or to the custodian a loan file for each mortgage
loan or home equity loan. Among other things, the loan file contains:
o the mortgage note or contract endorsed without recourse in
blank or to the order of the trustee,
o the mortgage, deed of trust, or similar instrument with
evidence of recording indicated on it, 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 the
mortgage together with a certificate that the original of the
mortgage was delivered to the recording office,
o an assignment of the mortgage to the trustee, which assignment
will be in recordable form in the case of a mortgage
assignment, and
o other security documents, including those relating to any
senior interests in the mortgaged property, 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 events specified in the
related prospectus supplement.
The trustee or the custodian will review the loan documents after
their receipt, and the trustee will hold them in trust for the benefit of the
related securityholders. Unless otherwise specified in the related prospectus
supplement, if any document is found to be missing or defective in any
material respect, the trustee or the custodian will notify the master servicer
and Provident. If Provident cannot cure the omission or defect within the
appropriate time period after receipt of the notice, Provident will be
obligated either to purchase the related loan from the trust fund at the
purchase price or if so specified in the related prospectus supplement, to
remove the loan from the trust fund and substitute in its place one or more
other loans that meets specified requirements. We cannot assure you 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 these provisions, no purchase or substitution of a
loan will be made if the purchase or substitution would result in a prohibited
transaction tax under the Code for a trust fund for which a REMIC election is
to be made.
No Recourse to Provident or Master Servicer. As described 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 particular
representations and warranties are breached or for failure to deliver
particular documents relating to the loans as described in this prospectus
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 a 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 for the related trust fund a separate security
account or accounts for the collection of payments on the related trust fund
assets in the trust fund that, unless otherwise specified in the related
prospectus supplement, must be either
o maintained with a depository institution whose short-term debt
obligations and long-term debt obligations at the time of any
deposit 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 the account or accounts
are fully insured by either the Bank Insurance Fund or the
Savings Association Insurance Fund and that is any of
o a federal savings and loan association duly organized,
validly existing, and in good standing under the
applicable banking laws of any state,
o an institution duly organized, validly existing, and in
good standing under the applicable banking laws of any
state,
o a national banking association duly organized, validly
existing, and in good standing under the federal banking
laws,
o a principal subsidiary of a bank holding company,
o 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
o 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 its funds 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 the 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 required standards.
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 after
the Cut-Off Date, other than specified payments due on or before the Cut-Off
Date and exclusive of any amounts representing retained interest:
o all payments on account of principal, including principal
prepayments and, if specified in the related prospectus
supplement, any applicable prepayment penalties, on the loans;
o all payments on account of interest on the loans, net of
applicable servicing compensation;
o all net proceeds of the hazard insurance policies and any
primary mortgage insurance policies, to the extent the 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 and all other net cash amounts
received and retained in connection with the liquidation of
defaulted loans, by foreclosure or otherwise, 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, netted against
these items generally are unreimbursed expenses associated with
them;
o all proceeds of any loan or the property associated with it
purchased by Provident as described under "Loan
Program--Representations by Provident; Repurchases" or
"--Assignment of Trust Fund Assets" and all proceeds of any
loan repurchased as described under "--Termination; Optional
Termination";
o 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";
o 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
o 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:
o 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 or investment income on funds in the
security account;
o to reimburse the master servicer for advances, limited in
amount to amounts received that represent late recoveries of
payments of principal or interest on the loan with respect to
which the servicing advance was made, whether the receipt is a
payment by the obligor or insurance proceeds or liquidation
proceeds;
o to reimburse the master servicer for any servicing advances
previously made which the master servicer has determined to be
nonrecoverable;
o to reimburse the master servicer from insurance proceeds for
expenses incurred by the master servicer and covered by the
related insurance policies;
o to reimburse the master servicer for unpaid master servicing
fees and unreimbursed out-of-pocket costs incurred by the
master servicer in the performance of its servicing
obligations, limited to amounts received representing late
recoveries of the payments for which the servicing advances
were made;
o to reimburse the master servicer or Provident for expenses
incurred and reimbursable pursuant to the agreement;
o to withdraw any amount deposited in the security account that
was not required to be deposited in it; and
o to clear and terminate the security account upon termination of
the agreement.
In addition, unless otherwise specified in the related prospectus
supplement, by the business day before each distribution date, the master
servicer shall withdraw from the security account the amount of available
funds, to the extent on deposit, for deposit in an account maintained by the
trustee for the related series of securities.
The applicable agreement may require the master servicer to establish
and maintain one or more escrow accounts into which mortgagors deposit amounts
sufficient to pay taxes, assessments, hazard insurance premiums, or comparable
items. Withdrawals from the escrow accounts maintained for mortgagors may be
made to effect timely payment of taxes, assessments, and hazard insurance
premiums or comparable items; to reimburse the master servicer out of related
assessments for maintaining hazard insurance; to refund to mortgagors amounts
determined to be overages; to remit to mortgagors, if required, interest
earned, if any, on balances in any of the escrow accounts; to repair or
otherwise protect the property; and to clear and terminate any of the escrow
accounts. The master servicer will be solely responsible for administration of
the escrow accounts and will be expected to make advances to the accounts when
a deficiency exists in any of them.
PRE-FUNDING ACCOUNT
The related prospectus supplement may provide that, the master
servicer will establish and maintain an account, in the name of the related
trustee on behalf of the related securityholders, into which Provident will
deposit cash in an amount equal to the pre-funded amount on the related
closing date. The pre-funding account will be maintained with the trustee for
the related series of securities and is designed solely to hold funds to be
applied by the trustee during the funding period specified in the related
prospectus supplement to pay to Provident the purchase price for subsequent
loans. Monies on deposit in the pre-funding account will not be available to
cover losses on 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.
Any funding period for a trust fund will begin on the related closing date and
will end on the date specified in the related prospectus supplement, which
will not 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 another trust
account 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 a capitalized interest
account cash in an amount 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. The capitalized interest account shall be maintained with
the trustee for the related series of securities and is designed solely to
cover these interest shortfalls. Monies on deposit in the capitalized interest
account will not be available to cover losses on 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 with any servicing
entity that will act as the sub-servicer for the related loans, which
sub-servicing agreement will not contain any terms inconsistent with the
related agreement. Notwithstanding any 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 follow customary collection procedures for loans comparable to
the loans that are consistent with each agreement and any pool insurance
policy, primary mortgage insurance policy, bankruptcy bond, or alternative
arrangements. Consistent with that, the master servicer may waive any
assumption fee, late payment, or other charge in connection with a loan and
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 and consistent with any applicable
coverage of the loan by a pool insurance policy, primary mortgage insurance
policy, bankruptcy bond, or alternative arrangements. To the extent the master
servicer is obligated to make or cause to be made servicing advances, the
obligation will remain during any period of 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 exercise
or cause to be exercised its rights to accelerate the maturity of the loan
under any applicable due-on-sale clause if it has knowledge of the conveyance
or proposed conveyance, but only if 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 the 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 the property has been or is
about to be conveyed, pursuant to which the person becomes liable for
repayment of the loan and, to the extent permitted by applicable law, the
mortgagor also remains liable. 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 "Legal
Aspects of the Loans--Due-on-Sale Clauses." The terms of the related loan may
not be changed in connection with an assumption.
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 the property is located. The
coverage will be in an amount that is at least equal to the lesser of
o the maximum insurable value of the improvements securing the
loan from time to time,
o the combined principal balance owing on the loan and any
mortgage loan senior to the loan, and
o 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 will be
deposited in the related security account 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.
If the master servicer maintains a blanket policy insuring against hazard
losses on all the loans comprising part of a trust fund, that will satisfy its
obligation relating to the maintenance of hazard insurance. The 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 that would have been deposited therein but for that 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,
their basic terms are dictated by state laws, and most policies typically do
not cover any physical damage resulting from war, revolution, governmental
actions, floods and other water-related causes, nuclear reactions, wet or dry
rot, vermin, rodents, insects or domestic animals, theft, some cases of
vandalism, and earth movement, including earthquakes, landslides, and mud
flows. This list is merely indicative of some kinds of uninsured risks and is
not intended to be all inclusive. If the property securing a loan is located
in a federally designated special flood area at the time of origination, the
master servicer may require the mortgagor or obligor to obtain and maintain
flood insurance.
The hazard insurance policies covering properties securing the loans
typically contain a clause that in effect requires the insured at all times to
carry insurance of a specified percentage of the full replacement value of the
insured property in order to recover the full amount of any partial loss. That
percentage is generally 80% to 90%. If the insured's coverage falls below this
specified percentage, then the insurer's liability upon partial loss will not
exceed the larger of the actual cash value of the improvements damaged or
destroyed and the proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost of the
improvements. Actual cash value of improvements is generally defined as
replacement cost at the time and place of loss, less physical depreciation.
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 the loans decreases, and since improved real estate generally
has appreciated in value over time in the past, the effect of this requirement
upon partial loss may be that hazard insurance proceeds will be insufficient
to restore fully the damaged property. The related prospectus supplement may
require that a special hazard insurance policy be obtained to insure against
some of the uninsured risks. See "Credit Enhancement."
If the property securing a defaulted loan is damaged and any proceeds
from the related hazard insurance policy are insufficient to restore the
damaged mortgaged property, the master servicer is not required to expend its
own funds to restore the damaged property unless it determines that the
restoration will increase the proceeds to securityholders on liquidation of
the loan after reimbursement of the master servicer for its expenses and that
the 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 the
normal practices and procedures it deems appropriate 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 the loan plus its
accrued interest that is payable to securityholders, the trust fund will
realize a loss in the amount of the difference plus the aggregate of recovery
expenses incurred by the master servicer that are reimbursable under the
agreement. In the unlikely event that the proceedings result in a total
recovery that is, after reimbursement to the master servicer of its expenses,
in excess of the principal balance of the loan plus its accrued interest 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 the loan and, unless otherwise
specified in the related prospectus supplement, amounts representing the
balance of the 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
that, when added to any related liquidation proceeds and after deduction of
expenses reimbursable to the master servicer, exceed the principal balance of
the loan plus its accrued interest 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
the loan. If the master servicer has expended its own funds to restore the
damaged property and the 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 the 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 particular expenses incurred by the master
servicer, no payment or recovery will result in a recovery to the trust fund
that exceeds the principal balance of the defaulted loan together with its
accrued interest. 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 the loan;
second, to reimburse the master servicer for any unreimbursed
servicing advances with respect to the loan;
third, to accrued and unpaid interest on the loan to the
extent no servicing advance has been made for that amount; and
fourth, as a recovery of principal of the loan.
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. If so specified in the related
prospectus supplement, the master servicer will maintain or cause to be
maintained in full force a primary mortgage insurance policy on each loan for
which coverage is required. Primary mortgage insurance policies reimburse
specified losses sustained due to defaults in payments by borrowers. The
master servicer will not cancel or refuse to renew any 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 the 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 the
series that have been rated.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal servicing compensation to be paid to the master
servicer for its master servicing activities for each series of securities
will be equal to the percentage per annum of the outstanding principal balance
of each loan, and that compensation will be retained by it from collections of
interest on the loan in the related trust fund. The master servicing fee
percentage may vary under specified circumstances, and it will be described in
the related prospectus supplement. As compensation for its servicing duties,
any sub-servicer 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 some ongoing
expenses associated with each trust fund and incurred by it in connection with
its responsibilities under the related agreement, including and if so
specified in the related prospectus supplement, payment of any fee or other
amount payable with respect to any credit enhancement arrangements; payment of
expenses incurred in enforcing the obligations of sub-servicers; and payment
of the fees and disbursements of the trustee, any custodian appointed by the
trustee, the certificate registrar, and any paying agent. The master servicer
will be entitled to reimbursement of expenses incurred in enforcing the
obligations of sub-servicers under limited circumstances.
EVIDENCE AS TO COMPLIANCE
Each agreement will provide that by a specified date in each year a
firm of independent public accountants will furnish a statement to the trustee
on the basis of the examination by the firm conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers or
the Audit Program for mortgages serviced for Freddie Mac. The statement will
be to the effect that the servicing by or on behalf of the master servicer of
the trust fund assets pursuant to the agreement was conducted in compliance
with the servicing agreement except for any significant exceptions or errors
in records that in its opinion it is required to report under the Audit
Program for mortgages serviced for Freddie Mac or the Uniform Single
Attestation Program for Mortgage Bankers. In rendering its statement the firm
may rely, as to matters relating to the direct servicing of loans by
sub-servicers, upon comparable statements not more than a year old for
examinations conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for mortgages
serviced for Freddie Mac of firms of independent public accountants with
respect to the related sub-servicer.
Each agreement will also provide for delivery to the trustee, by 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 on written request to the master servicer at the
address in the related prospectus supplement.
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 under the agreement except upon appointment of a
successor servicer and receipt by the trustee of a letter from the rating
agency that the resignation and appointment will not result in a downgrade of
the securities or a determination that its duties under the agreement are no
longer permissible under applicable law. The master servicer may, however, be
removed from its obligations as set forth in the agreement. No resignation
will become effective until the trustee or a successor servicer has assumed
the master servicer's obligations 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.
However, neither the master servicer, Provident, nor the other person will be
protected against any liability that would otherwise be imposed for willful
misfeasance, bad faith, or negligence in the performance of duties under the
agreement or for reckless disregard of obligations under the agreement. 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
loss, liability or expense otherwise reimbursable pursuant to the agreement,
and any loss, liability or expense incurred for willful misfeasance, bad
faith, or negligence in the performance of duties under the agreement or for
reckless disregard of obligations under the agreement. 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 that
is not incidental to its respective responsibilities under the agreement and
that in its opinion may involve it in any expense or liability. The master
servicer or Provident may, however, in its discretion undertake any action
that it deems appropriate with respect to the agreement and the rights and
duties of the parties to the agreement and the interests of the
securityholders under the agreement. In that case, the legal expenses and
costs of the action and any liability resulting from it will be costs and
liabilities of the trust fund, and the master servicer or Provident, as the
case may be, will be entitled to be reimbursed for them 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,
if the person is qualified to service mortgage loans and meets the net worth
requirement specified in the agreement and if the merger, consolidation, or
succession does not adversely affect the then current rating or ratings of the
class or classes of securities of the series that have been rated.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Master Servicing Agreement. Except
as otherwise specified in the related prospectus supplement, events of default
under each agreement will consist of:
o any failure by the master servicer to make any required deposit
pursuant to the related agreement other than a servicing
advance that continues unremedied for five days after written
notice of the 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;
o any failure by the master servicer to make a servicing advance
as required under the agreement;
o 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 that continues unremedied for
thirty days after written notice of the 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
o events of insolvency, readjustments of debt, marshalling of
assets and liabilities, or similar proceedings and particular
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 if payments from them 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 terminate all of the rights and obligations of the master servicer under
the agreement relating to the trust fund and in the related trust fund assets.
At the direction of holders of securities evidencing not less than 51% of the
aggregate of the percentage interests of all the holders and under other
circumstances specified in the agreement, the trustee must take that action if
an event of default under an agreement remains unremedied. Upon the removal of
the master servicer the trustee will succeed to all of the duties and
liabilities of the master servicer under the agreement, including, if
specified in the related prospectus supplement, the obligation to make
servicing advances, and will be entitled to similar compensation arrangements.
If the event of default results from the master servicer's failure to make a
servicing advance, the trustee shall terminate the master servicer. If 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 that appointment, the trustee is
obligated to act in that capacity. The trustee and any successor may agree
upon the servicing compensation to be paid, which may not 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 its status as a securityholder, will have
any right under any agreement to institute any proceeding with respect to the
agreement, unless the securityholder previously has given to the trustee
written notice of default and unless the holders of securities of any class of
the series evidencing not less than 51% of the aggregate of the percentage
interests of all the holders constituting the class have requested that the
trustee institute the proceeding in its own name as trustee under the
agreement and have offered to the trustee reasonable indemnity, and the
trustee for 60 days has neglected or refused to institute a proceeding.
Indenture. Except as otherwise specified in the related prospectus
supplement, events of default under the indenture for each series of notes
include:
o a default in the payment of any principal of or interest on any
note of the series that continues unremedied for five days
after written notice of the default is given as specified in
the related prospectus supplement;
o failure to perform in any material respect any other covenant
of Provident or the trust fund in the indenture that continues
for a period of thirty days after notice of the failure is
given in accordance with the procedures described in the
related prospectus supplement;
o events of bankruptcy, insolvency, receivership, or liquidation
of Provident or the trust fund; or
o any other event of default provided with respect to notes of
that series including specified defaults on the part of the
issuer, if any, of a credit enhancement instrument supporting
the 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 the
series may declare the principal amount of all the notes of the series to be
due and payable immediately. If any notes of that series have an interest rate
of 0%, the acceleration of principal shall relate to a portion of the
principal amount specified in the terms of that series, as provided in the
related prospectus supplement the declaration may, under some circumstances,
be rescinded by the holders of more than 50% of the of the percentage
interests of all the holders of the notes of the series.
If, following an event of default with respect to any series of
notes, the notes of the series have been declared to be due and payable, the
trustee may, in its discretion, notwithstanding the acceleration, elect to
maintain possession of the collateral securing the notes of the series and to
continue to apply distributions on the collateral as if no declaration of
acceleration had occurred if the collateral continues to provide sufficient
funds for the payment of principal of and interest on the notes of the series
as they would have become due if there had not been a declaration of
acceleration. 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 the
series that continues unremedied for five days after written notice of the
default is given as specified in the related prospectus supplement, unless
o the holders of 100% of the of the percentage interests of all
the holders of the notes of the series consent to the sale,
o the proceeds of the sale or liquidation are sufficient to pay
in full the principal of and accrued interest, due and unpaid,
on the outstanding notes of the series at the date of the sale,
or
o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
notes as the payments would have become due if the notes had
not been declared due and payable, and the trustee obtains the
consent of the holders of 66 2/3% of the of the percentage
interests of all the holders of the notes of the series.
If 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 that continues unremedied for five days after written
notice of the 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 the 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 enforcement of
its lien except in connection with a proceeding for 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,
if the principal of the notes of a series is declared due and payable after an
event of default, the holders of any notes issued at a discount from par may
be entitled to receive no more than an amount equal to their unpaid principal
amount less the amount of the discount that is unamortized.
Subject to the provisions of the indenture relating to the duties of
the trustee, although an event of default occurs and is 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 the series unless the holders
offered to the trustee security or indemnity satisfactory to it against the
costs and liabilities that might be incurred by it in complying with the
request or direction. Subject to the provisions for indemnification and
limitations contained in the indenture, the holders of a majority of the then
aggregate outstanding amount of the notes of the 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 the series, and the holders of a
majority of the then aggregate outstanding amount of the notes of the series
may, in some cases, waive any default with respect to them, except a default
in the payment of principal or interest or a default with respect to 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 the series
affected by it.
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, to cure any
ambiguity; to correct or supplement any provision in it that may be defective
or inconsistent with any other provision in it; or to make any other revisions
with respect to matters or questions arising under the agreement that are not
inconsistent with its provisions, if the action will not adversely affect in
any material respect the interests of any securityholder. An amendment will be
considered not to adversely affect in any material respect the interests of
the securityholders if the person requesting the amendment obtains a letter
from each rating agency requested to rate the class or classes of securities
of the series stating that the amendment will not result in the downgrading or
withdrawal of the respective ratings then assigned to the 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, if that change does not adversely
affect the then current rating on the class or classes of securities of the
series that have been rated. In addition, if a REMIC election is made for a
trust fund, the related agreement may be amended to modify, eliminate, or add
to any of its provisions to the extent necessary to maintain the qualification
of the related trust fund as a REMIC, if the trustee has received an opinion
of counsel to the effect that the action is necessary or helpful to maintain
the qualification.
Each agreement may also be amended by Provident, the master servicer,
and the trustee with consent of holders of securities of the series evidencing
not less than 51% of the aggregate of the percentage interests of all the
holders of each class affected by the amendment 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. However, no amendment may reduce the amount of or
delay the timing of, payments received on loans that are required to be
distributed on any security without the consent of the holder of the security,
or reduce the percentage of securities of any class the holders of which are
required to consent to that amendment, without the consent of the holders of
all securities of the class covered by the 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 the amendment will not
cause the 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 the agreement following the later of:
(1) the final payment of or other liquidation of the last of the
trust fund assets or the disposition of all property acquired
upon foreclosure of any trust fund assets remaining in the
trust fund and
(2) 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 that right from the
related trust fund of all of the remaining trust fund assets
and all property acquired in respect of the trust fund assets.
See "Federal Income Tax Consequences."
Unless otherwise specified by the related prospectus supplement, any
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, another specified person, or, if applicable, the holder of
the REMIC residual interest, at a price specified in the related prospectus
supplement. The exercise of that right will affect early retirement of the
securities of that series, but the right of the master servicer, the other
specified person, or, if applicable, the 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 (2) 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 on the delivery to the trustee for cancellation of all the notes of
the series or, with specified limitations, on deposit with the trustee of
funds sufficient for the payment in full of all of the notes of the series.
The discharge does not apply with respect to limited continuing rights
specified in the indenture.
In addition to discharge, the indenture may provide that for the
notes of any series, the related trust fund will be discharged from all
obligations in respect of the notes of the series through defeasance although
generally discharged, the obligations relating to temporary notes and exchange
of notes; to register the transfer of or exchange notes of the series; to
replace stolen, lost, or mutilated notes of the series; to maintain paying
agencies; and to hold monies for payment in trust will continue. Defeasance
will require the deposit with the trustee, in trust, of money or direct
obligations of or obligations guaranteed by the United States of America that
through the payment of their interest and principal 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 the series on the last scheduled
distribution date for the notes and any installment of interest on the notes
in accordance with the terms of the indenture and the notes of the series.
Upon defeasance and discharge of notes of the series, holders of notes of the
series would be able to look only to that money and those deposited
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.
LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in
nature, of legal matters relating to the loans. The legal aspects applicable
to the loans, the mortgages, and the mortgaged properties are governed
primarily by applicable state laws that may differ substantially from state to
state. The descriptions, therefore, will not be exact for every jurisdiction
the loans are found, and do not reflect the laws of any particular state
except where so stated. Nor do the descriptions 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.
California uses almost exclusively deeds of trust instead of mortgages. A
mortgage creates a lien upon the real property encumbered by the mortgage,
which lien is generally not before 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. A mortgage has two
parties, 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 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 AND 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 that 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
some states, 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 some
other persons. In some states, including California, the borrower-trustor has
the right to reinstate the loan at any time following default until shortly
before the trustee's sale. In general, the borrower, or any other person
having a junior encumbrance on the real estate, may, during a statutorily
prescribed reinstatement period, cure a monetary default by paying the entire
amount in arrears plus other designated costs and expenses incurred in
enforcing the obligation. Generally, state law controls the amount of
foreclosure expenses and costs, including attorney's fees, which may be
recovered by a lender. After the reinstatement period has expired without the
default having been cured, the borrower or junior lienholder no longer has the
right to reinstate the loan and must pay the loan in full to prevent the
scheduled foreclosure sale. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, including California, published for a specific period of time
in one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest of record in the real property. In California, the entire process
from recording a notice of default to a non-judicial sale usually takes four
to five months.
Mortgages. Foreclosure of a mortgage is generally accomplished by
judicial action. In Ohio, judicial foreclosure is mandatory for residential
property. The action is initiated by the service of legal pleadings upon all
parties having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of
the parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Ohio requires judicial foreclosure, which includes the issuance of a
decree in foreclosure, a statutorily required appraisal process, and 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 case the mortgagor's debt will be extinguished. On the other hand,
the lender may purchase for a lesser amount to preserve its right against a
borrower to seek a deficiency judgment in states where a deficiency 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 the
repairs necessary to render the property suitable for sale at its own expense.
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
that 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."
ENVIRONMENTAL RISKS
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of some 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 that a lien has priority over the
lien of an existing mortgage against the property. In addition, under the
federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"), the United States Environmental Protection Agency may
impose a lien on property where the 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, a secured lender
conceivably could 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 these costs on 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. 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 when it fails to market the property in a
timely fashion or holds the facility or property as an investment, including
leasing the facility or property to third party.
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 to be considered 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. Securityholders
could conceivably realize a loss from the costs arising from these
circumstances.
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 that 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 mortgaged properties were conducted.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the borrower and foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
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 after 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
Some 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 some 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 other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security.
However, in some of these states, the lender, following judgment on the
personal action, may be deemed to have elected a remedy and may be precluded
from exercising other 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 instances where the value of the
lender's security has been impaired by acts or omissions of the borrower, for
example, upon 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 the 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 affect the ability of the
secured mortgage lender to realize upon its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on a
mortgaged property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the mortgaged
property is not the debtor's principal residence and the court determines that
the value of the mortgaged property is less than the principal balance of the
mortgage loan, for the reduction of the secured indebtedness to the value of
the mortgaged property as of the date of the commencement of the bankruptcy,
rendering the lender a general unsecured creditor for the difference, and also
may reduce the monthly payments due under the mortgage loan, change the rate
of interest, and alter the mortgage loan repayment schedule. The effect of any
proceedings under the federal Bankruptcy Code, including 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 the payments.
The federal tax laws provide priority to some 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
that will generally provide that if the mortgagor or obligor sells, transfers,
or conveys the mortgaged 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 these
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 some 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 these
clauses with respect to mortgage loans that were originated or assumed during
the window period under the Garn-St Germain Act that ended in all cases not
later than October 15, 1982, and that were originated by lenders other than
national banks, federal savings institutions, and federal credit unions.
Freddie Mac 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 specified 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, that may
affect the average life of the loans and the number of loans that may extend
to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may
not be enforceable in bankruptcy proceedings and may, under some
circumstances, be eliminated in any modified mortgage resulting from the
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 before maturity. In some states,
specific limitations exist on the late charges that a lender may collect from
a borrower for delinquent payments. Some states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under some state laws, prepayment charges may not be imposed after a
specified period following the origination of mortgage loans with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties. Since many of the mortgaged properties will be owner-occupied, we
anticipate 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 high interest rates, may increase the
likelihood of refinancing or other early retirement of the 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 provides that state usury limitations shall not apply to
specified types of residential first mortgage loans originated by specified
lenders after March 31, 1980. The Office of Thrift Supervision 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 that expressly rejects application of the federal law. Fifteen
states adopted such a law before 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. Some states have taken action to reimpose interest rate
limits or to limit discount points or other charges.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, a borrower who enters military service after the origination of
the borrower's loan may not be charged interest above an annual rate of 6%
during the period of the borrower's active duty status, unless a court orders
otherwise on application of the lender. 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 is included in this status. It is
possible that the 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 some of the loans. Unless otherwise provided in
the related prospectus supplement, any shortfall in interest collections
resulting from the application of this Act could result in losses to
securityholders. This Act also imposes limitations that 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 Act permits the
extension of a loan's maturity and the re-adjustment of its payment schedule
beyond the completion of military service. Thus, if such a loan goes into
default, the inability to realize upon the property in a timely fashion may
occasion delays in payment and losses.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the loans in the trust fund for a series are
secured by mortgages that are junior to other mortgages held by other lenders
or institutional investors, the rights of the trust fund as mortgagee under
the 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 these proceeds and awards to any
indebtedness secured by the mortgage, in the order the mortgagee determines.
Thus, if improvements on the property are damaged or destroyed by fire or
other casualty, or if 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 that appear before 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, 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 some 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 that 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 that 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 the 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 that includes home equity credit lines applies retroactively to the date
of the original recording of the trust deed or mortgage, if 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 on 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 under A,
the Real Estate Settlement Procedures Act and Regulation B promulgated under
A, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair
Credit Reporting Act, and related statutes and regulations. In particular,
Regulation Z requires disclosures to borrowers regarding terms of the loans.
The Equal Credit Opportunity Act and Regulation B promulgated under it
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. The Fair Credit Reporting Act regulates the use and reporting of
information related to the borrower's credit experience. Some provisions of
these laws impose specific statutory liabilities on lenders who fail to comply
with them. In addition, violations of those 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. Some loans may be subject to the Reigle Community
Development Regulatory Improvement Act of 1994 that incorporates the Home
Ownership and Equity Protection Act of 1994. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money mortgage loans with high interest rates or high up-front
fees and charges. The provisions of this Act apply on a mandatory basis to all
loans originated on or after October 1, 1995. These provisions can impose
specific statutory liabilities on 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 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 under the Code,
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 the 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 some types of investors subject to special
treatment under the federal income tax laws. This summary focuses primarily on
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
o the securities of a series are classified as indebtedness;
o an election is made to treat the trust fund relating to a
particular series of securities as a REMIC under the Code;
o the securities represent an ownership interest in some or all
of the assets included in the trust fund for a series; or
o 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 the series.
Before issuance of each series of securities, the trust fund shall file with
the SEC 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 under
"Federal Income Tax Consequences" in this prospectus 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 its securityholders 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 collectively as "Debt Securities."
Debt Securities that are Compound Interest Securities will, and
certain of the other Debt Securities may, be issued with "original issue
discount" ("OID"). The following discussion is based in part on the rules
governing OID that are set forth in Sections 1271-1275 of the Code and the
Treasury regulations issued under the Code 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 some 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 the 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 before the related Closing Date, the issue price for the class will be
treated as the fair market value of that class on the 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 before 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 the 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 if the
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. Some Debt Securities may provide for default remedies upon late
payment or nonpayment of interest. The interest on those 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 the Debt Securities includes all
distributions of interest as well as its principal. 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. In the case of a debt security with a long first period that 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 are encouraged to 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 the 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, whose numerator is the amount of each
distribution included in the stated redemption price at maturity of the debt
security and whose denominator 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 the income will be capital gain
if the debt security is held as a capital asset. However, accrual method
securityholders may elect to accrue all de minimis OID as well as market
discount under a constant interest method.
Debt Securities may provide for interest based on a qualified
variable rate. Under the OID Regulations, interest is treated as payable at a
qualified variable rate and not as contingent interest if, generally,
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments, and
o 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 the debt security.
In the case of Compound Interest Securities, some Interest Weighted
Securities, and some 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), we cannot assure you
that this 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 the debt
security, the sum of the "daily portions" of the 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 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. An accrual period is generally the period over which interest
accrues on the debt instrument. 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 the 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
the 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
the present value of all payments remaining to be made on the Pay-Through
Security as of the close of the accrual period and 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:
o 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,
o events that have occurred before the end of the accrual period,
and
o 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 the portions of OID for any period 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. The decrease may not be a decrease below zero for any period in
the portions of OID required to be included in income by a securityholder of a
Pay-Through Security. Although OID will be reported to securityholders of
Pay-Through Securities based on the Prepayment Assumption, no representation
is made to securityholders that loans will be prepaid at that rate or at any
other rate.
Provident may adjust the accrual of OID on a Class of Regular
Interest Securities or other regular interests in a REMIC in a manner that it
believes to be appropriate to take account of realized losses on the loans,
although the OID Regulations do not provide for the adjustments. If the
Internal Revenue Service were to require that OID be accrued without the
adjustments, the rate of accrual of OID for a Class of Regular Interest
Securities could increase.
Some 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 those 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 a subsequent securityholder who purchases the
debt security for an amount that exceeds its adjusted issue price will be
entitled to offset the OID by comparable economic accruals of portions of the
excess, as will an initial securityholder who pays more than a debt security's
issue price.
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 the 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 the 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 the losses or reductions in income are uncertain and,
accordingly, securityholders are encouraged to 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 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 the 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 the securityholder for the security over its stated principal
amount, if any. Under this approach, a securityholder would be entitled to
amortize the premium only if it has in effect an election under Section 171 of
the Code with respect to all taxable debt instruments held by the
securityholder. Alternatively, the IRS could assert that an Interest Weighted
Security should be taxable under the rules governing bonds issued with
contingent payments. This treatment may be more likely in the case of Interest
Weighted Securities that are Stripped Securities. 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 ("Variable Rate Debt Securities"), it appears that the yield
to maturity of the Variable Rate Debt Securities and in the case of
Pay-Through Securities, the present value of all payments remaining to be made
on the Variable Rate Debt Securities, should be calculated as if the interest
index remained at its value as of the issue date of the securities. Because
the proper method of adjusting accruals of OID on a variable rate debt
security is uncertain, holders of Variable Rate Debt Securities are encouraged
to consult their own tax advisers regarding the appropriate treatment of the
securities for federal income tax purposes.
Market Discount. A purchaser of a security may be subject to the
market discount rules of Sections 1276-1278 of the Code. A securityholder that
acquires a debt security with more than a prescribed de minimis amount of
"market discount" 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. Market discount is
generally the excess of the principal amount of the debt security over the
purchaser's purchase price. The market discount would accrue in a manner to be
provided in Treasury regulations but, until the regulations are issued, the
market discount would in general accrue either on the basis of a constant
yield in the case of a Pay-Through Security, taking into account a Prepayment
Assumption or in the ratio of
o in the case of securities (or in the case of a Pass-Through
Security, the loans underlying the 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
o in the case of securities (or, in the case of a Pass-Through
Security, the loans underlying the 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, the underlying loans) with market
discount over interest received on the security is allowed as a current
deduction only to the extent the excess is greater than the market discount
that accrued during the taxable year in which the interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when the market discount is included in income, including on 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 the securityholder during the taxable year
the 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 the security on a constant yield method and not
as a separate deduction item. 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 the class. If a
securityholder makes an election to amortize premium on a debt security, the
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 the securityholder, and will
be irrevocable without the consent of the IRS. Purchasers who pay a premium
for the securities are encouraged to 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 are encouraged to consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a debt security to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium income as interest, based on a constant yield method for Debt
Securities acquired on or after April 4, 1994. If such an election were to be
made with respect to a debt security with market discount, the holder of the
debt security would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that the 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 the 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,
(1) 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
(2) 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 (1) or
(2) above, then a security will qualify for the tax treatment described in
(1) or (2) in the proportion that the 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 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 some pass-through entities, but not
including real estate investment trusts), the expenses will be deductible only
to the extent that the expenses, plus other "miscellaneous itemized
deductions" of the securityholder, exceed 2% of the securityholder's adjusted
gross income. In addition, the amount of itemized deductions otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds the applicable amount, adjusted for inflation, will be reduced by the
lesser of 3% of the excess of adjusted gross income over the applicable amount
or 80% of the amount of itemized deductions otherwise allowable for the
taxable year. The reduction or disallowance of this deduction may have a
significant impact on the yield of the Regular Interest Security to the a
securityholder. In general terms, a single class REMIC is one that either
o 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
o is similar to the a trust and which is structured with the
principal purpose of avoiding the single class REMIC rules.
Unless otherwise specified in the related prospectus supplement, the expenses
of the REMIC will be allocated to holders of the related Residual Interest
Securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC is not generally subject to entity-level tax. Rather, the
taxable income or net loss of a REMIC is taken into account by the holders of
Residual Interests. 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 the gross income
produced by the REMIC's assets, including stated interest and any OID or
market discount on loans and other assets, and 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 some 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 the expenses, when aggregated with the
securityholder's other miscellaneous itemized deductions for that year, do not
exceed two percent of the 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, which is 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
those 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 the discount in income, but without regard
to the de minimis rules. See "Taxation of Debt Securities." However, a REMIC
that acquires loans at a market discount must include the 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 that date, it is
possible that the 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:
o subject to limited exceptions, the sale or other disposition of
any qualified mortgage transferred to the REMIC;
o subject to limited exceptions, the sale or other disposition of
a cash flow investment;
o the receipt of any income from assets not permitted to be held
by the REMIC pursuant to the Code; or
o the receipt of any fees or other compensation for services
rendered by the REMIC.
We do not anticipate that a REMIC will 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 those taxes imposed on the REMIC.
To the extent not paid by the securityholders or otherwise, however, those
taxes will be paid out of the trust fund and will be allocated pro rata to all
outstanding classes of securities of the 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 the 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 that
quarter, and by allocating that amount among the holders on that day of the
Residual Interest Securities in proportion to their respective holdings on
that 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 the income or loss.
The reporting of taxable income without corresponding distributions could
occur, for example, in some 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
some REMIC issues because 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
the loss arises. A securityholder's basis in a Residual Interest Security will
initially equal the securityholder's purchase price, and will subsequently be
increased by the amount of the REMIC's taxable income allocated to the
securityholder, and decreased by the amount of distributions made and the
amount of the REMIC's net loss allocated to the securityholder, but not below
zero. 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 the
securityholders are encouraged to consult their tax advisers.
Distributions. Distributions on a Residual Interest Security will
generally not result in any additional taxable income or loss to a
securityholder of a Residual Interest Security whether they occur at their
scheduled times or as a result of prepayments. If the amount of the payment
exceeds a securityholder's adjusted basis in the Residual Interest Security,
however, the securityholder will recognize gain to the extent of the excess.
That gain will be treated as gain from the sale of the Residual Interest
Security.
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 the
securityholder's adjusted basis in the Residual Interest Security at the time
of the 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 the disposition.
Excess Inclusions. The portion of the REMIC taxable income of a
holder of a Residual Interest Security consisting of "excess inclusion" income
may not be offset by other deductions or losses, including net operating
losses, on the 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, the securityholder's
excess inclusion income will be treated as unrelated business taxable income
of the 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 some 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 Interest 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 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 the holder of a Residual Interest
Security is determined without regard to the special rule that taxable income
cannot be less than excess inclusions. Second, a Residual Interest Security
holder's alternative minimum taxable income for a tax year cannot be less than
excess inclusions for the year. Third, the amount of any alternative minimum
tax net operating loss deductions must be computed without regard to any
excess inclusions. These rules are effective for tax years beginning after
December 31, 1986, unless a holder of a Residual Interest Security elects to
have the 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 the
quarterly period of 120% of the long-term applicable federal rate on the
Startup Day multiplied by the adjusted issue price of the Residual Interest
Security at the beginning of the quarterly period. The adjusted issue price of
a Residual Interest Securities at the beginning of each calendar quarter will
equal its issue price which is 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 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, but not below zero. 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 some circumstances, transfers of
Residual Interest Securities may be disregarded. See "--Restrictions on
Ownership and Transfer of Residual Interest Securities" and "--Tax Treatment
of Foreign Investors."
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 the 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 has furnished to the trustee
an affidavit representing and warranting that it is neither a Disqualified
Organization nor an agent or nominee acting on behalf of a Disqualified
Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization in violation of these restrictions, a substantial tax will be
imposed on the transferor of the Residual Interest Security at the time of the
transfer. In addition, if a Disqualified Organization holds an interest in a
pass-through entity 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. Pass-through entity includes, among
others, a partnership, trust, real estate investment trust, regulated
investment company, or any person holding as nominee.
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 the 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," 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
o 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
o 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 on 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 some 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 that series,
"Pass-Through Securities"). In some series there will be no separation of the
principal and interest payments on the loans. In those circumstances, a
securityholder will be considered to have purchased a pro rata undivided
interest in each of the loans. In other cases ("Stripped Securities"), sale of
the securities will produce a separation in the ownership of all or a portion
of the principal payments from all or a portion of the interest payments on
the loans.
Each securityholder must report on its federal income tax return its
share of the gross income derived from the loans not reduced by the amount
payable as fees to the trustee and the servicer and similar fees
(collectively, the "Servicing Fees"), at the same time and in the same manner
as those 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, the 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, the 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 the Servicing Fees under Section 162 or Section 212 of the Code to
the extent that the 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 the securityholder's regular tax liability only to the
extent that the fees, when added to other miscellaneous itemized deductions,
exceed 2% of adjusted gross income and may not be deductible to any extent in
computing the 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,
adjusted for inflation, will be reduced by the lesser of 3% of the excess of
adjusted gross income over the applicable amount or 80% of the amount of
itemized deductions otherwise allowable for the 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. 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, 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 will be required to include accrued market discount in income.
Market discount is generally the excess of the principal amount of the loan
over the purchaser's allocable purchase price. See "--Taxation of Debt
Securities; Market Discount" and "--Premium."
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 the
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 the principal payment is made. That treatment would
generally result in discount being included in income at a slower rate than
discount would be required to be included in income using the method described
in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the loans, a right to
receive only principal payments on the loans, or a right to receive specified
payments of both interest and principal. Some 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 the
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 the stripped interest.
Servicing Fees in excess of reasonable Servicing Fees will be treated
under the stripped bond rules. If those excess Servicing Fees are less than
100 basis points 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 described method 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 the 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 that method applies to any pool of debt
instruments the yield on which may be affected by prepayments. Nevertheless,
we believe that the Cash Flow Bond Method is a reasonable method of reporting
income for the securities, and we expect 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 some 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 described
characterizations of the Stripped Securities are not the only possible
interpretations of the applicable Code provisions. Among other possibilities,
the IRS could contend that:
o in some 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;
o the non-Interest Weighted Securities are subject to the
contingent payment provisions of the Contingent Regulations; or
o 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 those 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.
Interest income attributable to these 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 under "Tax Characterization of the Trust
Fund as a Partnership" with respect to trust funds as to which a partnership
election is made, a securityholder's tax basis in its security is the price
the securityholder pays for a security, plus amounts of original issue or
market discount included in income and reduced by any amortized premium and
any payments received, other than qualified stated interest payments. 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 the amount
that would have been includible in the securityholder's income if the yield on
the Regular Interest Security had equaled 110% of the applicable federal rate
as of the beginning of the securityholder's holding period, over the amount of
ordinary income actually recognized by the securityholder with respect to the
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 individual taxpayers is 20%. The maximum tax rate on both ordinary
income and long-term capital gains of corporate taxpayers is 35%. Prospective
investors are encouraged to consult their own tax advisors concerning these
tax law changes.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion under "Tax
Characterization of the Trust Fund as a Partnership" 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 some 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
o fails to furnish the trustee with its taxpayer identification
number;
o furnishes the trustee an incorrect taxpayer identification
number;
o fails to report properly interest, dividends, or other
"reportable payments" as defined in the Code; or
o under specified circumstances, fails to provide the trustee or
the securityholder's securities broker with a certified
statement, signed under penalty of perjury, that the taxpayer
identification number provided is its correct number and that
the securityholder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to some payments made
to securityholders, including payments to some exempt recipients and to some
Nonresidents. Securityholders are encouraged to consult their tax advisers as
to their qualification for exemption from backup withholding and the procedure
for obtaining the exemption.
The trustee will report to the securityholders and to the Servicer
for each calendar year the amount of any "reportable payments" during the 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 under "Tax Characterization of the Trust
Fund as a Partnership" 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," the interest will normally qualify as portfolio
interest and will be exempt from federal income tax. This interest will not
qualify as portfolio interest where the recipient is a holder, directly or by
attribution, of 10% or more of the capital or profits interest in the issuer,
or the recipient is a controlled foreign corporation to which the issuer is a
related person. Upon receipt of appropriate ownership statements, the issuer
normally will be relieved of obligations to withhold tax from the 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 that 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%
United States withholding tax or the lower treaty rate. Securityholders should
assume that that 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 the amounts to be taken into account at an
earlier time to prevent the avoidance of tax. Those regulations could, for
example, require withholding before 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 the 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:
o any individual who is a citizen or resident of the United
States,
o 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,
o an estate the income of which is subject to United States
federal income tax regardless of its source,
o 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
o certain trusts in existence on August 20, 1996, and treated as
United States persons (as defined in Code Section 7701(a)(30))
before the 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 a 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 some 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. That 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, 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 following discussion assumes this
characterization of the notes is correct.
OID, Indexed Securities, etc. The discussion following assumes that
all payments on the notes are denominated in U.S. dollars, and that the notes
are not Indexed Securities or Strip Securities. 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 does not exceed a de minimis amount, 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 the 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 on them will be taxable to a noteholder
as ordinary interest income when received or accrued in accordance with the
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 the OID in income,
on a pro rata basis, as principal payments are made on the note. 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 the note (a "Short-Term Note") may be subject
to special rules. An accrual basis noteholder of a Short-Term Note and some
cash method noteholders, including regulated investment companies, as set
forth in Section 1281 of the Code, generally would be required to report
interest income as interest accrues on a straight-line basis over the term of
each interest period. Other cash basis noteholders of a Short-Term Note would,
in general, be required to report interest income as interest is paid or, if
earlier, upon the taxable disposition of the Short-Term Note. However, a cash
basis noteholder of a Short-Term Note reporting interest income as it is paid
may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer
may elect under Section 1281 of the Code to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. 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 the
noteholder in income with respect to the note and decreased by the amount of
any bond premium previously amortized and by the amount of principal payments
previously received by the noteholder with respect to the note. That 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 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 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 the 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, if the gain is not
effectively connected with the conduct of a trade or business in the United
States by the Foreign Holder and 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 noteholder except exempt noteholders 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.
Exempt noteholders are 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.
Should a nonexempt noteholder fail to provide the required certification, the
trust fund will be required to withhold 31 percent of the amount otherwise
payable to the noteholder, and remit the withheld amount to the IRS as a
credit against the noteholder's federal income tax liability.
New Withholding Regulations. Final regulations dealing with
withholding tax on income paid to foreign persons, backup withholding, and
related matters (the "New Withholding Regulations") were issued by the
Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 2000, subject to
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 qualifying income tests. Nonetheless, treatment of the notes as equity
interests in such a publicly traded partnership could have adverse tax
consequences to some noteholders. For example, income to some 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 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, 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
in this prospectus.
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. That 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. 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 Securities, 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 the 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 its 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 on 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:
o the interest that accrues on the certificates in accordance
with their terms for the month, including interest accruing at
the pass-through rate for the month and interest on amounts
previously due on the certificates but not yet distributed;
o any trust fund income attributable to discount on the loans
that corresponds to any excess of the principal amount of the
certificates over their initial issue price;
o prepayment premium payable to the certificateholders for the
month; and
o any other amounts of income payable to the certificateholders
for the month.
The 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 we cannot assure
you 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 the
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 the 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. Those deductions might be disallowed to the
individual in whole or in part and might result in the certificateholder being
taxed on an amount of income that exceeds the amount of cash actually
distributed to the 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 those 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. We believe 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. 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 that discount in income currently as it
accrues over the life of the loans or to offset that premium against interest
income on the loans. A portion of the 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. Those interests would be deemed distributed
to the partners of the old partnership in liquidation of it, which would not
constitute a sale or exchange.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates
sold. A certificateholder's tax basis in a certificate will generally equal
the certificateholder's cost increased by the securityholder's share of trust
fund income includible in income and decreased by any distributions received
with respect to the 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 the
certificates, and, upon sale or other disposition of some of the certificates,
allocate a portion of the 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 the 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
over the life of the certificates that exceeds the aggregate cash
distributions with respect thereto, the 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 the month. As a result, a
securityholder purchasing certificates may be allocated tax items attributable
to periods before the actual transaction that will affect its tax liability
and tax basis.
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. If 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. 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 the
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. The 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 in the next paragraph and the
nominees will be required to forward the 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 the
inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as
a nominee at any time during a calendar year is required to furnish the trust
fund with a statement containing information on the nominee, the beneficial
owners, and the certificates so held. That information includes the name,
address and taxpayer identification number of the nominee and as to each
beneficial owner
o the name, address, and identification number of the person,
o whether the 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
o information on certificates that were held, bought, or sold on
behalf of the 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 that
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 this information 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 some 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 in this
prospectus. Although the trust fund is not expected to engage in a trade or
business in the United States for those purposes, the trust fund will withhold
as if it were so engaged 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 the 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 on its share of the trust fund's income including,
in the case of a corporation, the branch profits tax. 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 the 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 that case, a
Foreign Holder would only be entitled to claim a refund for that portion of
the taxes in excess of the taxes that should be withheld with respect to the
guaranteed payments.
Backup Withholding. Distributions made on the certificates and
proceeds from the sale of the certificates will be subject to a "backup"
withholding tax of 31% if, in general, the certificateholder fails to comply
with 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, 2000, subject to 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"), that 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 in this prospectus 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 the 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 the 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:
o a FASIT election is in effect,
o tests concerning the composition of the FASIT's assets and the
nature of the securityholders' interests in the FASIT are met
on a continuing basis, and
o the trust fund is not a regulated investment company as defined
in section 851(a) of the Code.
Asset Composition. 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:
o cash or cash equivalents,
o 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"), which are generally instruments that
provide for interest at a fixed rate, a qualifying variable
rate, or a qualifying interest-only ("IO") type rate,
o foreclosure property,
o hedging instruments that are reasonably required to guarantee
or hedge against the FASIT's risks associated with being the
obligor on FASIT interests, which are generally interest and
currency rate swaps and credit enhancement contracts,
o contract rights to acquire qualifying debt instruments or
qualifying hedging instruments,
o FASIT regular interests, and
o 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 the holder.
Interests in a FASIT. In addition to the foregoing asset
qualification requirements, the interests in a FASIT must meet other
requirements. All of the interests in a FASIT must belong to either one or
more classes of regular interests or 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
(1) it is designated as a regular interest,
(2) it has a stated maturity no greater than thirty years,
(3) it entitles its holder to a specified principal amount,
(4) the issue price of the interest does not exceed 125% of its
stated principal amount,
(5) the yield to maturity of the interest is less than the
applicable Treasury rate published by the IRS plus 5%, and
(6) if it pays interest, payable at either a fixed rate with
respect to the principal amount of the regular interest or a
permissible variable rate with respect to the principal amount.
Permissible variable rates for FASIT regular interests are the same as those
for REMIC regular interests. Interest will be considered to be based on a
permissible variable rate if generally, the interest is unconditionally
payable at least annually, the issue price of the debt instrument does not
exceed the total noncontingent principal payments, and 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 the FASIT regular interest.
If an interest in a FASIT fails to meet one or more of the
requirements set out in clauses (3), (4), or (5) in the 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
(6), 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 the interests as
inventory, rather than for investment. In addition, holders of High-Yield
Interests are subject to limitations on offset of income derived from the
interest. See "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, those 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 the 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 the
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 the securities
in the same manner described for senior securities. See "Taxation of Trust as
Partnership--Treatment of Senior Securities--OID, Indexed Securities."
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 a FASIT Regular Security is sold, the securityholder generally
will recognize gain or loss upon the SALE [IN THE MANNER DESCRIBED 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, some holders of the 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 the interest, and the ability of the 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 the 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 Securities will be
the same as the character of the income to the FASIT, except that any
tax-exempt interest income taken into account by the holder of a FASIT
Ownership Securities 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 "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 the
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
the holder, then section 475 of the Code will continue to apply to the
securities, except that the amount realized under the mark-to-market rules or
the securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable federal rate, compounded semi-annually.
The holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include:
o the receipt of income derived from assets that are not
permitted assets,
o some dispositions of permitted assets,
o the receipt of any income derived from any loan originated by a
FASIT, and
o in some 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 are encouraged to 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 considerations under the Employee Retirement
Income Security Act of 1974, as amended 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 the securities.
ERISA imposes requirements on employee benefit plans subject to ERISA
and on persons who are fiduciaries with respect to those plans and Section
4975 of the Code imposes requirements on other specified retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans, and collective investment funds and separate accounts in which those
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 to control the
assets of the Plans. ERISA also imposes duties on persons who are fiduciaries
of Plans. Under ERISA, any person who exercises any authority respecting the
management of the assets of a Plan is considered to be a fiduciary of the
Plan, subject to exceptions not relevant here. Some 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 these plans may be invested in securities without
regard to these ERISA considerations, subject to the provisions of applicable
state law. Any plan that is not subject to ERISA, but that is qualified and
exempt from taxation under Code Sections 401(a) and 501(a), however, is
subject to the prohibited transaction rules in Code Section 503.
On November 13, 1986, the United States Department of Labor issued
final regulations concerning the definition of what constitutes the assets of
a Plan. See Labor Reg. Section 2510.3-101. Under this regulation, the
underlying assets and properties of corporations, partnerships, trusts, and
other specified entities in which a Plan makes an "equity" investment could be
deemed for purposes of ERISA to be assets of the investing Plan in specified
circumstances. However, the regulation generally provides that, in addition to
other technical exceptions, the assets of a corporation, partnership, or trust
in which a Plan invests will not be deemed for purposes of ERISA to be assets
of the Plan if the equity interest acquired by the investing Plan is a
publicly-offered security. A publicly-offered security, as defined in the
regulation, is a security that is widely held, freely transferable, and
registered under the Securities Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA and the Code prohibit a broad
range of transactions involving Plan assets and persons ("Parties in
Interest") having specified relationships to a Plan and impose additional
prohibitions where Parties in Interest are fiduciaries with respect to the
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 cause 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") the DOL
exempted from ERISA's specified transaction rules specified 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 the certificates. PTE 83-1 permits, subject to
specified conditions, transactions that 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 some
mortgage pool pass-through certificates representing an interest in the
mortgage pools by Plans. If the general conditions 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 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) 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
that 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:
(1) securities issued in a series consisting of only a single class
of securities, and
(2) senior securities issued in a series in which there is only one
class of senior securities,
if the securities in the case of clause (1), or the senior securities in the
case of clause (2) 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 any of the following would be a mortgage pass-through
certificate for purposes of PTE 83-1:
o a class of securities that evidences the beneficial ownership
of a trust fund divided into loan groups,
o beneficial ownership of a specified percentage of interest
payments only or principal payments only,
o beneficial ownership of payments of either principal or
interest based on a notional amount,
o 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 specified events.
PTE 83-1 sets forth three general conditions that must be satisfied
for any transaction to be eligible for exemption:
o the maintenance of a system of insurance or other protection
for the pooled mortgage loans and property securing the 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;
o the existence of a pool trustee who is not an affiliate of the
pool sponsor; and
o 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 of these general conditions 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, if credit enhancement described under "Credit
Enhancement" in this prospectus is maintained for a series of securities 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" in this prospectus. 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, we cannot
assure you 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 some underwriters individual administrative
exemptions (the "Underwriter Exemptions") from some 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 specified types of secured 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 that generally apply
to the Underwriter Exemptions are substantially the following:
o the acquisition of the certificates by a Plan is on terms that
are at least as favorable to the Plan as they would be in an
arm's-length transaction with an unrelated party, including the
price for the certificates;
o the interests evidenced by the certificates acquired by the
Plan are not subordinated to the interests evidenced by other
certificates of the trust fund;
o the certificates acquired by the Plan have received a rating at
the time of their acquisition that is one of the three highest
generic rating categories from Standard & Poor's Ratings Group,
a division of The McGraw-Hill Companies, Moody's Investors
Service, Inc., Duff & Phelps Credit Rating Co., or Fitch IBCA,
Inc.;
o the trustee must not be an affiliate of any other member of the
Restricted Group;
o 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;
o 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 the loans;
o the sum of all payments made to and retained by any servicer
represents not more than reasonable compensation for the
person's services under the agreement pursuant to which the
loans are pooled and reimbursements of the person's reasonable
expenses in connection therewith; and
o the Plan investing in the certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D of the
SEC under the Securities Act of 1933, as amended.
The trust fund must also meet the following requirements:
o the corpus of the trust fund must consist solely of assets of a
type that have been included in other investment pools;
o certificates in the other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's,
Fitch, or Duff & Phelps for at least one year before the Plan's
acquisition of certificates; and
o certificates evidencing interests in the other investment pools
must have been purchased by investors other than Plans for at
least one year before any Plan's acquisition of certificates.
Moreover, the Underwriter Exemptions generally provide relief from
specified self-dealing and conflict of interest prohibited transactions that
may occur when the Plan fiduciary causes a Plan to acquire certificates in a
trust holding receivables as to which the fiduciary or its affiliate is an
obligor on the receivables held in the trust, if, among other requirements:
o in the case of an acquisition in connection with the initial
issuance of certificates, at least fifty percent of each class
of certificates in which Plans have invested is acquired by
persons independent of the Restricted Group;
o the fiduciary or its affiliate is an obligor with respect to
five percent or less of the fair market value of the
obligations contained in the trust;
o a Plan's investment in certificates of any class does not
exceed twenty-five percent of all of the certificates of that
class outstanding at the time of the acquisition; and
o immediately after the acquisition, no more than twenty-five
percent of the assets of any Plan with respect to which the
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, any
Underwriter, the trustee, the master servicer, any insurer with respect to the
trust, any obligor with respect to loans included in the trust fund
constituting more than five percent of the aggregate unamortized principal
balance of the assets in the trust fund, or any affiliate of those 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 that extends exemptive relief to
specified 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
certificates being offered by the trust fund, to be transferred to the trust
during the Funding Period instead of requiring that all the Obligations be
either identified or transferred on or before the applicable Closing Date. The
relief is available when the following conditions are met:
o The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered
(the "Pre-Funding Limit") must not exceed twenty-five percent.
o All Obligations transferred after the applicable Closing Date
(the "Additional Obligations") must meet the same terms for
eligibility as the original Obligations used to create the
trust fund, which terms have been approved by the rating
agency.
o The transfer of the Additional Obligations to the trust fund
during the Funding Period must not result in the certificates
to be covered by the Exemption receiving a lower credit rating
from the rating agency on termination of Funding Period than
the rating that was obtained at the time of the initial
issuance of the securities by the trust fund.
o 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 that were
transferred to the trust fund on the Closing Date.
o The Funding Period must end no later than three months or 90
days after the Closing Date or earlier in some circumstances if
the pre-funding account falls below the minimum level specified
in the related agreement or an event of default occurs
thereunder.
o Amounts transferred to the pre-funding account or Capitalized
Interest Account used in connection with the pre-funding may be
invested only in particular permitted investments.
o The prospectus supplement for the related series must describe:
o the pre-funding account or Capitalized Interest Account
used in connection with the pre-funding account;
o the duration of the Funding Period;
o the percentage or dollar amount of the pre-funding limit
for the trust fund; and
o 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.
o The related agreement must describe the permitted investments
for the pre-funding account or Capitalized Interest Account and
the terms and conditions for eligibility of Additional
Obligations.
o To ensure that the characteristics of the Additional
Obligations are substantially similar to the original
Obligations that were transferred to the trust fund:
o the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider
that is independent of Provident; or
o an independent accountant retained by Provident must
provide Provident with a letter stating whether or not the
characteristics of the Additional Obligations conform to
the characteristics described in the prospectus supplement
for the related series or the related agreement. A copy of
the letter must be delivered to the underwriters, the
rating agencies, and the trustee. In preparing that
letter, the independent accountant must use the same type
of procedures as were applicable to the Obligations that
were transferred to the trust fund as of the Closing Date.
Any Plan fiduciary that proposes to cause a Plan to purchase
securities is encouraged to consult with its counsel concerning the impact of
ERISA and the Code, the applicability of PTE 83-1 and the Underwriter
Exemption and the potential consequences in their specific circumstances,
before making an 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 by it are 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 those entities. Under SMMEA, if a state
enacted legislation before October 4, 1991 specifically limiting the legal
investment authority of those entities with respect to mortgage related
securities, securities will constitute legal investments for entities subject
to such legislation only to the extent provided in the legislation.
Approximately twenty-one states adopted such legislation before 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 by them, 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 any
regulations the applicable federal authority may prescribe. In this
connection, federal credit unions should review the National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter
to Credit Unions No. 108, which includes guidelines to assist federal credit
unions in making investment decisions for mortgage related securities and the
NCUA's regulation "Investment and Deposit Activities" (12 C.F.R. Part 703),
which sets forth 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
setting forth, in relevant part, particular 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, that are high-risk mortgage securities
as defined in the Supervisory Policy Statement on the Securities Activities.
According to the Supervisory Policy Statement on the Securities Activities,
high-risk mortgage securities include securities such as securities not
entitled to distributions allocated to principal or interest, or subordinated
securities. Under the Supervisory Policy Statement on the Securities
Activities, it is the responsibility of each depository institution to
determine, before 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 Supervisory Policy Statement on the Securities Activities.
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 prudent
investor provisions that may restrict or prohibit investment in securities
that are not interest bearing or income paying.
There may be other restrictions on the ability of some investors,
including depository institutions, either to purchase securities or to
purchase securities representing more than a specified percentage of the
investor's assets. Investors are encouraged to consult their own legal
advisors in determining whether and to what extent the securities constitute
legal investments for them.
METHOD OF DISTRIBUTION
Securities are being offered by this prospectus and a related
prospectus supplement in series from time to time, each series evidencing or
relating to a separate trust fund, through any of the following methods:
o By negotiated firm commitment underwriting and public
reoffering by underwriters;
o By agency placements through one or more placement agents
primarily with institutional investors and dealers; and
o By placement directly by Provident with institutional
investors.
A prospectus supplement will be prepared for each series that will
describe the method of offering being used for that series and will identify
any underwriters thereof and either the price at which the series is being
offered, the nature and amount of any underwriting discounts or additional
compensation to the 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 the series if any of them are purchased.
Securities may be acquired by the underwriters for their own accounts and may
be resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale.
Underwriters and agents may be entitled under agreements entered into
with Provident to indemnification by Provident against specified civil
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribution with respect to payments that the underwriters or
agents may be required to make with respect to those liabilities.
If a series is offered other than through underwriters, the
prospectus supplement relating to it will contain information regarding the
nature of the offering and any agreements to be entered into between Provident
and purchasers of securities of the series.
LEGAL MATTERS
Specified legal matters relating to the securities of each series
will be passed upon for Provident by Keating, Muething & Klekamp, P.L.L.,
Cincinnati, Ohio. Legal matters relating to some of the 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 for each series of securities and no
trust fund will engage in any business activities or have any assets or
obligations before the issuance of the related series of securities.
Accordingly, no financial statements for any trust fund will be included in
this prospectus or in the related prospectus supplement.
RATING
The issuance of the securities of each series offered by this
prospectus and a prospectus supplement is conditioned on their having been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies specified in the related
prospectus supplement.
Any rating would be based on, among other things, the adequacy of the
value of the trust fund assets and any credit enhancement for the class and
will reflect the rating agency's assessment solely of the likelihood that
Holders of a class of securities will receive payments to which the
securityholders are entitled under the related agreement. A rating is not an
assessment of the likelihood that principal prepayments on the related loans
will be made, the degree to which the rate of the prepayments might differ
from that originally anticipated, or the likelihood of early optional
termination of the series of securities. A rating should not be considered 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. A
rating will not address the possibility that prepayment at higher or lower
rates than anticipated by an investor may cause the 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 some
prepayment scenarios.
We cannot assure you that any 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
for a series, the rating might also be lowered or withdrawn for other reasons,
including an adverse change in the financial or other condition of a credit
enhancement provider or a change in the rating of the credit enhancement
provider's long-term debt.
The amount, type, and nature of credit enhancement, if any,
established for a series of securities will be determined on the basis of
criteria established by each rating agency rating classes of the series. The
criteria are sometimes based on an actuarial analysis of the behavior of
mortgage loans in a larger group. That analysis is often the basis on which
each rating agency determines the amount of credit enhancement required for
each class. We cannot assure you that the historical data supporting that
actuarial analysis will accurately reflect future experience or assure you
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. We cannot assure you that values of any mortgaged 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 mortgaged properties become equal to or greater than the value
of the mortgaged properties, the rates of delinquencies, foreclosures, and
losses could be higher than those now generally experienced in the mortgage
lending industry. In additional, adverse economic conditions that 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 these losses are not covered by credit enhancement,
they will be borne, at least in part, by the Holders of one or more classes of
the securities of the related series.
<PAGE>
INDEX OF DEFINED
TERMS
Term Page
----
Additional Obligations:....................109
Amortizable Bond Premium Regulations:.......75
Average Interest Rate:.....................109
Cash Flow Bond Method:......................85
CERCLA......................................61
Code........................................68
Contingent Regulations:.....................71
Cut-Off Date:................................4
Disqualified Organization:..................82
Eligible Corporations:.....................101
FASIT Ownership Security:...................99
FASIT Provisions:...........................98
FASIT Qualification Test:...................99
FASIT Regular Securities:...................99
FASIT:......................................99
Garn-St Germain Act:........................64
High-Yield Interest:.......................101
Interest Weighted Securities:...............74
IO:.........................................99
NCUA:......................................111
New partnership:............................95
Obligations:...............................109
OID Regulations:............................70
OID:........................................70
Old partnership:............................95
Parties in Interest:.......................105
Pay-Through Security:.......................72
Plans:.....................................104
Prepayment Assumption:......................72
Provident....................................4
PTE 83-1:..................................105
Ratio Strip Securities:.....................85
RCRA:.......................................62
Regular Interest Securities:................69
Residual Interest Security:.................79
Restricted Group:..........................108
SMMEA:.....................................111
Stripped Securities:........................83
thrift institutions:........................81
Underwriter Exemptions:....................107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the Securities being registered under
this Registration Statement, other than underwriting discounts and
commissions:
SEC Registration Fee.......................................... $ 635,230.00
Printing and Engraving Expenses .............................. $ 200,000.00
Legal Fees and Expenses....................................... $ 500,000.00
Trustee Fees and Expenses..................................... $ 75,000.00
Accounting Fees and Expenses.................................. $ 250,000.00
Blue Sky Fees and Expenses.................................... $ 15,000.00
Rating Agency Fees............................................ $ 250,000.00
Miscellaneous................................................. $ 100,000.00
---------------
Total......................................................... $ 2,025,230.00
===============
- ------------
* All amounts except the SEC Registration Fee are estimates of expenses
incurred in connection with the issuance and distribution of four Series
of Securities in an aggregate principal amount assumed for these purposes
to be equal to $100,000,000 of Securities registered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Code of Regulations provides for indemnification of
directors and officers of the Registrant to the fullest extent permitted by
law. In particular, the Code of Regulations provides for indemnification for
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was a director, officer, employee or agent of the Registrant, or is or was
serving at the request of the Registrant as a director, trustee, officer,
employee or agent of another corporation, domestic or foreign non-profit or
for profit, partnership, joint venture, trust or other enterprise; provided,
however, that the Registrant shall indemnify any such agent (as opposed to any
director, officer or employee) of the Company to an extent that the directors
may, in their discretion, so determine.
ITEM 16. EXHIBITS.
1.1 Form of Underwriting Agreement.*
4.1 Form of Pooling and Servicing Agreement relating to Home
Equity Loan Asset Backed
Certificates.*
4.2 Form of Trust Agreement.*
4.3 Form of Indenture.*
4.4 Form of Master Servicing Agreement.*
5.1 Opinion of Keating, Muething & Klekamp, P.L.L. as to
the legality of the
Securities.
8.1 Opinion of Brown & Wood LLP as to certain tax matters.
23.1 Consent of Brown & Wood LLP (included in Exhibit 8.1 hereof).
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (included in
Exhibit 5.1).
24.1 Power of Attorney.
- --------------------------
*Incorporated by reference from the Registrant's Registration Statement (File
No. 333-67593).
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Act");
(ii)To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the
most recent post-effective amendment hereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Act, each filing of a Trust Fund's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to
act under subsection (a) of Section 310 of the Trust Indenture Act of 1939 in
accordance with the rules and regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act of 1939.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Cincinnati, Ohio on the 17th day of
June, 1999.
THE PROVIDENT BANK
By: /s/ Kevin M. Shea
-----------------------------
Name: Kevin M. Shea
Title: Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Christopher J. Carey and Mark
E. Magee, or either of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and his name,
place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as they might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Robert L. Hoverson President June 17, 1999
- -----------------------
Robert L. Hoverson (Principal Executive Officer)
and Director
/s/ Christopher J. Carey Executive Vice President June 17, 1999
- ------------------------
Christopher J. Carey (Principal Financial Officer and Principal
Accounting Officer)
/s/ Jack M. Cook Director June 17, 1999
- ----------------
Jack M. Cook
/s/ Thomas D. Grote Director June 17, 1999
Thomas D. Grote, Jr.
/s/ Joseph A. Steger Director June 17, 1999
- --------------------
Joseph A. Steger
/s/ Philip R. Myers Director June 17, 1999
- -------------------
Philip R. Myers
/s/ Joseph A. Pedoto Director June 17, 1999
- --------------------
Joseph A. Pedoto
/s/ Sidney A. Peerless Director June 17, 1999
- ----------------------
Sidney A. Peerless
</TABLE>
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBIT NUMBER
- ------- ---------------------- ----------
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing
Agreement relating to Home Equity Loan
Asset Backed Certificates.*
4.2 -- Form of Trust Agreement.*
4.3 -- Form of Indenture.*
4.4 -- Form of Master Servicing Agreement.*
5.1 -- Opinion of Keating, Muething &
Klekamp, P.L.L. as to the legality
of the Securities.
8.1 -- Opinion of Brown & Wood LLP as to
certain tax matters.
23.1 -- Consent of Brown & Wood LLP
(included in Exhibit 8.1).
23.2 -- Consent of Keating, Muething &
Klekamp, P.L.L.
(included in Exhibit 5.1).
24.1 -- Power of Attorney (included on page II-3).
- ------------
*Incorporated by reference from the Registrant's Registration Statement (File
No. 333-67593).
Exhibit 5.1
JAMES R. WHITAKER
DIRECT DIAL: (513) 579-6415
FACSIMILE: (513) 579-6457
E-MAIL: [email protected]
June 28, 1999
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
RE: The Provident Bank--Registration Statement on Form S-3
------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Provident Bank, an Ohio banking
corporation ("Provident"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the Securities (defined below) and with the authorization and issuance from
time to time in one or more series (each a "Series") of up to $2,285,000,000
aggregate principal amount of asset-backed securities (the "Securities"). The
Registration Statement is being filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended. As
set forth in the Registration Statement, each Series of Securities will be
issued under and pursuant to the conditions of a separate pooling and servicing
agreement, master pooling and servicing agreement, trust agreement or indenture
(each, an "Agreement") among Provident, a trustee (the "Trustee") and where
appropriate, a servicer (the "Servicer"), each to be identified in the
prospectus supplement for such Series of Securities.
We have examined the prospectus (the "Prospectus") and forms of prospectus
supplement (each, a "Prospectus Supplement") related thereto contained in the
Registration Statement. We have also examined the forms of each Agreement filed
or incorporated by reference as an exhibit to the Registration Statement, the
forms of each Series of Securities set forth in the related Agreement filed or
incorporated by reference as an exhibit to the Registration Statement and such
other records, documents and instruments as we have deemed necessary for
purposes of this opinion ("Documents").
<PAGE>
In arriving at the opinions expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the part
of Provident, the Trustee, the Servicer (where applicable) and any other party
thereto for such Series of Securities and will be duly executed and delivered
by Provident, the Trustee, the Servicer and any other party thereto
substantially in the applicable form filed or incorporated by reference as an
exhibit to the Registration Statement, that each Series of Securities will be
duly executed and delivered in substantially the forms set forth in the related
Agreement filed or incorporated by reference as an exhibit to the Registration
Statement, and that Securities will be sold as described in the Registration
Statement.
In addition, in rendering the opinions set forth below, we have made such
investigations of such matters of law as we deemed appropriate as a basis for
the opinions expressed below. Further, we have assumed the genuineness of all
signatures and the authenticity of all Documents submitted to us as originals.
Our opinions are also based on the assumption that there are no agreements or
understandings with respect to the transactions contemplated in the documents
relating to the above-mentioned transaction other than those contained in the
Documents. Furthermore, our opinions are based on the assumption that all
parties to the Documents will comply with the terms thereof.
Based upon the foregoing, we are of the opinion that:
1. Each Agreement, when duly authorized, executed and delivered by
Provident, the Trustee, the Servicer (where applicable) and any other party
hereto, will constitute a legal, valid and binding agreement of Provident,
enforceable against Provident in accordance with its terms.
2. When a Series of Securities has been duly authorized by all necessary
action on the part of Provident (subject to the terms thereof being otherwise
in compliance with applicable law at such time), duly executed and
authenticated by the Trustee for such Series in accordance with the terms of
the related Agreement and issued and delivered against payment therefor as
described in the Registration Statement, such Series of Securities will be
legally and validly issued, fully paid and nonassessable, and the holders
thereof will be entitled to the benefits of the related Agreement.
The foregoing opinions are subject to the following qualifications:
(i) The opinions expressed herein are rendered as of the date hereof
and we undertake no obligation to update the opinions or advise you of any
changes in the event there is any change in legal authorities, facts,
assumptions or documents on which the opinions are based (including the
taking of any action by any party to the Documents pursuant to any opinion
of counsel or waiver), or any inaccuracy in any of the representations,
warranties or assumptions upon which we have relied in rendering the
opinions expressed herein unless we are specifically engaged to do so;
<PAGE>
(ii) The opinions expressed herein are limited as described above,
and we do not express an opinion with respect to the laws of any
jurisdiction other than the laws of the States of Ohio and New York
(excluding choice of law principles therein) and the federal laws of the
United States of America, although we point out to you that we are not
licensed to practice law in the State of New York;
(iii) The legality, validity and enforceability of any rights and
remedies provided in any of the Agreements or the Securities are subject
to exceptions provided by bankruptcy, insolvency, reorganization,
receivership, moratorium, assignment for the benefit of creditors' laws or
similar laws now or hereafter in effect affecting the validity, legality
and binding affect and enforceability of creditors' rights generally,
including, without limitation, the effect of statutory or other laws
regarding fraudulent conveyances or preferential transfers;
(iv) Specific performance, injunctive relief or other traditional
equitable remedies may not be available as being subject to the discretion
of the court before which any proceeding therefore may be brought;
(v) We express no opinion as to the enforceability of any provisions
in any of the Agreements or the Securities providing for the recovery of
attorneys' fees or other costs of collection.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus and under the heading "Legal Matters" in each
Prospectus Supplement, in each case forming a part of the Registration
Statement, without admitting that we are "experts" within the meaning of the
Securities Act of 1933, as amended, or the Rules and Regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
KEATING, MUETHING & KLEKAMP, P.L.L.
BY: /s/ James R. Whitaker
---------------------------
James R. Whitaker
jsm
Exhibit 8.1
June 24, 1999
The Provident Bank
One East Fourth Street
Cincinnati, Ohio 45202
Re: The Provident Bank
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special tax counsel for The Provident Bank, an Ohio
banking corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3 (the "Registration Statement") relating to
the Securities (defined below) and with the authorization and issuance from
time to time in one or more series (each, a "Series") of up to $2,285,000,000
aggregate principal amount of asset-backed securities (the "Securities"). The
Registration Statement is being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended. As set forth in the
Registration Statement, each Series of Securities will be issued under and
pursuant to the conditions of a separate pooling and servicing agreement,
master pooling and servicing agreement, pooling agreement, trust agreement or
indenture (each an "Agreement") among the Company, a trustee (the "Trustee")
and, where appropriate, a servicer (the "Servicer"), each to be identified in
the prospectus supplement for such Series of Securities.
We have examined the prospectus and forms of prospectus supplement
related thereto contained in the Registration Statement (each, a "Prospectus")
and such other documents, records and instruments as we have deemed necessary
for the purposes of this opinion (the "Documents").
In arriving at the opinion expressed below, we have assumed that each
Agreement will be duly authorized by all necessary corporate action on the
part of the Company, the Trustee, the Servicer (where applicable) and any
other party thereto for such Series of Securities and will be duly executed
and delivered by the Company, the Trustee, the Servicer and any other party
thereto substantially in the applicable form filed or incorporated by
reference as an exhibit to the Registration Statement, that each Series of
Securities will be duly executed and delivered in substantially the forms set
forth in the related Agreement filed or incorporated by reference as an
exhibit to the Registration Statement, and that Securities will be sold as
described in the Registration Statement.
In addition, in rendering the opinions set forth below, we have made such
investigations of such matters of law as we deemed appropriate as a basis for
the opinions expressed below. Further, we have assumed the genuineness of all
signatures and the authenticity of all Documents submitted to us as originals.
Our opinions are also based on the assumption that there are no agreements or
understandings with respect to the transactions contemplated in the documents
relating to the above-mentioned transaction other than those contained in the
Documents. Furthermore, our opinions are based on the assumption that all
parties to the Documents will comply with the terms thereof, including all tax
reporting requirements contained therein.
As special tax counsel to the Company, we have advised the Company with
respect to certain material federal income tax aspects of the proposed
issuance of each Series of Securities pursuant to the related Agreement. Such
advice has formed the basis for the description of selected federal income tax
consequences for holders of such Securities that appear under the heading
"Federal Income Tax Consequences" in the Prospectus forming a part of the
Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance of the
Securities, but with respect to those federal income tax consequences
described therein, such description is accurate in all material respects.
This opinion is rendered as of the date hereof and we undertake no
obligation to update this opinion or advise you of any changes in the event
there is any change in legal authorities, facts, assumptions or documents on
which this opinion is based (including the taking of any action by any party
to the Documents pursuant to any opinion of counsel or a waiver), or any
inaccuracy in any of the representations, warranties or assumptions upon which
we have relied in rendering this opinion unless we are specifically engaged to
do so. Because the Prospectus contemplates Series of Securities with numerous
different characteristics, you should be aware that the particular
characteristics of each Series of Securities must be considered in determining
the applicability of this opinion to a particular Series of Securities. The
opinions expressed herein are limited as described above, and we do not
express an opinion with respect to any other federal or state law or the law
of any other jurisdiction, except as expressly stated herein.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Federal Income Tax Consequences" in the Prospectus and under the heading
"Federal Income Tax Consequences" in each Prospectus Supplement, in each case
forming a part of the Registration Statement, without admitting that we are
"experts" within the meaning of the 1933 Act or the Rules and Regulations of
the Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit.
Very truly yours,
/s/ Brown & Wood LLP.
